Charif Souki, former executive chairman of aspiring U.S. LNG exporter Tellurian Inc., also founded Cheniere Energy, which currently exports 4.6 Bcf/d of LNG from the Louisiana Gulf Coast.

Charif Souki
(Source: Hart Energy)

Australian LNG exporter Woodside Energy has a deal to buy Tellurian Inc. for $900 million cash in an acquisition totaling $1.2 billion in value, including assumption of debt and other liabilities.

Once built, the Tellurian plant will have export capacity of 27.6 million tonnes per annum (3.7 Bcf/d), also from the Louisiana Gulf Coast.

Souki was dismissed from his post in early December and resigned from the board later that month after Tellurian completed an investigation into Souki’s loans from a lender from whom Tellurian was also borrowing, according to Tellurian’s filings with the U.S. Securities and Exchange Commission.

Hart Energy spoke with Souki on Sept. 4 about his plans, the outlook for global gas markets and whether data centers will amount to much in terms of drawing down excess U.S. gas capacity.

“It’s very simple. Anybody can do the numbers,” he said.

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Nissa Darbonne (ND): You were let go by Tellurian in December, so you weren’t part of agreeing to the [$1.2 billion] sale to Woodside Energy this summer. What do you think of it?

Charif Souki (CS): It’s going to be a fantastic deal for Woodside [when it closes] and it’s going to change the nature of Woodside. It’s an existential change. And I think they understand it. They’re smart enough to have recognized it.

I’m surprised nobody else has recognized the value. And it is very, very, very much in line with the deal [Woodside] just did with OCI NV [for a Beaumont, Texas, ammonia-production plant].

It’s all about taking American gas and selling it on the international scene.

So Woodside is paying $2.3 billion for an ammonia plant that is going to sell 1.1 million [metric] tonnes [per year].

It takes 30 Bcf to do that.

So they’re going to take 30 Bcf of American gas and sell it in the form of ammonia in Europe and in Asia at the equivalent of $11 and $12 an MMBtu.

So it’s the same kind of arbitrage—except, with the ammonia plant that they’re paying $2.3 billion for, they’re dealing with 30 Bcf per year.

With Driftwood, they’re dealing with [an additional] 1.3 Tcf per year.

ND: That’s a lot of gas.

CS: Both deals make sense. But the Driftwood deal makes 15 times more sense than [just] the one with the ammonia plant.

As you know, ammonia is 80% gas.

So all you’re doing is taking American gas and selling it in a different form. A tonne of ammonia sells in Europe for close to $400.

So your 1.1 million tonnes are going to generate about [$440] million a year of revenue and it takes 30 Bcf that you have to buy in the United States for $3 an MMBtu on average. You’re going to buy gas for [$90] million, process it into ammonia for a $100 [million], transport it to Europe for $50 [million] and you’ll make $200 million a year on the 30 Bcf that you’re selling [as ammonia].

ND: Nice margin.

CS: They’re going to have the opportunity to do the same thing with [Tellurian’s] Driftwood [LNG export plant] where they’re going to be dealing with 1.3 Tcf [a year] when the project is fully built.

It’s going to cost them—without [financing] costs, if you just look at the cost of construction—$25 billion.

You’ll buy the same gas in the United States at $3 an MMBtu and you will sell it on the global markets for $9, $10, $11 and you’ll make a ton of money and it’s going to be a game-changer for Woodside.

It’s brilliant.

ND: Reading the background on how the Tellurian-Woodside merger came together, Woodside’s CEO Meg O’Neill’s negotiating skills appear to be impressive.

CS: I don’t want to go there. It makes me sick.

Meg O’Neill’s negotiating skills. [Pause.] It doesn’t reflect well on the counterparties.

But it’s all in the proxy statements. So I have nothing to say about that. But at the end of the day, it’s a fantastic deal for Woodside. That’s all I want to say.

ND: Do you have a position in Woodside? I know they’re buying the Tellurian stock for cash, not equity. So it seems you’re being very generous to be supportive [of Woodside].

CS: Since they announced this deal, I’ve been buying Woodside stock. I’m already a significant shareholder. I have nothing but admiration for what Woodside has done.

ND: In number of shares, is it six figures you’ve accumulated now or seven?

CS: Definitely six. And I intend to get over seven figures.

ND: What will you build next?

CS: I am kind of stuck until the end of the year. I still have my non-compete [agreement] with Tellurian until the end of the year.

So at the moment I’m going to stay on the sidelines.

But as you can imagine, I have some ideas.

ND: It will involve U.S. natural gas?

CS: There are a few things that are very, very evident. One, the United States is not running out of gas anytime soon. Two, the increase in gas production is staggering.

Three, the demand for natural gas in the United States is not going to increase dramatically in spite of what people are saying about data centers.

If you notice, it seems to be that most of the data centers are being thought about for Virginia because [nearby] Marcellus gas is plentiful and very cheap and it’s the easiest place to put [data centers and their demand for electricity].

Four, the rest of the world desperately needs this gas.

So the arbitrage from [converting] American gas [into] global gas is going to continue to stay for a long time.

ND: From the proxy statement, it looks like Tellurian took the Woodside deal because it was running out of cash and new means of raising cash.

CS: Well, you know that that was not my position. But I have a tolerance for risk that most people don’t.

ND: Yes.

CS: I did read the proxy statement, so I know what they say.

I don’t agree with them, but I can understand how people can disagree in good faith.

They did not consult me.

But for me, I’m very excited for Woodside. I think it’s fantastic.

I am full of admiration for the move that they’ve done and I think it’s going to be a game-changer for them.

American gas is stranded and having an American gas [E&P] company without an export option is going to be extremely difficult [thus needing to have contracts with LNG exporters].

We have the resource we need right here in this country and we have to find a way to put it on the global markets.

So I’m a fan of what Woodside is doing.

ND: Is Woodside’s $1.2 billion offer for Tellurian a fair price?

CS: I wish they had paid more for Tellurian, but it’s not material.

I mean, they’re paying a billion dollars in round numbers for Tellurian for a project that is going to cost $25 billion to build. So paying $1 billion or $2 billion or $3 billion—at the end of the day, it makes no difference because your arbitrage is so large. 

You’re buying American gas for $3 and you’re selling it for $10, $11, $12. You’re making $9 an MMBtu [net]. That’s $10 billion a year of cashflow [for 1.3 Tcf/year of gas that cost $3 per Mcf, net of operations, maintenance, liquefaction and other costs].

It’s very simple. Anybody can do the numbers.

What I love about Woodside is that, one, they’re integrated and, two, they’re exposed to global indices.

ND: In the Pacific Basin and, with Driftwood, in the Atlantic Basin.

CS: The arbitrage is there. And they have the balance sheet to go along with it. They’re very conservatively financed.

So I love everything they’re doing.

And as I said, since they made the announcement, I built a pretty significant position and when the deal goes through, I’ll build an even bigger position.

They’re the perfect gas company at the moment—with Tellurian [in the portfolio].

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