Shares of Tellurian (TELL 31.77%) were up 33.5% as of 3:15 p.m. ET Tuesday after the natural gas company announced plans to potentially divest its upstream business.
Why Tellurian wants to sell its upstream assets
In a press release this morning, Tellurian announced that it has engaged its financial advisor, Lazard, to “explore opportunities for the sale of Tellurian’s upstream business.”
This news is music to shareholders’ ears, of course, as worries persist surrounding the very real possibility Tellurian could descend into bankruptcy. Recall the company issued a “going concern” warning last November, indicating its cash reserves wouldn’t be sufficient to cover obligations and fund working capital needs for the next year.
Tellurian CEO Octávio Simões elaborated today that the company has been reviewing its strategy in recent months as it works to commercialize its long-delayed Driftwood liquid natural gas (LNG) plant project. As a result of this review, Tellurian has determined “that there are alternative gas supply strategies available to us from various basins and our ownership of upstream assets is not necessary at this stage of Tellurian’s development.”
What’s next for Tellurian investors?
By selling its “substantial number” of drilling locations to oil and gas producers that could develop them more quickly than Tellurian can, Tellurian will be able to significantly reduce its debt load and general and administrative expenses, and bolster its cash position.
“Currently, this approach is more attractive than issuing equity to fund our 2024 development activities and working capital needs,” Simões explained.
In the end, Tellurian isn’t out of the woods just yet. But as the company works to reduce expenses, improve its balance sheet, and ultimately stave off potential bankruptcy, it’s no surprise to see the stock bouncing in response.
Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
