Woodside Energy Group Ltd. has reached an agreement to acquire U.S. liquefied natural gas (LNG) project developer Tellurian Inc. for approximately $900 million, driven by expectations of substantial growth in global demand for LNG.
Details of the Deal
Australia’s largest oil and gas producer will pay roughly $1 per share in cash to obtain full control of Tellurian, including the prospective U.S. Gulf Coast Driftwood LNG project.
Following the announcement, Woodside’s shares experienced a 2.1% decline in Sydney, marking the most significant single-day drop since May 1st. Conversely, Tellurian’s shares saw a surge of over 65% Monday morning in New York.
Woodside’s LNG Advocacy
Woodside has been a prominent advocate for increased natural gas production to complement the growth of intermittent renewable energy sources.
The company has actively sought potential U.S. LNG investments to expand its supply portfolio, and the Driftwood project, unaffected by President Biden’s pause on approvals in January, presented a compelling opportunity.
Becoming a Global LNG Powerhouse
Woodside’s Chief Executive Officer, Meg O’Neill, remarked, “The acquisition of Tellurian and its Driftwood LNG development opportunity positions Woodside to become a global LNG powerhouse.
A complementary U.S. position would enable us to better serve customers worldwide and seize further marketing optimization opportunities across both the Atlantic and Pacific Basins.”
Project Timeline and Capacity
Woodside aims to reach a final investment decision for the first phase of the Driftwood project by the first quarter of 2025.
Upon completion of all four phases, the Louisiana facility is projected to export 27.6 million tons of LNG annually—nearly tripling Woodside’s current capacity and accounting for nearly 6% of the global total at the end of the previous year.
Overcoming Challenges
Tellurian, co-founded in 2016 by LNG industry pioneer Charif Souki, who departed in December amid personal bankruptcy proceedings, has faced challenges in bringing the facility to fruition.
Martin Houston, another industry veteran and Tellurian’s current chairman, has pledged to cut costs, and previous discussions to sell the business had taken place.
In an interview, Houston stated, “Woodside stepping into Driftwood provides a high degree of certainty around the project.”
Marketing and Partnership Considerations
Driftwood has distinguished itself from other U.S. LNG projects by establishing long-term contracts linked to Asian and European spot prices.
However, this exposure to the volatile spot market led to the loss of several potential deals for Tellurian, including those with a major Indian customer, Shell Plc, and Vitol SA.
Saul Kavonic, an energy analyst at Sydney-based MST Marquee, commented, “Woodside can better take forward the project than Tellurian can. The Australian company can address marketing relationships, funding, and operator capability deficits. This is the kind of deal Woodside should be doing—where they can enter cheaply and add value.”
Future Collaborations and Export Growth
U.S. private equity gas driller Aethon Energy, which acquired Tellurian’s upstream gas assets earlier this year, has a non-binding agreement to purchase LNG from the Driftwood project. President Gordon Huddleston expressed eagerness to work with Woodside in an interview.
Woodside has been actively exploring avenues to increase exports. Earlier this year, the company concluded talks with smaller rival Santos Ltd., which could have made it one of the largest LNG producers in the Asia-Pacific region. Woodside plans to bring potential partners into the Driftwood project, aiming to sell approximately 50% of it.
O’Neill mentioned in an analyst call that the company has already received expressions of interest in collaborating on U.S. LNG. The transaction is expected to be finalized in the fourth quarter.