Stock Analysis & Valuation Tellurian Inc. (0LE3.L)

• Previous Close: £1.00
• Sector Valuation Confidence Level: Low

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	n/a	n/a
Intrinsic value (DCF)		n/a
Graham-Dodd Method		n/a
Graham Formula	10.50	952

Strategic Investment Analysis

Company Overview

Tellurian Inc. (LSE: 0LE3.L) is a Houston-based natural gas company focused on developing a vertically integrated portfolio of LNG production, marketing, and infrastructure assets. The company's flagship project is its Driftwood LNG facility, a proposed 27.6 million tons per annum export terminal in Louisiana, coupled with associated pipeline infrastructure. Tellurian also holds significant natural gas production assets in the prolific Haynesville Shale, with 11,060 net acres and 78 producing wells. Founded in 2016, the company operates in the high-growth LNG sector, capitalizing on global demand for cleaner energy alternatives. Tellurian's business model combines upstream gas production with midstream liquefaction and downstream marketing, positioning it as a potential integrated LNG player. The company's strategic location near the Gulf Coast provides access to abundant gas supplies and export markets. As energy markets transition toward lower-carbon solutions, Tellurian aims to establish itself as a competitive LNG supplier to global markets.

Investment Summary

Tellurian presents a high-risk, high-reward proposition for energy investors. The company's ambitious Driftwood LNG project could position it as a significant LNG exporter if successfully developed and financed. However, Tellurian currently operates at a loss (-$166.2M net income in 2023) with negative operating cash flow (-$11.2M) and substantial capital expenditures (-$317.5M). The company's high beta (2.568) reflects its volatility and sensitivity to energy market fluctuations. Key risks include execution risk on major projects, LNG price volatility, and significant funding requirements. The lack of dividends and current unprofitability may deter conservative investors, while the potential for substantial growth in global LNG demand could appeal to speculative investors. The company's $487.6M debt load versus $75.8M cash position warrants close monitoring of liquidity.

Competitive Analysis

Tellurian operates in the highly competitive global LNG market, where it faces competition from established energy majors and specialized LNG players. The company's competitive strategy centers on developing a fully integrated LNG value chain from production to export, which could provide cost advantages if successfully executed. Tellurian's Haynesville Shale assets offer proximity to its planned Driftwood facility, potentially reducing transportation costs compared to competitors without integrated gas supplies. However, the company lacks the scale, financial resources, and long-term contracts of larger LNG players, making project financing challenging. Tellurian's first-mover advantage in developing new U.S. LNG capacity is diminishing as other projects advance. The company's relatively small market cap ($194.8M) limits its ability to compete with energy giants in securing long-term offtake agreements. Tellurian's competitive position hinges on its ability to secure financing for Driftwood and demonstrate cost competitiveness against established LNG exporters. The company may face pricing pressure from Middle Eastern and Australian LNG producers with lower production costs. Successful execution could position Tellurian as a mid-sized LNG player, but delays or financing challenges could leave it vulnerable to acquisition or marginalization.

Major Competitors

• Cheniere Energy (LNG): Cheniere is the largest U.S. LNG exporter with operational facilities and long-term contracts. Its scale and operational history give it significant advantages over Tellurian in terms of financing and customer relationships. However, Cheniere lacks Tellurian's integrated upstream assets, potentially making its cost structure less competitive. Cheniere's established position makes it less risky but with potentially lower growth upside.
• EQT Corporation (EQT): As the largest U.S. natural gas producer, EQT has massive scale in upstream operations but limited LNG exposure. EQT's production capabilities dwarf Tellurian's, but it lacks Tellurian's LNG infrastructure development. EQT could potentially partner with or acquire Tellurian to gain LNG capabilities. EQT's financial strength gives it advantages in weathering gas price volatility.
• NextDecade Corporation (NEXT.L): NextDecade is developing the Rio Grande LNG project, making it a direct competitor in new U.S. LNG capacity. Like Tellurian, it's a development-stage company, but has secured more substantial offtake agreements. NextDecade's project appears further advanced, potentially beating Tellurian to market. Both companies face similar financing challenges in a competitive LNG environment.
• Shell plc (SHEL): Shell is one of the world's largest LNG players with global operations and integrated assets. Its massive scale, trading capabilities, and financial resources make it dominant in LNG markets. Shell could potentially acquire Tellurian's assets to expand its U.S. position. However, Shell's size makes it less nimble than Tellurian in developing specific regional projects.
• TotalEnergies SE (TOTAL): TotalEnergies is a major global LNG player with diversified energy assets. Its strong balance sheet and existing customer relationships give it advantages in securing LNG contracts. Total has been active in U.S. LNG through equity investments, potentially making it a partner or acquirer for Tellurian. Total's renewable energy investments may divert capital from pure-play LNG projects like Tellurian's.