Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Woodside Energy has agreed to buy struggling US liquefied natural gas developer Tellurian in a $1.2bn deal that the Australian company said would turn it into a “global LNG powerhouse”.
The transaction, announced by the companies on Sunday, draws a line under a long-running saga surrounding Tellurian, which ousted its chair in December amid repeated struggles to get its $25bn Driftwood export project in Louisiana off the ground.
“Despite our recent progress, we’ve been clear that the company’s situation necessitated an exploration of all possible alternatives, including a potential sale,” wrote Tellurian executive chair Martin Houston in a letter to shareholders. “Ultimately, we decided the attractive offer in hand outweighed the risks and uncertainty associated with going it alone.”
Tellurian was founded in 2016 by Houston, a former BG Group executive, and US LNG pioneer Charif Souki, with the aim of developing the Driftwood project on a 1,200-acre site along the Calcasieu river. If completed, it would be one of the country’s largest export terminals.
But the project has faced repeated setbacks, losing key buyers and struggling to raise funds despite a surge in demand for US gas since Russia’s invasion of Ukraine.
Souki, credited with kick-starting the US LNG export industry at his former company Cheniere, was ousted as executive chair at Tellurian in December as its struggles intensified.
The company’s travails have caused its market value to collapse from a high of almost $3bn in 2017 to less than $500mn on Friday. The sale price, which includes $900mn in cash plus the company’s debt, is a 75 per cent premium to its most recent close.
For Woodside, Australia’s biggest oil and gas developer, the deal gives it a better foothold in the booming US LNG export industry at a time when demand for the super-chilled fuel is set to grow rapidly.
“The acquisition of Tellurian and its Driftwood LNG development opportunity positions Woodside to be a global LNG powerhouse,” said Woodside chief executive Meg O’Neill.
Woodside, which traces its roots to the 1950s and doubled in size in 2022 when it merged with BHP’s oil and gas division, has been on the hunt for acquisitions to bolster its growth prospects.
It held talks with local rival Santos this year for a $52bn deal that would have created a “national champion”, but it fell apart after the two companies failed to agree terms.
Saul Kavonic, an analyst with MST Marquee, said Woodside had acquired Tellurian at a “bargain price” close to book value and would be better set to develop the project than the existing management due to its existing relationships in the LNG sector.
He added Woodside would look to sell stakes in the project to partners in time, with Japanese, Middle Eastern and US investors potentially interested once Woodside takes control of the assets.
“This is the right kind of M&A Woodside should be pursuing,” he said, adding that Woodside would still need to detail the impact of developing Driftwood on its dividend policy to investors.
The Perth-based company already has a burgeoning presence in the US market, where it is the majority owner of the Shenzi field, off the coast of Louisiana.
The Tellurian takeover is the latest example of consolidation in the global energy sector as large groups such as Chevron and ExxonMobil have taken out smaller rivals to boost their growth prospects.