UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20212022
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-5507
Tellurian Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
Delaware | | 06-0842255 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
1201 Louisiana Street, | Suite 3100, | Houston, | TX | | 77002 |
(Address of principal executive offices) | | (Zip Code) |
(832) 962-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | | Trading symbol | | Name of each exchange on which registered |
Common stock, par value $0.01 per share | | TELL | | NYSE | American LLC |
8.25% Senior Notes due 2028 | | TELZ | | NYSE | American LLC |
| | | | | |
Securities registered pursuant to Section 12(g) of the Act: | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☐☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☒☐ | | Smaller reporting company | ☒☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
As of October 22, 2021,28, 2022, there were 479,005,062564,817,568 shares of common stock, $0.01 par value, issued and outstanding.
Tellurian Inc.
TABLE OF CONTENTS
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Item 1. | Condensed Consolidated Financial Statements | |
| | Condensed Consolidated Balance Sheets | |
| | Condensed Consolidated Statements of Operations | |
| | Condensed Consolidated Statement of Changes in Stockholders’ Equity | |
| | Condensed Consolidated Statements of Cash Flows | |
| | Notes to Condensed Consolidated Financial Statements | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
Item 4. | Controls and Procedures | |
|
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
| | |
Cautionary Information About Forward-Looking Statements
The information in this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts, that address activity, events, or developments with respect to our financial condition, results of operations, or economic performance that we expect, believe or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “initial,” “intend,” “likely,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “proposed,” “should,” “will,” “would” and similar terms, phrases, and expressions are intended to identify forward-looking statements. These forward-looking statements relate to, among other things:
•our businesses and prospects and our overall strategy;
•planned or estimated costs or capital expenditures;
•our ability to grow our upstream operations;
•availability of liquidity and capital resources;
•our ability to obtain additional financing as needed and the terms of financing transactions, including for the Driftwood Project;
•revenues and expenses;
•progress in developing our projects and the timing of that progress;
•future values of the Company’s projects or other interests, operations or rights; and
•government regulations, including our ability to obtain, and the timing of, necessary governmental permits and approvals.
Our forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. These statements are subject to a number of known and unknown risks and uncertainties, which may cause our actual results and performance to be materially different from any future results or performance expressed or implied by the forward-looking statements. Factors that could cause actual results and performance to differ materially from any future results or performance expressed or implied by the forward-looking statements include, but are not limited to, the following:
•the uncertain nature of demand for and price of natural gas and LNG;
•risks related to shortages of LNG vessels worldwide;
•technological innovation which may render our anticipated competitive advantage obsolete;
•risks related to a terrorist or military incident involving an LNG carrier;
•changes in legislation and regulations relating to the LNG industry, including environmental laws and regulations that impose significant compliance costs and liabilities;
•governmental interventions in the LNG industry, including increases in barriers to international trade;
•uncertainties regarding our ability to maintain sufficient liquidity and attract sufficient capital resources to implement our projects;
•our limited operating history;
•our ability to attract and retain key personnel;
•risks related to doing business in, and having counterparties in, foreign countries;
•our reliance on the skill and expertise of third-party service providers;
•the ability of our vendors, customers and other counterparties to meet their contractual obligations;
•risks and uncertainties inherent in management estimates of future operating results and cash flows;
•the potential discontinuation of LIBOR;our ability to maintain compliance with our debt arrangements;
•changes in competitive factors, including the development or expansion of LNG, pipeline and other projects that are competitive with ours;
•development risks, operational hazards and regulatory approvals;
•our ability to enter into and consummate planned financing and other transactions;
•risks related to pandemics or disease outbreaks;
•risks of potential impairment charges and reductions in our reserves; and
•risks and uncertainties associated with litigation matters.
The forward-looking statements in this report speak as of the date hereof. Although we may from time to time voluntarily update our prior forward-looking statements, we disclaim any commitment to do so except as required by securities laws.
DEFINITIONS
To the extent applicable, and as used in this quarterly report, the terms listed below have the following meanings:
| | | | | | | | |
Bcf | | Billion cubic feet of natural gas |
Bcf/d | | Bcf per day |
DD&A | | Depreciation, depletion and amortization |
DES | | Delivered ex-ship |
DFC | | Deferred financing costs |
EPC | | Engineering, procurement and construction |
FID | | Final investment decision as it pertains to the Driftwood Project |
FOB | | Free on board |
GAAP | | Generally accepted accounting principles in the U.S. |
JKM | | Platts Japan Korea Marker index price for LNG |
LNG | | Liquefied natural gas |
LSTK | | Lump sum turnkey |
MMBtu | | Million British thermal units |
Mtpa | | Million tonnes per annum |
OTCMmBtu | | Over-the-counterMillion British thermal unit |
SECNYSE American | | U.S. Securities and Exchange CommissionNYSE American LLC |
SPANYMEX | | SaleNew York Mercantile Exchange, Inc. |
Phase 1 | | Plants one and purchase agreementtwo of the Driftwood terminal |
Train | | An industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG |
TTF | | Platts Dutch Title Transfer Facility index price for LNG |
U.S. | | United States |
USACE | | U.S. Army Corps of Engineers |
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| TELLURIAN INC. AND SUBSIDIARIES | TELLURIAN INC. AND SUBSIDIARIES | TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS | CONDENSED CONSOLIDATED BALANCE SHEETS | CONDENSED CONSOLIDATED BALANCE SHEETS |
(in thousands, except share and per share amounts, unaudited) | (in thousands, except share and per share amounts, unaudited) | (in thousands, except share and per share amounts, unaudited) |
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
ASSETS | ASSETS | | | | ASSETS | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 210,812 | | | $ | 78,297 | | Cash and cash equivalents | $ | 607,498 | | | $ | 305,496 | |
Accounts receivable | Accounts receivable | 13,056 | | | 4,500 | | Accounts receivable | 62,609 | | | 9,270 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 467 | | | 2,105 | | Prepaid expenses and other current assets | 31,457 | | | 12,952 | |
Total current assets | Total current assets | 224,335 | | | 84,902 | | Total current assets | 701,564 | | | 327,718 | |
Property, plant and equipment, net | Property, plant and equipment, net | 117,118 | | | 61,257 | | Property, plant and equipment, net | 670,913 | | | 150,545 | |
Deferred engineering costs | Deferred engineering costs | 110,025 | | | 110,499 | | Deferred engineering costs | — | | | 110,025 | |
Non-current restricted cash | — | | | 3,440 | | |
Other non-current assets | Other non-current assets | 32,399 | | | 32,897 | | Other non-current assets | 57,805 | | | 33,518 | |
Total assets | Total assets | $ | 483,877 | | | $ | 292,995 | | Total assets | $ | 1,430,282 | | | $ | 621,806 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 27,861 | | | $ | 23,573 | | Accounts payable | $ | 17,407 | | | $ | 2,852 | |
Accounts payable due to related parties | — | | | 910 | | |
| Accrued and other liabilities | Accrued and other liabilities | 35,203 | | | 22,003 | | Accrued and other liabilities | 149,874 | | | 85,946 | |
Borrowings | Borrowings | — | | | 72,819 | | Borrowings | 163,274 | | | — | |
Total current liabilities | Total current liabilities | 63,064 | | | 119,305 | | Total current liabilities | 330,555 | | | 88,798 | |
Long-term liabilities: | Long-term liabilities: | | | | Long-term liabilities: | | | |
Borrowings | Borrowings | — | | | 38,275 | | Borrowings | 381,561 | | | 53,687 | |
Finance lease liabilities | | Finance lease liabilities | 49,998 | | | 50,103 | |
Other non-current liabilities | Other non-current liabilities | 61,612 | | | 26,325 | | Other non-current liabilities | 27,570 | | | 10,917 | |
Total long-term liabilities | Total long-term liabilities | 61,612 | | | 64,600 | | Total long-term liabilities | 459,129 | | | 114,707 | |
| Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock, $0.01 par value, 100,000,000 authorized: 6,123,782 and 6,123,782 shares outstanding, respectively | Preferred stock, $0.01 par value, 100,000,000 authorized: 6,123,782 and 6,123,782 shares outstanding, respectively | 61 | | | 61 | | Preferred stock, $0.01 par value, 100,000,000 authorized: 6,123,782 and 6,123,782 shares outstanding, respectively | 61 | | | 61 | |
Common stock, $0.01 par value, 800,000,000 authorized: 470,813,044 and 354,315,739 shares outstanding, respectively | 4,477 | | | 3,309 | | |
Common stock, $0.01 par value, 800,000,000 authorized: 564,856,629 and 500,453,575 shares outstanding, respectively | | Common stock, $0.01 par value, 800,000,000 authorized: 564,856,629 and 500,453,575 shares outstanding, respectively | 5,456 | | | 4,774 | |
Additional paid-in capital | Additional paid-in capital | 1,244,500 | | | 922,042 | | Additional paid-in capital | 1,647,015 | | | 1,344,526 | |
Accumulated deficit | Accumulated deficit | (889,837) | | | (816,322) | | Accumulated deficit | (1,011,934) | | | (931,060) | |
Total stockholders’ equity | Total stockholders’ equity | 359,201 | | | 109,090 | | Total stockholders’ equity | 640,598 | | | 418,301 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 483,877 | | | $ | 292,995 | | Total liabilities and stockholders’ equity | $ | 1,430,282 | | | $ | 621,806 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
| TELLURIAN INC. AND SUBSIDIARIES | TELLURIAN INC. AND SUBSIDIARIES | TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share amounts, unaudited) | (in thousands, except per share amounts, unaudited) | (in thousands, except per share amounts, unaudited) |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Revenues: | | Revenues: | | | | | | | | |
Natural gas sales | Natural gas sales | $ | 15,638 | | | $ | 7,272 | | | $ | 29,922 | | | $ | 21,818 | | Natural gas sales | | $ | 81,103 | | | $ | 15,638 | | | $ | 168,442 | | | $ | 29,922 | |
LNG sales | LNG sales | | — | | | 6,993 | | | 19,776 | | | 6,993 | | LNG sales | | — | | | — | | | 120,951 | | | 19,776 | |
Total revenue | 15,638 | | | 14,265 | | | 49,698 | | | 28,811 | | |
Total revenues | | Total revenues | | 81,103 | | | 15,638 | | | 289,393 | | | 49,698 | |
| Operating costs and expenses: | Operating costs and expenses: | | Operating costs and expenses: | |
Cost of sales | 3,068 | | | 9,241 | | | 30,841 | | | 14,529 | | |
LNG cost of sales | | LNG cost of sales | | — | | | 339 | | | 131,663 | | | 23,186 | |
Operating expenses | | Operating expenses | | 8,428 | | | 2,729 | | | 18,536 | | | 7,655 | |
Development expenses | Development expenses | 8,823 | | | 5,799 | | | 26,327 | | | 26,105 | | Development expenses | | 12,891 | | | 8,823 | | | 48,244 | | | 26,327 | |
Depreciation, depletion and amortization | Depreciation, depletion and amortization | 3,735 | | | 3,474 | | | 8,720 | | | 14,301 | | Depreciation, depletion and amortization | | 12,860 | | | 3,735 | | | 22,735 | | | 8,720 | |
General and administrative expenses | General and administrative expenses | 14,528 | | | 10,734 | | | 47,065 | | | 43,342 | | General and administrative expenses | | 41,495 | | | 14,528 | | | 97,334 | | | 47,065 | |
Impairment charges | | — | | | — | | | — | | | 81,065 | | |
Severance and reorganization charges | — | | | — | | | — | | | 6,359 | | |
Related party charges | | — | | | — | | | — | | | 7,357 | | |
Total operating costs and expenses | Total operating costs and expenses | 30,154 | | | 29,248 | | | 112,953 | | | 193,058 | | Total operating costs and expenses | | 75,674 | | | 30,154 | | | 318,512 | | | 112,953 | |
Loss from operations | (14,516) | | | (14,983) | | | (63,255) | | | (164,247) | | |
Income (loss) from operations | | Income (loss) from operations | | 5,429 | | | (14,516) | | | (29,119) | | | (63,255) | |
Interest expense, net | Interest expense, net | (968) | | | (15,973) | | | (7,689) | | | (33,564) | | Interest expense, net | | (6,944) | | | (968) | | | (13,790) | | | (7,689) | |
Gain on extinguishment of debt, net | Gain on extinguishment of debt, net | — | | | — | | | 1,422 | | | — | | Gain on extinguishment of debt, net | | — | | | — | | | — | | | 1,422 | |
Other (expense) income, net | (448) | | | 1,490 | | | (3,993) | | | (1,235) | | |
Other expense, net | | Other expense, net | | (12,718) | | | (448) | | | (37,966) | | | (3,993) | |
Loss before income taxes | Loss before income taxes | (15,932) | | | (29,466) | | | (73,515) | | | (199,046) | | Loss before income taxes | | (14,233) | | | (15,932) | | | (80,875) | | | (73,515) | |
Income taxes | — | | | — | | | — | | | — | | |
Income tax | | Income tax | | — | | | — | | | — | | | — | |
Net loss | Net loss | $ | (15,932) | | | $ | (29,466) | | | $ | (73,515) | | | $ | (199,046) | | Net loss | | $ | (14,233) | | | $ | (15,932) | | | $ | (80,875) | | | $ | (73,515) | |
Net loss per common share(1): | Net loss per common share(1): | | | | | | | | Net loss per common share(1): | | | | | | | | |
Basic and diluted | Basic and diluted | $ | (0.04) | | | $ | (0.10) | | | $ | (0.19) | | | $ | (0.79) | | Basic and diluted | | $ | (0.03) | | | $ | (0.04) | | | $ | (0.15) | | | $ | (0.19) | |
Weighted-average shares outstanding: | Weighted-average shares outstanding: | | | | | | | | Weighted-average shares outstanding: | | | | | | | | |
Basic and diluted | Basic and diluted | 427,204 | | | 291,409 | | | 390,233 | | | 252,825 | | Basic and diluted | | 538,549 | | | 427,204 | | | 523,189 | | | 390,233 | |
| | (1) The numerator for both basic and diluted loss per share is net loss. The denominator for both basic and diluted loss per share is the weighted-average shares outstanding during the period. | (1) The numerator for both basic and diluted loss per share is net loss. The denominator for both basic and diluted loss per share is the weighted-average shares outstanding during the period. | (1) The numerator for both basic and diluted loss per share is net loss. The denominator for both basic and diluted loss per share is the weighted-average shares outstanding during the period. |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
| TELLURIAN INC. AND SUBSIDIARIES | TELLURIAN INC. AND SUBSIDIARIES | TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY | CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY | CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY |
(in thousands, unaudited) | (in thousands, unaudited) | (in thousands, unaudited) |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Total shareholders’ equity, beginning balance | Total shareholders’ equity, beginning balance | $ | 247,019 | | | $ | 75,913 | | | $ | 109,090 | | | $ | 166,285 | | Total shareholders’ equity, beginning balance | 653,734 | | | 247,019 | | | 418,301 | | | 109,090 | |
| Preferred stock | Preferred stock | $ | 61 | | | $ | 61 | | | $ | 61 | | | $ | 61 | | Preferred stock | 61 | | | 61 | | | 61 | | | 61 | |
| Common stock: | Common stock: | | Common stock: | |
Beginning balance | Beginning balance | 4,048 | | | 2,627 | | | 3,309 | | | 2,211 | | Beginning balance | 5,454 | | | 4,048 | | | 4,774 | | | 3,309 | |
Common stock issuances | Common stock issuances | 428 | | | 371 | | | 1,066 | | | 567 | | Common stock issuances | — | | | 428 | | | 677 | | | 1,066 | |
Share-based compensation, net(1) | Share-based compensation, net(1) | 1 | | | 23 | | | 42 | | | 33 | | Share-based compensation, net(1) | 1 | | | 1 | | | 3 | | | 42 | |
Severance and reorganization charges | — | | | 15 | | | — | | | 22 | | |
Settlement of Final Payment Fee | — | | | — | | | — | | | 110 | | |
Borrowings principal repayment | — | | | — | | | — | | | 93 | | |
Share-based payment | | Share-based payment | 1 | | | 2 | | |
Warrant exercises | Warrant exercises | — | | | — | | | 60 | | | — | | Warrant exercises | — | | | — | | | — | | | 60 | |
Ending balance | Ending balance | 4,477 | | | 3,036 | | | 4,477 | | | 3,036 | | Ending balance | 5,456 | | | 4,477 | | | 5,456 | | | 4,477 | |
| Additional paid-in capital: | Additional paid-in capital: | | Additional paid-in capital: | |
Beginning balance | Beginning balance | $ | 1,116,815 | | | $ | 848,431 | | | $ | 922,042 | | | $ | 769,639 | | Beginning balance | 1,645,920 | | | 1,116,815 | | | 1,344,526 | | | 922,042 | |
Common stock issuances | Common stock issuances | 126,313 | | | 34,483 | | | 308,039 | | | 70,327 | | Common stock issuances | — | | | 126,313 | | | 299,063 | | | 308,039 | |
Share-based compensation, net(1) | 1,372 | | | 3,299 | | | 6,520 | | | 5,619 | | |
Severance and reorganization charges | — | | | 1,890 | | | — | | | 2,667 | | |
Share-based compensation, net | | Share-based compensation, net | 1,033 | | | 1,372 | | | 2,750 | | | 6,520 | |
Share-based payments | Share-based payments | — | | | 113 | | | — | | | 337 | | Share-based payments | 62 | | | — | | | 676 | | | — | |
Settlement of Final Payment Fee | — | | | — | | | — | | | 9,036 | | |
Warrants issued in connection with Borrowings | — | | | — | | | — | | | 16,896 | | |
Borrowings principal repayment | — | | | — | | | — | | | 13,695 | | |
Warrant exercises | Warrant exercises | — | | | — | | | 8,117 | | | — | | Warrant exercises | — | | | — | | | — | | | 8,117 | |
Warrant cancellation | Warrant cancellation | — | | | — | | | (218) | | | — | | Warrant cancellation | — | | | — | | | — | | | (218) | |
Ending balance | Ending balance | $ | 1,244,500 | | | $ | 888,216 | | | $ | 1,244,500 | | | $ | 888,216 | | Ending balance | 1,647,015 | | | 1,244,500 | | | 1,647,015 | | | 1,244,500 | |
| Accumulated deficit: | Accumulated deficit: | | Accumulated deficit: | |
Beginning balance | Beginning balance | $ | (873,905) | | | $ | (775,206) | | | $ | (816,322) | | | $ | (605,626) | | Beginning balance | (997,701) | | | (873,905) | | | (931,059) | | | (816,322) | |
Net loss | Net loss | (15,932) | | | (29,466) | | | (73,515) | | | (199,046) | | Net loss | (14,233) | | | (15,932) | | | (80,875) | | | (73,515) | |
Ending balance | Ending balance | $ | (889,837) | | | $ | (804,672) | | | $ | (889,837) | | | $ | (804,672) | | Ending balance | (1,011,934) | | | (889,837) | | | (1,011,934) | | | (889,837) | |
| Total shareholders’ equity, ending balance | Total shareholders’ equity, ending balance | $ | 359,201 | | | $ | 86,641 | | | $ | 359,201 | | | $ | 86,641 | | Total shareholders’ equity, ending balance | $ | 640,598 | | | $ | 359,201 | | | $ | 640,598 | | | $ | 359,201 | |
| (1) Includes settlement of 2019 bonus that was accrued for in 2019. | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
| TELLURIAN INC. AND SUBSIDIARIES | TELLURIAN INC. AND SUBSIDIARIES | TELLURIAN INC. AND SUBSIDIARIES | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |
(in thousands, unaudited) | (in thousands, unaudited) | (in thousands, unaudited) | |
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, | |
| | 2021 | | 2020 | | 2022 | | 2021 | |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | | |
Net loss | Net loss | $ | (73,515) | | | $ | (199,046) | | Net loss | (80,875) | | | (73,515) | | |
Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | | Adjustments to reconcile net loss to net cash used in operating activities: | | |
Depreciation, depletion and amortization | Depreciation, depletion and amortization | 8,720 | | | 14,301 | | Depreciation, depletion and amortization | 22,735 | | | 8,720 | | |
Amortization of debt issuance costs, discounts and fees | Amortization of debt issuance costs, discounts and fees | 3,061 | | | 22,467 | | Amortization of debt issuance costs, discounts and fees | 1,494 | | | 3,061 | | |
Share-based compensation | Share-based compensation | 4,577 | | | 2,184 | | Share-based compensation | 2,753 | | | 4,577 | | |
Severance and reorganization charges | — | | | 2,689 | | |
| Share-based payments | Share-based payments | — | | | 338 | | Share-based payments | 678 | | | — | | |
Interest elected to be paid-in-kind | Interest elected to be paid-in-kind | 508 | | | 2,431 | | Interest elected to be paid-in-kind | — | | | 508 | | |
Loss on financial instruments not designated as hedges | Loss on financial instruments not designated as hedges | 927 | | | 4,624 | | Loss on financial instruments not designated as hedges | 13,553 | | | 927 | | |
Impairment charges | — | | | 81,065 | | |
Net gain on extinguishment of debt | (1,422) | | | — | | |
| Gain on extinguishment of debt, net | | Gain on extinguishment of debt, net | — | | | (1,422) | | |
Other | Other | 800 | | | 485 | | Other | 745 | | | 800 | | |
Net changes in working capital (Note 15) | Net changes in working capital (Note 15) | 17,174 | | | 11,728 | | Net changes in working capital (Note 15) | (26,802) | | | 17,174 | | |
Net cash used in operating activities | Net cash used in operating activities | (39,170) | | | (56,734) | | Net cash used in operating activities | (65,719) | | | (39,170) | | |
| Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | | |
Development of natural gas properties | (23,416) | | | (389) | | |
Purchase of property, plant and equipment | (1,000) | | | — | | |
Acquisition and development of natural gas properties | | Acquisition and development of natural gas properties | (236,558) | | | (23,416) | | |
Driftwood Project construction costs | | Driftwood Project construction costs | (117,793) | | | — | | |
Land purchases and land improvements | | Land purchases and land improvements | (19,412) | | | (1,000) | | |
Investments in unconsolidated entities | | Investments in unconsolidated entities | (11,089) | | | — | | |
Other | | Other | (1,278) | | | — | | |
Net cash used in investing activities | Net cash used in investing activities | (24,416) | | | (389) | | Net cash used in investing activities | (386,130) | | | (24,416) | | |
| Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | | |
Proceeds from common stock issuances | Proceeds from common stock issuances | 319,998 | | | 73,986 | | Proceeds from common stock issuances | 309,021 | | | 319,998 | | |
Equity issuance costs | Equity issuance costs | (10,893) | | | (3,091) | | Equity issuance costs | (9,281) | | | (10,893) | | |
Borrowing proceeds | Borrowing proceeds | — | | | 50,000 | | Borrowing proceeds | 501,178 | | | — | | |
Borrowing issuance costs | Borrowing issuance costs | — | | | (2,612) | | Borrowing issuance costs | (11,487) | | | — | | |
Borrowing principal repayments | Borrowing principal repayments | (119,725) | | | (45,600) | | Borrowing principal repayments | — | | | (119,725) | | |
Tax payments for net share settlement of equity awards (Note 15) | Tax payments for net share settlement of equity awards (Note 15) | (3,064) | | | (878) | | Tax payments for net share settlement of equity awards (Note 15) | — | | | (3,064) | | |
Proceeds from warrant exercises | Proceeds from warrant exercises | 8,177 | | | — | | Proceeds from warrant exercises | — | | | 8,177 | | |
Other | Other | (1,833) | | | (1,776) | | Other | (98) | | | (1,833) | | |
Net cash provided by financing activities | Net cash provided by financing activities | 192,660 | | | 70,029 | | Net cash provided by financing activities | 789,333 | | | 192,660 | | |
| Net increase in cash, cash equivalents and restricted cash | Net increase in cash, cash equivalents and restricted cash | 129,074 | | | 12,906 | | Net increase in cash, cash equivalents and restricted cash | 337,484 | | | 129,074 | | |
Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | 81,738 | | | 68,482 | | Cash, cash equivalents and restricted cash, beginning of period | 307,274 | | | 81,738 | | |
Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | $ | 210,812 | | | $ | 81,388 | | Cash, cash equivalents and restricted cash, end of period | $ | 644,758 | | | $ | 210,812 | | |
Supplementary disclosure of cash flow information: | Supplementary disclosure of cash flow information: | | | | Supplementary disclosure of cash flow information: | | | | |
Interest paid | Interest paid | $ | 3,299 | | | $ | 7,956 | | Interest paid | $ | 11,152 | | | $ | 3,299 | | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 1 — GENERAL
The terms “we,” “our,” “us,” “Tellurian” and the “Company” as used in this report refer collectively to Tellurian Inc. and its subsidiaries unless the context suggests otherwise. These terms are used for convenience only and are not intended as a precise description of any separate legal entity associated with Tellurian Inc.
Nature of Operations
We planTellurian is developing and plans to develop, own and operate a global natural gas business and to deliver natural gas to customers worldwide. Tellurian is developing a portfolio of natural gas, LNG marketing, and infrastructure assets that includes an LNG terminal facility (the “Driftwood terminal”), an associated pipeline (the “Driftwood pipeline”), other related pipelines, and upstream natural gas assets. The Driftwood terminal and the Driftwood pipeline are collectively referred to as the “Driftwood Project”.Project.”
Basis of Presentation
The accompanying unaudited consolidated financial statementsCondensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10Rule 10-01 of Regulation S-X. Accordingly, certain notesthey do not include all of the information and other information have been condensed or omitted. The accompanying interimfootnotes required by GAAP for complete financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of our Condensed Consolidated Financial Statements. These interim financial statementsand should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. The Condensed Consolidated Financial Statements, in the opinion of management, reflect all adjustments necessary for the fair presentation of the results for the periods presented. All adjustments are of a normal recurring nature unless otherwise disclosed.
Certain reclassifications have been made to conform prior period information to the current presentation. The reclassifications did not have a material effect on our consolidated financial position, results of operations or cash flows.
To conform with GAAP, we make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and the accompanying notes. Although these estimates and assumptions are based on our best available knowledge at the time, actual results may differ.
Liquidity
Our Condensed Consolidated Financial Statements werehave been prepared in accordance with GAAP, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business as well as the Company’s ability to continue as a going concern. As of the date of the Condensed Consolidated Financial Statements, we have generated losses and negative cash flows from operations, and have an accumulated deficit. We have not yet established an ongoing source of revenues that is sufficient to satisfycover our future operating costs and obligations and fund working capital needs.as they become due during the twelve months following the issuance of the Condensed Consolidated Financial Statements.
The Company has sufficient cash on hand and available liquidity to satisfy its obligations and fund its working capital needs for at least twelve months following the date of issuance of the condensed consolidated financial statements.Condensed Consolidated Financial Statements. The Company has the ability to generate additional proceeds from various other potential financing transactions, such as issuancestransactions. We are currently focused on the financing and construction of equity, equity-linkedthe Driftwood terminal and debt securities, or similar transactionscontinuing to fundexpand our obligations and working capital needs.
Use of Estimates
To conform with GAAP, we make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and the accompanying notes. Although these estimates and assumptions are based on our best available knowledge at the time, actual results may differ.upstream activities.
NOTE 2 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
The components of prepaidPrepaid expenses and other current assets consist of the following (in thousands):
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
Prepaid expenses | Prepaid expenses | $ | 280 | | | $ | 1,156 | | Prepaid expenses | $ | 349 | | | $ | 605 | |
Deposits | Deposits | 150 | | | 100 | | Deposits | 18,640 | | | 3,589 | |
Derivative asset | — | | | 843 | | |
Restricted cash | | Restricted cash | 12,375 | | | — | |
Derivative assets, net current | | Derivative assets, net current | — | | | 8,693 | |
Other current assets | Other current assets | 37 | | | 6 | | Other current assets | 93 | | | 65 | |
Total prepaid expenses and other current assets | Total prepaid expenses and other current assets | $ | 467 | | | $ | 2,105 | | Total prepaid expenses and other current assets | $ | 31,457 | | | $ | 12,952 | |
Deposits
Margin deposits posted with a third-party financial institution related to our financial instrument contracts were approximately $17.4 million and $2.1 million as of September 30, 2022 and December 31, 2021, respectively.
Restricted Cash
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Restricted cash as of September 30, 2022 consists of $3.0 million held in escrow under the terms of an agreement to purchase land for the Driftwood Project as well as approximately $9.4 million held in escrow under the terms of the purchase and sale agreement for the acquisition of certain natural gas assets in the Haynesville Shale. See Note 3, Property, Plant and Equipment, for further information.
NOTE 3 — PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprisedconsist of fixed assets, proved oil and natural gas properties and financing leases, as shown belowthe following (in thousands):
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
Land and land improvement | $ | 15,284 | | | $ | 13,808 | | |
Upstream natural gas assets: | | Upstream natural gas assets: | | | |
Proved properties | Proved properties | 76,406 | | | 62,227 | | Proved properties | $ | 299,589 | | | $ | 96,297 | |
Wells in progress | Wells in progress | 11,200 | | | 492 | | Wells in progress | 91,759 | | | 17,653 | |
Corporate and other | 3,476 | | | 3,476 | | |
Total property, plant and equipment at cost | 106,366 | | | 80,003 | | |
Accumulated DD&A | Accumulated DD&A | (47,424) | | | (38,764) | | Accumulated DD&A | (70,997) | | | (48,638) | |
Right of use asset — financing leases | 58,176 | | | 20,018 | | |
Total upstream natural gas assets, net | | Total upstream natural gas assets, net | 320,351 | | | 65,312 | |
| Driftwood Project assets: | | Driftwood Project assets: | |
Land and land improvements | | Land and land improvements | 49,086 | | | 25,222 | |
Driftwood terminal construction in progress | | Driftwood terminal construction in progress | 238,830 | | | — | |
Finance lease assets, net of accumulated DD&A | | Finance lease assets, net of accumulated DD&A | 57,002 | | | 57,883 | |
Buildings and other assets, net of accumulated DD&A | | Buildings and other assets, net of accumulated DD&A | 348 | | | 371 | |
Total Driftwood Project, net | | Total Driftwood Project, net | 345,266 | | | 83,476 | |
| Fixed assets and other: | | Fixed assets and other: | |
Leasehold improvements and other assets | | Leasehold improvements and other assets | 6,924 | | | 3,104 | |
Accumulated DD&A | | Accumulated DD&A | (1,628) | | | (1,347) | |
Total fixed assets and other, net | | Total fixed assets and other, net | 5,296 | | | 1,757 | |
| Total property, plant and equipment, net | Total property, plant and equipment, net | $ | 117,118 | | | $ | 61,257 | | Total property, plant and equipment, net | $ | 670,913 | | | $ | 150,545 | |
Land
We own land in Louisiana intended for the purposeconstruction of constructing the Driftwood terminal.Project.
Driftwood Terminal Construction in Progress
During the year ended December 31, 2021, the Company initiated certain owner construction activities necessary to proceed under our LSTK EPC agreement with Bechtel Energy Inc., formerly known as Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”), for Phase 1 of the Driftwood terminal dated as of November 10, 2017 (the “Phase 1 EPC Agreement”). On March 24, 2022, the Company issued a limited notice to proceed to Bechtel under the Phase 1 EPC Agreement and commenced construction of Phase 1 of the Driftwood terminal on April 4, 2022. As the Company commenced construction activities, Deferred engineering costs and Permitting Costs of approximately $110.0 million and $13.4 million, respectively, were transferred to construction in progress as of March 31, 2022. During the nine months ended September 30, 2022, we capitalized approximately $115.4 million of directly identifiable project costs as construction in progress.
Asset Acquisition
On August 18, 2022, the Company completed the acquisition of certain natural gas assets in the Haynesville Shale basin. The purchase price of $125.0 million was subject to adjustments of approximately $9.9 million, for an adjusted purchase price at closing of approximately $134.9 million. The sellers may receive an additional cash payment of $7.5 million if the average NYMEX Henry Hub Gas Price for the contract delivery months beginning with August 2022 through March 2023 exceeds a specific threshold per MmBtu (the “Contingent Consideration”). See Note 6, Financial Instruments, for further information.
NOTE 4 — DEFERRED ENGINEERING COSTS
Deferred engineering costs of approximately $110.0 million represent detailed engineering services related to the planned construction of the Driftwood terminal as of September 30, 2021. The balance in this account will bewere transferred to construction in progress upon reaching an affirmative FID byissuing the Company’s Board of Directors.limited notice to proceed to Bechtel in March 2022. See Note 3, Property, Plant and Equipment, for further information.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 5 — OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following (in thousands):
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
Land lease and purchase options | Land lease and purchase options | $ | 6,363 | | | $ | 5,831 | | Land lease and purchase options | $ | 795 | | | $ | 6,368 | |
Permitting costs | Permitting costs | 13,497 | | | 13,092 | | Permitting costs | — | | | 13,408 | |
Right of use asset — operating leases | Right of use asset — operating leases | 10,610 | | | 11,884 | | Right of use asset — operating leases | 13,932 | | | 10,166 | |
Restricted cash | | Restricted cash | 24,885 | | | 1,778 | |
Investments in unconsolidated entities | | Investments in unconsolidated entities | 11,089 | | | — | |
Driftwood pipeline materials | | Driftwood pipeline materials | 5,229 | | | — | |
Other | Other | 1,929 | | | 2,090 | | Other | 1,875 | | | 1,798 | |
Total other non-current assets | Total other non-current assets | $ | 32,399 | | | $ | 32,897 | | Total other non-current assets | $ | 57,805 | | | $ | 33,518 | |
Land Lease and Purchase Options
We hold leaseDuring the first quarter of 2022, we exercised the final land purchase options related to the Driftwood terminal. Land purchase options held by the Company as of September 30, 2022 are related to the Driftwood pipeline and purchase option agreements (the “Options”) for certain tracts of land and associated river frontage. Upon exercise of the Options, the leases are subject to maximum terms of 50 years (inclusive of various renewals, at the option of the Company). Costs of the Options will be amortized over the life of the lease once obtained, or capitalized into the cost of land if purchased.other related pipelines.
Permitting Costs
Permitting costs primarily representrepresented the purchase of wetland credits in connection with our permit application to the USACE in 2017 and 2018. These wetland credits were transferred to construction in progress upon issuing the limited notice to proceed to Bechtel in March 2022. See Note 3, Property, Plant and Equipment, for further information. These wetland credits will be applied to our permit in accordance with the Clean Water Act and the Rivers and Harbors Act, which may require us to mitigate the potential impact to Louisiana wetlands that might be caused by the construction of the Driftwood Project. In May 2019, we received
Restricted Cash
Restricted cash as of September 30, 2022 and December 31, 2021, represents the USACE permit.cash collateralization of letters of credit associated with finance leases.
Investments in unconsolidated entities
On February 24, 2022, the Company purchased 1.5 million ordinary shares of an unaffiliated entity that provides renewable energy services for a total cost of approximately $6.1 million. This investment does not provide the Company with a controlling financial interest in or significant influence over the operating or financial decisions of the unaffiliated entity. The permitting costsCompany’s investment was recorded at cost.
The Company issued a $5.0 million promissory note due June 14, 2024 (the “Promissory Note”) to an unaffiliated entity (“Borrower”) engaged in the development of infrastructure projects in the energy industry. The Promissory Note bears interest at a rate of 6.00%, which will be transferred to construction in progress upon reaching an affirmative FID bycapitalized into the Company’s Board of Directors.outstanding principal balance annually.
NOTE 6 — FINANCIAL INSTRUMENTS
As partNatural Gas Financial Instruments
The primary purpose of entering into the 2018 Term Loan, which was repaid in full in April 2021, we were requiredour commodity risk management activities is to enter into and maintain certain hedging transactions. As a result, we used derivative financial instruments, namely OTC commodity swap instruments (“commodity swaps”), to maintain compliance with that covenant.
Commodity swap agreements involve payments to or receipts from counterparties based on the differential between two prices for the commodity and include basis swaps to protect earnings from unduehedge our exposure to thecash flow variability from commodity price risk of geographic disparitiesdue to fluctuations in commodity prices. The fair valueCompany uses natural gas financial futures and option contracts to economically hedge the commodity price risks associated with a portion of our expected natural gas production. The Company’s open positions as of September 30, 2022, had notional volumes of approximately 14.7 Bcf, with maturities extending through October 2023.
LNG Financial Instruments
During the three months ended December 31, 2021, we entered into LNG financial futures contracts to reduce our exposure to commodity swaps was classified as Level 2price fluctuations, and to achieve more predictable cash flows relative to two LNG cargos that we were committed to purchase from and sell to unrelated third-party LNG merchants in the fair value hierarchynormal course of business in January and was based on standard industry income approach models that use significant observable inputs, including but not limited toApril 2022. As of September 30, 2022, there were no open LNG financial instrument positions.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
New York Mercantile Exchange (NYMEX)Contingent Consideration
The purchase price of certain natural gas forward curvesassets acquired in the Haynesville Shale basin includes Contingent Consideration payable to the sellers if natural gas commodity prices exceed a specific threshold, refer to Note 3, Property, Plant and Equipment, for further information. The Contingent Consideration was determined to be an embedded derivative that is recorded at fair value in the Condensed Consolidated Balance Sheets. As of the date of the acquisition, the fair value of the Contingent Consideration was approximately $3.9 million, which was recorded as part of the basis forward curves, allin proved natural gas properties with a corresponding embedded derivative liability. Changes in the fair value of the Contingent Consideration are recognized in the period they occur and included within Other expense, net on the Condensed Consolidated Statements of Operations.
The following table summarizes the effect of the Company’s financial instruments which were validated against external sources at least monthly.are included within Other expense, net on the Condensed Consolidated Statements of Operations (in thousands):
We recognized all derivative | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Natural gas financial instruments: | | | | | | | | |
Realized loss | | $ | 12,547 | | | $ | — | | | $ | 23,798 | | | $ | 1,202 | |
Unrealized loss | | 390 | | | — | | | 8,701 | | | — | |
LNG financial futures contracts: | | | | | | | | |
Realized gain | | — | | | — | | | 3,532 | | | — | |
Unrealized loss | | — | | | — | | | 5,161 | | | — | |
Contingent Consideration | | | | | | | | |
Unrealized gain | | 309 | | | — | | | 309 | | | — | |
The following table presents the classification of the Company’s financial instruments as either assets or liabilitiesthat are required to be measured at fair value on a netrecurring basis on the Company’s Condensed Consolidated Balance Sheets (in thousands):
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Current assets: | | | | |
LNG financial futures contracts | | $ | — | | | $ | 8,693 | |
Non-current assets: | | | | |
Natural gas financial instruments | | 685 | | | — | |
Current liabilities: | | | | |
Natural gas financial instruments | | 9,386 | | | — | |
Contingent Consideration | | 3,579 | | | — | |
The Company’s natural gas and LNG financial instruments are valued using quoted prices in active exchange markets as they were with a single counterpartyof the balance sheet date and subject to a master netting arrangement. In April 2021, we net settled our derivative instruments when we voluntarily repaid the 2018 Term Loan in full.
We did not apply hedge accounting for our commodity swaps; therefore, all changes inare classified as Level 1 within the fair value hierarchy.
The fair value of our derivative instruments were recognized within Other (expenses) income, net,the Contingent Consideration was determined using Monte Carlo simulations including inputs such as quoted future natural gas price curves, natural gas price volatility, and discount rates. These inputs are substantially observable in active markets throughout the Condensed Consolidated Statementsfull term of Operations. For the nine months ended September 30, 2021, we recognized a realized loss of approximately $1.2 million in our Condensed Consolidated Statements of Operations. Derivative contracts which result in physical delivery of a commodity expected to be used or sold by the Company in the normal course of businessContingent Consideration arrangement and are therefore designated as normal purchases and sales and are exempt from derivative accounting. OTC arrangements require settlement in cash. Settlements of commodity derivative instruments are reported as a component of cash flows from operations inLevel 2 within the Condensed Consolidated Statements of Cash Flows.
NOTE 7 — RELATED PARTY TRANSACTIONS
In conjunction with the dismissal of prior litigation, we agreed to reimburse the Vice Chairman of our Board of Directors, Martin Houston, for reasonable attorneys’ fees and expenses he incurred during the litigation. As of September 30, 2021, all amounts owed to Mr. Houston were fully settled.
NOTE 8 — ACCRUED AND OTHER LIABILITIES
The components of accrued and other liabilities consist of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Project development activities | $ | 11,380 | | | $ | 3,228 | |
Payroll and compensation | 15,512 | | | 9,454 | |
Accrued taxes | 1,047 | | | 1,057 | |
Professional services (e.g., legal, audit) | 2,764 | | | 1,004 | |
Warrant liabilities | — | | | 3,774 | |
Lease liabilities | 2,287 | | | 1,950 | |
Other | 2,213 | | | 1,536 | |
Total accrued and other liabilities | $ | 35,203 | | | $ | 22,003 | |
valuation hierarchy.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 97 — ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Upstream accrued liabilities | $ | 90,942 | | | $ | 26,421 | |
| | | |
Payroll and compensation | 24,937 | | | 50,243 | |
Accrued taxes | 396 | | | 991 | |
Driftwood Project and related pipelines development activities | 5,815 | | | 435 | |
Lease liabilities | 2,708 | | | 2,279 | |
Current natural gas derivative liabilities | 9,386 | | | — | |
Accrued interest | 5,793 | | | 660 | |
Other | 9,897 | | | 4,917 | |
Total accrued and other liabilities | $ | 149,874 | | | $ | 85,946 | |
NOTE 8 — BORROWINGS
The following tables summarize the Company’s borrowings consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2022 |
| | | Principal repayment obligation | | Unamortized DFC | | Carrying value |
Senior Secured Convertible Notes, current | | $ | 166,666 | | | $ | (3,392) | | | $ | 163,274 | |
Senior Secured Convertible Notes, non-current | | 333,334 | | | (6,785) | | | 326,549 | |
Senior Notes due 2028 | | 57,678 | | | (2,666) | | | 55,012 | |
Total borrowings | | $ | 557,678 | | | $ | (12,843) | | | $ | 544,835 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| | | Principal repayment obligation | | Unamortized DFC | | Carrying value |
Senior Notes due 2028 | | $ | 56,500 | | | $ | (2,813) | | | $ | 53,687 | |
Total borrowings | | $ | 56,500 | | | $ | (2,813) | | | $ | 53,687 | |
Senior Secured Convertible Notes due 2025
On June 3, 2022, we issued and sold $500.0 million aggregate principal amount of 6.00% Senior Secured Convertible Notes due May 1, 2025 (the “Convertible Notes” or the “Notes”). Net proceeds from the Convertible Notes were approximately $488.7 million after deducting fees and expenses. The Convertible Notes have quarterly interest payments due on February 1, May 1, August 1, and November 1 of each year and on the maturity date. Debt issuance costs of approximately $11.5 million were capitalized and are being amortized over the full term of the Notes using the effective interest rate method.
The holders of the Convertible Notes have the right to convert the Notes into shares of our common stock at an initial conversion rate of 174.703 shares per $1,000 principal amount of Notes (equivalent to a conversion price of approximately $5.724 per share of common stock) (the “Conversion Price”), subject to adjustment in certain circumstances. Holders of the Convertible Notes may force the Company to redeem the Notes for cash upon (i) a fundamental change or (ii) an event of default.
The Company will force the holders of the Convertible Notes to convert all of the Notes if the trading price of our common stock closes above 200% of the Conversion Price for 20 consecutive trading days and certain other conditions are satisfied. The Company may provide written notice to each holder of the Notes calling all of such holder’s Notes for a cash purchase price equal to 120% of the principal amount being redeemed, plus accrued and unpaid interest (the “Optional Redemption”), and each holder will have the right to accept or reject such Optional Redemption.
On each of May 1, 2023 and May 1, 2024, the holders of the Convertible Notes may redeem up to $166.6 million of the initial principal amount of the Notes at par, plus accrued and unpaid interest (the “Redemption Amount”). The Company classified the potential Redemption Amount in respect of May 1, 2023 as a current borrowing on the Condensed Consolidated Balance Sheet as of September 30, 2021,2022.
Tellurian Inc. and December 31, 2020 (in thousands):Subsidiaries
| | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2021 |
| | | Principal repayment obligation | | Unamortized DFC and discounts | | Carrying value |
2018 Term Loan, due September 2021 | | $ | — | | | $ | — | | | $ | — | |
2019 Term Loan, due March 2022 | | — | | | — | | | — | |
2020 Unsecured Note | | — | | | — | | | — | |
Total borrowings | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
| | | December 31, 2020 |
| | | Principal repayment obligation | | Unamortized DFC and discounts | | Carrying value |
2018 Term Loan, due September 2021 | | $ | 60,000 | | | $ | (805) | | | $ | 59,195 | |
2019 Term Loan, due March 2022 (a) | | 43,217 | | | (4,942) | | | 38,275 | |
2020 Unsecured Note | | 16,000 | | | (2,376) | | | 13,624 | |
Total borrowings | | $ | 119,217 | | | $ | (8,123) | | | $ | 111,094 | |
| | | | | | | |
| | | | | | | |
(a) Includes paid-in-kind interest on the 2019 Term Loan of $3.3 million. |
Notes to Condensed Consolidated Financial Statements (unaudited)Full RepaymentOur borrowing obligations under the Convertible Notes are collateralized by a first priority lien on the Company’s equity interests in Tellurian Production Holdings, LLC (“Tellurian Production Holdings”), a wholly owned subsidiary of Tellurian Inc. Tellurian Production Holdings owns all of the Company’s Borrowing Obligationsupstream natural gas assets described in Note 3, Property, Plant and Equipment. Upon the Company’s compliance with its obligations in respect of an Optional Redemption (regardless of whether holders accept or reject the redemption), the lien on the equity interests in Tellurian Production Holdings will be automatically released. The Notes contain a minimum cash balance requirement of $100.0 million and non-financial covenants. As of September 30, 2022, we remained in compliance with the minimum cash balance requirement and all other covenants under the Notes.
OverAs of September 30, 2022, the courseestimated fair value of the currentConvertible Notes was approximately $453.3 million. The Level 3 fair value was estimated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and inputs that are not observable in the market.
Senior Notes due 2028
On November 10, 2021, we sold in a registered public offering $50.0 million aggregate principal amount of 8.25% Senior Notes due November 30, 2028 (the “Senior Notes”). Net proceeds from the Senior Notes were approximately $47.5 million after deducting fees. The underwriter was granted an option to purchase up to an additional $7.5 million of the Senior Notes within 30 days. On December 7, 2021, the underwriter exercised the option and purchased an additional $6.5 million of the Senior Notes resulting in net proceeds of approximately $6.2 million after deducting fees. The Senior Notes have quarterly interest payments due on January 31, April 30, July 31, and October 31 of each year and on the maturity date. As of September 30, 2022, the Company was in compliance with all covenants under the indenture governing the Senior Notes. The Senior Notes are traded on the NYSE American under the symbol “TELZ,” and are classified as Level 1 within the fair value hierarchy. As of September 30, 2022, the closing market price was $18.28 per Senior Note.
At-the-Market Debt Offering Program
On December 17, 2021, we entered into an at-the-market debt offering program under which the Company may offer and sell from time to time on the NYSE American up to an aggregate principal amount of $200.0 million of additional Senior Notes. For the nine months ended September 30, 2022, we sold approximately $1.2 million aggregate principal amount of additional Senior Notes for total proceeds of approximately $1.1 million after fees and commissions under our at-the-market debt offering program. The Company has not sold any Senior Notes under the at-the-market debt offering program since January 2022 and is restricted from doing so under an agreement entered into in connection with the issuance of the Convertible Notes.
Extinguishment of the 2019 Term Loan
On May 23, 2019, Driftwood Holdings LP, a wholly owned subsidiary of the Company, entered into a senior secured term loan agreement (the “2019 Term Loan”) to borrow an aggregate principal amount of $60.0 million. On March 12, 2021, we finalized a voluntary repayment of the remaining outstanding principal balance of the 2019 Term Loan. A total of approximately $43.7 million was repaid to the lender during the first quarter of 2021 to satisfy the outstanding borrowing obligation. The extinguishment of the 2019 Term Loan resulted in an approximately $2.1 million gain, which was recognized within Gain on extinguishment of debt, net, on our Condensed Consolidated Statements of Operations.
2018 Term Loan
On September 28, 2018, Tellurian Production Holdings entered into a three-year senior secured term loan credit agreement (the “2018 Term Loan”) in an aggregate principal amount of $60.0 million. On February 18, 2021, we voluntarily repaid all borrowing obligations that were outstanding underapproximately $43.0 million of the 2018 Term Loan 2019 Term Loan, and 2020 Unsecured Note. Asoutstanding principal balance. Then, on April 23, 2021, we voluntarily repaid the remaining outstanding principal balance of $17.0 million.
These voluntary repayments resulted in losses of approximately $0.7 million for the nine months ended September 30, 2021, which were recognized within Gain on extinguishment of debt, net, on our total borrowing obligation was zero.Condensed Consolidated Statements of Operations.
Trade Finance Credit Line
On July 19, 2021, we entered into an uncommitted trade finance credit line for up to $30.0 million that is intended to finance the purchase and sale of LNG cargoescargos for ultimate resale in the normal course of business. On December 7, 2021, the uncommitted trade finance credit line was amended and increased to $150.0 million. As of September 30, 2022, no amounts were drawn under this credit line.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 9 — COMMITMENTS AND CONTINGENCIES
Related Party Contractor Service Fees and Expenses
The Company entered into a one-year independent contractor agreement, effective January 1, 2022, with Mr. Martin Houston, who serves as Vice Chairman and a member of the periodCompany’s Board of Directors. Pursuant to the terms and conditions of this agreement, the Company pays Mr. Houston a monthly fee of $50.0 thousand plus approved expenses. For the three and nine months ended September 30, 2021,2022, the Company paid Mr. Houston $150.0 thousand and $475.0 thousand, respectively, for contractor service fees and expenses. As of September 30, 2022, there were no amounts have been drawn.balances due to Mr. Houston.
NOTE 10 — COMMITMENTS AND CONTINGENCIES
LNG Purchases
In connection with our LNG trading activities, we have previously entered into agreements with unrelated third-party LNG merchants pursuant to which we are obligated to purchase 1 cargo of LNG per quarter through October 2022 at a price based on then-prevailing JKM prices. The volume of each cargo is expected to range from 3.3 to 3.6 million MMBtu, and each cargo will be purchased under DES terms.
NOTE 11 — STOCKHOLDERS’ EQUITY
Common Stock Issuance
On August 6, 2021, we sold 35.0 million shares of our common stock in an underwritten public offering at a price of $3.00 per share. Net proceeds from this offering, after deducting fees and expenses, were approximately $100.8 million. The underwriters were granted an option to purchase up to an additional 5.3 million shares of common stock within 30 days. On August 31, 2021, the underwriters exercised this option, which generated net proceeds, after deducting fees, of approximately $15.1 million.
At-the-Market ProgramEquity Offering Programs
We maintain anmultiple at-the-market equity offering programprograms pursuant to which we may sell shares of our common stock from time to time. Fortime on the NYSE American. During the nine months ended September 30, 2021,2022, we issued 66.467.7 million shares of our common stock under our at-the-market programequity offering programs for net proceeds of approximately $193.3$299.7 million. As of September 30, 2021,2022, we had remaining availability under thesuch at-the-market programprograms to raise aggregate gross sales proceeds of up to approximately $334.6$323.7 million. The Company has not sold any common stock under the at-the-market equity offering programs since April 2022.
Common Stock Purchase Warrants
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
2019 Term Loan
During the first quarter of 2021, the lender underof the 2019 Term Loan purchasedexercised warrants to purchase approximately 6.0 million shares of our common stock pursuant to the exercise of warrants for total proceeds of approximately $8.2 million. On March 12, 2021, we repaidAs discussed in Note 8, Borrowings, the 2019 Term Loan has been repaid in full and the lender no longer holds any warrants.
2020 Unsecured Note
In conjunction with the issuance of the 2020 Unsecured Note, we issued a warrant providing the lender with the right to purchase up to 20.0 million shares of our common stock at $1.542 per share (the “2020 Warrant”). The 2020 Warrant vested immediately and will expire in October 2025. The 2020 Warrant has been excluded from the computation of diluted loss per share because including it would have been antidilutive for the periods presented.
Preferred Stock
In March 2018, we entered into a preferred stock purchase agreement with BDC Oil and Gas Holdings, LLC (“Bechtel Holdings”), a Delaware limited liability company and an affiliate of Bechtel, Oil, Gas and Chemicals, Inc., a Delaware corporation, pursuant to which we sold to Bechtel Holdings approximately 6.1 million shares of our Series C convertible preferred stock (the “Preferred Stock”).
The holders of the Preferred Stock do not have dividend rights but do have a liquidation preference over holders of our common stock. The holders of the Preferred Stock may convert all or any portion of their shares into shares of our common stock on a 1-for-oneone-for-one basis. At any time after “Substantial Completion” of “Project 1,” each as defined in and pursuant to the LSTKPhase 1 EPC Agreement, for the Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, or at any time after March 21, 2028, we have the right to cause all of the Preferred Stock to be converted into shares of our common stock on a 1-for-oneone-for-one basis. The Preferred Stock has been excluded from the computation of diluted loss per share because including it in the computation would have been antidilutive for the periods presented.
NOTE 1211 — SHARE-BASED COMPENSATION
We have granted restricted stock and restricted stock units (collectively, “Restricted Stock”), as well as unrestricted stock and stock options, to employees, directors and outside consultants (collectively, the “grantees”) under the Tellurian Inc. 2016 Omnibus Incentive Compensation Plan, as amended (the “2016 Plan”), and the Amended and Restated Tellurian Investments Inc. 2016 Omnibus Incentive Plan (the “Legacy Plan”). The maximum number of shares of Tellurian common stock authorized for issuance under the 2016 Plan is 40 million shares of common stock, and no further awards can be granted under the Legacy Plan.
Upon the vesting of restricted stock, shares of common stock will be released to the grantee. Upon the vesting of restricted stock units, the units will be converted into either cash, stock, or a combination thereof. As of September 30, 2022, there was no Restricted Stock that would be required to be settled in cash.
As of September 30, 2021,2022, we had approximately 30.228.0 million shares of primarily performance-based Restricted Stock outstanding, of which approximately 19.215.9 million shares will vest entirely at FID, as defined in the award agreements, and approximately 10.211.2 million shares will vest in one-third increments at FID and the first and second anniversaries of FID. The remaining shares of primarily performance-based Restricted Stock, totaling approximately 0.80.9 million shares, will vest based on other criteria. As of September 30, 2021,2022, no expense had been recognized in connection with performance-based Restricted Stock.
For the three and nine months ended September 30, 2021,2022, the recognized share-based compensation expenses related to all share-based awards totaled approximately $1.5$1.0 million and $4.6$2.8 million, respectively. As of September 30, 2021,2022, unrecognized compensation expenses, based on the grant date fair value, for all share-based awards totaled approximately $200.5$184.3 million. Further, the approximately 30.227.7 million shares of primarily performance-based Restricted Stock, as well as
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
approximately 11.1 million stock options outstanding, have been excluded from the computation of diluted loss per share because including them in the computation would have been antidilutive for the periods presented.
NOTE 12 — INCENTIVE COMPENSATION PROGRAM
On November 18, 2021, the Company’s Board of Directors approved the adoption of the Tellurian Incentive Compensation Program (the “Incentive Compensation Program” or “ICP”). The ICP allows the Company to award short-term and long-term performance and service-based incentive compensation to full-time employees of the Company. ICP awards may be earned with respect to each calendar year and are determined based on guidelines established by the Compensation Committee of the Board of Directors, as administrator of the ICP.
Long-term incentive awards
Long-term incentive (“LTI”) awards under the ICP were granted in January 2022 in the form of “tracking units,” at the discretion of the Company’s Board of Directors (the “2021 LTI Award”). Each such tracking unit has a value equal to one share of Tellurian common stock and entitles the grantee to receive, upon vesting, a cash payment equal to the closing price of our common stock on the trading day prior to the vesting date. These tracking units will vest in three equal tranches at grant date, and the first and second anniversaries of the grant date. Non-vested tracking unit awards as of September 30, 2022, and awards granted during the period were as follows:
| | | | | | | | | | | |
| Number of Tracking Units (in thousands) | | Price per Tracking Unit |
Balance at January 1, 2022 | — | | | — | |
Granted | 19,332 | | | $ | 3.09 | |
Vested | (6,444) | | | 3.38 | |
Forfeited | (159) | | | 3.46 | |
Unvested balance at September 30, 2022 | 12,729 | | | $ | 2.39 | |
We recognize compensation expense for awards with graded vesting schedules over the requisite service periods for each separately vesting portion of the award as if each award was in substance multiple awards. Compensation expense for the first tranche of the 2021 LTI Award that vested at the grant date was recognized over the performance period when it was probable that the performance condition was achieved. Compensation expense for the second and third tranches of the 2021 LTI Award is recognized on a straight-line basis over the requisite service period. Compensation expense for unvested tracking units is subsequently adjusted each reporting period to reflect the estimated payout levels based on changes in the Company’s stock price and actual forfeitures. For the three and nine months ended September 30, 2022, we recognized approximately $2.8 million and $17.1 million, respectively, in compensation expense for the second and third tranches of the 2021 LTI Award.
NOTE 13 — INCOME TAXES
Due to our cumulative loss position, historical net operating losses (“NOLs”), and other available evidence related to our ability to generate taxable income, we have recorded a full valuation allowance against our net deferred tax assets as of September 30, 20212022 and December 31, 2020.2021. Accordingly, we have not recorded a provision for federal, state or foreign income taxes during the three and nine months ended September 30, 2021.2022.
We experienced ownership changes as defined by Internal Revenue Code (“IRC”) Section 382 in 2017, and an analysis of the annual limitation on the utilization of our NOLs was performed at that time. It was determined that IRC Section 382 will not limit the use of our NOLs over the carryover period. We will continue to monitor trading activity in our shares that may cause an additional ownership change, which may ultimately affect our ability to fully utilize our existing NOL carryforwards.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 14 — LEASES
Financing Leases
Our land leases are classified as financingfinance leases and include 1one or more options to extend the lease term for up to 40 years, as well as to terminate the lease within five years, at our sole discretion. We are reasonably certain that those options will be exercised, and that our termination rights will not be exercised, and we have, therefore, included those assumptions within our right of use assets and corresponding lease liabilities. As of September 30, 2021, the weighted-average remaining lease term for our financing leases was approximately fifty years. As none of our financing leases provide an implicit rate, we have determined our own discount rate, which, on a weighted-average basis was approximately 9% at September 30, 2021.
As of September 30, 2021, our financing leases had a right of use asset of approximately $58.2 million, which is recognized within Property, plant and equipment, net, and a corresponding lease liability of approximately $50.3 million, most of which is recognized within Other non-current liabilities. For the three and nine months ended September 30, 2021 and 2020, our financing lease costs, which are associated with the interest on our lease liabilities, were approximately $1.0 million and $0.5 million, respectively, and $1.9 million and $1.2 million, respectively. For the nine months ended September 30, 2021, we paid approximately $1.0 million in required finance lease payments which are presented within the operating section of the Condensed Consolidated Statements of Cash Flows. For each of the nine months ended September 30, 2021 and 2020, we paid approximate $1.8 million, in required financing lease payments which are presented within the financing section of the Condensed Consolidated Statements of Cash Flows.
Operating Leases
Our office space leases are classified as operating leases and include 1one or more options to extend the lease term for up to 10 years, at our sole discretion. As we are not reasonably certain that those
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
options will be exercised, none are recognized as part of our right of use assets and lease liabilities. As of September 30, 2021, our weighted-average remaining lease term for our operating leases was approximately five years. As none of our operating leases provide an implicit rate, we have determined our own discount rate, which, on a weighted-average basis at September 30, 2021, was approximately 8%.rate.
As
The following table shows the classification and location of September 30, 2021, our operating leases had a corresponding right of use asset of approximately $10.6 million, which is recognized within Other non-currentright-of-use assets and a total lease liability of approximately $12.2 million which isliabilities on our Consolidated Balance Sheets (in thousands):
| | | | | | | | | | | | | | | | | |
Leases | | Consolidated Balance Sheets Classification | September 30, 2022 | | December 31, 2021 |
Right of use asset | | | | | |
Operating | | Other non-current assets | $ | 13,932 | | | $ | 10,166 | |
Finance | | Property, plant and equipment, net | 57,002 | | | 57,883 | |
Total leased assets | | | $ | 70,934 | | | $ | 68,049 | |
Liabilities | | | | | |
Current | | | | | |
Operating | | Accrued and other liabilities | $ | 2,570 | | | $ | 2,147 | |
Finance | | Accrued and other liabilities | 138 | | | 132 | |
Non-Current | | | | | |
Operating | | Other non-current liabilities | 12,771 | | | 9,563 | |
Finance | | Finance lease liabilities | 49,998 | | | 50,103 | |
Total leased liabilities | | | $ | 65,477 | | | $ | 61,945 | |
Lease costs recognized within Accrued and other liabilities (approximately $2.1 million) and Other non-current liabilities (approximately $10.1 million). For the three and nine months ended September 30, 2021 and 2020,in our operating lease costs were $0.7 million and $0.7 million, respectively, and $2.1 million and $2.1 million, respectively. For the nine months ended September 30, 2021 and 2020, we paid approximately $2.1 million and $2.1 million, respectively, in required operating lease payments, which are presented within the operating section of the Condensed Consolidated Statements of Cash Flows.Operations is summarized as follows (in thousands):
| | | | | | | | | | | |
| Nine months ended |
Lease costs | 2022 | | 2021 |
Operating lease cost | $ | 2,247 | | | $ | 2,056 | |
Finance lease cost | | | |
Amortization of lease assets | 881 | | | 494 | |
Interest on lease liabilities | 2,983 | | | 1,908 | |
Finance lease cost | $ | 3,864 | | | $ | 2,402 | |
Total lease cost | $ | 6,111 | | | $ | 4,458 | |
Other information about lease amounts recognized in our Consolidated Financial Statements is as follows:
| | | | | |
| September 30, 2022 |
Lease term and discount rate | |
Weighted average remaining lease term (years) | |
Operating lease | 4.8 |
Finance lease | 48.7 |
Weighted average discount rate | |
Operating lease | 6.2 | % |
Finance lease | 9.4 | % |
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table includes other quantitative information for our operating and finance leases (in thousands):
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 2,545 | | | $ | 2,173 | |
Operating cash flows from finance leases | $ | 2,868 | | | $ | 1,007 | |
Financing cash flows from finance leases | $ | 1 | | | $ | 1,862 | |
The table below presents a maturity analysis of our lease liability on an undiscounted basis and reconciles those amounts to the present value of the lease liability as of September 30, 20212022 (in thousands):
| Maturity of lease liability | Operating Leases | | Financing Leases | |
2021 | $ | 745 | | | $ | 1,028 | | |
| | | Operating | | Finance |
2022 | 2022 | 3,006 | | | 4,111 | | 2022 | $ | 822 | | | $ | 1,229 | |
2023 | 2023 | 3,044 | | | 4,111 | | 2023 | 3,579 | | | 4,111 | |
2024 | 2024 | 3,081 | | | 4,111 | | 2024 | 3,843 | | | 4,111 | |
2025 | 2025 | 3,119 | | | 4,111 | | 2025 | 3,886 | | | 4,111 | |
Thereafter | 1,860 | | | 186,333 | | |
2026 | | 2026 | 3,908 | | | 4,111 | |
After 2026 | | After 2026 | 1,936 | | | 182,222 | |
Total lease payments | Total lease payments | $ | 14,855 | | | $ | 203,805 | | Total lease payments | $ | 17,974 | | | $ | 199,895 | |
Less: discount | Less: discount | 2,641 | | | 153,477 | | Less: discount | 2,633 | | | 149,759 | |
Present value of lease liability | Present value of lease liability | $ | 12,214 | | | $ | 50,328 | | Present value of lease liability | $ | 15,341 | | | $ | 50,136 | |
NOTE 15 — ADDITIONAL CASH FLOW INFORMATION
The following table provides information regarding the net changes in working capital (in thousands):
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Accounts receivable | $ | (53,339) | | | $ | (8,556) | |
Prepaid expenses and other current assets 1 | (11,326) | | | 412 | |
Accounts payable | 14,555 | | | 4,288 | |
Accounts payable due to related parties | — | | | (910) | |
Accrued liabilities 1 | 22,477 | | | 23,030 | |
Other, net | 831 | | | (1,090) | |
Net changes in working capital | $ | (26,802) | | | $ | 17,174 | |
1 Excludes changes in the Company’s derivative assets and liabilities.
The following table provides supplemental disclosure of cash flow information (in thousands):
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Non-cash accruals of property, plant and equipment and other non-current assets | $ | 47,663 | | | $ | 38,509 | |
Non-cash settlement of withholding taxes associated with the 2019 bonus and vesting of certain awards | — | | | 3,064 | |
Non-cash settlement of the 2019 bonus | — | | | 5,430 | |
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Accounts receivable | $ | (8,556) | | | $ | 1,991 | |
Prepaid expenses and other current assets | 412 | | | 6,995 | |
Accounts payable | 4,288 | | | (25) | |
Accounts payable due to related parties | (910) | | | 1,360 | |
Accrued liabilities | 23,030 | | | 3,155 | |
Other, net | (1,090) | | | (1,748) | |
Net changes in working capital | $ | 17,174 | | | $ | 11,728 | |
The following table provides supplemental disclosure of cash flow information (in thousands):
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Non-cash accruals of property, plant and equipment and other non-current assets | $ | 38,509 | | | $ | 7,955 | |
Non-cash settlement of withholding taxes associated with the 2019 bonus and vesting of certain awards | 3,064 | | | 878 | |
Non-cash settlement of the 2019 bonus | 5,430 | | | 4,344 | |
Non-cash settlement of Final Payment Fee | — | | | 8,539 | |
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash and cash equivalents | Cash and cash equivalents | $ | 210,812 | | | $ | 77,947 | | Cash and cash equivalents | $ | 607,498 | | | 210,812 | |
Current restricted cash | | Current restricted cash | 12,375 | | | — | |
Non-current restricted cash | Non-current restricted cash | — | | | 3,441 | | Non-current restricted cash | 24,885 | | | — | |
Total cash, cash equivalents and restricted cash shown in the statements of cash flows | Total cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | 210,812 | | | $ | 81,388 | | Total cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | 644,758 | | | $ | 210,812 | |
NOTE 16 — SUBSEQUENT EVENTSDISCLOSURE ABOUT SEGMENTS AND RELATED INFORMATION
SubsequentDuring the quarter ended June 30, 2022, the Company commenced construction of the Driftwood terminal under the Phase 1 EPC Agreement with Bechtel while continuing to September 30, 2021,increase its natural gas presence in the Haynesville Shale basin in northern Louisiana and throughexpanding its natural gas marketing activities. The Company’s Chief Operating Decision Maker (“CODM”) determined to place additional emphasis and visibility on operating cash flows generated by our upstream and natural gas marketing business activities. Consequently, we identified the dateUpstream, Midstream and Marketing & Trading components as the Company’s operating segments.
These functions have been defined as the operating segments of this filing, we issued approximately 8.2 million sharesthe Company because (1) they are engaged in business activities from which revenues are recognized and expenses are incurred, (2) their operating results are regularly reviewed by the Company’s CODM to make decisions about resources to be allocated to the segment and to assess its performance, and (3) they are segments for which discrete financial information is available.
Factors used to identify these operating segments are based on the nature of common stock under our at-the-market equity offering programthe business activities that are undertaken by each component. The Upstream segment is organized and operates to produce and gather natural gas. The Midstream segment is organized to develop, construct and operate LNG terminals and pipelines. The Marketing & Trading segment is organized and operates to purchase and sell natural gas, market the Driftwood terminal’s LNG production capacity and trade LNG. These operating segments represent the Company’s reportable segments. The Company’s CODM does not currently assess segment performance or allocate resources based on a measure of total assets. Accordingly, a total asset measure has not been provided for net proceeds of approximately $29.0 million. As of October 22, 2021, we have remaining capacity under our at-the-market program to raise aggregate gross sales proceeds of approximately $304.7 million.segment disclosure.
Effective November 2, 2021, the listingThe remainder of our
common stock was transferred from the Nasdaq Capital Market to the NYSE American. The stock continues to trade under the symbol “TELL”.business is presented as “Corporate,” and consists of corporate costs and intersegment eliminations. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2022 | | Upstream | | Midstream | | Marketing & Trading | | Corporate | | Consolidated | |
Revenues from external customers (1) | | 14,205 | | | — | | | 66,898 | | | — | | | $ | 81,103 | | |
Intersegment revenues (purchases) (2) (3) | | 66,900 | | | (578) | | | (68,217) | | | 1,895 | | | — | | |
Segment operating profit (loss) (4) | | 40,071 | | | (19,297) | | | (11,042) | | | (4,303) | | | 5,429 | | |
Interest expense, net | | — | | | (994) | | | — | | | (5,950) | | | (6,944) | | |
Other income (loss), net | | 309 | | | — | | | (12,937) | | | (90) | | | (12,718) | | |
Consolidated loss before tax | | | | | | | | | | $ | (14,233) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | | Upstream | | Midstream | | Marketing & Trading | | Corporate | | Consolidated | |
Revenues from external customers (1) | | 483 | | | — | | | 15,155 | | | — | | | $ | 15,638 | | |
Intersegment revenues (purchases) (2) (3) | | 15,155 | | | — | | | (12,142) | | | (3,013) | | | — | | |
Segment operating profit (loss) (4) | | 3,491 | | | (8,058) | | | (640) | | | (9,309) | | | (14,516) | | |
Interest expense, net | | — | | | (996) | | | — | | | 28 | | | (968) | | |
Gain on extinguishment of debt, net | | — | | | — | | | — | | | — | | | — | | |
Other income (loss), net | | — | | | — | | | (515) | | | 67 | | | (448) | | |
Consolidated loss before tax | | | | | | | | | | $ | (15,932) | | |
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2022 | | Upstream | | Midstream | | Marketing & Trading | | Corporate | | Consolidated | |
Revenues from external customers (1) | | 15,620 | | | — | | | 273,773 | | | — | | | $ | 289,393 | | |
Intersegment revenues (purchases) (2) (3) | | 152,824 | | | (808) | | | (141,385) | | | (10,631) | | | — | | |
Segment operating profit (loss) (4) | | 83,170 | | | (57,098) | | | (25,093) | | | (30,098) | | | (29,119) | | |
Interest expense, net | | — | | | (2,984) | | | (455) | | | (10,351) | | | (13,790) | | |
Other income (loss), net | | 309 | | | — | | | (38,695) | | | 420 | | | (37,966) | | |
Consolidated loss before tax | | | | | | | | | | $ | (80,875) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2021 | | Upstream | | Midstream | | Marketing & Trading | | Corporate | | Consolidated | |
Revenues from external customers (1) | | 814 | | | — | | | 48,884 | | | — | | | $ | 49,698 | | |
Intersegment revenues (purchases) (2)(3) | | 29,108 | | | — | | | (26,095) | | | (3,013) | | | — | | |
Segment operating loss (4) | | (4,542) | | | (24,071) | | | (13,352) | | | (21,290) | | | (63,255) | | |
Interest expense, net | | (1,635) | | | (3,726) | | | 1 | | | (2,329) | | | (7,689) | | |
Gain on extinguishment of debt, net | | (665) | | | 2,087 | | | — | | | — | | | 1,422 | | |
Other (loss) income, net | | (1,202) | | | (2,494) | | | (514) | | | 217 | | | (3,993) | | |
Consolidated loss before tax | | | | | | | | | | $ | (73,515) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) The Company's Marketing & Trading segment markets most of the Company's Upstream segment natural gas production to third party-purchasers. | |
(2) The Company’s Marketing & Trading segment purchases most of the Company’s Upstream segment natural gas production. Intersegment revenues are eliminated at consolidation. | |
(3) Intersegment revenues related to our Marketing & Trading segment are a result of cost allocations to the Corporate component using a cost plus transfer pricing methodology. Intersegment revenues related to the Corporate component are associated with intercompany interest charged to the Midstream segment. Intersegment revenues are eliminated at consolidation. | |
(4) Operating profit (loss) is defined as operating revenues less operating costs and allocated corporate costs. | |
| | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, | | | |
Capital expenditures | | 2022 | | 2021 | | | | | |
Upstream | | 236,558 | | | $ | 23,416 | | | | | | |
Midstream | | 137,205 | | | 1,000 | | | | | | |
Marketing & Trading | | — | | | — | | | | | | |
Total capital expenditures for reportable segments | | 373,763 | | | 24,416 | | | | | | |
Corporate capital expenditures | | 1,278 | | | — | | | | | | |
Consolidated capital expenditures | | $ | 375,041 | | | $ | 24,416 | | | | | | |
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion and analysis presents management’s view of our business, financial condition and overall performance and should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes. This information is intended to provide investors with an understanding of our past development activities, current financial condition and outlook for the future organized as follows:
•Our Business
•Overview of Significant Events
•Liquidity and Capital Resources
•Capital Development Activities
•Results of Operations
•Recent Accounting Standards
Our Business
Tellurian Inc. (“Tellurian,” “we,” “us,” “our,” or the “Company”) intends, a Delaware corporation, is a Houston-based company that is developing and plans to create value for shareholders by building a low-cost, global natural gas business, profitably delivering natural gas to customers worldwide (the “Business”). We are developingoperate a portfolio of natural gas, LNG marketing, and infrastructure assets that includes an LNG terminal facility (the “Driftwood terminal”), an associated pipeline (the “Driftwood pipeline”), other related pipelines, and upstream natural gas assets.assets (collectively referred to as the “Business”). The Driftwood terminal and the Driftwood pipeline are collectively referred to as the “Driftwood Project”. OurProject.” As of September 30, 2022, our existing upstream natural gas assets consistconsisted of 9,75022,420 net acres and interests in 74131 producing wells located in the Haynesville Shale trendbasin of northern Louisiana. Our Business may be developed in phases.
As part of our execution strategy, which includes increasing our asset base, we will consider partneringvarious commercial arrangements with third parties across the natural gas value chain. We are also pursuing activities such as direct sales of LNG to global counterparties, trading of LNG, the acquisition of additional upstream acreage theand drilling of new wells on our existing or newly acquired upstream acreageacreage. We remain focused on the financing and trading LNG. As discussed in “Overview of Significant Events – LNG Sale and Purchase Agreements” below, we entered into four LNG SPAs with three unrelated purchasers, completing the planned sales for plants one and twoconstruction of the Driftwood terminal (“Phase 1”). We are currently focused on securing financing for the construction of Phase 1.Project and related pipelines and continuing to expand our upstream activities.
We continue to evaluate and discuss with potential partners, the scope and other aspects of our Business in light of the evolving economic environment, needs of potential partnerscounterparties and other factors. How we execute our Business will be based on a variety of factors, including the results of our continuing analysis, changing business conditions and market feedback.
Overview of Significant Events
LNG Sale and Purchase Agreements
Subsequent to entering into LNG SPAs with Gunvor Singapore Pte Ltd and Vitol Inc. for the purchase of a total of 6.0 Mtpa during the second quarter of this year, on July 29, 2021, Driftwood LNG LLC, a wholly owned subsidiary of the Company, has entered into two LNG SPAs with Shell NA LNG LLC (“Shell”) for the purchase of 3.0 Mtpa at a price that will be based on the JKM index price or the TTF futures contract price, in each case minus a transportation netback. Each LNG SPA has a ten-year term from the date of first commercial delivery from the Driftwood terminal.
Public Equity OfferingUpstream Asset Acquisition
On August 6, 2021, we sold 35.0 million shares18, 2022, the Company completed the acquisition of our common stockcertain natural gas assets in an underwritten public offering at athe Haynesville Shale basin. The purchase price of $3.00 per share. Net proceeds from this offering, after deducting fees and expenses, were$125.0 million was subject to adjustments of approximately $100.8$9.9 million, for an adjusted purchase price at closing of approximately $134.9 million. The underwriters were granted an option to purchase up tosellers may receive an additional 5.3cash payment of $7.5 million shares of common stock within 30 days. Onif the average NYMEX Henry Hub Gas Price for the contract delivery months beginning with August 31, 2021, the underwriters exercised this option, which generated net proceeds, after deducting fees, of approximately $15.1 million.2022 through March 2023 exceeds a specific threshold per MmBtu (the “Contingent Consideration”).
Liquidity and Capital Resources
Capital Resources
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. We are currently funding our operations, development activities and general working capital needs through our cash on hand.hand and cash generated from our upstream natural gas sales. Our current capital resources consist of approximately $210.8$607.5 million of cash and cash equivalents as of September 30, 2021.2022. We currently maintain an at-the-market debt and equity offering program underprograms pursuant to which aswe sell our Senior Notes and common stock from time to time. As of the date of this filing, we have remaining availability to raise aggregate gross sales proceeds of approximately $323.7 million under the at-the-market equity offering programs and are contractually prohibited from issuing additional Senior Notes under the debt at-the-market offering program.
As of September 30, 2022, we had total indebtedness of approximately $557.7 million, of which approximately $166.7 million is subject to redemption at the sole discretion of holders of the Senior Secured Convertible Notes due 2025
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
availability to raise aggregate gross sales proceeds of approximately $304.7 million. Since January 1, 2021, and through October 22, 2021, we have sold approximately 74.6 million shares of common stock under our at-the-market program for net proceeds of approximately $222.3 million.
As of September 30, 2021, wewithin the next twelve months. We also had contractual obligations associated with our financingfinance and operating leases totaling $218.7approximately $217.9 million, of which $7.1approximately $7.8 million is scheduled to be paid within the next twelve months.
In connection with our LNG trading activities, we have previously entered into agreements with unrelated third-party LNG merchants pursuant to which we are obligated to purchase one cargo of LNG per quarter through October 2022 at a price based on then-prevailing JKM prices. We may be required to use cash on hand as well as trade financing arrangements to finance the purchase of these cargoes.
The Company has sufficient cash on hand and available liquidity to satisfy its obligations and fund its working capital needs for at least twelve months following the date of issuance of the condensed consolidated financial statements. The Company has the ability to generate additional proceeds from various other potential financing transactions, such as issuancestransactions. We are currently focused on the financing and construction of equity, equity-linkedthe Driftwood terminal and debt securities, or similar transactionscontinuing to fundexpand our obligations and working capital needs.upstream activities.
Sources and Uses of Cash
The following table summarizes the sources and uses of our cash and cash equivalents and costs and expenses for the periods presented (in thousands):
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash used in operating activities | Cash used in operating activities | | $ | (39,170) | | | $ | (56,734) | | Cash used in operating activities | | $ | (65,719) | | | $ | (39,170) | |
Cash used in investing activities | Cash used in investing activities | | (24,416) | | | (389) | | Cash used in investing activities | | (386,130) | | | (24,416) | |
Cash provided by financing activities | Cash provided by financing activities | | 192,660 | | | 70,029 | | Cash provided by financing activities | | 789,333 | | | 192,660 | |
| Net increase in cash, cash equivalents and restricted cash | Net increase in cash, cash equivalents and restricted cash | | 129,074 | | | 12,906 | | Net increase in cash, cash equivalents and restricted cash | | 337,484 | | | 129,074 | |
Cash, cash equivalents and restricted cash, beginning of the period | Cash, cash equivalents and restricted cash, beginning of the period | | 81,738 | | | 68,482 | | Cash, cash equivalents and restricted cash, beginning of the period | | 307,274 | | | 81,738 | |
Cash, cash equivalents and restricted cash, end of the period | Cash, cash equivalents and restricted cash, end of the period | | $ | 210,812 | | | $ | 81,388 | | Cash, cash equivalents and restricted cash, end of the period | | $ | 644,758 | | | $ | 210,812 | |
| Net working capital | Net working capital | | $ | 161,271 | | | $ | (58,741) | | Net working capital | | $ | 371,009 | | | $ | 161,271 | |
Cash used in operating activities for the nine months ended September 30, 2021 decreased2022 increased by approximately $17.6$26.5 million due to an overall increase in disbursements in the normal course of business, as compared to the same period in 2020 due to an overall decrease in disbursements as a result of the reorganization in the first quarter of 2020.2021.
Cash used in investing activities for the nine months ended September 30, 20212022 increased by approximately $24.0$361.7 million compared to the same period in 2020.2021. This increase is predominantly driven byprimarily due to increased natural gas acquisition and development activities.activities of approximately $236.6 million in the current period, as compared to approximately $23.4 million in the prior period. This increase is also due to Driftwood Project construction costs of approximately $117.8 million and Driftwood Project land purchases and land improvements of approximately $19.4 million in the current period.
Cash provided by financing activities for the nine months ended September 30, 20212022 increased by approximately $122.6$596.7 million compared to the same period in 2020.2021. This increase is primarily relatesdue to approximately $489.7 million in net proceeds from borrowing issuances in the following:
•Increasecurrent period, as compared to approximately $119.7 million in principal repayments of borrowings in the prior period. The increase is also due to approximately $246.4$299.7 million in net proceeds from equity issuances and warrant exercises.as compared to approximately $309.1 million in the prior period.
Borrowings
•DecreaseAs of September 30, 2022, we had total indebtedness of approximately $47.4 million in net borrowings proceeds due to the absence of these activities during the current period.
•Increase of approximately $74.1 million in principal repayments of our borrowings compared to the prior period.
$557.7 million. See Note 11,8, Stockholders’ EquityBorrowings,of our Notes to the Condensed Consolidated Financial Statements for further information about our financing activities.information.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
Capital Development Activities
The activities we have proposed will require significant amounts of capital and are subject to completion risks and delays in completion.delays. We have received all major regulatory approvals for the construction of Phase 1 of the Driftwood terminal and, as a result, our business success will depend to a significant extent upon our ability to obtain the funding necessary to construct assets on a commercially viable basis and to finance the costs of staffing, operating and expanding our company during that process. We have initiated certain owner construction activities necessary to proceed under the Phase 1 EPC Agreement with Bechtel and increased our upstream acquisition and development activities. In March 2022, we issued a limited notice to proceed to Bechtel under our Phase 1 EPC Agreement and commenced the construction of Phase 1 of the Driftwood terminal in April 2022.
We currently estimate the total cost of the Driftwood Project as well as related pipelines and upstream natural gas assets to be approximately $25.0 billion, including owners’ costs, transaction costs and contingencies but excluding interest costs incurred during construction and other financing costs. We have entered into four LSTK EPC agreements currently totaling $15.5 billion, or $561 per tonne, with Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) for construction of the Driftwood terminal. The proposed Driftwood terminal will have a liquefaction capacity of up to approximately 27.6 Mtpa and will be situated on approximately 1,0001,200 acres in Calcasieu Parish, Louisiana. The proposed Driftwood terminal will include up to 20 liquefaction Trains, three full containment LNG storage tanks and three marine berths.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of ourFinancial Condition and Results of Operations
Our strategy involves acquiring additional natural gas properties, including properties in the Haynesville shale trend.basin. We intend to pursue potential acquisitions of such assets, or public or private companies that own such assets. We would expect to use stock, cash on hand, or cash raised in financing transactions to complete an acquisition of this type.
We anticipate funding our more immediate liquidity requirements relative tofor the detailed engineering work and other developmental costs,construction of the Driftwood terminal, natural gas development costs,activities, and general and administrative costsexpenses through the use of cash on hand, proceeds from operations, and proceeds from completed and future issuances of securities by us. Investments in the construction of the Driftwood terminal and natural gas development are and will continue to be significant, but the size of those investments will depend on, among other things, commodity prices, Driftwood Project financing developments and other liquidity considerations, and our continuing analysis of strategic risks and opportunities. Consistent with our overall financing strategy, the Company has considered, and in some cases discussed with investors, various potential financing transactions, including issuances of debt, equity and equity-linked securities or similar transactions, to support its short- and medium-term capital requirements. The Company will continue to evaluate its cash needs and business outlook, and it may execute one or more transactions of this type in the future.
We currently expect that our long-term capital requirements will be financed by proceeds from future debt, equity and/or equity-linked transactions.
Results of Operations
The following table summarizes revenue, costs and expenses for the periods presented (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 | |
Total revenue | | $ | 15,638 | | | $ | 14,265 | | | $ | 49,698 | | | $ | 28,811 | | |
Cost of sales | | 3,068 | | | 9,241 | | | 30,841 | | | 14,529 | | |
Natural gas sales | | Natural gas sales | | $ | 81,103 | | | 15,638 | | | 168,442 | | | 29,922 | | |
LNG sales | | LNG sales | | — | | | — | | | 120,951 | | | 19,776 | | |
Total revenues | | Total revenues | | 81,103 | | | 15,638 | | | 289,393 | | | 49,698 | | |
LNG cost of sales | | LNG cost of sales | | — | | | 339 | | | 131,663 | | | 23,186 | | |
Operating expenses | | Operating expenses | | 8,428 | | | 2,729 | | | 18,536 | | | 7,655 | | |
Development expenses | Development expenses | | 8,823 | | | 5,799 | | | 26,327 | | | 26,105 | | Development expenses | | 12,891 | | | 8,823 | | | 48,244 | | | 26,327 | | |
Depreciation, depletion and amortization | Depreciation, depletion and amortization | | 3,735 | | | 3,474 | | | 8,720 | | | 14,301 | | Depreciation, depletion and amortization | | 12,860 | | | 3,735 | | | 22,735 | | | 8,720 | | |
General and administrative expenses | General and administrative expenses | | 14,528 | | | 10,734 | | | 47,065 | | | 43,342 | | General and administrative expenses | | 41,495 | | | 14,528 | | | 97,334 | | | 47,065 | | |
Impairment charge | | — | | | — | | | — | | | 81,065 | | |
Severance and reorganization charges | | — | | | — | | | — | | | 6,359 | | |
Related party charges | | — | | | — | | | — | | | 7,357 | | |
Loss from operations | | (14,516) | | | (14,983) | | | (63,255) | | | (164,247) | | |
Income (loss) from operations | | Income (loss) from operations | | 5,429 | | | (14,516) | | | (29,119) | | | (63,255) | | |
Interest expense, net | Interest expense, net | | (968) | | | (15,973) | | | (7,689) | | | (33,564) | | Interest expense, net | | (6,944) | | | (968) | | | (13,790) | | | (7,689) | | |
Gain on extinguishment of debt, net | Gain on extinguishment of debt, net | — | | | — | | | 1,422 | | | — | | Gain on extinguishment of debt, net | — | | | — | | | — | | | 1,422 | | |
Other (expense) income, net | | (448) | | | 1,490 | | | (3,993) | | | (1,235) | | |
Other expense, net | | Other expense, net | | (12,718) | | | (448) | | | (37,966) | | | (3,993) | | |
Income tax benefit | Income tax benefit | | — | | | — | | | — | | | — | | Income tax benefit | | — | | | — | | | — | | | — | | |
Net loss | Net loss | | $ | (15,932) | | | $ | (29,466) | | | $ | (73,515) | | | $ | (199,046) | | Net loss | | $ | (14,233) | | | $ | (15,932) | | | $ | (80,875) | | | $ | (73,515) | | |
Our consolidated net loss was approximately $15.9 millionThe most significant changes affecting our results of operations for the three months ended September 30, 2021,2022 compared to a net loss of approximately $29.5 million during the same period in 2020. The decrease in net loss2021, on a consolidated basis and by segment, are the following:
Upstream
•Increase of approximately $13.5$65.5 million is primarilyin Natural gas sales as a result of higher realized natural gas prices and production volumes attributable to the following:acquisition of proved natural gas properties and newly drilled and completed wells during the third quarter of 2022.
•DecreaseIncrease of approximately $15.0$5.7 million in interest expenseOperating expenses as a result of higher production volumes attributable to the acquisition of proved natural gas properties and newly drilled and completed wells during the third quarter of 2022.
•Increase of approximately $9.1 million in DD&A primarily attributable to a higher net book value utilized in the calculation of DD&A due to the declineacquisition of proved natural gas assets, increased capital expenditures and higher production volumes during the current period.
Marketing & Trading
•Increase of approximately $12.3 million in interest chargesOther expense, net primarily attributable to an approximately $12.5 million of realized loss on the settlement of natural gas financial instruments, as compared to the same period in 2021.
Midstream
•Increase of approximately $4.1 million in Development expenses primarily attributable to an increase in technical and engineering services associated with our borrowing obligations, which were fully repaid during 2021.pipeline development activities.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
Consolidated
•DecreaseIncrease of $6.2approximately $27.0 million in costGeneral and administrative expenses primarily attributable to a $9.3 million increase in compensation expenses, a $3.8 million increase in professional services, a $9.0 million increase in donations to a university to advance global energy research and other expenses in the normal course of business.
Primarily as a result of the foregoing, our consolidated Net loss was approximately $14.2 million for the three months ended September 30, 2022, compared to a Net loss of approximately $15.9 million during the same period in 2021.
The most significant changes affecting our results of operations for the nine months ended September 30, 2022 compared to the same period in 2021, on a consolidated basis and by segment, are the following:
Upstream
•Increase of approximately $138.5 million in Natural gas sales as a result of higher realized natural gas prices and production volumes attributable to the acquisition of proved natural gas properties and newly drilled and completed wells during the nine months ended September 30, 2022.
•Increase of approximately $10.9 million in Operating expenses as a result of higher production volumes attributable to the acquisition of proved natural gas properties and newly drilled and completed wells during 2022.
•Increase of approximately $14.0 million in DD&A primarily because we did not execute any purchasesattributable to a higher net book value utilized in the calculation of DD&A due to the acquisition of proved natural gas assets, increased capital expenditures and sales of LNG cargoshigher production volumes during the current period.
Marketing & Trading
•Increases of approximately $101.2 million and approximately $108.5 million in LNG sales and LNG cost of sales, respectively, as a result of increased realized sales and purchase prices of an LNG cargo sold during the first quarter of 2022, as compared to the realized price of an LNG cargo sold during the second quarter of 2021.
•Increase of approximately $34.0 million in Other expense, net primarily attributable to an approximately $13.6 million unrealized loss on financial instruments due to changes in the fair value of the Company’s derivative instruments during the current period and approximately $23.8 million of realized loss on the settlement of natural gas financial instruments, as compared to the same period in 2021. The decreaseslosses on financial instruments were partially offset by approximately $3.5 million of realized gain on the settlements of LNG financial instruments in the current period.
Midstream
•Increase of approximately $21.9 million in Development expenses primarily attributable to approximately $6.2 million in the cost of land and roads donated for public use in the state of Louisiana, an approximately $6.8$3.6 million increase in technical and engineering services associated with the Driftwood Project and pipeline development activities, and an approximately $12.1 million increase in compensation and other development expenses associated with the Driftwood Project.
Consolidated
•Increase of approximately $50.3 million in General and administrative expenses primarily attributable to a $23.4 million increase in compensation expenses, a $12.1 million increase in professional services, a $9.0 million increase in donations to a university to advance global energy research and Developmentother expenses in the normal course of business.
Primarily as a result of an increase in spending activities primarily associated with the Driftwood Project.
Ourforegoing, our consolidated netNet loss was approximately $73.5$80.9 million for the nine months ended September 30, 2021,2022, compared to a netNet loss of approximately $199.0$73.5 million during the same period in 2020. The decrease in net loss of approximately $125.5 million is primarily a result of the following:
•Absence of upstream impairment charges, severance and reorganization costs, and related party expenses of approximately $81.1 million, $6.4 million, and $7.4 million respectively, that were incurred during 2020.
•Decrease of approximately $25.9 million in interest expense due to the decline in interest charges associated with our borrowing obligations, which were fully repaid during 2021.
•Decrease of approximately $5.6 million in DD&A due to the lower net book value utilized in the calculation as a result of the impairment charge that occurred during the prior period.
The increases of approximately $20.9 million in total revenues and $16.3 million in cost of sales were primarily related to the purchase and sale of an LNG cargo in April 2021.
Recent Accounting Standards
We do not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our Condensed Consolidated Financial Statements or related disclosures.
Critical Accounting Estimates
There were no changes made by management to the critical accounting policies made by management in the ninethree months ended September 30, 2021.2022. Please refer to the Summary of Critical Accounting Estimates section within MD&AManagement’s Discussion and Analysis and Note 12 to the consolidated financial statementsConsolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 20202021 for a discussion of our critical accounting estimates and accounting policies.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that we hold, or are party to, instruments that are subject toThe primary market risks that are materialrisk relating to our Business.financial instrument contracts is the volatility in commodity market prices for our natural gas production. We use financial instruments to reduce the volatility of earnings and cash flow due to fluctuations in the prices of natural gas. The market price risk is offset by the gain or loss recognized upon the related sale of the production that is financially protected. Refer to Note 6, Financial Instruments, of the condensed consolidated financial statements included in this Quarterly Report for additional details about our financial instruments and their fair value.
ITEM 4. CONTROLS AND PROCEDURES
As indicated in the certifications in Exhibits 31.1 and 31.2 to this report, our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of September 30, 2021.2022. Based on that evaluation, these officers have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There were no changes during our last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as amended.2021, except for the risk factors discussed below.
If the conditions precedent to our LNG sale and purchase agreement (“LNG SPA”) cannot be satisfied or extended on acceptable terms, or at all, such LNG SPA may be terminated.
In 2021, Driftwood LNG LLC (“Driftwood LNG”) entered into an LNG SPA with each of Vitol Inc. (“Vitol”) and Gunvor Singapore Pte Ltd (“Gunvor”) and two LNG SPAs with Shell NA LLC (“Shell”). On September 23, 2022, we received a notice of termination from Shell with respect to the two LNG SPAs with Shell, and we delivered a notice of termination to Vitol regarding the LNG SPA with Vitol. Conditions precedent to each party’s obligation to consummate the transactions contemplated by the LNG SPA with Gunvor include (i) Driftwood LNG having issued to Bechtel Oil, Gas and Chemicals, Inc. an unconditional full notice to proceed for the construction of the first two plants of the Driftwood terminal and (ii) Driftwood LNG or an affiliate thereof having secured the necessary financing arrangements to construct such plants and having achieved financial close under such arrangements. The LNG SPA with Gunvor has a conditions precedent deadline of December 31, 2022. If the conditions precedent to the LNG SPA with Gunvor are not satisfied by such conditions precedent deadline, either party to the LNG SPA can terminate such LNG SPA, subject to each LNG SPA’s notice requirements. There can be no assurance that we will be able to satisfy or extend the conditions precedent deadline on acceptable terms, or at all. The termination of the LNG SPA with Gunvor could negatively affect our ability to secure additional equity and/or debt financing to complete the Driftwood Project on acceptable terms, or at all.
Our Acquisition (as defined below) may not achieve its intended results and may result in us assuming unanticipated liabilities.
On July 13, 2022, we entered into a purchase and sale agreement (the “Acquisition Agreement”) pursuant to which we acquired on August 18, 2022 certain natural gas assets in the Haynesville Shale of Louisiana, with the expectation that the Acquisition would result in various benefits, growth opportunities and synergies. Achieving the anticipated benefits of the Acquisition is subject to a number of risks and uncertainties. For example, under the Acquisition Agreement, we had the opportunity to conduct customary environmental and title due diligence. However, we may discover title defects or adverse environmental or other conditions of which we are currently unaware. Environmental, title and other problems could reduce the value of the properties to us, and, depending on the circumstances, we could have limited or no recourse with respect to those problems. We have assumed substantially all of the liabilities associated with the acquired properties and will be entitled to indemnification in connection with those liabilities in only limited circumstances and in limited amounts. We cannot assure you that such potential remedies will be adequate for any liabilities we incur, and such liabilities could be significant. Also, it is uncertain whether our existing operations and the acquired properties and assets can be integrated in an efficient and effective manner.
As with other acquisitions, the success of the Acquisition depends on, among other things, the accuracy of our assessment of the reserves and drilling locations associated with the acquired properties, future commodity prices and operating
costs and various other factors. These assessments are necessarily inexact. As a result, we may not recover the purchase price for the Acquisition from the sale of production from the properties or recognize acceptable rates of return from such sales.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None that occurred during the three months ended September 30, 2021.2022.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None that occurred during the three months ended September 30, 2021.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| | | | | | | | |
Exhibit No. | | Description |
10.1††‡4.1 | | |
10.1††‡
| | |
10.2††‡10.2‡
| | Change Order CO-009, dated as of July 15, 2022, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Driftwood LNG Sale and Purchase Agreement 2Phase 1 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Shell NA LNG LLC, datedBechtel Energy Inc. (formerly known asof July 29, 2021 Bechtel Oil, Gas and Chemicals, Inc.) (incorporated by reference to Exhibit 10.210.5 to the Company’s CurrentQuarterly Report on Form 8-Kfiled on July 29, 2021)10-Q for the quarter ended June 30, 2022) |
10.3†‡10.3‡* | | Executive Chairman Employment Agreement, effectiveChange Order CO-010, dated as of October 10, 2022, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Driftwood LNG Phase 1 2021,Liquefaction Facility, dated as of November 10, 2017, by and between TellurianDriftwood LNG LLC and Bechtel Energy Inc. (formerly known as Bechtel Oil, Gas and Charif Souki (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-Kfiled on October 4, 2021) |
10.4†‡ | | |
10.5†* | | |
31.1* | | |
31.2* | | |
32.1** | | |
32.2** | | |
101.INS* | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021,2022, formatted in Inline XBRL |
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* | Filed herewith. |
** | Furnished herewith. |
†† | Management contract or compensatory plan or arrangement. |
†† | Portions of this exhibit have been omitted in accordance with Item 601(b)(2) or 601(b)(10) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed. The registrant hereby agrees to furnish supplementally an unredacted copy of this exhibit to the Securities and Exchange Commission upon request. |
‡ | Certain schedules or similar attachments to this exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The registrant hereby agrees to furnish supplementally to the Securities and Exchange Commission upon request a copy of any omitted schedule or attachment to this exhibit. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | TELLURIAN INC. |
| | | |
Date: | November 3, 20212, 2022 | By: | /s/ L. Kian Granmayeh |
| | | L. Kian Granmayeh |
| | | Chief Financial Officer |
| | | (as Principal Financial Officer) |
| | | Tellurian Inc. |
| | | |
Date: | November 3, 20212, 2022 | By: | /s/ Khaled A. Sharafeldin |
| | | Khaled A. Sharafeldin |
| | | Chief Accounting Officer |
| | | (as Principal Accounting Officer) |
| | | Tellurian Inc. |