tell-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-5507

Tellurian Inc.

(Exact name of registrant as specified in its charter)

Delaware

06-0842255

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

1201 Louisiana Street,

Suite 3100,

Houston,

77002

(Address of principal executive offices)

(Zip Code)

(832) 962-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock, par value $0.01 per share

TELL

NYSE

American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

As of October 22, 2021, there were 479,005,062 shares of common stock, $0.01 par value, issued and outstanding.

Tellurian Inc.

TABLE OF CONTENTS

Page

Part I — Financial Information (Unaudited)

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statement of Changes in Stockholders’ Equity

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Part II — Other Information

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 5.

Other Information

Item 6.

Exhibits

Signatures

Cautionary Information About Forward-Looking Statements

The information in this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts, that address activity, events, or developments with respect to our financial condition, results of operations, or economic performance that we expect, believe or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “budget,” “continue,” “estimate,” “expect,” “forecast,” “initial,” “intend,” “likely,” “may,” “plan,” “potential,” “project,” “proposed,” “should,” “will,” “would” and similar expressions are intended to identify forward-looking statements. These forward-looking statements relate to, among other things:

•our businesses and prospects and our overall strategy;

•planned or estimated capital expenditures;

•our ability to grow our upstream operations;

•availability of liquidity and capital resources;

•our ability to obtain additional financing as needed and the terms of financing transactions, including for the Driftwood Project;

•revenues and expenses;

•progress in developing our projects and the timing of that progress;

•future values of the Company’s projects or other interests, operations or rights; and

•government regulations, including our ability to obtain, and the timing of, necessary governmental permits and approvals.

Our forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. These statements are subject to a number of known and unknown risks and uncertainties, which may cause our actual results and performance to be materially different from any future results or performance expressed or implied by the forward-looking statements. Factors that could cause actual results and performance to differ materially from any future results or performance expressed or implied by the forward-looking statements include, but are not limited to, the following:

•the uncertain nature of demand for and price of natural gas and LNG;

•risks related to shortages of LNG vessels worldwide;

•technological innovation which may render our anticipated competitive advantage obsolete;

•risks related to a terrorist or military incident involving an LNG carrier;

•changes in legislation and regulations relating to the LNG industry, including environmental laws and regulations that impose significant compliance costs and liabilities;

•governmental interventions in the LNG industry, including increases in barriers to international trade;

•uncertainties regarding our ability to maintain sufficient liquidity and attract sufficient capital resources to implement our projects;

•our limited operating history;

•our ability to attract and retain key personnel;

•risks related to doing business in, and having counterparties in, foreign countries;

•our reliance on the skill and expertise of third-party service providers;

•the ability of our vendors to meet their contractual obligations;

•risks and uncertainties inherent in management estimates of future operating results and cash flows;

•the potential discontinuation of LIBOR;

•changes in competitive factors, including the development or expansion of LNG, pipeline and other projects that are competitive with ours;

•development risks, operational hazards and regulatory approvals;

•our ability to enter into and consummate planned financing and other transactions;

•risks related to pandemics or disease outbreaks;

•risks of potential impairment charges and reductions in our reserves; and

•risks and uncertainties associated with litigation matters.

The forward-looking statements in this report speak as of the date hereof. Although we may from time to time voluntarily update our prior forward-looking statements, we disclaim any commitment to do so except as required by securities laws.

DEFINITIONS

To the extent applicable, and as used in this quarterly report, the terms listed below have the following meanings:


Bcf						Billion cubic feet of natural gas
Bcf/d						Bcf per day
DD&A						Depreciation, depletion and amortization
DES						Delivered ex-ship
DFC						Deferred financing costs
EPC						Engineering, procurement and construction
FID						Final investment decision as it pertains to the Driftwood Project
FOB						Free on board
GAAP						Generally accepted accounting principles in the U.S.
JKM						Platts Japan Korea Marker index price for LNG
LNG						Liquefied natural gas
LSTK						Lump sum turnkey
MMBtu						Million British thermal units
Mtpa						Million tonnes per annum
OTC						Over-the-counter
SEC						U.S. Securities and Exchange Commission
SPA						Sale and purchase agreement
Train						An industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG
TTF						Platts Dutch Title Transfer Facility index price for LNG
U.S.						United States
USACE						U.S. Army Corps of Engineers

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


TELLURIAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts, unaudited)

	September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	210,812	$	78,297
Accounts receivable	13,056		4,500
Prepaid expenses and other current assets	467		2,105
Total current assets	224,335		84,902
Property, plant and equipment, net	117,118		61,257
Deferred engineering costs	110,025		110,499
Non-current restricted cash	—		3,440
Other non-current assets	32,399		32,897
Total assets	$	483,877	$	292,995

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	27,861	$	23,573
Accounts payable due to related parties	—		910
Accrued and other liabilities	35,203		22,003
Borrowings	—		72,819
Total current liabilities	63,064		119,305
Long-term liabilities:
Borrowings	—		38,275
Other non-current liabilities	61,612		26,325
Total long-term liabilities	61,612		64,600

Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 authorized: 6,123,782 and 6,123,782 shares outstanding, respectively	61		61
Common stock, $0.01 par value, 800,000,000 authorized: 470,813,044 and 354,315,739 shares outstanding, respectively	4,477		3,309
Additional paid-in capital	1,244,500		922,042
Accumulated deficit	(889,837)		(816,322)
Total stockholders’ equity	359,201		109,090
Total liabilities and stockholders’ equity	$	483,877	$	292,995

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


TELLURIAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts, unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Natural gas sales	$	15,638	$	7,272	$	29,922	$	21,818
LNG sales	—		6,993		19,776		6,993
Total revenue	15,638		14,265		49,698		28,811

Operating costs and expenses:
Cost of sales	3,068		9,241		30,841		14,529
Development expenses	8,823		5,799		26,327		26,105
Depreciation, depletion and amortization	3,735		3,474		8,720		14,301
General and administrative expenses	14,528		10,734		47,065		43,342
Impairment charges	—		—		—		81,065
Severance and reorganization charges	—		—		—		6,359
Related party charges	—		—		—		7,357
Total operating costs and expenses	30,154		29,248		112,953		193,058
Loss from operations	(14,516)		(14,983)		(63,255)		(164,247)
Interest expense, net	(968)		(15,973)		(7,689)		(33,564)
Gain on extinguishment of debt, net	—		—		1,422		—
Other (expense) income, net	(448)		1,490		(3,993)		(1,235)
Loss before income taxes	(15,932)		(29,466)		(73,515)		(199,046)
Income taxes	—		—		—		—
Net loss	$	(15,932)	$	(29,466)	$	(73,515)	$	(199,046)
Net loss per common share(1):
Basic and diluted	$	(0.04)	$	(0.10)	$	(0.19)	$	(0.79)
Weighted-average shares outstanding:
Basic and diluted	427,204		291,409		390,233		252,825


(1) The numerator for both basic and diluted loss per share is net loss. The denominator for both basic and diluted loss per share is the weighted-average shares outstanding during the period.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


TELLURIAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Total shareholders’ equity, beginning balance	$	247,019	$	75,913	$	109,090	$	166,285

Preferred stock	$	61	$	61	$	61	$	61

Common stock:
Beginning balance	4,048		2,627		3,309		2,211
Common stock issuances	428		371		1,066		567
Share-based compensation, net(1)	1		23		42		33
Severance and reorganization charges	—		15		—		22
Settlement of Final Payment Fee	—		—		—		110
Borrowings principal repayment	—		—		—		93
Warrant exercises	—		—		60		—
Ending balance	4,477		3,036		4,477		3,036

Additional paid-in capital:
Beginning balance	$	1,116,815	$	848,431	$	922,042	$	769,639
Common stock issuances	126,313		34,483		308,039		70,327
Share-based compensation, net(1)	1,372		3,299		6,520		5,619
Severance and reorganization charges	—		1,890		—		2,667
Share-based payments	—		113		—		337
Settlement of Final Payment Fee	—		—		—		9,036
Warrants issued in connection with Borrowings	—		—		—		16,896
Borrowings principal repayment	—		—		—		13,695
Warrant exercises	—		—		8,117		—
Warrant cancellation	—		—		(218)		—
Ending balance	$	1,244,500	$	888,216	$	1,244,500	$	888,216

Accumulated deficit:
Beginning balance	$	(873,905)	$	(775,206)	$	(816,322)	$	(605,626)
Net loss	(15,932)		(29,466)		(73,515)		(199,046)
Ending balance	$	(889,837)	$	(804,672)	$	(889,837)	$	(804,672)

Total shareholders’ equity, ending balance	$	359,201	$	86,641	$	359,201	$	86,641


(1) Includes settlement of 2019 bonus that was accrued for in 2019.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


TELLURIAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(73,515)	$	(199,046)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization	8,720		14,301
Amortization of debt issuance costs, discounts and fees	3,061		22,467
Share-based compensation	4,577		2,184
Severance and reorganization charges	—		2,689
Share-based payments	—		338
Interest elected to be paid-in-kind	508		2,431
Loss on financial instruments not designated as hedges	927		4,624
Impairment charges	—		81,065
Net gain on extinguishment of debt	(1,422)		—
Other	800		485
Net changes in working capital (Note 15)	17,174		11,728
Net cash used in operating activities	(39,170)		(56,734)

Cash flows from investing activities:
Development of natural gas properties	(23,416)		(389)
Purchase of property, plant and equipment	(1,000)		—
Net cash used in investing activities	(24,416)		(389)

Cash flows from financing activities:
Proceeds from common stock issuances	319,998		73,986
Equity issuance costs	(10,893)		(3,091)
Borrowing proceeds	—		50,000
Borrowing issuance costs	—		(2,612)
Borrowing principal repayments	(119,725)		(45,600)
Tax payments for net share settlement of equity awards (Note 15)	(3,064)		(878)
Proceeds from warrant exercises	8,177		—
Other	(1,833)		(1,776)
Net cash provided by financing activities	192,660		70,029

Net increase in cash, cash equivalents and restricted cash	129,074		12,906
Cash, cash equivalents and restricted cash, beginning of period	81,738		68,482
Cash, cash equivalents and restricted cash, end of period	$	210,812	$	81,388
Supplementary disclosure of cash flow information:
Interest paid	$	3,299	$	7,956

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1 — GENERAL

The terms “we,” “our,” “us,” “Tellurian” and the “Company” as used in this report refer collectively to Tellurian Inc. and its subsidiaries unless the context suggests otherwise. These terms are used for convenience only and are not intended as a precise description of any separate legal entity associated with Tellurian Inc.

Nature of Operations

We plan to develop, own and operate a global natural gas business and to deliver natural gas to customers worldwide. Tellurian is developing a portfolio of natural gas, LNG marketing, and infrastructure assets that includes an LNG terminal facility (the “Driftwood terminal”), an associated pipeline (the “Driftwood pipeline”), other related pipelines, and upstream natural gas assets. The Driftwood terminal and the Driftwood pipeline are collectively referred to as the “Driftwood Project”.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain notes and other information have been condensed or omitted. The accompanying interim financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of our Condensed Consolidated Financial Statements. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Certain reclassifications have been made to conform prior period information to the current presentation. The reclassifications did not have a material effect on our consolidated financial position, results of operations or cash flows.

Liquidity

Our Condensed Consolidated Financial Statements were prepared in accordance with GAAP, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business as well as the Company’s ability to continue as a going concern. As of the date of the Condensed Consolidated Financial Statements, we have generated losses and negative cash flows from operations, and have an accumulated deficit. We have not yet established an ongoing source of revenues sufficient to satisfy our obligations and fund working capital needs.

The Company has sufficient cash on hand and available liquidity to satisfy its obligations and fund its working capital needs for at least twelve months following the date of issuance of the condensed consolidated financial statements. The Company has the ability to generate additional proceeds from various other potential financing transactions, such as issuances of equity, equity-linked and debt securities, or similar transactions to fund our obligations and working capital needs.

Use of Estimates

To conform with GAAP, we make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and the accompanying notes. Although these estimates and assumptions are based on our best available knowledge at the time, actual results may differ.

NOTE 2 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

The components of prepaid expenses and other current assets consist of the following (in thousands):


	September 30, 2021		December 31, 2020
Prepaid expenses	$	280	$	1,156
Deposits	150		100
Derivative asset	—		843
Other current assets	37		6
Total prepaid expenses and other current assets	$	467	$	2,105

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 3 — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of fixed assets, proved oil and natural gas properties and financing leases, as shown below (in thousands):


	September 30, 2021		December 31, 2020
Land and land improvement	$	15,284	$	13,808
Proved properties	76,406		62,227
Wells in progress	11,200		492
Corporate and other	3,476		3,476
Total property, plant and equipment at cost	106,366		80,003
Accumulated DD&A	(47,424)		(38,764)
Right of use asset — financing leases	58,176		20,018
Total property, plant and equipment, net	$	117,118	$	61,257

Land

We own land in Louisiana for the purpose of constructing the Driftwood terminal.

NOTE 4 — DEFERRED ENGINEERING COSTS

Deferred engineering costs of approximately $110.0 million represent detailed engineering services related to the planned construction of the Driftwood terminal as of September 30, 2021. The balance in this account will be transferred to construction in progress upon reaching an affirmative FID by the Company’s Board of Directors.

NOTE 5 — OTHER NON-CURRENT ASSETS

Other non-current assets consist of the following (in thousands):


	September 30, 2021		December 31, 2020
Land lease and purchase options	$	6,363	$	5,831
Permitting costs	13,497		13,092
Right of use asset — operating leases	10,610		11,884
Other	1,929		2,090
Total other non-current assets	$	32,399	$	32,897

Land Lease and Purchase Options

We hold lease and purchase option agreements (the “Options”) for certain tracts of land and associated river frontage. Upon exercise of the Options, the leases are subject to maximum terms of 50 years (inclusive of various renewals, at the option of the Company). Costs of the Options will be amortized over the life of the lease once obtained, or capitalized into the cost of land if purchased.

Permitting Costs

Permitting costs primarily represent the purchase of wetland credits in connection with our permit application to the USACE in 2017 and 2018. These wetland credits will be applied to our permit in accordance with the Clean Water Act and the Rivers and Harbors Act, which may require us to mitigate the potential impact to Louisiana wetlands that might be caused by the construction of the Driftwood Project. In May 2019, we received the USACE permit. The permitting costs will be transferred to construction in progress upon reaching an affirmative FID by the Company’s Board of Directors.

NOTE 6 — FINANCIAL INSTRUMENTS

As part of entering into the 2018 Term Loan, which was repaid in full in April 2021, we were required to enter into and maintain certain hedging transactions. As a result, we used derivative financial instruments, namely OTC commodity swap instruments (“commodity swaps”), to maintain compliance with that covenant.

Commodity swap agreements involve payments to or receipts from counterparties based on the differential between two prices for the commodity and include basis swaps to protect earnings from undue exposure to the risk of geographic disparities in commodity prices. The fair value of our commodity swaps was classified as Level 2 in the fair value hierarchy and was based on standard industry income approach models that use significant observable inputs, including but not limited to

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

New York Mercantile Exchange (NYMEX) natural gas forward curves and basis forward curves, all of which were validated against external sources at least monthly.

We recognized all derivative instruments as either assets or liabilities at fair value on a net basis as they were with a single counterparty and subject to a master netting arrangement. In April 2021, we net settled our derivative instruments when we voluntarily repaid the 2018 Term Loan in full.

We did not apply hedge accounting for our commodity swaps; therefore, all changes in the fair value of our derivative instruments were recognized within Other (expenses) income, net, in the Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2021, we recognized a realized loss of approximately $1.2 million in our Condensed Consolidated Statements of Operations. Derivative contracts which result in physical delivery of a commodity expected to be used or sold by the Company in the normal course of business are designated as normal purchases and sales and are exempt from derivative accounting. OTC arrangements require settlement in cash. Settlements of commodity derivative instruments are reported as a component of cash flows from operations in the Condensed Consolidated Statements of Cash Flows.

NOTE 7 — RELATED PARTY TRANSACTIONS

In conjunction with the dismissal of prior litigation, we agreed to reimburse the Vice Chairman of our Board of Directors, Martin Houston, for reasonable attorneys’ fees and expenses he incurred during the litigation. As of September 30, 2021, all amounts owed to Mr. Houston were fully settled.

NOTE 8 — ACCRUED AND OTHER LIABILITIES

The components of accrued and other liabilities consist of the following (in thousands):


	September 30, 2021		December 31, 2020
Project development activities	$	11,380	$	3,228
Payroll and compensation	15,512		9,454
Accrued taxes	1,047		1,057
Professional services (e.g., legal, audit)	2,764		1,004
Warrant liabilities	—		3,774
Lease liabilities	2,287		1,950
Other	2,213		1,536
Total accrued and other liabilities	$	35,203	$	22,003

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 9 — BORROWINGS

The following tables summarize the Company’s borrowings as of September 30, 2021, and December 31, 2020 (in thousands):


	September 30, 2021
	Principal repayment obligation		Unamortized DFC and discounts		Carrying value
2018 Term Loan, due September 2021	$	—	$	—	$	—
2019 Term Loan, due March 2022	—		—		—
2020 Unsecured Note	—		—		—
Total borrowings	$	—	$	—	$	—

	December 31, 2020
	Principal repayment obligation		Unamortized DFC and discounts		Carrying value
2018 Term Loan, due September 2021	$	60,000	$	(805)	$	59,195
2019 Term Loan, due March 2022 (a)	43,217		(4,942)		38,275
2020 Unsecured Note	16,000		(2,376)		13,624
Total borrowings	$	119,217	$	(8,123)	$	111,094


(a) Includes paid-in-kind interest on the 2019 Term Loan of $3.3 million.

Full Repayment of the Company’s Borrowing Obligations

Over the course of the current year, we voluntarily repaid all borrowing obligations that were outstanding under the 2018 Term Loan, 2019 Term Loan, and 2020 Unsecured Note. As of September 30, 2021, our total borrowing obligation was zero.

Trade Finance Credit Line

On July 19, 2021, we entered into an uncommitted trade finance credit line for up to $30.0 million that is intended to finance the purchase and sale of LNG cargoes for ultimate resale in the normal course of business. As of the period ended September 30, 2021, no amounts have been drawn.

NOTE 10 — COMMITMENTS AND CONTINGENCIES

LNG Purchases

In connection with our LNG trading activities, we have previously entered into agreements with unrelated third-party LNG merchants pursuant to which we are obligated to purchase one cargo of LNG per quarter through October 2022 at a price based on then-prevailing JKM prices. The volume of each cargo is expected to range from 3.3 to 3.6 million MMBtu, and each cargo will be purchased under DES terms.

NOTE 11 — STOCKHOLDERS’ EQUITY

Common Stock Issuance

On August 6, 2021, we sold 35.0 million shares of our common stock in an underwritten public offering at a price of $3.00 per share. Net proceeds from this offering, after deducting fees and expenses, were approximately $100.8 million. The underwriters were granted an option to purchase up to an additional 5.3 million shares of common stock within 30 days. On August 31, 2021, the underwriters exercised this option, which generated net proceeds, after deducting fees, of approximately $15.1 million.

At-the-Market Program

We maintain an at-the-market equity offering program pursuant to which we may sell shares of our common stock from time to time. For the nine months ended September 30, 2021, we issued 66.4 million shares of our common stock under our at-the-market program for net proceeds of approximately $193.3 million. As of September 30, 2021, we had remaining availability under the at-the-market program to raise aggregate gross sales proceeds of up to approximately $334.6 million.

Common Stock Purchase Warrants

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

2019 Term Loan

During the first quarter of 2021, the lender under the 2019 Term Loan purchased approximately 6.0 million shares of our common stock pursuant to the exercise of warrants for total proceeds of approximately $8.2 million. On March 12, 2021, we repaid the 2019 Term Loan in full and the lender no longer holds any warrants.

2020 Unsecured Note

In conjunction with the issuance of the 2020 Unsecured Note, we issued a warrant providing the lender with the right to purchase up to 20.0 million shares of our common stock at $1.542 per share (the “2020 Warrant”). The 2020 Warrant vested immediately and will expire in October 2025. The 2020 Warrant has been excluded from the computation of diluted loss per share because including it would have been antidilutive for the periods presented.

Preferred Stock

In March 2018, we entered into a preferred stock purchase agreement with BDC Oil and Gas Holdings, LLC (“Bechtel Holdings”), a Delaware limited liability company and an affiliate of Bechtel Oil, Gas and Chemicals, Inc., a Delaware corporation, pursuant to which we sold to Bechtel Holdings approximately 6.1 million shares of our Series C convertible preferred stock (the “Preferred Stock”).

The holders of the Preferred Stock do not have dividend rights but do have a liquidation preference over holders of our common stock. The holders of the Preferred Stock may convert all or any portion of their shares into shares of our common stock on a one-for-one basis. At any time after “Substantial Completion” of “Project 1,” each as defined in and pursuant to the LSTK EPC Agreement for the Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, or at any time after March 21, 2028, we have the right to cause all of the Preferred Stock to be converted into shares of our common stock on a one-for-one basis. The Preferred Stock has been excluded from the computation of diluted loss per share because including it in the computation would have been antidilutive for the periods presented.

NOTE 12 — SHARE-BASED COMPENSATION

We have granted restricted stock and restricted stock units (collectively, “Restricted Stock”), as well as unrestricted stock and stock options, to employees, directors and outside consultants (collectively, the “grantees”) under the Tellurian Inc. 2016 Omnibus Incentive Compensation Plan, as amended (the “2016 Plan”), and the Amended and Restated Tellurian Investments Inc. 2016 Omnibus Incentive Plan (the “Legacy Plan”). The maximum number of shares of Tellurian common stock authorized for issuance under the 2016 Plan is 40 million shares of common stock, and no further awards can be granted under the Legacy Plan.

Upon the vesting of restricted stock, shares of common stock will be released to the grantee. Upon the vesting of restricted stock units, the units will be converted into either cash, stock, or a combination thereof.

As of September 30, 2021, we had approximately 30.2 million shares of performance-based Restricted Stock outstanding, of which approximately 19.2 million shares will vest entirely at FID, as defined in the award agreements, and approximately 10.2 million shares will vest in one-third increments at FID and the first and second anniversaries of FID. The remaining shares of Restricted Stock, totaling approximately 0.8 million shares, will vest based on other criteria. As of September 30, 2021, no expense had been recognized in connection with performance-based Restricted Stock.

For the three and nine months ended September 30, 2021, the recognized share-based compensation expenses related to all share-based awards totaled approximately $1.5 million and $4.6 million, respectively. As of September 30, 2021, unrecognized compensation expenses, based on the grant date fair value, for all share-based awards totaled approximately $200.5 million. Further, the approximately 30.2 million shares of Restricted Stock, as well as approximately 11.1 million stock options outstanding, have been excluded from the computation of diluted loss per share because including them in the computation would have been antidilutive for the periods presented.

NOTE 13 — INCOME TAXES

Due to our cumulative loss position, historical net operating losses (“NOLs”), and other available evidence related to our ability to generate taxable income, we have recorded a full valuation allowance against our net deferred tax assets as of September 30, 2021 and December 31, 2020. Accordingly, we have not recorded a provision for federal, state or foreign income taxes during the three and nine months ended September 30, 2021.

We experienced ownership changes as defined by Internal Revenue Code (“IRC”) Section 382 in 2017, and an analysis of the annual limitation on the utilization of our NOLs was performed at that time. It was determined that IRC Section 382 will not limit the use of our NOLs over the carryover period. We will continue to monitor trading activity in our shares that may cause an additional ownership change, which may ultimately affect our ability to fully utilize our existing NOL carryforwards.

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 14 — LEASES

Financing Leases

Our land leases are classified as financing leases and include one or more options to extend the lease term for up to 40 years, as well as to terminate the lease within five years, at our sole discretion. We are reasonably certain that those options will be exercised, and that our termination rights will not be exercised, and we have, therefore, included those assumptions within our right of use assets and corresponding lease liabilities. As of September 30, 2021, the weighted-average remaining lease term for our financing leases was approximately fifty years. As none of our financing leases provide an implicit rate, we have determined our own discount rate, which, on a weighted-average basis was approximately 9% at September 30, 2021.

As of September 30, 2021, our financing leases had a right of use asset of approximately $58.2 million, which is recognized within Property, plant and equipment, net, and a corresponding lease liability of approximately $50.3 million, most of which is recognized within Other non-current liabilities. For the three and nine months ended September 30, 2021 and 2020, our financing lease costs, which are associated with the interest on our lease liabilities, were approximately $1.0 million and $0.5 million, respectively, and $1.9 million and $1.2 million, respectively. For the nine months ended September 30, 2021, we paid approximately $1.0 million in required finance lease payments which are presented within the operating section of the Condensed Consolidated Statements of Cash Flows. For each of the nine months ended September 30, 2021 and 2020, we paid approximate $1.8 million, in required financing lease payments which are presented within the financing section of the Condensed Consolidated Statements of Cash Flows.

Operating Leases

Our office space leases are classified as operating leases and include one or more options to extend the lease term for up to 10 years, at our sole discretion. As we are not reasonably certain that those options will be exercised, none are recognized as part of our right of use assets and lease liabilities. As of September 30, 2021, our weighted-average remaining lease term for our operating leases was approximately five years. As none of our operating leases provide an implicit rate, we have determined our own discount rate, which, on a weighted-average basis at September 30, 2021, was approximately 8%.

As of September 30, 2021, our operating leases had a corresponding right of use asset of approximately $10.6 million, which is recognized within Other non-current assets, and a total lease liability of approximately $12.2 million which is recognized within Accrued and other liabilities (approximately $2.1 million) and Other non-current liabilities (approximately $10.1 million). For the three and nine months ended September 30, 2021 and 2020, our operating lease costs were $0.7 million and $0.7 million, respectively, and $2.1 million and $2.1 million, respectively. For the nine months ended September 30, 2021 and 2020, we paid approximately $2.1 million and $2.1 million, respectively, in required operating lease payments, which are presented within the operating section of the Condensed Consolidated Statements of Cash Flows.

The table below presents a maturity analysis of our lease liability on an undiscounted basis and reconciles those amounts to the present value of the lease liability as of September 30, 2021 (in thousands):


Maturity of lease liability	Operating Leases		Financing Leases
2021	$	745	$	1,028
2022	3,006		4,111
2023	3,044		4,111
2024	3,081		4,111
2025	3,119		4,111
Thereafter	1,860		186,333
Total lease payments	$	14,855	$	203,805
Less: discount	2,641		153,477
Present value of lease liability	$	12,214	$	50,328

NOTE 15 — ADDITIONAL CASH FLOW INFORMATION

The following table provides information regarding the net changes in working capital (in thousands):

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)


	Nine Months Ended September 30,
	2021		2020
Accounts receivable	$	(8,556)	$	1,991
Prepaid expenses and other current assets	412		6,995
Accounts payable	4,288		(25)
Accounts payable due to related parties	(910)		1,360
Accrued liabilities	23,030		3,155
Other, net	(1,090)		(1,748)
Net changes in working capital	$	17,174	$	11,728

The following table provides supplemental disclosure of cash flow information (in thousands):


	Nine Months Ended September 30,
	2021		2020
Non-cash accruals of property, plant and equipment and other non-current assets	$	38,509	$	7,955
Non-cash settlement of withholding taxes associated with the 2019 bonus and vesting of certain awards	3,064		878
Non-cash settlement of the 2019 bonus	5,430		4,344
Non-cash settlement of Final Payment Fee	—		8,539

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):


	Nine Months Ended September 30,
	2021		2020
Cash and cash equivalents	$	210,812	$	77,947
Non-current restricted cash	—		3,441
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	210,812	$	81,388

NOTE 16 — SUBSEQUENT EVENTS

Subsequent to September 30, 2021, and through the date of this filing, we issued approximately 8.2 million shares of common stock under our at-the-market equity offering program for net proceeds of approximately $29.0 million. As of October 22, 2021, we have remaining capacity under our at-the-market program to raise aggregate gross sales proceeds of approximately $304.7 million.

Effective November 2, 2021, the listing of our common stock was transferred from the Nasdaq Capital Market to the NYSE American. The stock continues to trade under the symbol “TELL”.

Tellurian Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The following discussion and analysis presents management’s view of our business, financial condition and overall performance and should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes. This information is intended to provide investors with an understanding of our past development activities, current financial condition and outlook for the future organized as follows:

•Our Business

•Overview of Significant Events

•Liquidity and Capital Resources

•Capital Development Activities

•Results of Operations

•Recent Accounting Standards

Our Business

Tellurian Inc. (“Tellurian,” “we,” “us,” “our,” or the “Company”) intends to create value for shareholders by building a low-cost, global natural gas business, profitably delivering natural gas to customers worldwide (the “Business”). We are developing a portfolio of natural gas, LNG marketing, and infrastructure assets that includes an LNG terminal facility (the “Driftwood terminal”), an associated pipeline (the “Driftwood pipeline”), other related pipelines, and upstream natural gas assets. The Driftwood terminal and the Driftwood pipeline are collectively referred to as the “Driftwood Project”. Our existing upstream natural gas assets consist of 9,750 net acres and interests in 74 producing wells located in the Haynesville Shale trend of northern Louisiana. Our Business may be developed in phases.

As part of our execution strategy, we will consider partnering with third parties across the natural gas value chain. We are also pursuing activities such as direct sales of LNG to global counterparties, the acquisition of additional upstream acreage, the drilling of new wells on our existing or newly acquired upstream acreage and trading LNG. As discussed in “Overview of Significant Events – LNG Sale and Purchase Agreements” below, we entered into four LNG SPAs with three unrelated purchasers, completing the planned sales for plants one and two of the Driftwood terminal (“Phase 1”). We are currently focused on securing financing for the construction of Phase 1.

We continue to evaluate, and discuss with potential partners, the scope and other aspects of our Business in light of the evolving economic environment, needs of potential partners and other factors. How we execute our Business will be based on a variety of factors, including the results of our continuing analysis, changing business conditions and market feedback.

Overview of Significant Events

LNG Sale and Purchase Agreements

Subsequent to entering into LNG SPAs with Gunvor Singapore Pte Ltd and Vitol Inc. for the purchase of a total of 6.0 Mtpa during the second quarter of this year, on July 29, 2021, Driftwood LNG LLC, a wholly owned subsidiary of the Company, has entered into two LNG SPAs with Shell NA LNG LLC (“Shell”) for the purchase of 3.0 Mtpa at a price that will be based on the JKM index price or the TTF futures contract price, in each case minus a transportation netback. Each LNG SPA has a ten-year term from the date of first commercial delivery from the Driftwood terminal.

Public Equity Offering

Liquidity and Capital Resources

Capital Resources

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. We are currently funding our operations, development activities and general working capital needs through our cash on hand. Our current capital resources consist of approximately $210.8 million of cash and cash equivalents as of September 30, 2021. We currently maintain an at-the-market equity offering program under which, as of the date of this filing, we have remaining

Tellurian Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

availability to raise aggregate gross sales proceeds of approximately $304.7 million. Since January 1, 2021, and through October 22, 2021, we have sold approximately 74.6 million shares of common stock under our at-the-market program for net proceeds of approximately $222.3 million.

As of September 30, 2021, we had contractual obligations associated with our financing and operating leases totaling $218.7 million, of which $7.1 million is scheduled to be paid within the next twelve months.

In connection with our LNG trading activities, we have previously entered into agreements with unrelated third-party LNG merchants pursuant to which we are obligated to purchase one cargo of LNG per quarter through October 2022 at a price based on then-prevailing JKM prices. We may be required to use cash on hand as well as trade financing arrangements to finance the purchase of these cargoes.

Sources and Uses of Cash

The following table summarizes the sources and uses of our cash and cash equivalents and costs and expenses for the periods presented (in thousands):


	Nine Months Ended September 30,
	2021		2020
Cash used in operating activities	$	(39,170)	$	(56,734)
Cash used in investing activities	(24,416)		(389)
Cash provided by financing activities	192,660		70,029

Net increase in cash, cash equivalents and restricted cash	129,074		12,906
Cash, cash equivalents and restricted cash, beginning of the period	81,738		68,482
Cash, cash equivalents and restricted cash, end of the period	$	210,812	$	81,388

Net working capital	$	161,271	$	(58,741)

Cash used in operating activities for the nine months ended September 30, 2021 decreased by approximately $17.6 million compared to the same period in 2020 due to an overall decrease in disbursements as a result of the reorganization in the first quarter of 2020.

Cash used in investing activities for the nine months ended September 30, 2021 increased by approximately $24.0 million compared to the same period in 2020. This increase is predominantly driven by increased natural gas development activities.

Cash provided by financing activities for the nine months ended September 30, 2021 increased by approximately $122.6 million compared to the same period in 2020. This increase primarily relates to the following:

•Increase of approximately $246.4 million in net proceeds from equity issuances and warrant exercises.

•Decrease of approximately $47.4 million in net borrowings proceeds due to the absence of these activities during the current period.

•Increase of approximately $74.1 million in principal repayments of our borrowings compared to the prior period.

See Note 11, Stockholders’ Equity, of our Notes to the Condensed Consolidated Financial Statements for further information about our financing activities.

Tellurian Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

Capital Development Activities

The activities we have proposed will require significant amounts of capital and are subject to risks and delays in completion. We received all major regulatory approvals for the construction of Phase 1 and, as a result, our business success will depend to a significant extent upon our ability to obtain the funding necessary to construct assets on a commercially viable basis and to finance the costs of staffing, operating and expanding our company during that process. We have initiated certain owner construction activities.

We currently estimate the total cost of the Driftwood Project as well as related pipelines and upstream natural gas assets to be approximately $25.0 billion including owners’ costs, transaction costs and contingencies but excluding interest costs incurred during construction and other financing costs. We have entered into four LSTK EPC agreements currently totaling $15.5 billion, or $561 per tonne, with Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) for construction of the Driftwood terminal. The proposed Driftwood terminal will have a liquefaction capacity of up to approximately 27.6 Mtpa and will be situated on approximately 1,000 acres in Calcasieu Parish, Louisiana. The proposed Driftwood terminal will include up to 20 liquefaction Trains, three full containment LNG storage tanks and three marine berths.

In addition, part of our strategy involves acquiring additional natural gas properties, including properties in the Haynesville shale trend. We intend to pursue potential acquisitions of such assets, or public or private companies that own such assets. We would expect to use stock, cash on hand, or cash raised in financing transactions to complete an acquisition of this type.

We anticipate funding our more immediate liquidity requirements relative to the detailed engineering work and other developmental costs, natural gas development costs, and general and administrative costs through the use of cash on hand, proceeds from operations, and proceeds from completed and future issuances of securities by us. Consistent with our overall financing strategy, the Company has considered, and in some cases discussed with investors, various potential financing transactions, including issuances of debt, equity and equity-linked securities or similar transactions, to support its short- and medium-term capital requirements. The Company will continue to evaluate its cash needs and business outlook, and it may execute one or more transactions of this type in the future.

We currently expect that our long-term capital requirements will be financed by proceeds from future debt, equity and/or equity-linked transactions.

Results of Operations

The following table summarizes revenue, costs and expenses for the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Total revenue	$	15,638	$	14,265	$	49,698	$	28,811
Cost of sales	3,068		9,241		30,841		14,529
Development expenses	8,823		5,799		26,327		26,105
Depreciation, depletion and amortization	3,735		3,474		8,720		14,301
General and administrative expenses	14,528		10,734		47,065		43,342
Impairment charge	—		—		—		81,065
Severance and reorganization charges	—		—		—		6,359
Related party charges	—		—		—		7,357
Loss from operations	(14,516)		(14,983)		(63,255)		(164,247)
Interest expense, net	(968)		(15,973)		(7,689)		(33,564)
Gain on extinguishment of debt, net	—		—		1,422		—
Other (expense) income, net	(448)		1,490		(3,993)		(1,235)
Income tax benefit	—		—		—		—
Net loss

SEC Form 10-Q filed by Tellurian Inc.