tell-20220331

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 March 31, 2022


☐			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 LLC

8.25% Senior Notes due 2028

TELZ

NYSE

American LLC

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

None

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 April 25, 2022, there were 568,227,494 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,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “initial,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “proposed,” “should,” “will,” “would” and similar terms, phrases, and 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 costs or capital expenditures;

•availability of liquidity and capital resources;

•our ability to obtain 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, customers and other counterparties to meet their contractual obligations;

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

•our ability to maintain compliance with our debt arrangements;

•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
DD&A						Depreciation, depletion and amortization
DFC						Deferred financing costs
EPC						Engineering, procurement and construction
FID						Final investment decision as it pertains to the Driftwood Project
GAAP						Generally accepted accounting principles in the U.S.
LNG						Liquefied natural gas
LSTK						Lump sum turnkey
Mtpa						Million tonnes per annum
NYSE American						NYSE American LLC
Phase 1						Plants one and two of the Driftwood terminal
Train						An industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into 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)

	March 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	295,728	$	305,496
Accounts receivable	14,666		9,270
Prepaid expenses and other current assets	25,387		12,952
Total current assets	335,781		327,718
Property, plant and equipment, net	351,132		150,545
Deferred engineering costs	—		110,025
Other non-current assets	45,293		33,518
Total assets	$	732,206	$	621,806

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,802	$	2,852

Accrued and other liabilities	76,536		85,946
Borrowings	—		—
Total current liabilities	84,338		88,798
Long-term liabilities:
Borrowings	54,891		53,687
Other non-current liabilities	68,322		61,020
Total long-term liabilities	123,213		114,707

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: 545,890,311 and 500,453,575 shares outstanding, respectively	5,229		4,774
Additional paid-in capital	1,517,031		1,344,526
Accumulated deficit	(997,666)		(931,060)
Total stockholders’ equity	524,655		418,301
Total liabilities and stockholders’ equity	$	732,206	$	621,806

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 March 31,
	2022		2021
Revenues:
Natural gas sales	$	25,989	$	8,706
LNG sales	120,951		—
Total revenue	146,940		8,706

Operating costs and expenses:
Cost of sales	135,827		2,406
Development expenses	17,665		8,141
Depreciation, depletion and amortization	4,021		2,652
General and administrative expenses	32,325		15,111
Total operating costs and expenses	189,838		28,310
Loss from operations	(42,898)		(19,604)
Interest expense, net	(2,280)		(5,892)
Gain on extinguishment of debt, net	—		1,574
Other expense, net	(21,428)		(3,063)
Loss before income taxes	(66,606)		(26,985)
Income tax	—		—
Net loss	$	(66,606)	$	(26,985)
Net loss per common share(1):
Basic and diluted	$	(0.14)	$	(0.08)
Weighted-average shares outstanding:
Basic and diluted	491,337		356,676


(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 March 31,
	2022		2021
Total shareholders’ equity, beginning balance	$	418,301	$	109,090

Preferred stock	61		61

Common stock:
Beginning balance	4,774		3,309
Common stock issuances	454		387
Share-based compensation, net	1		23



Warrant exercises	—		60
Ending balance	5,229		3,779

Additional paid-in capital:
Beginning balance	1,344,526		922,042
Common stock issuances	171,204		88,776
Share-based compensation, net	906		2,656

Share-based payments	395		—



Warrant exercises	—		8,117
Warrant cancellation	—		(218)
Ending balance	1,517,031		1,021,373

Accumulated deficit:
Beginning balance	(931,060)		(816,322)
Net loss	(66,606)		(26,985)
Ending balance	(997,666)		(843,307)

Total shareholders’ equity, ending balance	$	524,655	$	181,906

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)

	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(66,606)	$	(26,985)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization	4,021		2,652
Amortization of debt issuance costs, discounts and fees	61		3,061
Share-based compensation	906		1,571

Share-based payments	396		—
Interest elected to be paid-in-kind	—		508
Unrealized loss on financial instruments not designated as hedges	20,262		1,080

Net gain on extinguishment of debt	—		(1,574)
Other	231		(80)
Net changes in working capital (Note 15)	(41,850)		9,292
Net cash used in operating activities	(82,579)		(10,475)

Cash flows from investing activities:
Development of natural gas properties	(25,305)		(1,130)
Payment of LNG construction costs	(24,500)		—
Land purchases and land improvements	(19,064)		(270)
Investment in unconsolidated entity	(6,089)		—
Net cash used in investing activities	(74,958)		(1,400)

Cash flows from financing activities:
Proceeds from common stock issuances	176,974		91,929
Equity issuance costs	(5,316)		(2,766)
Borrowing proceeds	1,178		—
Borrowing issuance costs	(35)		—
Borrowing principal repayments	—		(102,725)
Tax payments for net share settlement of equity awards (Note 15)	—		(2,305)
Proceeds from warrant exercises	—		8,177
Other	(32)		(1)
Net cash provided by (used in) financing activities	172,769		(7,691)

Net increase (decrease) in cash, cash equivalents and restricted cash	15,232		(19,566)
Cash, cash equivalents and restricted cash, beginning of period	307,274		81,738
Cash, cash equivalents and restricted cash, end of period	$	322,506	$	62,172
Supplementary disclosure of cash flow information:
Interest paid	$	1,057	$	2,116

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

Tellurian is developing and plans to own and operate 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 Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and 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, 2021.

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.

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.

Liquidity

Our Condensed Consolidated Financial Statements have been 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 that is sufficient to cover our future operating costs and obligations as they become due during the twelve months following the issuance of the Condensed Consolidated Financial Statements.

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. We are currently focused on the financing and construction of the Driftwood terminal.

NOTE 2 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

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


	March 31, 2022		December 31, 2021
Prepaid expenses	$	413	$	605
Deposits	21,897		3,589
Restricted cash	3,000		—
Derivative asset, net current	—		8,693
Other current assets	77		65
Total prepaid expenses and other current assets	$	25,387	$	12,952

Deposits

Margin deposits posted with a third-party financial institution related to our financial instrument contracts were approximately $20.2 million and $2.1 million as of March 31, 2022 and December 31, 2021, respectively.

Restricted Cash

Restricted cash as of March 31, 2022, represents funds held in escrow under the terms of an agreement to purchase land for the Driftwood Project.

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 3 — PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment consist of the following (in thousands):


	March 31, 2022		December 31, 2021
Upstream natural gas assets
Proved properties	$	117,336	$	96,297
Wells in progress	25,497		17,653
Accumulated DD&A	(52,539)		(48,638)
Total upstream natural gas assets, net	90,294		65,312

Driftwood Project
Land and land improvements	50,950		25,222
Driftwood terminal construction in progress	148,930		—
Finance lease assets, net of accumulated DD&A	57,589		57,883
Buildings and other assets, net of accumulated DD&A	363		371
Total Driftwood Project, net	257,832		83,476

Fixed assets and other
Leasehold improvements and other assets	4,443		3,104
Accumulated DD&A	(1,437)		(1,347)
Total fixed assets and other, net	3,006		1,757

Total property, plant and equipment, net	$	351,132	$	150,545

Land

We own land in Louisiana intended for the construction of the Driftwood Project. During the three months ended March 31, 2022, we acquired land essential for the construction of the Driftwood Project at a total cost of $19.0 million, inclusive of capitalized land purchase options of approximately $5.5 million.

Driftwood Terminal Construction in Progress

During the year ended December 31, 2021, the Company initiated certain owner construction activities necessary to proceed under our LSTK EPC agreement with Bechtel Energy Inc., formerly known as Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”), for Phase 1 of the Driftwood terminal dated as of November 10, 2017 (the “Phase 1 EPC Agreement”). On March 24, 2022, the Company issued a limited notice to proceed to Bechtel under the Phase 1 EPC Agreement to commence construction of Phase 1 of the Driftwood terminal on April 4, 2022. As the Company commenced construction activities, Deferred engineering costs and Permitting Costs of approximately $110.0 million and $13.4 million, respectively, were transferred to construction in progress as of March 31, 2022. The Company capitalizes all directly identifiable project costs as construction in progress until the constructed assets are placed in service.

NOTE 4 — DEFERRED ENGINEERING COSTS

Deferred engineering costs related to the planned construction of the Driftwood terminal were transferred to construction in progress upon issuing the limited notice to proceed to Bechtel in March 2022. See Note 3, Property, Plant and Equipment, for further information.

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 5 — OTHER NON-CURRENT ASSETS

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


	March 31, 2022		December 31, 2021
Land lease and purchase options	$	799	$	6,368
Permitting costs	—		13,408
Right of use asset — operating leases	13,437		10,166
Restricted cash	23,778		1,778
Investment in unconsolidated entity	6,089		—
Other	1,190		1,798
Total other non-current assets	$	45,293	$	33,518

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. During the three months ended March 31, 2022, we capitalized land purchase options of approximately $5.5 million related to purchases for the Driftwood Project. Land purchase options held by the Company as of March 31, 2022 are related to the Driftwood pipeline.

Permitting Costs

Permitting costs primarily represented the purchase of wetland credits in connection with our permit application to the USACE in 2017 and 2018. These wetland credits were transferred to construction in progress upon issuing the limited notice to proceed in March 2022 to Bechtel. See Note 3, Property, Plant and Equipment, for further information. These wetland credits will be applied to our permit in accordance with the Clean Water Act and the Rivers and Harbors Act, which require us to mitigate the potential impact to Louisiana wetlands that might be caused by the construction of the Driftwood Project.

Restricted Cash

Restricted cash as of March 31, 2022 and December 31, 2021, represents cash collateralization of a letter of credit associated with a finance lease.

Investment in unconsolidated entity

On February 24, 2022, the Company purchased 1.5 million ordinary shares of an unaffiliated entity engaged in renewable energy services for a total cost of approximately $6.1 million. This investment does not provide the Company with a controlling financial interest in or significant influence over the operating or financial decisions of the unaffiliated entity. The Company’s investment was recorded at cost.

NOTE 6 — FINANCIAL INSTRUMENTS

Natural Gas Financial Instruments

During the fourth quarter of 2021, we entered into natural gas financial instruments to economically hedge the commodity price exposure of a portion of our natural gas production. The Company’s open positions as of March 31, 2022, had notional volumes of 9.2 Bcf, with maturities extending through March 2023.

LNG Financial Futures

During the three months ended December 31, 2021, we entered into LNG financial future contracts to reduce our exposure to commodity price fluctuations, and to achieve more predictable cash flows relative to two LNG cargos that we were committed to purchase from and sell to unrelated third-party LNG merchants in the normal course of business in January and April 2022. As of March 31, 2022, there were no open LNG financial futures positions.

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following table summarizes the effect of the Company’s financial instruments on the Condensed Consolidated Statements of Operations (in thousands):


	Three Months Ended March 31,
	2022		2021
Natural gas financial instruments:
Realized (loss) gain	$	(715)	$	426
Unrealized loss	15,101		1,080
LNG financial futures:
Realized gain	3,532		—
Unrealized loss	5,161		—

The following table presents the classification of the Company’s financial derivative assets and liabilities that are required to be measured at fair value on a recurring basis on the Company’s Condensed Consolidated Balance Sheets (in thousands):


	March 31, 2022		December 31, 2021
Current assets:
LNG financial futures	—		$	8,693
Current liabilities:
Natural gas financial instruments	$	15,101	—

The Company’s natural gas and LNG financial instruments are valued using quoted prices in active exchange markets as of the balance sheet date and are classified as Level 1 within the fair value hierarchy.

NOTE 7 — ACCRUED AND OTHER LIABILITIES

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


	March 31, 2022		December 31, 2021
Upstream accrued liabilities	$	32,535	$	26,421

Payroll and compensation	14,525		50,243
Accrued taxes	498		991
Driftwood Project development activities	5,163		435
Lease liabilities	2,499		2,279
Current derivative liability	15,101		—
Accounts payable due to related parties	175		—
Other	6,040		5,577
Total accrued and other liabilities	$	76,536	$	85,946

Accounts payable due to related parties

The Company entered into a one-year independent contractor agreement with Mr. Martin Houston, who serves as Vice Chairman and Director of the Company’s Board of Directors, effective January 1, 2022. Pursuant to the terms and conditions of this agreement, the Company will pay Mr. Houston a monthly fee of $50.0 thousand plus approved expenses. As of March 31, 2022, a balance of approximately $175.0 thousand was owed to Mr. Houston for contractor service fees and expenses.

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 8 — BORROWINGS

The following tables summarize the Company’s borrowings as of March 31, 2022, and December 31, 2021 (in thousands):


	March 31, 2022
	Principal repayment obligation		Unamortized debt issuance costs and discounts		Carrying value
Senior Notes due 2028	$	57,678	$	(2,787)	$	54,891
Total borrowings	$	57,678	$	(2,787)	$	54,891


	December 31, 2021
	Principal repayment obligation		Unamortized debt issuance costs and discounts		Carrying value
Senior Notes due 2028	$	56,500	$	(2,813)	$	53,687
Total borrowings	$	56,500	$	(2,813)	$	53,687

Senior Notes due 2028

On November 10, 2021, we sold in a registered public offering $50.0 million aggregate principal amount of 8.25% Senior Notes due November 30, 2028 (the “Senior Notes”). Net proceeds from the Senior Notes were approximately $47.5 million after deducting fees. The underwriter was granted an option to purchase up to an additional $7.5 million of the Senior Notes within 30 days. On December 7, 2021, the underwriter exercised the option and purchased an additional $6.5 million of the Senior Notes resulting in net proceeds of approximately $6.2 million after deducting fees. The Senior Notes have quarterly interest payments due on January 31, April 30, July 31, and October 31 of each year and on the maturity date.

At-the-Market Debt Offering Program

On December 17, 2021, we entered into an at-the-market debt offering program under which the Company may offer and sell from time to time on the NYSE American up to an aggregate principal amount of $200.0 million of additional Senior Notes. For the three months ended March 31, 2022, we sold approximately $1.2 million aggregate principal amount of additional Senior Notes for total proceeds of approximately $1.1 million after fees and commissions under our at-the-market debt offering program. See Note 16, Subsequent Events, for further information.

Extinguishment of the 2019 Term Loan

On May 23, 2019, Driftwood Holdings LP, a wholly owned subsidiary of the Company, entered into a senior secured term loan agreement (the “2019 Term Loan”) to borrow an aggregate principal amount of $60.0 million. On March 12, 2021 (the “Extinguishment Date”), we finalized a voluntary repayment of the remaining outstanding principal balance of the 2019 Term Loan. A total of approximately $43.7 million was repaid to the lender during the first quarter of 2021 to satisfy the outstanding borrowing obligation. The extinguishment of the 2019 Term Loan resulted in an approximately $2.1 million gain, which was recognized within Gain on extinguishment of debt, net, on our Condensed Consolidated Statements of Operations.

As a result of repaying the outstanding balance prior to its contractual maturity, an approximately $4.4 million in unamortized DFC and discount were included in the computation of the gain from the extinguishment of the 2019 Term Loan as of March 31, 2021.

The holder of the 2019 Term Loan held approximately 3.5 million unvested warrants that had a fair value of approximately $6.3 million as of the Extinguishment Date. Due to the extinguishment of the 2019 Term Loan, all the unvested warrants were contractually terminated (the “Terminated Warrants”), and their respective fair value was included in the computation of the gain on extinguishment of the 2019 Term Loan. The fair value of the Terminated Warrants was determined using a Black-Scholes option pricing model.

2018 Term Loan

On September 28, 2018, Tellurian Production Holdings LLC, a wholly owned subsidiary of Tellurian Inc., entered into a three-year senior secured term loan credit agreement (the “2018 Term Loan”) in an aggregate principal amount of $60.0 million. On February 18, 2021, we voluntarily repaid approximately $43.0 million of the 2018 Term Loan outstanding principal balance. As a result of this voluntary repayment, we recognized an approximately $0.5 million loss, which was netted

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

against the gain on extinguishment of the 2019 Term Loan, and presented within Gain on extinguishment of debt, net, on our Condensed Consolidated Statements of Operations on this partial extinguishment due to the pro-rata recognition of the unamortized DFC and discount associated with the 2018 Term Loan.

Covenant Compliance

As of March 31, 2022, the Company was in compliance with all covenants under the indenture governing the Senior Notes.

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 of LNG cargos for ultimate resale in the normal course of business. On December 7, 2021, the uncommitted trade finance credit line was amended and increased to $150.0 million. As of March 31, 2022, no amounts were drawn under this credit line.

NOTE 9 — COMMITMENTS AND CONTINGENCIES

On January 26, 2022, our wholly owned subsidiary Tellurian Trading UK Ltd entered into an agreement to cancel three LNG cargos that the Company was committed to purchase in April, July and October 2022 under a master LNG sale and purchase agreement (“LNG SPA”) we entered into in April 2019 with an unrelated third-party LNG merchant. The Company will be required to pay a cancellation fee of approximately $1.0 million for all three LNG cargos. The Company does not have any further commitments or obligations under this LNG SPA.

NOTE 10 — STOCKHOLDERS’ EQUITY

At-the-Market Equity Offering Programs

We maintain multiple at-the-market equity offering programs pursuant to which we may sell shares of our common stock from time to time on the NYSE American. During the three months ended March 31, 2022, we issued 45.4 million shares of our common stock under our at-the-market equity offering programs for net proceeds of approximately $171.7 million. As of March 31, 2022, we had remaining availability under such at-the-market programs to raise aggregate gross sales proceeds of up to approximately $255.8 million. See Note 16, Subsequent Events, for further information.

Common Stock Purchase Warrants

2019 Term Loan

During the first quarter of 2021, the lender of the 2019 Term Loan exercised warrants to purchase approximately 6.0 million shares of our common stock for total proceeds of approximately $8.2 million. As discussed in Note 8, Borrowings, the 2019 Term Loan has been repaid in full and the lender no longer holds any warrants.

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, 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 Phase 1 EPC Agreement, 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 11 — 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 March 31, 2022, there was no Restricted Stock that would be required to be settled in cash.

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

As of March 31, 2022, we had approximately 31.0 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 11.2 million shares will vest in one-third increments at FID and the first and second anniversaries of FID. The remaining shares of performance-based Restricted Stock, totaling approximately 0.6 million shares, will vest based on other criteria. As of March 31, 2022, no expense had been recognized in connection with performance-based Restricted Stock.

For the three months ended March 31, 2022, the recognized share-based compensation expenses related to all share-based awards totaled approximately $0.9 million. As of March 31, 2022, unrecognized compensation expenses, based on the grant date fair value, for all share-based awards totaled approximately $201.3 million. Further, the approximately 31.0 million shares of performance-based 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 12 — INCENTIVE COMPENSATION PROGRAM

On November 18, 2021, the Company’s Board of Directors approved the adoption of the Tellurian Incentive Compensation Program (the “Incentive Compensation Program” or “ICP”). The ICP allows the Company to award short-term and long-term performance and service-based incentive compensation to full-time employees of the Company. ICP awards may be earned with respect to each calendar year and are determined based on guidelines established by the Compensation Committee of the Board of Directors, as administrator of the ICP.

Long-term incentive awards

Long-term incentive (“LTI”) awards under the ICP were granted in January 2022 in the form of “tracking units,” at the discretion of the Company’s Board of Directors (the “2021 LTI Award”). Each such tracking unit has a value equal to one share of Tellurian common stock and entitles the grantee to receive, upon vesting, a cash payment equal to the closing price of our common stock on the trading day prior to the vesting date. These tracking units will vest in three equal tranches at grant date, and the first and second anniversaries of the grant date. Non-vested tracking unit awards as of March 31, 2022 and awards granted during the period were as follows:


	Number of Tracking Units (in thousands)	Price per Tracking Unit
Balance at January 1, 2022	—	—
Granted	19,309	$	3.09
Vested	(6,436)	3.38
Forfeited	(76)	2.70
Unvested balance at March 31, 2022	12,797	$	5.30

We recognize compensation expense for awards with graded vesting schedules over the requisite service periods for each separately vesting portion of the award as if each award was in substance multiple awards. Compensation expense for the first tranche of the 2021 LTI Award that vested at the grant date was recognized over the performance period when it was probable that the performance condition was achieved. Compensation expense for the second and third tranches of the 2021 LTI Award is recognized on a straight-line basis over the requisite service period. Compensation expense for unvested tracking units is subsequently adjusted each reporting period to reflect the estimated payout levels based on changes in the Company’s stock price and actual forfeitures. For the three months ended March 31, 2022, we recognized approximately $12.7 million in compensation expense for the second and third tranches of the 2021 LTI Award.

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 March 31, 2022 and December 31, 2021. Accordingly, we have not recorded a provision for federal, state or foreign income taxes during the three months ended March 31, 2022.

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

Our land leases are classified as finance 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. Our office space leases are classified as operating leases and include one or more options to extend the lease term 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 none of our leases provide an implicit rate, we have determined our own discount rate.

The following table shows the classification and location of our right-of-use assets and lease liabilities on our Consolidated Balance Sheets (in thousands):


Leases	Consolidated Balance Sheets Classification	March 31, 2022		December 31, 2021
Right of use asset
Operating	Other non-current assets	$	13,437	$	10,166
Finance	Property, plant and equipment, net	57,589		57,883
Total leased assets		$	71,026	$	68,049
Liabilities
Current
Operating	Accrued and other liabilities	$	2,365	$	2,147
Finance	Accrued and other liabilities	134		132
Non-Current
Operating	Other non-current liabilities	12,553		9,563
Finance	Other non-current liabilities	50,068		50,103
Total leased liabilities		$	65,120	$	61,945

Lease costs recognized in our Consolidated Statements of Operations is summarized as follows (in thousands):


	Three months ended
Lease Costs	2022		2021
Operating lease cost	$	685	$	724
Finance lease cost
Amortization of lease assets	294		100
Interest on lease liabilities	994		456
Finance lease cost	$	1,288	$	556
Total lease cost	$	1,973	$	1,280

Other information about lease amounts recognized in our Consolidated Financial Statements is as follows:


	March 31, 2022
Lease term and discount rate
Weighted average remaining lease term (years)
Operating lease	5.2
Finance lease	49.2
Weighted average discount rate
Operating lease	6.1	%
Finance lease	9.4	%

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following table includes other quantitative information for our operating and finance leases (in thousands):


	Three months ended March 31,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	743	$	724
Operating cash flows from finance leases	$	—	$	—
Financing cash flows from finance leases	$	—	$	—

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 March 31, 2022 (in thousands):


	Operating		Finance
2022	$	2,350	$	3,083
2023	3,316		4,111
2024	3,359		4,111
2025	3,401		4,111
2026	3,423		4,111
After 2026	1,633		182,222
Total lease payments	$	17,482	$	201,749
Less: discount	2,564		151,547
Present value of lease liability	$	14,918	$	50,202

NOTE 15 — ADDITIONAL CASH FLOW INFORMATION

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


	Three Months Ended March 31,
	2022		2021
Accounts receivable	$	(5,396)	$	916
Prepaid expenses and other current assets 1	(14,595)		5
Accounts payable	4,950		1,674
Accounts payable due to related parties	175		(460)
Accrued liabilities 1	(27,810)		7,669
Other, net	826		(512)
Net changes in working capital	$	(41,850)	$	9,292

1 Excludes changes in the Company’s derivative assets and liabilities.

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


	Three Months Ended March 31,
	2022		2021
Non-cash accruals of property, plant and equipment and other non-current assets	$	10,931	(356)
Non-cash settlement of withholding taxes associated with the 2019 bonus and vesting of certain awards	—		2,305
Non-cash settlement of the 2019 bonus	—		3,258

Tellurian Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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):


	Three Months Ended March 31,
	2022		2021
Cash and cash equivalents	$	295,728	$	58,729
Current restricted cash	3,000		—
Non-current restricted cash	23,778		3,443
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	322,506	$	62,172

NOTE 16 — SUBSEQUENT EVENTS

At-the-Market Programs

Subsequent to March 31, 2022, and through the date of this filing, we sold approximately 22.3 million shares of common stock for total proceeds of approximately $128.1 million, net of approximately $4.0 million in fees and commissions, under our at-the-market equity offering programs. We did not sell any Senior Notes under the at-the-market debt offering program. On April 7, 2022, the Company increased the maximum aggregate sales proceeds of one of our at-the-market equity offering programs from $200.0 million to $400.0 million. As of the date of this filing, we have remaining availability to raise aggregate gross sales proceeds of approximately $522.6 million under our at-the-market debt and equity offering programs.

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”), a Delaware corporation, is a Houston-based company that is developing and plans to operate 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 (collectively referred to as the “Business”). The Driftwood terminal and the Driftwood pipeline are collectively referred to as the “Driftwood Project”. Our existing natural gas assets consist of 13,521 net acres and interests in 82 producing wells located in the Haynesville Shale trend of northern Louisiana. Our Business may be developed in phases.

As part of our execution strategy, which includes increasing our asset base, we will consider various commercial arrangements with third parties across the natural gas value chain. We are also pursuing activities such as direct sales of LNG to global counterparties, trading of LNG, the acquisition of additional upstream acreage and drilling of new wells on our existing or newly acquired upstream acreage. We are currently focused on the financing and construction of the Driftwood terminal.

We continue to evaluate the scope and other aspects of our Business in light of the evolving economic environment, needs of potential counterparties 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

Limited Notice to Proceed

On March 24, 2022 the Company issued a limited notice to proceed to Bechtel Energy Inc., formerly known as Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”), under our LSTK EPC agreement for Phase 1 of the Driftwood terminal dated as of November 10, 2017 (the “Phase 1 EPC Agreement”).

Land purchases

In January 2022, the Company exercised and capitalized land options of approximately $5.5 million to purchase land essential to the construction of the Driftwood Project for approximately $12.0 million.

LNG Trading Activities

The Company does not have any further commitments or obligations to purchase LNG cargos under its existing master LNG sale and purchase agreement. Refer to Note 9, Commitments and Contingencies, for further information.

Tellurian Inc. and Subsidiaries

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

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 $295.7 million of cash and cash equivalents as of March 31, 2022. We currently maintain at-the-market debt and equity offering programs pursuant to which we sell our Senior Notes and common stock from time to time. As of the date of this filing, we have remaining availability to raise aggregate gross sales proceeds of approximately $522.6 million under these programs.

As of March 31, 2022, we had total indebtedness of $57.7 million, none of which is scheduled to be repaid within the next twelve months. We also had contractual obligations associated with our finance and operating leases totaling $219.2 million, of which $7.3 million is scheduled to be paid within the next twelve months.

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 consolidated financial statements. The Company has the ability to generate additional proceeds from various other potential financing transactions. We are currently focused on the financing and construction of the Driftwood terminal.

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):


	Three Months Ended March 31,

	2022		2021
Cash used in operating activities	$	(82,579)	$	(10,475)
Cash used in investing activities	(74,958)		(1,400)
Cash provided by (used in) financing activities	172,769		(7,691)

Net increase (decrease) in cash, cash equivalents and restricted cash	15,232		(19,566)
Cash, cash equivalents and restricted cash, beginning of the period	307,274		81,738
Cash, cash equivalents and restricted cash, end of the period	$	322,506	$	62,172

Net working capital	$	251,443	$	1,282

SEC Form 10-Q filed by Tellurian Inc.