As the markets plummet on Powell's continuing confusion, I have been adding to a new position for myself and my clients this week. We are buying Tellurian Inc. 8.25% Senior Notes (TELZ) , due 2028. These are exchange-listed bonds, so they should be easy to find via any trading platform other than Robinhood (HOOD) , which is useless, but this is an illiquid security.
That said, with TELZ trading at a 6% discount to par and sporting an 8.25% coupon, I am willing to absorb a bit of a wide spread to lock this one for the long run.
Tellurian is chaired by Charif Souki, the LNG visionary of Cheniere (LNG) , which is a key and well-performing component of my HOAX model portfolio. Cheniere is an established player in LNG exports, but Tellurian is essentially a startup, with an export facility, Driftwood LNG in Louisiana, slated to open in 2026.
The founding of Tellurian led to a soap opera at Cheniere, including much litigation and the involvement notorious corporate troublemaker Carl Icahn, and Charif's departure from LNG. Charif ended up on his feet with (TELL) , though, and I am glad we have him. He saw this LNG boom coming a full decade before most did.
Tellurian's website features many pictures of Bechtel's site prep work in LA for Driftwood, and construction has been proceeding at a normal pace. More importantly, the first two phases of Driftwood's production are already sold out, with strong counterparties such as energy traders Gunvor and Vitol and major integrated player Shell (SHEL) .
To use an energy industry term, Driftwood has been de-risked four years before it will open, and looking at the supply and demand for LNG globally - a lot of demand, not much supply - and the extraordinary differences in pricing we see the true value in Driftwood.
Today's natgas prices are:
Henry Hub (US benchmark) $9.42/mmBTU
TTF (Euro benchmark) $325/mmBTU - not a typo
JKM (Asia benchmark) $69.96/mmBTU
As Charif foresaw, LNG arbitrage is ensured. The prices will gyrate (natgas futures contracts are affectionately known among energy traders as "The Widowmaker", but the supply/demand balance will not shift.
Between now and 2026, TELL will also benefit from the expansion of its Haynesville Shale natural gas acreage in Arkansas. TELL is also building a pipeline to get that gas to Driftwood on the Gulf, but for the next 3.5 years, Tellurian has an incredibly valuable asset that it can monetize through the ample natgas infrastructure in that part of the country. Tellurian closed on a $125mm purchase of Haynesville natgas assets a few weeks ago.
The Haynesville assets (TPC) will eventually be a feeder for Driftwood, but between now and then they are extremely valuable production assets with natgas at $9.42 per mmBTU. $2/mmBTU is a good benchmark for breakeven cost for a domestic shale gas production, and so the difference for Tellurian between $2/mmBTU and $9.40/mmBTU is just pure profit.
Obviously that is partially reflected in the price TELL paid for its most recent asset purchase from their previous private equity owners, but that $125 mm purchase was fulfilled with cash on hand at TELL so there was no opportunity lost to spending that capital.
That stream of cash flows from its growing Haynesville Shale natgas play makes Tellurian a much better credit than its bond pricing would indicate. There is no way this company should have a security yielding 8.8%... or even 5%.
But when the market misses something, Excelsior Capital Partners acts. TELZ is a screaming buy here.
So, Tellurian common (TELL) is a great long-term play, also, but will likely remain a volatile stock. Buying the bonds allows ExCap to de-risk itself from equity market volatility and still absorb a truly tasty yield.
