UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
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
(State or other jurisdiction of
incorporation or organization)
06-0842255
(I.R.S. Employer Identification No.)
1201 Louisiana Street,Suite 3100, Houston, TX
(Address of principal executive offices)
77002
(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
Common stock, par value $0.01 per share
8.25% Senior Notes due 2028
Trading symbol
TELL
TELZ
Name of each exchange on which registered
NYSE American LLC
NYSE American LLC
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 ☒ 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 ☒ 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
Non-accelerated filer
☒
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, as of June 30, 2021, the last business day of the registrant’s
most recently completed second fiscal quarter, was approximately $1,687,424 thousand, based on the per share closing sale price of $4.65 on that date. Solely for purposes of
this disclosure, shares of common stock held by executive officers and directors of the registrant, as well as certain stockholders, as of such date have been excluded because
such persons may be deemed to be affiliates. This determination of executive officers and directors as affiliates is not necessarily a conclusive determination for any other
purpose.
518,493,398 shares of common stock were issued and outstanding as of February 7, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement related to the 2022 annual meeting of stockholders, to be filed within 120 days after December 31, 2021, are incorporated by reference
in Part III of this annual report on Form 10-K.
Tellurian Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2021
TABLE OF CONTENTS
Item 1 and 2. Our Business and Properties
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part I
Part II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevents Inspections
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Page
1
14
28
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29
30
30
36
37
68
68
68
68
69
69
69
69
69
70
75
76
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:
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our businesses and prospects and our overall strategy;
planned or estimated 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:
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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;
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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.
All defined terms under Rule 4-10(a) of Regulation S-X shall have their statutorily prescribed meanings when used in this report. As used in this document, the terms
listed below have the following meanings:
DEFINITIONS
ASC
Bcf
Bcfe
Condensate
DD&A
DES
DOE/FE
EPC
FASB
FEED
FERC
FID
FTA countries
GAAP
ICE
JKM
LIBOR
LNG
LSTK
Mcf
MMBtu
MMcf
MMcf/d
MMcfe
Mtpa
NGA
Non-FTA countries
NYMEX
NYSE American
Oil
PUD
SEC
SPA
Train
TTF
U.K.
U.S.
USACE
Accounting Standards Codification
Billion cubic feet of natural gas
Billion cubic feet of natural gas equivalent volumes using a ratio of 6 Mcf to 1 barrel of liquid
Hydrocarbons that exist in a gaseous phase at original reservoir temperature and pressure, but when produced, are in the liquid phase at
surface pressure and temperature
Depreciation, depletion, and amortization
Delivered ex-ship
U.S. Department of Energy, Office of Fossil Energy
Engineering, procurement, and construction
Financial Accounting Standards Board
Front-End Engineering and Design
U.S. Federal Energy Regulatory Commission
Final investment decision as it pertains to the Driftwood Project
Countries with which the U.S. has a free trade agreement providing for national treatment for trade in natural gas
Generally accepted accounting principles in the U.S.
Intercontinental Exchange
Platts Japan Korea Marker index price for LNG
London Inter-bank Offered Rate
Liquefied natural gas
Lump Sum Turnkey
Thousand cubic feet of natural gas
Million British thermal unit
Million cubic feet of natural gas
MMcf per day
Million cubic feet of natural gas equivalent volumes using a ratio of 6 Mcf to 1 barrel of liquid
Million tonnes per annum
Natural Gas Act of 1938, as amended
Countries with which the U.S. does not have a free trade agreement providing for national treatment for trade in natural gas and with which
trade is permitted
New York Mercantile Exchange
NYSE American LLC
Crude oil and condensate
Proved undeveloped reserves
U.S. Securities and Exchange Commission
Sale and purchase agreement
An industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG
Platts Dutch Title Transfer Facility Index price for LNG
United Kingdom
United States
U.S. Army Corps of Engineers
With respect to the information relating to our ownership in wells or acreage, “net” oil and gas wells or acreage is determined by multiplying gross wells or acreage by
our working interest therein. Unless otherwise specified, all references to wells and acres are gross.
ITEM 1 AND 2. OUR BUSINESS AND PROPERTIES
Overview
PART I
Tellurian Inc. (“Tellurian,” “we,” “us,” “our,” or the “Company”), a Delaware corporation, is a Houston-based company that 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 natural gas
assets consist of 11,060 net acres and interests in 78 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. As discussed in “Overview of Significant Events – LNG Sale and Purchase Agreements” below, in 2021 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 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
LNG Sale and Purchase Agreements
Driftwood LNG LLC (“Driftwood LNG”), a wholly owned subsidiary of the Company, entered into the following SPAs with three purchasers for the purchase of a
total of 9.0 Mtpa of LNG:
• An SPA with Gunvor Singapore Pte Ltd (“Gunvor”) in May 2021 for the purchase of 3.0 Mtpa of LNG;
• An SPA with Vitol Inc. (“Vitol”) in June 2021 for the purchase of 3.0 Mtpa of LNG; and
• Two SPAs with Shell NA LNG LLC (“Shell”) in July 2021 for the purchase of 3.0 Mtpa of LNG.
The price for LNG sold under the SPAs with Gunvor and Vitol will be a blended average based on the JKM index price and the TTF futures contract price, in each case
minus a transportation netback. The price for LNG sold under each SPA with Shell will be based on the JKM index price or the TTF futures contract price, in each case minus a
transportation netback. Each SPA has a ten-year term from the date of first commercial delivery from the Driftwood terminal.
Initiated Owner Construction Activities
During the year ended December 31, 2021 we initiated owner construction activities necessary to proceed under our LSTK EPC agreements with Bechtel Oil, Gas and
Chemicals, Inc. (“Bechtel”).
Driftwood Land Lease Agreement
On July 1, 2021, we entered into a long-term ground lease agreement with the Lake Charles Harbor and Terminal District to secure property essential for the
construction of the Driftwood terminal.
Environmental, Social, Governance Practices
During the year ended December 2021, the Company began a partnership with the National Forest Foundation on a five-year plan for reforestation and other forest
management projects totaling $25 million across the United States. One of the first identified projects is to re-plant 300,000 trees in the Kisatchie National Forest, located near
Alexandria, Louisiana, where nearly 40,000 acres of native trees were lost due to extreme weather events during the past few years.
Upstream Drilling Activities
1
During the year ended December 31, 2021, we completed the drilling of and put in production four new Haynesville operated natural gas wells. We also participated in
the drilling of six Haynesville non-operated natural gas wells. Our 2021 drilling activities increased our proved developed reserves by approximately 51 Bcfe as of December
31, 2021.
Repayment of Borrowing Obligations
During the year ended December 31, 2021, we repaid all borrowing obligations that were outstanding at the end of December 31, 2020. For further information
regarding the repayment of our borrowing obligations, see Note 10 - Borrowings, of our Notes to the Consolidated Financial Statements.
Equity Offering
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.
8.25% Senior Notes due 2028
On November 10, 2021, we sold $50.0 million aggregate principal amount of 8.25% Senior Notes due November 30, 2028 (the “Senior Notes”) in a registered public
offering. Net proceeds from the sale of 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, which generated net proceeds of approximately $6.2 million after deducting fees.
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. During the year ended December 31, 2021, we did not sell any additional Senior
Notes under the at-the-market debt offering program.
Natural Gas Properties
Reserves
Our natural gas assets consist of 11,060 net acres and interests in 78 producing wells located in the Haynesville Shale trend of north Louisiana. For the year ended
December 31, 2021, our average net production was approximately 39.2 MMcf/d. All of our proved reserves were associated with those properties as of December 31, 2021.
Proved reserves are the estimated quantities of natural gas and condensate which geological and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating conditions (i.e., costs as of the date the estimate is made). Proved reserves are categorized as either
developed or undeveloped.
Our reserves as of December 31, 2021 were estimated by Netherland, Sewell & Associates, Inc. (“NSAI”), an independent petroleum engineering firm, and are set
forth in the following table. Per SEC rules, NSAI based its estimates on the 12-month unweighted arithmetic average of the first-day-of-the-month price of natural gas for each
month from January through December 2021. Prices include consideration of changes in existing prices provided for under contractual arrangements, but not on escalations or
reductions based upon future conditions. The price used for the reserve estimates as of December 31, 2021 was $3.60 per MMBtu of natural gas, adjusted for energy content,
transportation fees and market differentials.
The following table shows our proved reserves as of December 31, 2021:
Proved reserves (as of December 31, 2021):
Developed
Undeveloped
Total
Gas
(MMcf)
73,927
249,409
323,336
As of December 31, 2021, the standardized measure of discounted future net cash flow from our proved reserves (the “standardized measure”) was approximately
$364.2 million.
2
During the year ended December 31, 2021, we did not have any material capital expenditures related to the development of our undeveloped reserves and thus did not
convert any meaningful quantities from proved undeveloped to proved developed reserves. As of December 31, 2021, we do not expect to have any proved undeveloped
reserves that will remain undeveloped for more than five years from the date that they were initially booked.
Refer to Supplemental Disclosures About Natural Gas Producing Activities, starting on page 63, for additional details.
Controls Over Reserve Report Preparation, Technical Qualifications and Technologies Used
Our December 31, 2021 reserve report was prepared by NSAI in accordance with guidelines established by the SEC. Reserve definitions comply with the definitions
provided by Regulation S‑X of the SEC. NSAI prepared the reserve report based upon a review of property interests being appraised, production from such properties, current
costs of operation and development, current prices for production, agreements relating to current and future operations and sale of production, geoscience and engineering data,
and other information we provided to them. This information was reviewed by knowledgeable members of our Company for accuracy and completeness prior to submission to
NSAI. A letter that identifies the professional qualifications of the individual at NSAI who was responsible for overseeing the preparation of our reserve estimates as of
December 31, 2021, has been filed as an addendum to Exhibit 99.1 to this report and is incorporated by reference herein.
Internally, a Senior Vice President is responsible for overseeing our reserves process. Our Senior Vice President has over 20 years of experience in the oil and natural
gas industry, with the majority of that time in reservoir engineering and asset management. She is a graduate of Virginia Polytechnic Institute and State University with dual
degrees in Chemical Engineering and French, and a graduate of the University of Houston with a Masters of Business Administration degree. During her career, she has had
multiple responsibilities in technical and leadership roles, including reservoir engineering and reserves management, production engineering, planning, and asset management
for multiple U.S. onshore and international projects. She is also a licensed Professional Engineer in the State of Texas.
Production
For the years ended December 31, 2021, 2020 and 2019, we produced 14,302 MMcf, 16,893 MMcf and 13,901 MMcf of natural gas at an average sales price of $3.52,
$1.74 and $2.07 per Mcf, respectively. Natural gas and condensate production and operating costs for the periods ended December 31, 2021, 2020 and 2019 were $0.48, $0.28
and $0.25 per Mcfe, respectively.
Drilling Activity
The table below shows the number of net productive and dry development wells drilled during the past three years. The information in the table below should not be
considered indicative of future performance, nor should it be assumed that there is necessarily any correlation among the number of productive wells drilled, quantities of
reserves found, or economic value. A dry well is an exploratory, development, or extension well that proves to be incapable of producing either oil or gas in sufficient
quantities to justify completion as an oil or gas well. A productive well is an exploratory, development, or extension well that is not a dry well. Completion refers to installation
of permanent equipment for production of oil or gas, or, in the case of a dry well, to reporting to the appropriate authority that the well has been abandoned. The number of
wells drilled refers to the number of wells completed at any time during the fiscal year, regardless of when drilling was initiated.
Development wells:
Productive
Dry
We had no exploratory wells drilled during any of the periods presented.
For the Year Ended December 31,
2020
2019
2021
6.9
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—
3.1
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Wells and Acreage
As of December 31, 2021, we owned working interests in 65 gross (28 net) productive natural gas wells. We have 4,419 gross (4,100 net) developed leasehold acres
that are held by production. Additionally, we hold 7,448 gross (6,960 net) undeveloped leasehold acres. As of December 31, 2021, there were seven gross (3.33 net) in process
wells.
Of the total gross and net undeveloped acreage, 1,995 gross and 1,901 net acres are not held by production, of which no acres are set to expire in 2022.
3
Volume Commitments
We are not currently subject to any material volume commitments.
Gathering, Processing and Transportation
As part of our acquisitions of natural gas properties, we also acquired certain gathering systems that deliver the natural gas we produce into third-party gathering
systems. We believe that these systems and other available midstream facilities and services in the Haynesville Shale trend are adequate for our current operations and near-term
growth.
Government Regulations
Our operations are and will be subject to extensive federal, state and local statutes, rules, regulations, and laws that include, but are not limited to, the NGA, the Energy
Policy Act of 2005 (“EPAct 2005”), the Oil Pollution Act, the National Environmental Policy Act (“NEPA”), the Clean Air Act (the “CAA”), the Clean Water Act (the
“CWA”), the Resource Conservation and Recovery Act (“RCRA”), the Pipeline Safety Improvement Act of 2002 (the “PSIA”), and the Coastal Zone Management Act (the
“CZMA”). These statutes cover areas related to the authorization, construction and operation of LNG facilities, natural gas pipelines and natural gas producing properties,
including discharges and releases to the air, land and water, and the handling, generation, storage and disposal of hazardous materials and solid and hazardous wastes due to the
development, construction and operation of the facilities. These laws are administered and enforced by governmental agencies including but not limited to FERC, the U.S.
Environmental Protection Agency (the “EPA”), DOE/FE, the U.S. Department of Transportation (“DOT”), the Pipeline and Hazardous Materials Safety Administration
(“PHMSA”), the Louisiana Department of Environmental Quality and the Louisiana Department of Natural Resources. Additionally, numerous other governmental and
regulatory permits and approvals will be required to build and operate our Business, including, with respect to the construction and operation of the Driftwood Project,
consultations and approvals by the Advisory Council on Historic Preservation, USACE, U.S. Department of Commerce, National Marine Fisheries Service, U.S. Department of
the Interior, U.S. Fish and Wildlife Service, and U.S. Department of Homeland Security. For example, throughout the life of our liquefaction project, we will be subject to
regular reporting requirements to FERC, PHMSA and other federal and state regulatory agencies regarding the operation and maintenance of our facilities.
Failure to comply with applicable federal, state, and local laws, rules, and regulations could result in substantial administrative, civil and/or criminal penalties and/or
failure to secure and retain necessary authorizations.
We have received regulatory permits and approvals in connection with the Driftwood terminal and Driftwood pipeline, including the following:
4
Agency
FERC
DOE
USACE
Permit / Consultation
Section 3 and Section 7 Application - NGA
Section 3 Application - NGA
Section 404
Section 10 (Rivers and Harbors Act)
United States Coast Guard
United States Fish and Wildlife Service
Letter of Intent and Preliminary Water Suitability Assessment
Follow-On Water Suitability Assessment and Letter of
Recommendation
Section 7 of Endangered Species Act Consultation
Approval Date
April 18, 2019
FTA countries: February 28, 2017 (3968); amended
December 6, 2018 (3968-A);
amended December 18, 2020 (4641)
Non-FTA countries: May 2, 2019 (4373);
amended December 10, 2020 (4373-A);
amended December 18, 2020 (4641)
May 3, 2019
May 3, 2019
June 21, 2016
April 25, 2017
September 19, 2017; February 7, 2019
Section 7 of the Endangered Species Act Consultation
February 14, 2018
Magnuson-Stevens Fishery Management and Conservation Act
Essential Fish Habitat Consultation
October 3, 2017
Marine Mammal Protection Act Consultation
October 3, 2017
Coastal Use Permit and Coastal Zone Consistency Permit, Joint
Permit with USACE
May 29, 2018
National Oceanic and Atmospheric
Administration / National Marine Fisheries
Service
State
Louisiana Department of Natural Resources-
Coastal Management Division
Louisiana Department of Environmental
Quality - Air Quality Division
Coastal Use Permit Extension
Air Permit for LNG Terminal
Gillis Compressor Station
Louisiana State Historic Preservation Office Section 106 Consultation
May 21, 2020
July 10, 2018;
June 2, 2021 (extension)
October 2, 2017;
April 8, 2021 (extension)
Concurrence received on June 29, 2016
Concurrence received on November 22, 2016
Concurrence received on April 13, 2017
Concurrence received on March 1, 2019
Federal Energy Regulatory Commission
The design, construction and operation of liquefaction facilities and pipelines, the export of LNG and the transportation of natural gas are highly regulated activities. In
order to site, construct and operate the Driftwood Project, we obtained authorizations from FERC under Section 3 and Section 7 of the NGA as well as several other material
governmental and regulatory approvals and permits as detailed in the table above. In order to gain regulatory certainty with respect to certain potential commercial transactions,
on November 13, 2020, Driftwood Holdings LP (“Driftwood Holdings”), a wholly owned subsidiary of the Company, and Driftwood LNG (jointly, “Driftwood”) filed a
Petition with FERC requesting, among other things, a prospective limited waiver of FERC’s buy/sell prohibition as well as any other prospective waivers necessary to enable
Driftwood to purchase natural gas from potentially affiliated upstream suppliers that may be resold to a different affiliate under a long-term contract for export as LNG in
foreign commerce. On January 19, 2021, FERC issued an order granting a prospective limited waiver of the prohibition on buy/sell arrangements for future proposed
transactions in which Driftwood enters into: (1) an agreement to purchase natural gas from a potentially affiliated supplier; and (2) an agreement to sell LNG to affiliates in
foreign commerce.
EPAct 2005 amended Section 3 of the NGA to establish or clarify FERC’s exclusive authority to approve or deny an application for the siting, construction, expansion
or operation of LNG terminals, although except as specifically provided in
5
EPAct 2005, nothing in the statute is intended to affect otherwise applicable law related to any other federal agency’s authorities or responsibilities related to LNG terminals.
In 2002, FERC concluded that it would apply light-handed regulation to the rates, terms and conditions agreed to by parties for LNG terminalling services, such that
LNG terminal owners would not be required to provide open-access service at non-discriminatory rates or maintain a tariff or rate schedule on file with FERC, as distinguished
from the requirements applied to FERC-regulated interstate natural gas pipelines. Although EPAct 2005 codified FERC’s policy, those provisions expired on January 1, 2015.
Nonetheless, we see no indication that FERC intends to modify its longstanding policy of light-handed regulation of LNG terminal operations.
A certificate of public convenience and necessity from FERC is required for the construction and operation of facilities used in interstate natural gas transportation,
including pipeline facilities, in addition to other required governmental and regulatory approvals. In this regard, in April 2019, we obtained a certificate of public convenience
and necessity to construct and operate the Driftwood pipeline. On June 17, 2021, Driftwood Pipeline LLC, a wholly owned subsidiary of the Company, filed an application
pursuant to Section 7(c) of the NGA in FERC Docket No. CP21-465-000 requesting that FERC grant a certificate of public convenience and necessity and related approvals to
construct, own and operate dual 42-inch diameter natural gas pipelines, an approximately 211,200 horsepower compressor station and appurtenant facilities to be located in
Beauregard and Calcasieu Parishes, Louisiana, which would provide a maximum seasonal capacity of 5.7 Bcf of natural gas per day. The application is currently pending.
FERC’s jurisdiction under the NGA generally extends to the transportation of natural gas in interstate commerce, to the sale in interstate commerce of natural gas for
resale for ultimate consumption for domestic, commercial, industrial or any other use and to natural gas companies engaged in such transportation or sale. FERC’s jurisdiction
does not extend to the production, gathering, local distribution or export of natural gas.
Specifically, FERC’s authority to regulate interstate natural gas pipelines includes:
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rates and charges for natural gas transportation and related services;
the certification and construction of new facilities;
the extension and abandonment of services and facilities;
the maintenance of accounts and records;
the acquisition and disposition of facilities;
the initiation and discontinuation of services; and
various other matters.
In addition, FERC has the authority to approve, and if necessary set, “just and reasonable rates” for the transportation or sale of natural gas in interstate commerce.
Relatedly, under the NGA, our proposed pipelines will not be permitted to unduly discriminate or grant undue preference as to rates or the terms and conditions of service to any
shipper, including our own affiliates.
EPAct 2005 amended the NGA to make it unlawful for any entity, including otherwise non-jurisdictional producers, to use any deceptive or manipulative device or
contrivance in connection with the purchase or sale of natural gas or the purchase or sale of transportation services subject to regulation by FERC, in contravention of rules
prescribed by FERC. The anti-manipulation rule does not apply to activities that relate only to intrastate or other non-jurisdictional sales, gathering or production, but does apply
to activities of otherwise non-jurisdictional entities to the extent the activities are conducted “in connection with” natural gas sales, purchases or transportation subject to FERC
jurisdiction. EPAct 2005 also gives FERC authority to impose civil penalties for violations of the NGA or Natural Gas Policy Act of up to $1 million per violation.
Transportation of the natural gas we produce, and the prices we pay for such transportation, will be significantly affected by the foregoing laws and regulations.
U.S. Department of Energy, Office of Fossil Energy Export License
Under the NGA, exports of natural gas to FTA countries are “deemed to be consistent with the public interest,” and authorization to export LNG to FTA countries shall
be granted by the DOE/FE “without modification or delay.” FTA countries currently capable of importing LNG include but are not limited to Canada, Chile, Colombia, Jordan,
Mexico, Singapore, South Korea and the Dominican Republic. Exports of natural gas to Non-FTA countries are authorized unless the DOE/FE “finds that the proposed
exportation” “will not be consistent with the public interest.” We have authorization from the DOE/FE to export LNG in a volume up to the equivalent of 1,415.3 Bcf per year
of natural gas to FTA countries for a term of 30 years and to Non-FTA countries for a term through December 31, 2050.
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Pipeline and Hazardous Materials Safety Administration
The Natural Gas Pipeline Safety Act of 1968 (the “NGPSA”) authorizes DOT to regulate pipeline transportation of natural (flammable, toxic, or corrosive) gas and
other gases, as well as the transportation and storage of LNG. Amendments to the NGPSA include the Pipeline Safety Act of 1979, which addresses liquids pipelines, and the
PSIA, which governs the areas of testing, education, training, and communication.
PHMSA administers pipeline safety regulations for jurisdictional gas gathering, transmission, and distribution systems under minimum federal safety standards.
PHMSA also establishes and enforces safety regulations for onshore LNG facilities, which are defined as pipeline facilities used for the transportation or storage of LNG subject
to such safety standards. Those regulations address requirements for siting, design, construction, equipment, operations, personnel qualification and training, fire protection, and
security of LNG facilities. The Driftwood terminal will be subject to such PHMSA regulations.
The Driftwood pipeline and other related pipelines will also be subject to regulation by PHMSA, including those under the PSIA. The PHMSA Office of Pipeline
Safety administers the PSIA, which requires pipeline companies to perform extensive integrity tests on natural gas transportation pipelines that exist in high population density
areas designated as “high consequence areas.” Pipeline companies are required to perform the integrity tests on a seven-year cycle. The risk ratings are based on numerous
factors, including the population density in the geographic regions served by a particular pipeline, as well as the age and condition of the pipeline and its protective coating.
Testing consists of hydrostatic testing, internal electronic testing, or direct assessment of the piping. In addition to the pipeline integrity tests, pipeline companies must
implement a qualification program to make certain that employees are properly trained. Pipeline operators also must develop integrity management programs for natural gas
transportation pipelines, which requires pipeline operators to perform ongoing assessments of pipeline integrity; identify and characterize applicable threats to pipeline segments
that could impact a high consequence area; improve data collection, integration and analysis; repair and remediate the pipeline, as necessary; and implement preventive and
mitigative actions.
On December 27, 2020, the Protecting our Infrastructure of Pipelines and Enhancing Safety Act (PIPES Act) of 2020 was signed into law as part of the Consolidated
Appropriations Act of 2021. The legislation reauthorizes the PHMSA pipeline safety program through fiscal year 2023 and provides for advances to improve pipeline safety.
The legislation includes a directive to PHMSA to update its current regulations for large-scale LNG facilities.
On January 11, 2021, PHMSA published a final rule in the Federal Register amending the Federal Pipeline Safety Regulations to reduce regulatory burdens and offer
greater flexibility with respect to the construction, maintenance, and operation of gas transmission, distribution, and gathering pipeline systems, including updates to corrosion
control requirements and test requirements for pressure vessels. Mandatory compliance with this rule started October 1, 2021. This rule is subject to review for possible
modification pursuant to executive orders signed by President Biden on or shortly after January 20, 2021.
On November 15, 2021, PHMSA published a final rule in the Federal Register revising the Federal Pipeline Safety Regulations to improve the safety of onshore gas
gathering pipelines. The rule extends reporting requirements to all gas gathering operators and applies a set of minimum safety requirements to certain gas gathering pipelines
with large diameters and high operating pressures. This rule goes into effect on May 16, 2022.
The Driftwood pipeline and other related pipelines will be subject to regulation under PHMSA, which will involve capital and operating costs for compliance-related
equipment and operations. We have no reason to believe that these compliance costs will be material to our financial performance, but the significance of such costs will depend
on future events and our ability to achieve and maintain compliance throughout the life of the Driftwood Project or related pipelines.
Natural Gas Pipeline Safety Act of 1968
Louisiana administers federal pipeline safety standards under the NGPSA, which requires certain pipelines to comply with safety standards in constructing and
operating the pipelines and subjects the pipelines to regular inspections. Failure to comply with the NGPSA may result in the imposition of administrative, civil and criminal
sanctions.
Other Governmental Permits, Approvals and Authorizations
The construction and operation of the Driftwood terminal and Driftwood pipeline are subject to federal permits, orders, approvals and consultations required by other
federal and state agencies, including DOT, the Advisory Council on Historic Preservation, USACE, U.S. Department of Commerce, National Marine Fisheries Service, U.S.
Department of the Interior, U.S. Fish and Wildlife Service, the EPA and the U.S. Department of Homeland Security. The necessary permits required for construction have been
obtained and will be maintained for the Driftwood terminal and Driftwood pipeline. Similarly, additional permits, orders, approvals and consultations will be required for other
related pipelines.
Three significant permits that apply to the Driftwood terminal and Driftwood pipeline are the USACE Section 404 of the CWA/Section 10 of the Rivers and Harbors
Act Permit, the CAA Title V Operating Permit and the Prevention of
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Significant Deterioration Permit, of which the latter two permits are issued by the Louisiana Department of Environmental Quality. Each of the Driftwood terminal and
Driftwood pipeline has received its permit from USACE, including a review and approval by USACE of the findings and conditions set forth in an Environmental Impact
Statement and Record of Decision issued for the Driftwood terminal and Driftwood pipeline pursuant to the requirements of NEPA. The Louisiana Department of
Environmental Quality has issued the Prevention of Significant Deterioration permit, which is required to commence construction of the Driftwood terminal as well as the Title
V Operating Permit. These material approvals may be required for other related pipelines.
Environmental Regulation
Our operations are and will be subject to various federal, state and local laws and regulations relating to the protection of the environment and natural resources, the
handling, generation, storage and disposal of hazardous materials and solid and hazardous wastes and other matters. These environmental laws and regulations, which can
restrict or prohibit impacts to the environment or the types, quantities and concentration of substances that can be released into the environment, will require significant
expenditures for compliance, can affect the cost and output of operations, may impose substantial administrative, civil and/or criminal penalties for non-compliance and can
result in substantial liabilities. The statutes, regulations and permit requirements imposed under environmental laws are modified frequently, sometimes retroactively. Such
changes are difficult to predict or prepare for, and may impose material costs for new permits, capital investment or operational limitations or changes.
The Biden Administration has issued a number of executive orders that direct federal agencies to take actions that may change regulations and guidance applicable to
our business.
Executive Order 14008, “Tackling the Climate Crisis at Home and Abroad,” 86 FR 7619 (January 27, 2021), establishes a policy “promoting the flow of capital toward
climate-aligned investments and away from high-carbon investments.” It also requires the heads of agencies to identify any fossil fuel subsidies provided by their respective
agencies, and to seek to eliminate fossil fuel subsidies from the budget request for fiscal year 2022 and thereafter.
Executive Order 13990, “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis,” 86 FR 7037 (January 20, 2021) directs
agencies to review regulations and policies adopted by the Trump Administration and to “confront the climate crisis.” It specifically directs the EPA to consider suspending,
revising or rescinding certain regulations, including restrictions on emissions from the oil and gas sector. In addition, Executive Order 13990 establishes a federal inter-agency
working group to recommend methods for agencies to incorporate the “social cost of carbon” into their decision making. Finally, Executive Order 13990 directs the White
House Council on Environmental Quality to rescind draft guidance restricting the review of climate change issues in reviews under NEPA and to update regulations to
strengthen climate change reviews. On March 8, 2021, 12 states filed a lawsuit in the U.S. District Court for the Eastern District of Missouri challenging President Biden's
authority to establish interim values for the social cost of greenhouse gases under Executive Order 13990; the case is currently pending appeal before the U.S. Circuit Court of
Appeals for the 8th Circuit.
NEPA. NEPA and comparable state laws and regulations require that government agencies review the environmental impacts of proposed projects. On July 16, 2020,
the White House Council on Environmental Quality (the “CEQ”) published a final rule to “modernize and clarify” the prior NEPA implementation regulations and to streamline
environmental reviews required by NEPA (the “Revised NEPA Regulations”). The Revised NEPA Regulations set a presumptive time limit for completion of NEPA reviews
and limit the scope of NEPA reviews to those effects that are reasonably foreseeable and have a reasonably close causal relationship to the proposed action or alternatives.
While these changes are not likely to require amendments to the USACE permits and NEPA-related findings that were completed prior to the effective date of the final NEPA
rule, the changes in the NEPA regulations may impact new permits, permit modifications and other elements of the Driftwood Project and related pipelines that are under
development. The Revised NEPA Regulations are currently subject to legal challenges. On October 7, 2021, the CEQ published a notice of proposed rulemaking to announce a
set of proposed changes to generally restore prior regulatory provisions. Therefore, the impact on the Driftwood Project and related pipelines of the previously Revised NEPA
Regulations and new NEPA regulations and guidance is not determinable at this time.
Clean Air Act. The CAA and comparable state laws and regulations restrict the emission of air pollutants from many sources and impose various monitoring and
reporting requirements, among other requirements. The Driftwood Project and related pipelines include facilities and operations that are subject to the federal CAA and
comparable state and local laws, including requirements to obtain pre-construction permits and operating permits. We may be required to incur capital expenditures for air
pollution control equipment in connection with maintaining or obtaining permits and approvals pursuant to the CAA and comparable state laws and regulations.
In August 2020, the EPA issued two final rules that revised the new source performance standards under the CAA (the “2020 CAA Revisions”) to require reductions
in emissions, including methane emissions, from new and modified sources in the oil and natural gas sector. On June 30, 2021, President Biden signed into law a joint
Congressional resolution disapproving many of the 2020 CAA Revisions pursuant to the Congressional Review Act making the disapproved portions of the 2020 CAA
Revisions no longer effective. In November 2021, the EPA published a proposed rule that would update and expand existing
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requirements for the oil and gas industry, as well as creating significant new requirements and standards for new, modified and existing oil and gas facilities. The proposed new
requirements would include, for example, new standards and emission limitations applicable to storage vessels, well liquids unloading, pneumatic controllers, and flaring of
natural gas at both new and existing facilities. The proposed rules for new and modified facilities are expected to be finalized by the end of 2022, while any standards finalized
for existing facilities will require further state rulemaking actions over the next several years before they become applicable and effective. The comment period for that
proposed rule was extended until January 31, 2022. Therefore, the impact of the revised oil and gas new source performance standards on the Driftwood Project and other
related pipelines and Tellurian’s compliance obligations are not determinable at this time.
Greenhouse Gases. In December 2009, the EPA published its findings that emissions of carbon dioxide, methane, and other greenhouse gases (“GHGs”) present an
endangerment to public health and the environment because emissions of GHGs are, according to the EPA, contributing to warming of the earth’s atmosphere and other climatic
changes. These findings provide the basis for the EPA to adopt and implement regulations that would restrict emissions of GHGs under existing provisions of the CAA. In June
2010, the EPA began regulating GHG emissions from stationary sources, including LNG terminals. In June 2019, the EPA issued the final Affordable Clean Energy rule, which,
among other things, establishes emission guidelines for states to develop plans to address greenhouse gas emissions from existing coal-fired power plants. The Affordable Clean
Energy rule was subject to legal challenges and, in January 2021, the U.S. Court of Appeals for the District of Columbia Circuit vacated the rule and remanded the rule to the
EPA for revision or replacement.
The Biden Administration has communicated its intention to address climate change and has issued Executive Orders with respect to certain governmental actions
related to climate change. In the future, the EPA may promulgate additional regulations for sources of GHG emissions that could affect the oil and gas sector, and Congress or
states may enact new GHG legislation, either of which could impose emission limits on the Driftwood Project or related pipelines or require the Driftwood Project or related
pipelines to implement additional pollution control technologies, pay fees related to GHG emissions or implement mitigation measures. The scope and effects of any new laws
or regulations are difficult to predict, and the impact of such laws or regulations on the Driftwood Project or related pipelines cannot be predicted at this time.
Coastal Zone Management Act. Certain aspects of the Driftwood terminal are subject to the requirements of the CZMA. The CZMA is administered by the states (in
Louisiana, by the Department of Natural Resources). This program is implemented to ensure that impacts to coastal areas are consistent with the intent of the CZMA to manage
the coastal areas. Certain facilities that are part of the Driftwood Project obtained permits for construction and operation in coastal areas pursuant to the requirements of the
CZMA.
Clean Water Act. The Driftwood Project and related pipelines are subject to the CWA and analogous state and local laws. The CWA and analogous state and local
laws regulate discharges of pollutants to waters of the United States or waters of the state, including discharges of wastewater and storm water runoff and discharges of dredged
or fill material into waters of the United States, as well as spill prevention, control and countermeasure requirements. Permits must be obtained prior to discharging pollutants
into state and federal waters or dredging or filling wetland and coastal areas. The CWA is administered by the EPA, the USACE and by the states. Additionally, the siting and
construction of the Driftwood terminal and Driftwood pipeline will impact jurisdictional wetlands, which would require appropriate federal, state and/or local permits and
approval prior to impacting such wetlands. The authorizing agency may impose significant direct or indirect mitigation costs to compensate for regulated impacts to wetlands.
Although the CWA permits required for construction and operation of the Driftwood terminal and Driftwood pipeline have been obtained, other CWA permits may be required
in connection with our projects that are under development and our future projects. The approval timeframe may also be longer than expected and could potentially affect
project schedules.
In April 2020, the EPA and the USACE finalized a rule revising and narrowing the definition of “waters of the United States” and replacing prior rules defining the
same issued in 1986 and 2015 (the “2020 Rule”). On August 30, 2021, the U.S. District Court for the District of Arizona vacated and remanded the 2020 Rule and in June 2021,
the EPA and the Department of the Army announced their intention to initiate a new rulemaking process to restore the pre-2015 definition of “waters of the United States”
informed by decisions of the Supreme Court of the United States. The proposed rule was published on December 7, 2021 and the comment period closed on February 7, 2022.
In addition, in January 2022, the Supreme Court of the United States granted certiorari in a case, Sackett v. EPA, that could further impact this rulemaking process and the
ultimate rule. Changes in the definition of “waters of the United States” are not likely to affect the permits already obtained for the Driftwood terminal and Driftwood pipeline,
but further regulatory changes or any judicial decisions could affect other elements of the Driftwood terminal and Driftwood pipeline or other related pipelines in ways that
cannot be predicted at this time.
Federal laws including the CWA require certain owners or operators of facilities that store or otherwise handle oil and produced water to prepare and implement spill
prevention, control, countermeasure and response plans addressing the possible discharge of oil into surface waters. The Oil Pollution Act of 1990 (“OPA”) subjects owners and
operators of facilities to strict and joint and several liability for all containment and cleanup costs and certain other damages arising from oil spills, including the government’s
response costs. Spills subject to the OPA may result in varying civil and criminal penalties and liabilities. The
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Driftwood Project incorporates appropriate equipment and operational measures to reduce the potential for spills of oil and establish protocols for responding to spills, but oil
spills remain an operational risk that could adversely affect our operations and result in additional costs or fines or penalties.
Resource Conservation and Recovery Act. The federal RCRA and comparable state requirements govern the generation, handling and disposal of solid and hazardous
wastes and require corrective action for releases into the environment. In the event such wastes are generated or used in connection with our facilities, we will be subject to
regulatory requirements affecting the handling, transportation, treatment, storage and disposal of such wastes and could be required to perform corrective action measures to
clean up releases of such wastes. The EPA and certain environmental groups entered into an agreement pursuant to which the EPA was required to propose, no later than March
2019, a rulemaking for revision of certain regulations pertaining to oil and natural gas wastes or sign a determination that revision of the regulations is not necessary. In April
2019, the EPA determined that revision of the regulations is not necessary. Information comprising the EPA’s review and the decision is contained in a document entitled
“Management of Exploration, Development and Production Wastes: Factors Informing a Decision on the Need for Regulatory Action.” The EPA indicated that it would
continue to work with states and other organizations to identify areas for continued improvement and to address emerging issues to ensure that exploration, development and
production wastes continue to be managed in a manner that is protective of human health and the environment. Environmental groups, however, expressed dissatisfaction with
the EPA’s decision and will likely continue to press the issue at the federal and state levels. A loss of the exclusion from RCRA coverage for drilling fluids, produced waters
and related wastes in the future could result in a significant increase in our costs to manage and dispose of waste associated with our production operations.
The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). CERCLA, often referred to as Superfund, and comparable state statutes,
impose liability that is generally joint and several and that is retroactive for costs of investigation and remediation and for natural resource damages, without regard to fault or
the legality of the original conduct, for the release of a “hazardous substance” (or under state law, other specified substances) into the environment. So-called potentially
responsible parties (“PRPs”) include the current and certain past owners and operators of a facility where there has been a release or threat of release of a hazardous substance
and persons who disposed of or arranged for the disposal of, or transported hazardous substances found at a site. CERCLA also authorizes the EPA and, in some cases, third
parties to take actions in response to threats to the public health or the environment and to seek to recover from the PRPs the cost of such action. Liability can arise from
conditions on properties where operations are conducted, even under circumstances where such operations were performed by third parties and/or from conditions at disposal
facilities where materials were sent. Our operations involve the use or handling of materials that include or may be classified as hazardous substances under CERCLA or
regulated under similar state statutes. We may also be the owner or operator of sites on which hazardous substances have been released and may be responsible for the
investigation, management and disposal of soils or dredge spoils containing hazardous substances in connection with our operations.
Oil and natural gas exploration and production, and possibly other activities, have been conducted at some of our properties by previous owners and operators.
Materials from these operations remain on some of the properties and in certain instances may require remediation. In some instances, we have agreed to indemnify the sellers
of producing properties from whom we have acquired reserves against certain liabilities for environmental claims associated with the properties. Accordingly, we could incur
material costs for remediation required under CERCLA or similar state statutes in the future.
Hydraulic Fracturing. Hydraulic fracturing is commonly used to stimulate the production of crude oil and/or natural gas from dense subsurface rock formations. We
plan to use hydraulic fracturing extensively in our natural gas development operations. The process involves the injection of water, sand, and additives under pressure into a
targeted subsurface formation. The water and pressure create fractures in the rock formations which are held open by the grains of sand, enabling the natural gas to more easily
flow to the wellbore. The process is generally subject to regulation by state oil and natural gas commissions but is also subject to new and changing regulatory programs at the
federal, state and local levels.
In February 2014, the EPA issued permitting guidance under the Safe Drinking Water Act (the “SDWA”) for the underground injection of liquids from hydraulically
fractured wells and other wells where diesel is used. Depending upon how it is implemented, this guidance may create duplicative requirements in certain areas, further slow the
permitting process in certain areas, increase the costs of operations, and result in expanded regulation of hydraulic fracturing activities related to the Driftwood Project.
In May 2014, the EPA issued an advance notice of proposed rulemaking under the Toxic Substances Control Act (“TSCA”) pursuant to which it will collect extensive
information on the chemicals used in hydraulic fracturing fluid, as well as other health-related data, from chemical manufacturers and processors. If the EPA regulates hydraulic
fracturing fluid under TSCA in the future, such regulation may increase the cost of our natural gas development operations and the feedstock for the Driftwood terminal.
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In June 2016, the EPA finalized pretreatment standards for indirect discharges of wastewater from the oil and natural gas extraction industry. The regulation prohibits
sending wastewater pollutants from onshore unconventional oil and natural gas extraction facilities to publicly-owned treatment works. Certain activities of our Business are
subject to the pretreatment standards, which means that we are required to use disposal methods that may require additional permits or cost more to implement than disposal at
publicly-owned treatment works.
In December 2016, the EPA released a report titled “Hydraulic Fracturing for Oil and Gas: Impacts from the Hydraulic Fracturing Water Cycle on Drinking Water
Resources in the United States.” The report concluded that activities involved in hydraulic fracturing can have impacts on drinking water under certain circumstances. In
addition, the U.S. Department of Energy has investigated practices that the agency could recommend to better protect the environment from drilling using hydraulic fracturing
completion methods. These and similar studies, depending on their degree of development and nature of results obtained, could spur initiatives to further regulate hydraulic
fracturing under the SDWA or other regulatory mechanisms . If the EPA proposes additional regulations of hydraulic fracturing in the future, they could impose additional
emission limits and pollution control technology requirements, which could limit our operations and revenues and potentially increase our costs of gas production or
acquisition.
Endangered Species Act (“ESA”). Our operations may be restricted by requirements under the ESA. The ESA prohibits the harassment, harming or killing of certain
protected species and destruction of protected habitats. Under the NEPA review process conducted by FERC, we have been and will be required to consult with federal agencies
to determine limitations on and mitigation measures applicable to activities that have the potential to result in harm to threatened or endangered species of plants, animals, fish
and their designated habitats. Although we have conducted studies and engaged in consultations with agencies in order to avoid harming protected species, inadvertent or
incidental harm may occur in connection with the construction or operation of our properties, including of the Driftwood Project or related pipelines, which could result in fines
or penalties. In addition, if threatened or endangered species are found on any part of our properties, including the sites of the Driftwood Project, related pipelines, or pipeline
rights of way, then we may be required to implement avoidance or mitigation measures that could limit our operations or impose additional costs.
Regulation of Natural Gas Operations
Our natural gas operations are subject to a number of additional laws, rules and regulations that require, among other things, permits for the drilling of wells, drilling
bonds and reports concerning operations. States, parishes and municipalities in which we operate may regulate, among other things:
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the location of new wells;
the method of drilling, completing and operating wells;
the surface use and restoration of properties upon which wells are drilled;
the plugging and abandoning of wells;
notice to surface owners and other third parties; and
produced water and waste disposal.
State laws regulate the size and shape of drilling and spacing units or proration units governing the pooling of oil and natural gas properties. Some states, including
Louisiana, allow forced pooling or integration of tracts to facilitate exploration, while other states rely on voluntary pooling of lands and leases. In some instances, forced
pooling or unitization may be implemented by third parties and may reduce our interest in the unitized properties. In addition, state conservation laws establish maximum rates
of production from oil and natural gas wells and generally prohibit the venting or flaring of natural gas and require that oil and natural gas be produced in a prorated, equitable
system. These laws and regulations may limit the amount of oil and natural gas that we can produce from our wells or limit the number of wells or the locations at which we can
drill. Moreover, most states generally impose a production, ad valorem or severance tax with respect to the production and sale of oil and natural gas within their jurisdictions.
Many local authorities also impose an ad valorem tax on the minerals in place. States do not generally regulate wellhead prices or engage in other, similar direct economic
regulation, but there can be no assurance they will not do so in the future.
Anti-Corruption, Trade Control, and Tax Evasion Laws
We are subject to anti-corruption laws in various jurisdictions, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.K. Bribery
Act of 2010 and other anti-corruption laws. The FCPA and these other laws generally prohibit our employees, directors, officers and agents from authorizing, offering, or
providing improper payments or anything else of value to government officials or other covered persons to obtain or retain business or gain an improper business advantage. We
face the risk that one of our employees or agents will offer, authorize, or provide something of value that could subject us to liability under the FCPA and other anti-corruption
laws. In addition, we cannot predict the nature, scope or effect
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of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
We are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of Commerce’s
Bureau of Industry and Security, the U.S. Department of Treasury’s Office of Foreign Assets Control, and various non-U.S. government entities, including applicable export
control regulations, economic sanctions on countries and persons, customs requirements, currency exchange regulations, and transfer pricing regulations (collectively, “Trade
Control laws”).
We are also subject to new U.K. corporate criminal offenses for failure to prevent the facilitation of tax evasion pursuant to the Criminal Finances Act 2017, which
imposes criminal liability on a company where it has failed to prevent the criminal facilitation of tax evasion by a person associated with the company.
We have instituted policies, procedures and ongoing training of employees designed to ensure that we and our employees and agents comply with the FCPA, other
anti-corruption laws, Trade Control laws and the Criminal Finances Act 2017. However, there is no assurance that our efforts have been and will be completely effective in
ensuring our compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements. If we are not in compliance with the FCPA, other anti-
corruption laws, the Trade Control laws or the Criminal Finances Act 2017, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial
measures, and legal expenses, which could have a material adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation
of any potential violations of the FCPA, other anti-corruption laws the Trade Control laws or the Criminal Finances Act 2017 by the U.S. or foreign authorities could have a
material adverse impact on our reputation, business, financial condition and results of operations. U.S. or foreign authorities may also seek to hold us liable for successor
liability for anti-corruption violations committed by companies we acquire or in which we invest (for example, by way of acquiring equity interests, participating as a joint
venture partner, or acquiring assets).
Competition
We are subject to a high degree of competition in all aspects of our business. See “Item 1A — Risk Factors — Risks Relating to Our Business in General —
Competition is intense in the energy industry and some of Tellurian’s competitors have greater financial, technological and other resources.”
Production & Transportation. The natural gas and oil business is highly competitive in the exploration for and acquisition of reserves, the acquisition of natural gas and
oil leases, equipment and personnel required to develop and produce reserves, and the gathering, transportation and marketing of natural gas and oil. Our competitors include
national oil companies, major integrated natural gas and oil companies, other independent natural gas and oil companies, and participants in other industries supplying energy
and fuel to industrial, commercial, and individual consumers, such as operators of pipelines and other midstream facilities. Many of our competitors have longer operating
histories, greater name recognition, larger staffs and substantially greater financial, technical and marketing resources than we currently possess.
Liquefaction. The Driftwood terminal will compete with liquefaction facilities worldwide to supply low-cost liquefaction to the market. There are a number of
liquefaction facilities worldwide that we compete with for customers. Many of the companies with which we compete have greater name recognition, larger staffs and
substantially greater financial, technical and marketing resources than we do.
LNG Marketing. Tellurian competes with a variety of companies in the global LNG market, including (i) integrated energy companies that market LNG from their
own liquefaction facilities, (ii) trading houses and aggregators with LNG supply portfolios, and (iii) liquefaction plant operators that market equity volumes. Many of the
companies with which we compete have greater name recognition, larger staffs, greater access to the LNG market and substantially greater financial, technical, and marketing
resources than we do.
Title to Properties
With respect to our natural gas producing properties, we believe that we hold good and defensible leasehold title to substantially all of our properties in accordance
with standards generally accepted in the industry. A preliminary title examination is conducted at the time the properties are acquired. Our natural gas properties are subject to
royalty, overriding royalty, and other outstanding interests. We believe that we hold good title to our other properties, subject to customary burdens, liens, or encumbrances that
we do not expect to materially interfere with our use of the properties.
Major Customers
We do not have any major customers.
Facilities
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Certain subsidiaries of Tellurian have entered into operating leases for office space in Houston, Texas, and Washington, D.C. The tenors of the leases are five and eight
years for Houston and Washington, D.C., respectively.
Employees and Human Capital
As of December 31, 2021, Tellurian had 107 full-time employees worldwide. None of them are subject to collective bargaining arrangements. The Company’s
workforce is primarily located in Houston, Texas, and we have offices in Louisiana, Washington DC, London and Singapore. Many of our employees are originally from, or
have extensive experience working in, countries other than the United States. This reflects our overall strategy of building a natural gas business that is global in scope.
We plan to build, among other things, an LNG liquefaction facility that we believe is one of the largest energy infrastructure projects currently under development in
the United States. Given the inherent challenges involved in the construction of a project of this type, in particular by a company that has limited current operations, our human
resources strategy focuses on the recruitment and retention of employees who have already established relevant expertise in the industry. The execution of this strategy has
resulted in us assembling what we believe to be a premier management team in the global natural gas and LNG industry. A related aspect of our human resources strategy is
that the compensation structure for many of our employees is weighted towards incentive compensation that is designed to reward progress toward the development of our
business, including in particular the financing and construction of the Driftwood Project.
Jurisdiction and Year of Formation
The Company is a Delaware corporation originally formed in 1967 and formerly known as Magellan Petroleum Corporation.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available free of charge from the SEC’s
website at www.sec.gov or from our website at www.tellurianinc.com. We also make available free of charge any of our SEC filings by mail. For a mailed copy of a report,
please contact Tellurian Inc., Investor Relations, 1201 Louisiana Street, Suite 3100, Houston, Texas 77002.
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ITEM 1A. RISK FACTORS
Our business activities and the value of our securities are subject to significant hazards and risks, including those described below. If any of such events should occur,
our business, financial condition, liquidity, and/or results of operations could be materially harmed, and holders and purchasers of our securities could lose part or all of their
investments. Our risk factors are grouped into the following categories:
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Risks Relating to Financial Matters;
Risks Relating to Our Common Stock;
Risks Relating to Our LNG Business;
Risks Relating to Our Natural Gas and Oil Operating Activities; and
Risks Relating to Our Business in General.
Risks Relating to Financial Matters
Tellurian will be required to seek additional equity and/or debt financing in the future to complete the Driftwood Project and to grow its other operations, and may not be
able to secure such financing on acceptable terms, or at all.
Tellurian will be unable to generate any significant revenue from the Driftwood Project for multiple years, and expects cash flow from its other lines of business to be
modest for an extended period as it focuses on the development and growth of these businesses. Tellurian will, therefore, need substantial amounts of additional financing to
execute its business plan and to repay its indebtedness when necessary. There can be no assurance that Tellurian will be able to raise sufficient capital on acceptable terms, or at
all. If such financing is not available on satisfactory terms or at all, Tellurian may be required to delay, scale back or cancel the development of business opportunities, and this
could adversely affect its operations and financial condition to a significant extent. Tellurian intends to pursue a variety of potential financing transactions, including sales of
preferred equity, project finance and sales of equity and debt securities. We do not know whether, and to what extent, potential sources of financing will find the terms we
propose acceptable. In addition, potential sources of financing may conclude that the terms of our commercial agreements for the sale of LNG are not attractive enough to
justify an investment.
Debt or preferred equity financing, if obtained, may involve agreements that include liens or restrictions on Tellurian’s assets and covenants limiting or restricting our
ability to take specific actions, such as paying dividends or making distributions, incurring additional debt, acquiring or disposing of assets and increasing expenses. Debt
financing would also be required to be repaid regardless of Tellurian’s operating results. Obtaining financing through additional issuances of common stock or other equity
securities would impose fewer restrictions on our future operations but would be dilutive to the interests of existing stockholders.
Pandemics or disease outbreaks, such as the currently ongoing COVID-19 pandemic, may adversely affect our efforts to reach a final investment decision with respect to
the Driftwood Project.
Pandemics or disease outbreaks such as the currently ongoing COVID-19 pandemic may have a variety of adverse effects on our business, including by depressing
commodity prices and the market value of our securities and limiting the ability of our management to travel to meet with partners and potential partners. Prospects for the
development and financing of the Driftwood Project are based in part on factors including global economic conditions that have been, and are likely to continue to be, adversely
affected by the COVID-19 pandemic. Additional effects of the pandemic on our business may include limits on the ability of our employees, or those of partners or vendors, to
provide necessary services due to illness or quarantines and governmental restrictions on travel, imports or exports or financial transactions.
We have a limited operating history and expect to incur losses for a significant period of time.
We have a limited operating history. Although Tellurian’s current directors, managers and officers have prior professional and industry experience, our business is in
an early stage of development. Accordingly, the prior history, track record and historical financial information you may use to evaluate our prospects are limited.
Tellurian has not yet completed the construction of the Driftwood Project and expects to incur significant additional costs and expenses through the completion of
development and construction of that project. The Company also expects to devote substantial amounts of capital to the growth and development of its other operations.
Tellurian expects that operating losses will increase substantially in 2022 and thereafter, and expects to continue to incur operating losses and to experience negative operating
cash flows for the next several years.
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Tellurian’s exposure to the performance and credit risks of its counterparties may adversely affect its operating results, liquidity and access to financing.
Our operations involve our entering into various construction, purchase and sale, hedging, supply and other transactions with numerous third parties. In such
arrangements, we will be exposed to the performance and credit risks of our counterparties, including the risk that one or more counterparties fail to perform their obligations
under the applicable agreement. Some of these risks may increase during periods of commodity price volatility. In some cases, we will be dependent on a single counterparty or
a small group of counterparties, all of whom may be similarly affected by changes in economic and other conditions. These risks include, but are not limited to, risks related to
the construction of the Driftwood terminal discussed below in “ — Risks Relating to Our LNG Business — Tellurian will be dependent on third-party contractors for the
successful completion of the Driftwood terminal, and these contractors may be unable to complete the Driftwood terminal.” Defaults by suppliers and other counterparties may
adversely affect our operating results, liquidity and access to financing.
Our use of hedging arrangements may adversely affect our future operating results or liquidity.
As we continue to develop our LNG and natural gas marketing and natural gas operating activities, we may enter into commodity hedging arrangements in an effort to
reduce our exposure to fluctuations in price and timing risk. Any hedging arrangements entered into would expose us to the risk of financial loss when (i) the counterparty to the
hedging contract defaults on its contractual obligations or (ii) there is a change in the expected differential between the underlying price in the hedging agreement and the actual
prices received.
Also, commodity derivative arrangements may limit the benefit we would otherwise receive from a favorable change in the relevant commodity price. In addition,
regulations issued by the Commodities Futures Trading Commission, the SEC and other federal agencies establishing regulation of the over-the-counter derivatives market
could adversely affect our ability to manage our price risks associated with our LNG and natural gas activity and therefore have a negative impact on our operating results and
cash flows.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition, results of operations and liquidity.
Factors that could materially affect our future effective tax rates include but are not limited to:
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changes in the regulatory environment;
changes in accounting and tax standards or practices;
changes in U.S., state or foreign tax laws;
changes in the composition of operating income by tax jurisdiction; and
our operating results before taxes.
We are also subject to examination by the Internal Revenue Service (the “IRS”) and other tax authorities, including state revenue agencies and other foreign
governments. While we regularly assess the likelihood of favorable or unfavorable outcomes resulting from examinations by the IRS and other tax authorities to determine the
adequacy of our provision for income taxes, there can be no assurance that the actual outcome resulting from these examinations will not materially adversely affect our
financial condition and operating results. Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with
respect to sales of products and services and the use of intangibles. Tax authorities could disagree with our cross-jurisdictional transfer pricing or other matters and assess
additional taxes. If we do not prevail in any such disagreements, our profitability may be affected.
Tellurian does not expect to generate sufficient cash to pay dividends until the completion of construction of the Driftwood Project.
Tellurian’s directly and indirectly held assets currently consist primarily of natural gas leaseholds and related upstream development assets, cash held for certain start-
up and operating expenses, applications for permits from regulatory agencies relating to the Driftwood Project and certain real property related to that project. Tellurian’s cash
flow, and consequently its ability to distribute earnings, is solely dependent upon the cash flow its subsidiaries receive from the Driftwood Project and its other operations.
Tellurian’s ability to complete the project, as discussed elsewhere in this section, is dependent upon its and its subsidiaries’ ability to obtain and maintain necessary regulatory
approvals and raise the capital necessary to fund the development of the project. We expect that cash flows from our operations will be reinvested in the business rather than
used to fund dividends, that pursuing our strategy will require substantial amounts of capital, and that the required capital will exceed cash flows from operations for a
significant period.
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Tellurian’s ability to pay dividends in the future is uncertain and will depend on a variety of factors, including limitations on the ability of it or its subsidiaries to pay
dividends under applicable law and/or the terms of debt or other agreements, and the judgment of the Board of Directors or other governing body of the relevant entity.
We may be unable to fulfill our obligations under our debt agreements.
We have issued senior notes as described in Note 10, Borrowings, of our Notes to Consolidated Financial Statements included in this report. Our ability to generate
cash flows from operations or obtain refinancing capital sufficient to pay interest and principal on our indebtedness will depend on our future operating performance and
financial condition and the availability of refinancing debt or equity capital, which will be affected by prevailing commodity prices and economic conditions and financial,
business and other factors, many of which are beyond our control. Our inability to generate adequate cash flows from operations could adversely affect our ability to execute our
overall business plan, and we could be required to sell assets, reduce our capital expenditures or seek refinancing debt or equity capital to satisfy the requirements of the debt
agreements. These alternative measures may be unavailable or inadequate, in which case we could be forced into bankruptcy or liquidation, and may themselves adversely
affect our overall business strategy.
Risks Relating to Our Common Stock
The price of our common stock has been and may continue to be highly volatile, which may make it difficult for shareholders to sell our common stock when desired or at
attractive prices.
The market price of our common stock is highly volatile, and we expect it to continue to be volatile for the foreseeable future. Adverse events could trigger a
significant decline in the trading price of our common stock, including, among others, failure to obtain necessary permits, unfavorable changes in commodity prices or
commodity price expectations, adverse regulatory developments, loss of a relationship with a partner, litigation, departures of key personnel, and failures to advance the
Driftwood Project on the terms or within the time periods anticipated. Furthermore, general market conditions, including the level of, and fluctuations in, the trading prices of
equity securities generally could affect the price of our stock. The stock markets frequently experience price and volume volatility that affects many companies’ stock prices,
often in ways unrelated to the operating performance of those companies. These fluctuations may affect the market price of our common stock. The trading price of our
common stock during 2021 was as low as $1.20 per share and as high as $5.76 per share.
The market price of our common stock could be adversely affected by sales of substantial amounts of our common stock by us or our major shareholders.
Sales of a substantial number of shares of our common stock in the market by us or any of our major shareholders, or the perception that these sales may occur, could
cause the market price of our common stock to decline. In addition, the sale of these shares in the public market, or the possibility of such sales, could impair our ability to raise
capital through the sale of additional equity securities. Our insider trading policy permits our officers and directors, some of whom own substantial percentages of our
outstanding common stock, to pledge shares of stock that they own as collateral for loans subject to certain requirements. Some of our officers and directors have pledged
shares of stock in accordance with this policy. Such pledges have in the past resulted, and could result in the future, in large amounts of shares of our stock being sold in the
market in a short period and corresponding declines in the trading price of the common stock.
In addition, in the future, we may issue shares of our common stock, or securities convertible into our common stock, in connection with acquisitions of assets or
businesses or for other purposes. Such issuances may result in dilution to our existing stockholders and could have an adverse effect on the market value of shares of our
common stock, depending on market conditions at the time, the terms of the issuance, and if applicable, the value of the business or assets acquired and our success in exploiting
the properties or integrating the businesses we acquire.
Risks Relating to Our LNG Business
Various economic and political factors could negatively affect the development, construction and operation of LNG facilities, including the Driftwood terminal, which
could have a material adverse effect on our business, contracts, financial condition, operating results, cash flow, liquidity and prospects.
Commercial development of an LNG facility takes a number of years, requires substantial capital investment and may be delayed by factors such as:
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increased construction costs;
economic downturns, increases in interest rates or other events that may affect the availability of sufficient financing for LNG projects on commercially
reasonable terms;
decreases in the price of natural gas or LNG outside of the United States, which might decrease the expected returns relating to investments in LNG projects;
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the inability of project owners or operators to obtain governmental approvals to construct or operate LNG facilities; and
political unrest or local community resistance to the siting of LNG facilities due to safety, environmental or security concerns.
Our failure to execute our business plan within budget and on schedule could materially adversely affect our business, financial condition, operating results, liquidity
and prospects.
Tellurian’s estimated costs for the Driftwood Project and other projects may not be accurate and are subject to change.
Cost estimates for the Driftwood Project and other projects we may pursue are only approximations of the actual costs of construction. Cost estimates may be
inaccurate and may change due to various factors, such as cost overruns, change orders, delays in construction, legal and regulatory requirements, site issues, increased
component and material costs, escalation of labor costs, labor disputes, changes in commodity prices, changes in foreign currency exchange rates, increased spending to
maintain Tellurian’s construction schedule and other factors. For example, new or increased tariffs on materials needed in the construction process could materially increase
construction costs. In particular, tariffs on imported steel may significantly increase our construction costs. Similarly, cost overruns could affect the project scope within the
LSTK EPC agreements that are provisional such as dredging-related expenditures. Our estimate of the cost of construction of the Driftwood terminal is based on the prices set
forth in our LSTK EPC agreements with Bechtel and those prices are subject to adjustment by change orders, including for consideration of certain increased costs. Our failure
to achieve our cost estimates could materially adversely affect our business, financial condition, operating results, liquidity and prospects.
If third-party pipelines and other facilities interconnected to our LNG facilities become unavailable to transport natural gas, this could have a material adverse effect on
our business, financial condition, operating results, liquidity and prospects.
We will depend upon third-party pipelines and other facilities that will provide natural gas delivery options to our natural gas operations and our LNG facilities. If the
construction of new or modified pipeline connections is not completed on schedule or any pipeline connection were to become unavailable for current or future volumes of
natural gas due to repairs, damage to the facility, lack of capacity or any other reason, our ability to meet our LNG sale and purchase agreement obligations and continue
shipping natural gas from producing operations or regions to end markets could be restricted, thereby reducing our revenues. This could have a material adverse effect on our
business, financial condition, operating results, liquidity and prospects.
Tellurian’s ability to generate cash will depend upon it entering into contracts with third-party customers, the terms of those contracts and the performance of those
customers under those contracts.
We have entered into commercial arrangements with certain third-party customers for the sale of LNG from Phase I of the Driftwood Project. Our ability to generate
revenue from those contracts will depend upon, among other factors, LNG prices and our ability to finance and complete the construction of the project. Tellurian’s business
strategy may change regarding how and when the proposed Driftwood Project’s export capacity is marketed. Also, Tellurian’s business strategy may change due to an inability
to enter into additional agreements with customers or based on a variety of factors, including the future price outlook, supply and demand of LNG, natural gas liquefaction
capacity, and global regasification capacity. If our efforts to market the proposed Driftwood Project and the LNG it will produce are not successful, Tellurian’s business, results
of operations, financial condition and prospects may be materially and adversely affected.
We may not be able to purchase, receive or produce sufficient natural gas to satisfy our delivery obligations under any LNG sale and purchase agreements, which could
have an adverse effect on us.
Under LNG sale and purchase agreements with our customers, we may be required to make available to them a specified amount of LNG at specified times. However,
we may not be able to acquire or produce sufficient quantities of natural gas or LNG to satisfy those obligations, which may provide affected customers with the right to
terminate their LNG sale and purchase agreements. Our failure to purchase, receive or produce sufficient quantities of natural gas or LNG in a timely manner could have an
adverse effect on our business, contracts, financial condition, operating results, cash flow, liquidity and prospects.
The construction and operation of the Driftwood Project and related pipelines remain subject to further approvals, and some approvals may be subject to further conditions,
review and/or revocation.
The design, construction and operation of LNG export terminals is a highly regulated activity. The approval of FERC under Section 3 of the NGA, as well as several
other material governmental and regulatory approvals and permits, is required to construct and operate an LNG terminal. Such approvals and authorizations are often subject to
ongoing conditions imposed by regulatory agencies, and additional approval and permit requirements may be imposed. Tellurian and its affiliates will be required to obtain and
maintain governmental approvals and authorizations to implement its proposed business strategy, which includes the construction and operation of the Driftwood Project.
Although all the major permits required for construction and
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operation of the Driftwood terminal and Driftwood pipeline have been obtained, we must still satisfy various conditions of our FERC permits during the construction process.
Additionally, numerous permits and approvals will be required in connection with other assets related to the Driftwood Project, including our upstream operations or other
related pipelines. Further permits and approvals may also be required in connection with the construction and operation of other related pipelines. Environmental groups and
others may oppose our efforts to obtain and maintain the permits necessary to grow our operations pursuant to our strategy.
There is no assurance that Tellurian will obtain and maintain these governmental permits, approvals and authorizations, and failure to obtain and maintain any of these
permits, approvals or authorizations could have a material adverse effect on its business, results of operations, financial condition and prospects.
Tellurian will be dependent on third-party contractors for the successful completion of the Driftwood terminal, and these contractors may be unable to complete the
Driftwood terminal.
The construction of the Driftwood terminal is expected to take several years, will be confined to a limited geographic area and could be subject to delays, cost
overruns, labor disputes and other factors that could adversely affect financial performance or impair Tellurian’s ability to execute its proposed business plan. Timely and cost-
effective completion of the Driftwood terminal in compliance with agreed-upon specifications will be highly dependent upon the performance of Bechtel and other third-party
contractors pursuant to their agreements. However, Tellurian has not yet entered into definitive agreements with all of the contractors, advisors and consultants necessary for the
development and construction of the Driftwood terminal. Tellurian may not be able to successfully enter into such construction contracts on terms or at prices that are acceptable
to it.
Further, faulty construction that does not conform to Tellurian’s design and quality standards may have an adverse effect on Tellurian’s business, results of operations,
financial condition and prospects. For example, improper equipment installation may lead to a shortened life of Tellurian’s equipment, increased operations and maintenance
costs or a reduced availability or production capacity of the affected facility. The ability of Tellurian’s third-party contractors to perform successfully under any agreements to
be entered into is dependent on a number of factors, including force majeure events and such contractors’ ability to:
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design, engineer and receive critical components and equipment necessary for the Driftwood terminal to operate in accordance with specifications and address
any start-up and operational issues that may arise in connection with the commencement of commercial operations;
attract, develop and retain skilled personnel and engage and retain third-party subcontractors, and address any labor issues that may arise;
post required construction bonds and comply with the terms thereof, and maintain their own financial condition, including adequate working capital;
adhere to any warranties that the contractors provide in their EPC contracts; and
respond to difficulties such as equipment failure, delivery delays, schedule changes and failure to perform by subcontractors, some of which are beyond their
control, and manage the construction process generally, including engaging and retaining third-party contractors, coordinating with other contractors and
regulatory agencies and dealing with inclement weather conditions.
Furthermore, Tellurian may have disagreements with its third-party contractors about different elements of the construction process, which could lead to the assertion
of rights and remedies under the related contracts, resulting in a contractor’s unwillingness to perform further work on the relevant project. Tellurian may also face difficulties
in commissioning a newly constructed facility. Any significant delays in the development of the Driftwood terminal could materially and adversely affect Tellurian’s business,
results of operations, financial condition and prospects. The construction of the Driftwood pipeline or related pipelines will be required for the long-term operations of the
Driftwood terminal and will be subject to similar risks.
Tellurian’s construction and operations activities are subject to a number of development risks, operational hazards, regulatory approvals and other risks, which could
cause cost overruns and delays and could have a material adverse effect on its business, results of operations, financial condition, liquidity and prospects.
Siting, development and construction of the Driftwood Project and related pipelines will be subject to the risks of delay or cost overruns inherent in any construction
project resulting from numerous factors, including, but not limited to, the following:
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difficulties or delays in obtaining, or failure to obtain, sufficient equity or debt financing on reasonable terms;
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failure to obtain all necessary government and third-party permits, approvals and licenses for the construction and operation of the Driftwood Project or any
other proposed LNG facilities or related pipelines;
difficulties in engaging qualified contractors necessary to the construction of the contemplated Driftwood Project or other LNG facilities or related pipelines;
shortages of equipment, material or skilled labor;
natural disasters and catastrophes, such as hurricanes, explosions, fires, floods, industrial accidents and terrorism;
unscheduled delays in the delivery of ordered materials;
work stoppages and labor disputes;
competition with other domestic and international LNG export terminals;
unanticipated changes in domestic and international market demand for and supply of natural gas and LNG, which will depend in part on supplies of and prices
for alternative energy sources and the discovery of new sources of natural resources;
unexpected or unanticipated need for additional improvements; and
adverse general economic conditions.
Delays beyond the estimated development periods, as well as cost overruns, could increase the cost of completion beyond the amounts that are currently estimated,
which could require Tellurian to obtain additional sources of financing to fund the activities until the proposed Driftwood terminal is constructed and operational (which could
cause further delays). Any delay in completion of the Driftwood Project may also cause a delay in the receipt of revenues projected from the Driftwood Project or cause a loss of
one or more customers. As a result, any significant construction delay, whatever the cause, could have a material adverse effect on Tellurian’s business, results of operations,
financial condition, liquidity and prospects. Similar risks may affect the construction of other facilities and projects we elect to pursue.
Cyclical or other changes in the demand for and price of LNG and natural gas may adversely affect Tellurian’s LNG business and the performance of our customers and
could lead to the reduced development of LNG projects worldwide.
Tellurian’s plans and expectations regarding its business and the development of domestic LNG facilities and projects are generally based on assumptions about the
future price of natural gas and LNG and the conditions of the global natural gas and LNG markets. Natural gas and LNG prices have been, and are likely to remain in the future,
volatile and subject to wide fluctuations that are difficult to predict. Such fluctuations may be caused by various factors, including, but not limited to, one or more of the
following:
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competitive liquefaction capacity in North America;
insufficient or oversupply of natural gas liquefaction or receiving capacity worldwide;
insufficient or oversupply of LNG tanker capacity;
weather conditions;
reduced demand and lower prices for natural gas, including as a result of the COVID-19 pandemic or similar events and related economic disruptions;
increased natural gas production deliverable by pipelines, which could suppress demand for LNG;
decreased oil and natural gas exploration activities, which may decrease the production of natural gas;
cost improvements that allow competitors to offer LNG regasification services or provide natural gas liquefaction capabilities at reduced prices;
changes in supplies of, and prices for, alternative energy sources such as coal, oil, nuclear, hydroelectric, wind and solar energy, which may reduce the demand
for natural gas;
changes in regulatory, tax or other governmental policies regarding imported or exported LNG, natural gas or alternative energy sources, which may reduce the
demand for imported or exported LNG and/or natural gas;
political conditions in natural gas producing regions; and
cyclical trends in general business and economic conditions that cause changes in the demand for natural gas.
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Adverse trends or developments affecting any of these factors could result in decreases in the price of LNG and/or natural gas, which could materially and adversely
affect the performance of our customers and could have a material adverse effect on our business, contracts, financial condition, operating results, cash flows, liquidity and
prospects. The profitability of the LNG SPAs we have entered into will depend in part on the relationship between the costs we incur in producing or purchasing natural gas and
the then-current index prices when sales occur. An adverse change in that relationship, whether resulting from an increase in our costs, a decline in the index prices or both,
could make sales under the agreements less profitable or could require us to sell at a loss. Similarly, part of our business involves the trading of LNG cargos from time to time.
LNG trading involves risks, including the risk that commodity price changes will result in us selling cargos at a loss. These risks have increased in recent periods as higher
commodity prices have resulted in cargos becoming generally more expensive, therefore increasing our exposure to potential losses.
Technological innovation may render Tellurian’s anticipated competitive advantage or its processes obsolete.
Tellurian’s success will depend on its ability to create and maintain a competitive position in the natural gas liquefaction industry. In particular, although Tellurian
plans to construct the Driftwood terminal using proven technologies that it believes provide it with certain advantages, Tellurian does not have any exclusive rights to any of the
technologies that it will be utilizing. In addition, the technology Tellurian anticipates using in the Driftwood Project may be rendered obsolete or uneconomical by legal or
regulatory requirements, technological advances, more efficient and cost-effective processes or entirely different approaches developed by one or more of its competitors or
others, which could materially and adversely affect Tellurian’s business, results of operations, financial condition, liquidity and prospects.
Failure of exported LNG to be a competitive source of energy for international markets could adversely affect our customers and could materially and adversely affect our
business, contracts, financial condition, operating results, cash flow, liquidity and prospects.
Operations of the Driftwood Project will be dependent upon our ability to deliver LNG supplies from the U.S., which is primarily dependent upon LNG being a
competitive source of energy internationally. The success of our business plan is dependent, in part, on the extent to which LNG can, for significant periods and in significant
volumes, be supplied from North America and delivered to international markets at a lower cost than the cost of alternative energy sources. Through the use of improved
exploration technologies, additional sources of natural gas may be discovered outside the U.S., which could increase the available supply of natural gas outside the U.S. and
could result in natural gas in those markets being available at a lower cost than that of LNG exported to those markets.
Factors which may negatively affect potential demand for LNG from our liquefaction projects are diverse and include, among others:
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increases in worldwide LNG production capacity and availability of LNG for market supply;
increases in demand for LNG but at levels below those required to maintain current price equilibrium with respect to supply;
increases in the cost to supply natural gas feedstock to our liquefaction project;
decreases in the cost of competing sources of natural gas or alternative sources of energy such as coal, heavy fuel oil, diesel, nuclear, hydroelectric, wind and
solar;
decreases in the price of non-U.S. LNG, including decreases in price as a result of contracts indexed to lower oil prices;
increases in capacity and utilization of nuclear power and related facilities;
increases in the cost of LNG shipping; and
displacement of LNG by pipeline natural gas or alternative fuels in locations where access to these energy sources is not currently available.
Political instability in foreign countries that import natural gas, or strained relations between such countries and the U.S., may also impede the willingness or ability of
LNG suppliers, purchasers and merchants in such countries to import LNG from the U.S. Furthermore, some foreign purchasers of LNG may have economic or other reasons to
obtain their LNG from non-U.S. markets or our competitors’ liquefaction facilities in the U.S.
As a result of these and other factors, LNG may not be a competitive source of energy internationally. The failure of LNG to be a competitive supply alternative to
local natural gas, oil and other alternative energy sources in markets accessible to our customers could adversely affect the ability of our customers to deliver LNG from the U.S.
on a commercial basis. Any significant impediment to the ability to deliver LNG from the U.S. generally, or from the Driftwood Project specifically, could
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have a material adverse effect on our customers and our business, contracts, financial condition, operating results, cash flow, liquidity and prospects.
There may be shortages of LNG vessels worldwide, which could have a material adverse effect on Tellurian’s business, results of operations, financial condition, liquidity
and prospects.
The construction and delivery of LNG vessels require significant capital and long construction lead times, and the availability of the vessels could be delayed to the
detriment of Tellurian’s business and customers due to a variety of factors, including, but not limited to, the following:
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an inadequate number of shipyards constructing LNG vessels and a backlog of orders at these shipyards;
political or economic disturbances in the countries where the vessels are being constructed;
changes in governmental regulations or maritime self-regulatory organizations;
work stoppages or other labor disturbances at shipyards;
bankruptcies or other financial crises of shipbuilders;
quality or engineering problems;
weather interference or catastrophic events, such as a major earthquake, tsunami, or fire; or
shortages of or delays in the receipt of necessary construction materials.
Any of these factors could have a material adverse effect on Tellurian’s business, results of operations, financial condition, liquidity and prospects.
We will rely on third-party engineers to estimate the future capacity ratings and performance capabilities of the Driftwood terminal, and these estimates may prove to be
inaccurate.
We will rely on third parties for the design and engineering services underlying our estimates of the future capacity ratings and performance capabilities of the
Driftwood terminal. Any of our LNG facilities, when constructed, may not have the capacity ratings and performance capabilities that we intend or estimate. Failure of any of
our facilities to achieve our intended capacity ratings and performance capabilities could prevent us from achieving the commercial start dates under our current or future LNG
sale and purchase agreements and could have a material adverse effect on our business, contracts, financial condition, operating results, cash flow, liquidity and prospects.
The Driftwood Project and related pipelines will be subject to a number of environmental and safety laws and regulations that impose significant compliance costs, and
existing and future environmental, safety and similar laws and regulations could result in increased compliance costs, liabilities or additional operating restrictions.
We are and will be subject to extensive federal, state and local environmental and safety regulations and laws, including regulations and restrictions related to
discharges and releases to the air, land and water and the handling, storage, generation and disposal of hazardous materials and solid and hazardous wastes in connection with
the development, construction and operation of our LNG facilities and pipelines. Failure to comply with these regulations and laws could result in the imposition of
administrative, civil and criminal sanctions.
These regulations and laws, which include the CAA, the Oil Pollution Act, the CWA and RCRA, and analogous state and local laws and regulations, will restrict,
prohibit or otherwise regulate the types, quantities and concentration of substances that can be released into the environment in connection with the construction and operation
of our facilities. These laws and regulations, including NEPA, will require and have required us to obtain and maintain permits with respect to our facilities, prepare
environmental impact assessments, provide governmental authorities with access to our facilities for inspection and provide reports related to compliance. Federal and state laws
impose liability, without regard to fault or the lawfulness of the original conduct, for the release of certain types or quantities of hazardous substances into the environment.
Violation of these laws and regulations could lead to substantial liabilities, fines and penalties, the denial or revocation of permits necessary for our operations, governmental
orders to shut down our facilities or capital expenditures related to pollution control equipment or remediation measures that could have a material adverse effect on Tellurian’s
business, results of operations, financial condition, liquidity and prospects.
As the owner and the operator of the Driftwood Project and other related assets we could be liable for the costs of investigating and cleaning up hazardous substances
released into the environment and for damage to natural resources, whether caused by us or our contractors or existing at the time construction commences. Hazardous
substances present in soil, groundwater and dredge spoils may need to be processed, disposed of or otherwise managed to prevent releases into the environment. Tellurian or its
affiliates may be responsible for the investigation, cleanup, monitoring, removal, disposal and other remedial actions with respect to hazardous substances on, in or under
properties that Tellurian owns or operates, or
21
released at a site where materials are disposed of from our operations, without regard to fault or the origin of such hazardous substances. Such liabilities may involve material
costs that are unknown and not predictable.
Changes in legislation and regulations could have a material adverse impact on Tellurian’s business, results of operations, financial condition, liquidity and prospects.
Tellurian’s business will be subject to governmental laws, rules, regulations and permits that impose various restrictions and obligations that may have material effects
on the results of our operations. Each of the applicable regulatory requirements and limitations is subject to change, either through new regulations enacted on the federal, state
or local level, or by new or modified regulations that may be implemented under existing law. The nature and effects of these changes in laws, rules, regulations and permits
may be unpredictable and may have material effects on our business. Future legislation and regulations, such as those relating to the transportation and security of LNG
exported from our proposed LNG facilities through the Calcasieu Ship Channel, could cause additional expenditures, restrictions and delays in connection with the proposed
LNG facilities and their construction, the extent of which cannot be predicted and which may require Tellurian to limit substantially, delay or cease operations in some
circumstances. Revised, reinterpreted or additional laws and regulations that result in increased compliance costs or additional operating costs and restrictions could have a
material adverse effect on Tellurian’s business, results of operations, financial condition, liquidity and prospects.
Our operations will be subject to significant risks and hazards, one or more of which may create significant liabilities and losses that could have a material adverse effect
on Tellurian’s business, results of operations, financial condition, liquidity and prospects.
We will face numerous risks in developing and conducting our operations. For example, the plan of operations for the proposed Driftwood Project and related assets
are subject to the inherent risks associated with LNG, pipeline and upstream operations, including explosions, pollution, leakage or release of toxic substances, fires, hurricanes
and other adverse weather conditions, leakage of hydrocarbons, and other hazards, each of which could result in significant delays in commencement or interruptions of
operations and/or result in damage to or destruction of the proposed Driftwood Project, related pipelines, or upstream assets, or damage to persons and property. In addition,
operations at the proposed Driftwood Project, related pipelines, upstream assets, and vessels or facilities of third parties on which Tellurian’s operations are dependent could
face possible risks associated with acts of aggression or terrorism.
Hurricanes have damaged coastal and inland areas located in the Gulf Coast area, resulting in disruption and damage to certain LNG terminals located in the area.
Future storms and related storm activity and collateral effects, or other disasters such as explosions, fires, floods or accidents, could result in damage to, or interruption of
operations at, the Driftwood terminal or related infrastructure, as well as delays or cost increases in the construction and the development of the Driftwood terminal or other
facilities. Storms, disasters and accidents could also damage or interrupt the activities of vessels that we or third parties operate in connection with our LNG business. Changes
in the global climate may have significant physical effects, such as increased frequency and severity of storms, floods and rising sea levels. If any such effects were to occur,
they could have an adverse effect on our coastal operations.
Our LNG business will face other types of risks and liabilities as well. For instance, our LNG marketing activities expose us to possible financial losses, including the
risk of losses resulting from adverse changes in the index prices upon which contracts for the purchase and sale of LNG cargos are based. Our LNG marketing activities are also
subject to various domestic and international regulatory and foreign currency risks.
Tellurian does not, nor does it intend to, maintain insurance against all of these risks and losses, and many risks are not insurable. Tellurian may not be able to
maintain desired or required insurance in the future at rates that it considers reasonable. The occurrence of a significant event not fully insured or indemnified against could have
a material adverse effect on Tellurian’s business, contracts, financial condition, operating results, cash flow, liquidity and prospects.
Risks Relating to Our Natural Gas and Oil Operating Activities
Acquisitions of natural gas and oil properties are subject to the uncertainties of evaluating reserves and potential liabilities, including environmental uncertainties.
We expect to pursue acquisitions of natural gas and oil properties from time to time. Successful acquisitions require an assessment of a number of factors, many of
which are beyond our control. These factors include reserves, development potential, future commodity prices, operating costs, title issues, and potential environmental and
other liabilities. Such assessments are inexact, and their accuracy is inherently uncertain. In connection with our assessments, we perform due diligence that we believe is
generally consistent with industry practices.
However, our due diligence activities are not likely to permit us to become sufficiently familiar with the properties to fully assess their deficiencies and capabilities.
We do not inspect every well prior to an acquisition, and our ability to evaluate undeveloped acreage is inherently imprecise. Even when we inspect a well, we may not always
discover structural, subsurface,
22
and environmental problems that may exist or arise. In some cases, our review prior to signing a definitive purchase agreement may be even more limited. In addition, we may
acquire acreage without any warranty of title except as to claims made by, through or under the transferor.
When we acquire properties, we will generally have potential exposure to liabilities and costs for environmental and other problems existing on the acquired properties,
and these liabilities may exceed our estimates. We may not be entitled to contractual indemnification associated with acquired properties. We may acquire interests in properties
on an “as is” basis with limited or no remedies for breaches of representations and warranties.
Therefore, we could incur significant unknown liabilities, including environmental liabilities or losses due to title defects, in connection with acquisitions for which we
have limited or no contractual remedies or insurance coverage. In addition, the acquisition of undeveloped acreage is subject to many inherent risks, and we may not be able to
realize efficiently, or at all, the assumed or expected economic benefits of acreage that we acquire.
In addition, acquiring additional natural gas and oil properties, or businesses that own or operate such properties, when attractive opportunities arise is a significant
component of our strategy, and we may not be able to identify attractive acquisition opportunities. If we do identify an appropriate acquisition candidate, we may be unable to
negotiate mutually acceptable terms with the seller, finance the acquisition or obtain the necessary regulatory approvals. It may be difficult to agree on the economic terms of a
transaction, as a potential seller may be unwilling to accept a price that we believe to be appropriately reflective of prevailing economic conditions. If we are unable to complete
suitable acquisitions, it will be more difficult to pursue our overall strategy.
Natural gas and oil prices fluctuate widely, and lower prices for an extended period of time may have a material adverse effect on the profitability of our natural gas or oil
operating activities.
The revenues, operating results and profitability of our natural gas or oil operating activities will depend significantly on the prices we receive for the natural gas or oil
we sell. We will require substantial expenditures to replace reserves, sustain production and fund our business plans. Low natural gas or oil prices can negatively affect the
amount of cash available for acquisitions and capital expenditures and our ability to raise additional capital and, as a result, could have a material adverse effect on our revenues,
cash flow and reserves. In addition, low natural gas or oil prices may result in write-downs of our natural gas or oil properties, such as the $81.1 million impairment charge we
incurred in 2020. Conversely, any substantial or extended increase in the price of natural gas would adversely affect the competitiveness of LNG as a source of energy (as
discussed above in “ — Risks Relating to Our LNG Business — Failure of exported LNG to be a competitive source of energy for international markets could adversely affect
our customers and could materially and adversely affect our business, contracts, financial condition, operating results, cash flow, liquidity and prospects”. Part of our strategy
involves adjusting the level of our natural gas development activities based on our judgment as to whether it will be most cost-effective to source natural gas for the Driftwood
terminal from our own production or, instead, from natural gas produced by third parties. In some circumstances, making these adjustments may involve costs. For example, a
decrease in our activities may result in the expiration of leases or an increase in costs on a per-unit basis.
Historically, the markets for natural gas and oil have been volatile, and they are likely to continue to be volatile. Wide fluctuations in natural gas or oil prices may
result from relatively minor changes in the supply of or demand for natural gas or oil, market uncertainty and other factors that are beyond our control. The volatility of the
energy markets makes it extremely difficult to predict future natural gas or oil price movements, and we will be unable to fully hedge our exposure to natural gas or oil prices.
Significant capital expenditures will be required to grow our natural gas or oil operating activities in accordance with our plans.
Our planned development and acquisition activities will require substantial capital expenditures. We intend to fund our capital expenditures for our natural gas and oil
operating activities through cash on hand and financing transactions that may include public or private equity or debt offerings or borrowings under additional debt agreements.
Our ability to generate operating cash flow in the future will be subject to a number of risks and variables, such as the level of production from existing wells, the price of natural
gas or oil, our success in developing and producing new reserves and the other risk factors discussed in this section. If we are unable to fund our capital expenditures for natural
gas or oil operating activities as planned, we could experience a curtailment of our development activity and a decline in our natural gas or oil production, and that could affect
our ability to pursue our overall strategy.
We have limited control over the activities on properties we do not operate.
Some of the properties in which we have an interest are operated by other companies and involve third-party working interest owners. As a result, we have limited
ability to influence or control the operation or future development of such properties, including compliance with environmental, safety and other regulations, or the amount of
capital expenditures that we will be required to fund with respect to such properties. Moreover, we are dependent on the other working interest owners of
23
such projects to fund their contractual share of the capital expenditures of such projects. In addition, a third-party operator could also decide to shut-in or curtail production from
wells, or plug and abandon marginal wells, on properties owned by that operator during periods of lower natural gas or oil prices. These limitations and our dependence on the
operator and third-party working interest owners for these projects could cause us to incur unexpected future costs, reduce our production and materially and adversely affect
our financial condition and results of operations.
Drilling and producing operations can be hazardous and may expose us to liabilities.
Natural gas and oil operations are subject to many risks, including well blowouts, explosions, pipe failures, fires, formations with abnormal pressures, uncontrollable
flows of oil, natural gas, brine or well fluids, leakages or releases of hydrocarbons, severe weather, natural disasters, groundwater contamination and other environmental
hazards and risks. For our non-operated properties, we will be dependent on the operator for regulatory compliance and for the management of these risks.
These risks could materially and adversely affect our revenues and expenses by reducing production from wells, causing wells to be shut in or otherwise negatively
impacting our projected economic performance. If any of these risks occurs, we could sustain substantial losses as a result of:
•
•
•
•
•
•
•
injury or loss of life;
severe damage to or destruction of property, natural resources or equipment;
pollution or other environmental damage;
facility or equipment malfunctions and equipment failures or accidents;
clean-up responsibilities;
regulatory investigations and administrative, civil and criminal penalties; and
injunctions resulting in limitation or suspension of operations.
Any of these events could expose us to liabilities, monetary penalties or interruptions in our business operations. In addition, certain of these risks are greater for us
than for many of our competitors in that some of the natural gas we produce has a high sulphur content (sometimes referred to as “sour” gas), which increases its corrosiveness
and the risk of an accidental release of hydrogen sulfide gas, exposure to which can be fatal. We may not maintain insurance against such risks, and some risks are not
insurable. Even when we are insured, our insurance may not be adequate to cover casualty losses or liabilities. Also, in the future, we may not be able to obtain insurance at
premium levels that justify its purchase. The occurrence of a significant event against which we are not fully insured may expose us to liabilities.
Our drilling efforts may not be profitable or achieve our targeted returns and our reserve estimates are based on assumptions that may not be accurate.
Drilling for natural gas and oil may involve unprofitable efforts from wells that are either unproductive or productive but do not produce sufficient commercial
quantities to cover drilling, completion, operating and other costs. In addition, even a commercial well may have production that is less, or costs that are greater, than we
projected. The cost of drilling, completing and operating a well is often uncertain, and many factors can adversely affect the economics of a well or property. Drilling operations
may be curtailed, delayed or canceled as a result of unexpected drilling conditions, equipment failures or accidents, shortages of equipment or personnel, environmental issues
and for other reasons. Natural gas and oil reserve engineering requires estimates of underground accumulations of hydrocarbons and assumptions concerning future prices,
production rates and operating and development costs. As a result, estimated quantities of proved reserves and projections of future production rates and the timing of
development expenditures may be incorrect. Our estimates of proved reserves are determined based in part on costs at the date of the estimate. Any significant variance from
these costs could greatly affect our estimates of reserves. At December 31, 2021, approximately 77% of our estimated proved reserves (by volume) were undeveloped. These
reserve estimates reflected our plans to make significant capital expenditures to convert our PUDs into proved developed reserves. The estimated development costs may not be
accurate, development may not occur as scheduled and results may not be as estimated. If we choose not to develop PUDs, or if we are not otherwise able to successfully
develop them, we will be required to remove the associated volumes from our reported proved reserves. In addition, under the SEC’s reserve reporting rules, PUDs generally
may be booked only if they relate to wells scheduled to be drilled within five years of the date of booking, and we may therefore be required to reclassify to probable or possible
any PUDs that are not developed within this five-year time frame.
24
Our natural gas operating activities are subject to complex laws and regulations relating to environmental protection that can adversely affect the cost, manner and
feasibility of doing business, and further regulation in the future could increase costs, impose additional operating restrictions and cause delays.
Our natural gas operating activities and properties are (and to the extent that we acquire oil producing properties, these properties will be) subject to numerous federal,
regional, state and local laws and regulations governing the release of pollutants or otherwise relating to environmental protection. These laws and regulations govern the
following, among other things:
•
•
•
•
•
conduct of drilling, completion, production and midstream activities;
amounts and types of emissions and discharges;
generation, management, and disposal of hazardous substances and waste materials;
reclamation and abandonment of wells and facility sites; and
remediation of contaminated sites.
In addition, these laws and regulations may result in substantial liabilities for our failure to comply or for any contamination resulting from our operations, including
the assessment of administrative, civil and criminal penalties; the imposition of investigatory, remedial, and corrective action obligations or the incurrence of capital
expenditures; the occurrence of delays in the development of projects; and the issuance of injunctions restricting or prohibiting some or all of our activities in a particular area.
Environmental laws and regulations change frequently, and these changes are difficult to predict or anticipate. Future environmental laws and regulations imposing
further restrictions on the emission of pollutants into the air, discharges into state or U.S. waters, wastewater disposal and hydraulic fracturing, or the designation of previously
unprotected species as threatened or endangered in areas where we operate, may negatively impact our natural gas or oil production. We cannot predict the actions that future
regulation will require or prohibit, but our business and operations could be subject to increased operating and compliance costs if certain regulatory proposals are adopted. In
addition, such regulations may have an adverse impact on our ability to develop and produce our reserves.
Federal, state or local legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.
Laws or regulations that could impose more stringent permitting, public disclosure and/or well construction requirements on hydraulic fracturing operations are
proposed from time to time at the federal, state and local levels. Regulatory bodies and others from time to time assess, among other things, the risks of groundwater
contamination and earthquakes caused by hydraulic fracturing and other exploration and production activities. Depending on the outcome of these assessments, federal and state
legislatures and agencies may seek to further regulate or even ban such activities, as some state and local governments have already done. We cannot predict whether additional
federal, state or local laws or regulations applicable to hydraulic fracturing will be enacted in the future and, if so, what actions any such laws or regulations would require or
prohibit. If additional levels of regulation or permitting requirements were imposed on hydraulic fracturing operations, our business and operations could be subject to delays,
increased operating and compliance costs and process prohibitions. Among other things, this could adversely affect the cost to produce natural gas, either by us or by third-party
suppliers, and therefore LNG, and this could adversely affect the competitiveness of LNG relative to other sources of energy.
We expect to drill the locations we acquire over a multi-year period, making them susceptible to uncertainties that could materially alter the occurrence or timing of
drilling.
Our management team has identified certain well locations on our natural gas properties. Our ability to drill and develop these locations depends on a number of
uncertainties, including natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, drilling results, lease
expirations, gathering system and pipeline transportation constraints, access to and availability of water sourcing and distribution systems, regulatory approvals and other
factors. Because of these factors, we do not know if the well locations we have identified will ever be drilled or if we will be able to produce natural gas from these or any other
potential locations.
The unavailability or high cost of drilling rigs, equipment, supplies, personnel and services could adversely affect our ability to execute our development plans within
budgeted amounts and on a timely basis.
The demand for qualified and experienced field and technical personnel to conduct our operations can fluctuate significantly, often in correlation with hydrocarbon
prices. The price of services and equipment may increase in the future and availability may decrease.
In addition, it is possible that oil prices could increase without a corresponding increase in natural gas prices, which could lead to increased demand and prices for
equipment, facilities and personnel without an increase in the price at which we
25
sell our natural gas to third parties. This could have an adverse effect on the competitiveness of the LNG produced from the Driftwood terminal. In this scenario, necessary
equipment, facilities and services may not be available to us at economical prices. Any shortages in availability or increased costs could delay us or cause us to incur significant
additional expenditures, which could have a material adverse effect on the competitiveness of the natural gas we sell and therefore on our business, financial condition and
results of operations.
Our natural gas and oil production may be adversely affected by pipeline and gathering system capacity constraints.
Our natural gas and oil production activities rely on third parties to meet our needs for midstream infrastructure and services. Capital constraints and public opposition
to projects could limit the construction of new infrastructure by us and third parties. In addition, increased production from us and other operators could lead to capacity
constraints. We may experience delays in producing and selling natural gas or oil from time to time when adequate midstream infrastructure and services are not available. Such
an event could reduce our production or result in other adverse effects on our business.
Risks Relating to Our Business in General
We are pursuing a strategy of participating in multiple aspects of the natural gas business, which exposes us to risks.
We plan to develop, own and operate a global natural gas business and to deliver natural gas to customers worldwide. We may not be successful in executing our
strategy in the near future, or at all. Our management will be required to understand and manage a diverse set of business opportunities, which may distract their focus and make
it difficult to be successful in increasing value for shareholders.
Tellurian will be subject to risks related to doing business in, and having counterparties based in, foreign countries.
Tellurian may engage in operations or make substantial commitments and investments, or enter into agreements with counterparties, located outside the U.S., which
would expose Tellurian to political, governmental, and economic instability, foreign currency exchange rate fluctuations and corruption risk.
Any disruption caused by these factors could harm Tellurian’s business, results of operations, financial condition, liquidity and prospects. Risks associated with
operations, commitments and investments outside of the U.S. include but are not limited to risks of:
•
•
•
•
•
•
currency fluctuations;
war or terrorist attack;
expropriation or nationalization of assets;
renegotiation or nullification of existing contracts;
changing political conditions;
changing laws and policies affecting trade, taxation, and investment;
• multiple taxation due to different tax structures;
•
•
•
compliance with laws and regulations of foreign jurisdictions, and with U.S. laws and regulations related to foreign operations;
general hazards associated with the assertion of sovereignty over areas in which operations are conducted; and
the unexpected credit rating downgrade of countries in which Tellurian’s LNG customers are based.
Because Tellurian’s reporting currency is the U.S. dollar, any of the operations conducted outside the U.S. or denominated in foreign currencies would face additional
risks of fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. In addition, Tellurian would be subject to the impact of
foreign currency fluctuations and exchange rate changes on its financial reports when translating the value of its assets, liabilities, revenues and expenses from operations
outside of the U.S. into U.S. dollars at then-applicable exchange rates. These translations could result in changes to the results of operations from period to period.
Potential legislative and regulatory actions addressing climate change, and the physical effects of climate change, could significantly impact us.
Various state governments and regional organizations have considered enacting new legislation and promulgating new regulations governing or restricting the emission
of GHGs, including GHG emissions from stationary sources such as oil and natural gas production equipment and facilities. At the federal level, the EPA has already made
findings and issued regulations that will require us to establish and report an inventory of GHG emissions. Additional legislative and/or regulatory proposals targeting the
elimination of or restricting GHG emissions or otherwise addressing climate change could require us to incur
26
additional operating costs or otherwise impact our financial results. The potential increase in our operating costs could include new or increased costs to obtain permits, operate
and maintain our equipment and facilities, install new emission controls on our equipment and facilities, acquire allowances to authorize our GHG emissions, pay taxes related
to our GHG emissions and administer and manage a GHG emissions program. Even without federal legislation or regulation of GHG emissions, states may impose these
requirements either directly or indirectly.
Many scientists have concluded that increasing concentrations of GHGs in the earth’s atmosphere may produce climate changes that have significant physical effects,
such as higher sea levels, increased frequency and severity of storms, droughts, floods, and other climatic events. Such effects could adversely affect our facilities and
operations, and have an adverse effect on our financial condition and results of operations. Further, adverse weather events may accelerate changes in law and regulations aimed
at reducing GHG emissions, which could result in declining demand for natural gas and LNG, and could adversely affect our business generally. In addition, customers are
focusing more on sustainability and the environmental impacts of operations of companies. An inability to respond to customer demands with respect to these issues could have
an impact to our financial results.
A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.
Tellurian will be subject to extensive federal, state and local health and safety regulations and laws. Health and safety performance is critical to the success of all areas
of our business. Any failure in health and safety performance may result in personal harm or injury, penalties for non-compliance with relevant laws and regulations or
litigation, and a failure that results in a significant health and safety incident is likely to be costly in terms of potential liabilities. Such a failure could generate public concern
and have a corresponding impact on our reputation and our relationships with relevant regulatory agencies and local communities, which in turn could have a material adverse
effect on our business, contracts, financial condition, operating results, cash flow, liquidity and prospects.
A terrorist attack or military incident could result in delays in, or cancellation of, construction or closure of our facilities or other disruption to our business.
A terrorist or military incident could disrupt our business. For example, an incident involving an LNG carrier or LNG facility may result in delays in, or cancellation
of, construction of new LNG facilities, including our proposed LNG facilities, which would increase our costs and decrease our cash flows. A terrorist incident may also result
in the temporary or permanent closure of Tellurian facilities or operations, which could increase costs and decrease cash flows, depending on the duration of the closure. Our
operations could also become subject to increased governmental scrutiny that may result in additional security measures at a significant incremental cost. In addition, the threat
of terrorism and the impact of military campaigns may lead to continued volatility in prices for natural gas or oil that could adversely affect Tellurian’s business and customers,
including by impairing the ability of Tellurian’s suppliers or customers to satisfy their respective obligations under Tellurian’s commercial agreements.
Cyber-attacks targeting systems and infrastructure used in our business may adversely impact our operations.
We depend on digital technology in many aspects of our business, including the processing and recording of financial and operating data, analysis of information, and
communications with our employees and third parties. Cyber-attacks on our systems and those of third-party vendors and other counterparties occur frequently and have grown
in sophistication. A successful cyber-attack on us or a vendor or other counterparty could have a variety of adverse consequences, including theft of proprietary or commercially
sensitive information, data corruption, interruption in communications, disruptions to our existing or planned activities or transactions, and damage to third parties, any of which
could have a material adverse impact on us. Further, as cyber-attacks continue to evolve, we may be required to expend significant additional resources to continue to modify or
enhance our protective measures or to investigate and remediate any vulnerabilities to cyber-attacks.
Failure to retain and attract key personnel such as Tellurian’s Executive Chairman, Vice Chairman, Chief Executive Officer or other skilled professional and technical
employees could have an adverse effect on Tellurian’s business, results of operations, financial condition, liquidity and prospects.
The success of Tellurian’s business relies heavily on key personnel such as its Executive Chairman, Vice Chairman and Chief Executive Officer. Should such persons
be unable to perform their duties on behalf of Tellurian, or should Tellurian be unable to retain or attract other members of management, Tellurian’s business, results of
operations, financial condition, liquidity and prospects could be materially impacted.
Additionally, we are dependent upon an available labor pool of skilled employees. We will compete with other energy companies and other employers to attract and
retain qualified personnel with the technical skills and experience required to construct and operate our facilities and to provide our customers with the highest quality service.
A shortage of skilled workers or other general inflationary pressures or changes in applicable laws and regulations could make it more difficult for us to attract and retain
qualified personnel and could require an increase in the wage and benefits packages that we offer, or increases
27
in the amounts we are obligated to pay our contractors, thereby increasing our operating costs. Any increase in our operating costs could materially and adversely affect our
business, financial condition, operating results, liquidity and prospects.
Competition is intense in the energy industry and some of Tellurian’s competitors have greater financial, technological and other resources.
Tellurian plans to operate in various aspects of the natural gas and oil business and will face intense competition in each area. Depending on the area of operations,
competition may come from independent, technology-driven companies, large, established companies and others.
For example, many competing companies have secured access to, or are pursuing development or acquisition of, LNG facilities to serve the North American natural
gas market, including other proposed liquefaction facilities in North America. Tellurian may face competition from major energy companies and others in pursuing its proposed
business strategy to provide liquefaction and export products and services at its proposed Driftwood terminal. In addition, competitors have developed and are developing
additional LNG terminals in other markets, which will also compete with our proposed LNG facilities.
As another example, our business will face competition in, among other things, buying and selling reserves and leases and obtaining goods and services needed to
operate properties and market natural gas and oil. Competitors include multinational oil companies, independent production companies and individual producers and operators.
Many of our competitors have longer operating histories, greater name recognition, larger staffs and substantially greater financial, technical and marketing resources
than Tellurian currently possesses. The superior resources that some of these competitors have available for deployment could allow them to compete successfully against
Tellurian, which could have a material adverse effect on Tellurian’s business, results of operations, financial condition, liquidity and prospects.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURE
None.
28
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information, Holders and Dividends
Our common stock trades on the NYSE American under the symbol “TELL.” As of February 7, 2022, there were 518.5 million shares outstanding held by 777 record
holders of Tellurian’s common stock. The Company does not intend to pay cash dividends on its common stock in the foreseeable future.
PART II
Recent Sales of Unregistered Securities
None that occurred during the three months ended December 31, 2021.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None that occurred during the three months ended December 31, 2021.
Stock Performance Graph
The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future
filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed
under the Securities Act or the Exchange Act. The following graph compares the cumulative total shareholder return, calculated on a dividend reinvested basis, on $100.00
invested at the closing of the market on December 31, 2016, through and including the market close on December 31, 2021, with the cumulative total return for the same time
period of the same amount invested in the Russell 2000 index, a current peer group index and the peer group index used in the corresponding section of our Annual Report on
Form 10-K for the year ended December 31, 2019 (the “prior peer group”). The current peer group was selected based on a review of publicly available information about these
companies and our determination that they met one or more of the following criteria: (i) comparable industries, (ii) similar market capitalization and (iii) similar operational
characteristics, capital intensity, business and operating risks. Our current peer group index consists of the following companies:
Current peer group
APA Corporation (APA)
Cheniere Energy, Inc. (LNG)
Chesapeake Energy Corporation (CHK)
Continental Resources, Inc. (CLR)
Enterprise Products Partners L.P. (EPD)
EQT Corporation (EQT)
Gibson Energy Inc. (GEI)
Kinder Morgan, Inc. (KMI)
NextDecade Corporation (NEXT)
NuStar Energy L.P. (NS)
ONEOK, Inc. (OKE)
Range Resources Corporation (RRC)
Southwestern Energy Company (SWN)
Targa Resources Corp. (TRGP)
The Williams Companies, Inc. (WMB)
29
We have not changed our current peer group relative to the prior peer group except that (i) we have removed the following companies due to (1) merger or acquisition
transactions, (2) a focus on companies of more comparable size based on relative enterprise value and assets and (3) an effort to distribute more evenly the sub-industry
representation across oil and gas sectors (i.e. fewer transportation companies): Cheniere Energy Partners LP (CQP), Enable Midstream Partners LP (ENBL), GasLog Ltd
(GLOG), Golar LNG Limited (GLNG), Teekay LNG Partners L.P. (TGP) and Teekay Corporation (TK) and (ii) we have added the following companies to distribute more
evenly the sub-industry representation across oil and gas sectors (i.e. more midstream, upstream and LNG companies): APA Corporation (APA), Chesapeake Energy
Corporation (CHK), Continental Resources, Inc. (CLR), EQT Corporation (EQT), Enterprise Products Partners L.P. (EPD), Gibson Energy Inc. (GEI), Kinder Morgan, Inc.
(KMI), NextDecade Corporation (NEXT), NuStar Energy L.P. (NS), Range Resources Corporation (RRC), Southwestern Energy Company (SWN) and The Williams
Companies, Inc. (WMB).
Tellurian Inc.
Russell 2000
Current peer group
Prior peer group
2016
100
100
100
100
2017
87
113
86
114
Year Ended December 31,
2018
62
99
70
92
2019
65
123
77
95
2020
11
146
54
65
2021
27
165
83
98
ITEM 6. [Reserved]
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ITEM 7. 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 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
Commitments and Contingencies
Summary of Critical Accounting Estimates
Recent Accounting Standards
Our Business
Tellurian Inc. (“Tellurian,” “we,” “us,” “our,” or the “Company”), a Delaware corporation, is a Houston-based company that 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 natural gas
assets consist of 11,060 net acres and interests in 78 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. 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 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
LNG Sale and Purchase Agreements
Driftwood LNG LLC (“Driftwood LNG”), a wholly owned subsidiary of the Company, entered into the following SPAs with three purchasers for the purchase of a
total of 9.0 Mtpa of LNG:
• An SPA with Gunvor Singapore Pte Ltd (“Gunvor”) in May 2021 for the purchase of 3.0 Mtpa of LNG;
• An SPA with Vitol Inc. (“Vitol”) in June 2021 for the purchase of 3.0 Mtpa of LNG; and
• Two SPAs with Shell NA LNG LLC (“Shell”) in July 2021 for the purchase of 3.0 Mtpa of LNG.
The price for LNG sold under the SPAs with Gunvor and Vitol will be a blended average based on the JKM index price and the TTF futures contract price, in each case
minus a transportation netback. The price for LNG sold under each SPA with Shell will be based on the JKM index price or the TTF futures contract price, in each case minus a
transportation netback. Each SPA has a ten-year term from the date of first commercial delivery from the Driftwood terminal.
Initiated Owner Construction Activities
31
During the year ended, December 31, 2021 we initiated owner construction activities necessary to proceed under our LSTK EPC agreements with Bechtel Oil, Gas and
Chemicals, Inc. (“Bechtel”).
Driftwood Land Lease Agreement
On July 1, 2021, we entered into a long-term ground lease agreement with the Lake Charles Harbor and Terminal District to secure property essential for the
construction of the Driftwood terminal.
Environmental, Social, Governance Practices
During the year ended December 2021, the Company began a partnership with the National Forest Foundation on a five-year plan for reforestation and other forest
management projects totaling $25 million across the United States. One of the first identified projects is to re-plant 300,000 trees in the Kisatchie National Forest, located near
Alexandria, Louisiana, where nearly 40,000 acres of native trees were lost due to extreme weather events during the past few years.
Upstream Drilling Activities
During the year ended December 31, 2021, we completed the drilling of and put in production four new Haynesville operated natural gas wells. We also participated in
the drilling of six Haynesville non-operated natural gas wells. Our 2021 drilling activities increased our proved developed reserves by approximately 51 Bcfe as of December
31, 2021.
Repayment of Borrowing Obligations
During the year ended December 31, 2021, we repaid all borrowing obligations that were outstanding at the end of December 31, 2020. For further information
regarding the repayment of our borrowing obligations, see Note 10 - Borrowings, of our Notes to the Consolidated Financial Statements.
Equity Offering
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.
8.25% Senior Notes due 2028
On November 10, 2021, we sold $50.0 million aggregate principal amount of 8.25% Senior Notes due November 30, 2028 (the “Senior Notes”) in a registered public
offering. Net proceeds from the sale of 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, which generated net proceeds of approximately $6.2 million after deducting fees.
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. During the year ended December 31, 2021, we did not sell any additional Senior
Notes under the at-the-market debt offering program.
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 $305.5 million of cash and cash
equivalents as of December 31, 2021 on a consolidated basis. 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 $581.9 million under
these programs.
32
As of December 31, 2021, we had total indebtedness of approximately $56.5 million, of which no amounts are scheduled to be repaid within the next twelve months.
We also had contractual obligations associated with our finance and operating leases totaling $216.9 million, of which $7.1 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 securing financing for the construction of plants one and two 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):
Cash used in operating activities
Cash used in investing activities
Cash provided by financing activities
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of the period
Cash, cash equivalents and restricted cash, end of the period
Net working capital
Year Ended December 31,
2020
2021
(61,560) $
(57,865)
344,962
225,537
81,737
307,274 $
(69,965)
(1,307)
84,527
13,255
68,482
81,737
238,920 $
(34,403)
$
$
$
Cash used in operating activities for the year ended December 31, 2021 decreased by approximately $8.4 million compared to the same period in 2020 due to an overall
decline in disbursements in the normal course of business.
Cash used in investing activities for the year ended December 31, 2021 increased by approximately $56.6 million compared to the same period in 2020. This increase is
predominantly driven by increased spending on natural gas development activities, settlement of outstanding liabilities associated with engineering services for the Driftwood
terminal and property and equipment purchases.
Cash provided by financing activities for the year ended December 31, 2021 increased by approximately $260.4 million compared to the same period in 2020. This
increase primarily relates to the following:
•
•
•
Increase of approximately $315.4 million in net proceeds from equity issuances and warrant exercises.
Increase of approximately $6.3 million in net borrowings as compared to the prior period.
These increases were partially offset by cash outflows used in principal repayments of our borrowing obligations compared to the prior period.
See Note 10, Borrowings and Note 12, Stockholders’ Equity, of our Notes to the Consolidated Financial Statements for additional information about our financing activities.
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 necessary to proceed under our LSTK EPC agreements and have increased our upstream development 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
33
will be situated on approximately 1,200 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.
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 commencement of construction of the Driftwood terminal, 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.
Investments in the construction of the Driftwood terminal and natural gas development may be significant in 2022, but the size of those investments will depend on, among
other things, commodity prices, Driftwood Project financing developments and other liquidity considerations, and our continuing analysis of strategic risks and opportunities.
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-term and long-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.
Results of Operations
The following table summarizes costs and expenses for the periods presented (in thousands):
Total revenue
Cost of sales
Development expenses
Depreciation, depletion and amortization
General and administrative expenses
Impairment charge and loss on transfer of assets
Severance and reorganization charges
Related party charges
Loss from operations
Interest expense, net
Gain on extinguishment of debt, net
Other income (loss), net
Income tax benefit (provision)
Net loss
2021
Year Ended December 31,
2020
2019
$
$
71,275 $
36,438
50,186
11,481
85,903
—
—
—
(112,733)
(9,378)
1,422
5,951
—
(114,738) $
37,434
17,223
27,492
17,228
47,349
81,065
6,359
7,357
(166,639)
(43,445)
—
(612)
—
(210,696) $
$28,774
7,071
59,629
20,446
87,487
—
—
—
(145,859)
(16,355)
—
10,447
—
(151,767)
Our consolidated net loss was approximately $114.7 million for the year ended December 31, 2021, compared to a net loss of approximately $210.7 million for the
same period of 2020. The decrease in net loss was primarily a result of the following:
•
•
•
Absence of proved natural gas Impairment charge, Severance and reorganization charges, and Related party charges of approximately $81.1 million, $6.4 million,
and $7.4 million, respectively, that were incurred during 2020.
Increase of approximately $33.8 million in Total revenue compared to the same period in 2020 attributable to a $21.0 million increase in Natural gas sales revenues
as a result of increased realized natural gas prices, partially offset by decreased production volumes, and a $12.8 million increase in LNG sale revenues from the
sale of an LNG cargo in April 2021.
Decrease of approximately $34.1 million in Interest expense due to the decline in interest charges as a result of the repayment of our borrowing obligations that were
outstanding at the end of 2020. For further information regarding the repayment of our borrowing obligations, see Note 10 - Borrowings, of our Notes to the
Consolidated Financial Statements.
34
•
Decrease of approximately $5.7 million in DD&A expenses due to utilizing a lower net book value in the calculation of DD&A as a result of the Impairment charge
that we recognized in the prior year.
The decrease in net loss was partially offset by the following:
•
Increase of approximately $19.2 million in Cost of sales primarily attributable to the purchase of an LNG cargo in April 2021.
• An increase of approximately $22.7 million in Development expenses primarily attributable to an $18.1 million increase in compensation expenses and a $4.6
million increase in professional services, engineering services and other development expenses associated with the Driftwood Project.
• An increase of approximately $38.6 million in General and administrative expenses primarily attributable to a $32.2 million increase in compensation expenses and
a $6.4 million increase in professional services.
Our consolidated net loss was approximately $210.7 million for the year ended December 31, 2020, compared to a net loss of approximately $151.8 million for the
same period of 2019. This $58.9 million increase in net loss was primarily a result of the following:
•
•
•
•
•
Approximately $81.1 million related to an Impairment charge of our proved natural gas properties primarily due to depressed natural gas prices caused by the
combined impact of increased natural gas production and falling demand brought about by economic conditions at the time. For further information regarding this
impairment charge, see Note 4, Property, Plant and Equipment, of our Notes to the Consolidated Financial Statements.
Increase of approximately $27.1 million in Interest expense, net, primarily attributable to incurring interest charges on both the 2019 Term Loan and 2020 Unsecured
Note during the current period compared to only incurring charges on a portion of the 2019 Term Loan during the prior period.
Increase of approximately $10.2 million in Cost of sales primarily attributable to the sale of an LNG cargo.
Approximately $7.4 million in Related party charges incurred during the period compared to none in the prior period. For further information regarding these
Related party charges, see Note 8, Related Party Transactions, of our Notes to the Consolidated Financial Statements.
Approximately $6.4 million in Severance and reorganization charges incurred during the period compared to none in the prior period. For further information
regarding the Severance and reorganization charges, see Note 13, Severance and Reorganization, of our Notes to the Consolidated Financial Statements.
The above increases in expenses were partially offset by an increase in Total revenue of approximately $8.7 million due primarily to the sale of an LNG cargo and a
decrease in General and administrative expenses of approximately $40.1 million as well as a decrease in Development expenses of approximately $32.1 million due to an
overall decline in business activities during the current period.
Commitments and Contingencies
The information set forth in Note 11, Commitments and Contingencies, to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this Form
10-K is incorporated herein by reference.
Summary of Critical Accounting Estimates
Our accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies, of our Notes to Consolidated Financial Statements included in
this report. As disclosed in Note 2, the preparation of financial statements requires the use of judgments and estimates. We base our estimates on historical experience and on
various other assumptions we believe to be reasonable according to current facts and circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. We considered the following to be our most
critical accounting estimates that involve significant judgment:
Valuation of Long-Lived Assets
When there are indicators that our proved natural gas properties carrying value may not be recoverable, we compare expected undiscounted future cash flows at a
depreciation, depletion and amortization group level to the unamortized capitalized cost of the asset. If the expected undiscounted future cash flows, based on our estimates of
(and assumptions regarding) future natural gas prices, operating costs, development expenditures, anticipated production from proved reserves and other relevant data, are lower
than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value
35
is generally calculated using the income approach in accordance with GAAP. Estimates of undiscounted future cash flows require significant judgment, and the assumptions
used in preparing such estimates are inherently uncertain. The impairment review includes cash flows from proved developed and undeveloped reserves, including any
development expenditures necessary to achieve that production. Additionally, when probable and possible reserves exist, an appropriate risk-adjusted amount of these reserves
may be included in the impairment calculation. In addition, such assumptions and estimates are reasonably likely to change in the future.
Proved reserves are the estimated quantities of natural gas and condensate that geological and engineering data demonstrate with reasonable certainty to be recoverable
in future years from known reservoirs under existing economic and operating conditions. Despite the inherent imprecision in these engineering estimates, our reserves are used
throughout our financial statements. For example, because we use the units-of-production method to deplete our natural gas properties, the quantity of reserves could
significantly impact our DD&A expense. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time. Finally, these
reserves are the basis for our supplemental natural gas disclosures. See Item 1 and 2 — Our Business and Properties for additional information on our estimate of proved
reserves.
Share-Based Compensation
Share-based compensation transactions are measured based on the grant-date estimated fair value. For awards containing only service conditions or performance
conditions deemed probable of occurring, the fair value is recognized as expense over the requisite service period using the straight-line method. We recognize compensation
cost for awards with performance conditions if and when we conclude that it is probable that the performance condition will be achieved. For awards where the performance or
market condition is not considered probable, compensation cost is not recognized until the performance or market condition becomes probable. We reassess the probability of
vesting at each reporting period for awards with performance conditions and adjust compensation cost based on our probability assessment. We recognize forfeitures as they
occur.
Recent Accounting Standards
We do not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our Consolidated
Financial Statements or related disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that we hold, or are party to, instruments that are subject to market risks that are material to our business.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
TELLURIAN INC.
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm (PCAOB Firm ID No. 34)
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Supplementary Information
Supplemental Disclosures About Natural Gas Producing Activities (unaudited)
37
Page
37
38
41
42
43
43
45
63
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management, including the Company’s Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, is responsible for establishing and maintaining
adequate internal control over the Company’s financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management concluded that Tellurian Inc.’s internal control over financial reporting was effective as of December 31, 2021.
Deloitte & Touche LLP, an independent registered public accounting firm, audited the effectiveness of Tellurian Inc.’s internal control over financial reporting as of
December 31, 2021, as stated in their report on page 41.
/s/ Octávio M.C. Simões
Octávio M.C. Simões
President and Chief Executive Officer
(as Principal Executive Officer)
/s/ L. Kian Granmayeh
L. Kian Granmayeh
Chief Financial Officer
(as Principal Financial Officer)
/s/ Khaled A. Sharafeldin
Khaled A. Sharafeldin
Chief Accounting Officer
(as Principal Accounting Officer)
Houston, Texas
February 23, 2022
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Tellurian Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tellurian Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated
statements of operations, stockholders’ equity and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to
as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and
2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over
financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 23, 2022, expressed an unqualified opinion on the Company’s internal control over financial
reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Proved Natural Gas Properties and Depletion – Natural Gas Reserves – Refer to Note 2 and 4 to the financial statements
Critical Audit Matter Description
The Company’s proved natural gas properties are depleted using the units-of-production method based upon natural gas reserves. The development of the Company’s natural gas
reserve quantities requires management to make significant estimates and assumptions. The Company engages an independent reservoir engineer, management’s specialist, to
estimate natural gas quantities using generally accepted methods, calculation procedures and engineering data. Changes in assumptions or engineering data could have a
significant impact on the amount of depletion. Proved natural gas properties were $47.7 million as of December 31, 2021, and depletion expense was $11.0 million for the year
then ended.
Given the significant judgments made by management and management’s specialist, performing audit procedures to evaluate the Company’s natural gas reserve quantities,
including management’s estimates and assumptions related to natural gas prices requires a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s significant judgments and assumptions related to natural gas reserves included the following, among others:
39
• We tested the effectiveness of controls related to the Company’s estimation of natural gas properties reserve quantities, including controls relating to the natural gas
prices.
• We evaluated the reasonableness of natural gas prices by comparing such amounts to:
◦
◦
◦
Third party industry sources.
Historical realized natural gas prices.
Historical realized natural gas price differentials.
• We evaluated the Company’s estimates around production volumes by evaluating wells’ past production performance to ensure it was appropriately reflected in
production forecasts used in generating proved reserves.
• We evaluated the experience, qualifications and objectivity of management’s specialist, an independent reservoir engineering firm, including the methodologies and
calculation procedures used to estimate natural gas reserves and performing analytical procedures on the reserve quantities.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 2022
We have served as the Company’s auditor since 2016.
40
To the stockholders and the Board of Directors of Tellurian Inc.
Opinions on Internal Control over Financial Reporting
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the internal control over financial reporting of Tellurian Inc. and subsidiaries (the "Company") as of December 31, 2021, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as
of and for the year ended December 31, 2021, of the Company and our report dated February 23, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 2022
41
TELLURIAN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Deferred engineering costs
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accounts payable due to related parties (Note 8)
Accrued and other liabilities
Borrowings
Total current liabilities
Long-term liabilities:
Borrowings
Other non-current liabilities
Total long-term liabilities
Commitments and Contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 authorized: 6,123,782 and 6,123,782 shares outstanding, respectively
Common stock, $0.01 par value, 800,000,000 and 800,000,000 authorized: 500,453,575 and 354,315,739 shares
outstanding, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2021
2020
305,496
9,270
12,952
327,718
150,545
110,025
33,518
621,806 $
2,852
—
85,946
—
88,798
53,687
61,020
114,707
78,297
4,500
2,105
84,902
61,257
110,499
36,337
292,995
23,573
910
22,003
72,819
119,305
38,275
26,325
64,600
61
61
4,774
1,344,526
(931,060)
418,301
621,806 $
3,309
922,042
(816,322)
109,090
292,995
`
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
42
TELLURIAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Revenues:
Natural gas sales
LNG sales
Total revenue
Operating costs and expenses:
Cost of sales
Development expenses
Depreciation, depletion and amortization
General and administrative expenses
Impairment charges
Severance and reorganization charges
Related party charges (Note 8)
Total operating costs and expenses
Loss from operations
Interest expense, net
Gain on extinguishment of debt, net
Other (expense) income, net
Loss before income taxes
Income tax benefit (provision)
Net loss
Net loss per common share:
Basic and diluted
Weighted average shares outstanding:
Basic and diluted
$
$
$
2021
Year Ended December 31,
2020
2019
51,499 $
19,776
71,275
36,438
50,186
11,481
85,903
—
—
—
184,008
30,441
6,993
37,434
17,223
27,492
17,228
47,349
81,065
6,359
7,357
204,073
28,774
—
28,774
7,071
59,629
20,446
87,487
—
—
—
174,633
(112,733)
(166,639)
(145,859)
(9,378)
1,422
5,951
(114,738)
—
(43,445)
—
(612)
(210,696)
—
(114,738) $
(210,696) $
(16,355)
—
10,447
(151,767)
—
(151,767)
(0.28) $
(0.79) $
(0.69)
407,615
267,615
218,548
The accompanying notes are an integral part of these consolidated financial statements.
43
TELLURIAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
Total shareholders’ equity, beginning balance
Preferred stock
Common stock:
Beginning balance
(1)
Common stock issuance
Share-based compensation, net
Severance and reorganization charges
Shared-based payments
Settlement of Final Payment Fee (Note 10)
Borrowings principal repayment (Note 10)
Warrants exercised
Ending balance
Additional paid-in capital:
Beginning balance
(1)
Common stock issuance
Share-based compensation, net
Severance and reorganization charges
Share-based payments
Settlement of Final Payment Fee (Note 10)
Warrants issued in connection with Borrowings (Note 12)
Borrowings principal repayment (Note 10)
Warrants exercised
Debt extinguishment
Ending balance
Accumulated deficit:
Beginning balance
Net loss
Ending balance
Year Ended December 31,
2020
2019
2021
$
109,090 $
166,285 $
297,934
61
61
61
3,309
1,361
43
—
1
—
—
60
4,774
922,042
406,493
7,892
—
200
—
—
—
8,117
(218)
1,344,526
2,211
808
55
22
—
110
93
10
3,309
769,639
98,867
8,589
2,667
561
9,036
17,998
13,695
990
—
922,042
2,195
—
15
—
1
—
—
—
2,211
749,537
—
15,934
—
868
—
3,300
—
—
—
769,639
(816,322)
(114,738)
(931,060)
(605,626)
(210,696)
(816,322)
(453,859)
(151,767)
(605,626)
Total shareholders’ equity, ending balance
$
418,301 $
109,090 $
166,285
(1)
Includes settlement of 2019 and 2018 bonuses that were accrued for in 2019 and 2018, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
44
TELLURIAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization
Amortization of debt issuance costs, discounts and fees
Share-based compensation
Severance and reorganization charges
Share-based payments
Interest elected to be paid-in-kind
Impairment charge and loss on transfer of assets
Gain on sale of assets
Unrealized loss (gain) on financial instruments not designated as hedges
Net gain on extinguishment of debt
Other
Net changes in working capital (Note 18)
Net cash used in operating activities
Cash flows from investing activities:
Acquisition and development of natural gas properties
Payment of engineering services
Proceeds from sale of assets
Purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from common stock issuances
Equity issuance costs
Proceeds from borrowings
Borrowings issuance costs
Borrowings principal repayments
Proceeds from warrant exercise
Tax payments for net share settlements of equity awards (Note 18)
Finance lease principal payments
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplementary disclosure of cash flow information:
Interest paid
Year Ended December 31,
2020
2019
2021
$
(114,738) $
(210,696) $
(151,767)
11,481
3,102
5,950
—
200
508
—
—
(8,693)
(1,422)
1,035
41,017
(61,560)
(32,364)
(15,208)
—
(10,293)
(57,865)
421,809
(13,955)
56,500
(2,854)
(119,725)
8,177
(3,064)
(1,926)
344,962
225,537
81,737
307,274
17,228
28,741
2,699
2,689
562
3,317
81,065
—
2,618
—
3,378
(1,566)
(69,965)
(1,307)
—
—
—
(1,307)
103,664
(3,989)
50,000
(2,612)
(60,100)
1,000
(1,659)
(1,777)
84,527
20,446
10,148
4,238
—
869
—
—
(4,218)
(3,443)
—
(459)
11,178
(113,008)
(45,354)
(25,997)
8,140
(2,732)
(65,943)
—
—
75,000
(2,246)
—
—
(6,686)
(2,224)
63,844
13,255
68,482
81,737 $
(115,107)
183,589
68,482
$
4,105 $
11,025 $
8,414
The accompanying notes are an integral part of these consolidated financial statements.
45
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND NATURE OF OPERATIONS
Tellurian Inc. (“Tellurian,” “we,” “us,” “our,” or the “Company”), a Delaware corporation, is a Houston-based company which 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 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.”
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.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our Consolidated Financial Statements have been prepared in accordance with GAAP. The Consolidated Financial Statements include the accounts of Tellurian Inc.
and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
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 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 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 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 Consolidated Financial Statements. The Company has the ability to generate additional proceeds from various other potential financing transactions. We
are currently focused on securing financing for the construction of plants one and two of the Driftwood terminal.
Segments
We have determined that we operate as a single operating and reportable segment. Our chief operating decision maker allocates resources and assesses financial
performance on a consolidated basis in the execution of our strategy to develop, own and operate a global natural gas business and to deliver natural gas to our customers
worldwide.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in
the Consolidated Financial Statements and the accompanying notes. Management evaluates its estimates and related assumptions on a regular basis. Changes in facts and
circumstances or additional information may result in revised estimates, and actual results may differ from these estimates.
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The Company uses three levels of the fair value hierarchy of inputs to measure the fair value of an asset or a liability. Level 1 inputs are quoted prices in active markets for
identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability. Level 3
inputs are inputs that are not observable in the market.
Revenue Recognition
46
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the sale of natural gas, we consider the delivery of each unit (MMBtu) to be a separate performance obligation that is satisfied upon delivery to the designated sales
point and therefore is recognized at a point in time. These contracts are either fixed price contracts or contracts with a fixed differential to an index price, both of which are
deemed fixed consideration that is allocated to each performance obligation and represents the relative standalone selling price basis.
Each LNG cargo, in its entirety, is deemed to be a single performance obligation due to each molecule of LNG being distinct and substantially the same and therefore
meeting the criteria for the transfer of a series of distinct goods. Accordingly, LNG sales are recognized at a point in time when the LNG has completed discharging to the
customer. These are contracts with a fixed differential to an index price, which is deemed fixed consideration that is allocated to each performance obligation and represents the
relative standalone selling price basis. These LNG sales are recorded on a gross basis and reported in “LNG sales” on the Consolidated Statements of Operations.
Purchases and sales of LNG inventory with the same counterparty that are entered into in contemplation of one another (including buy/sell arrangements) are combined
and recorded on a net basis and reported in “LNG sales” on the Consolidated Statements of Operations. For such LNG sales, we require payment within 10 days from delivery.
We exclude all taxes from the measurement of the transaction price.
Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents that are restricted as to
withdrawal or use under the terms of certain contractual agreements are recorded in Non-current restricted cash on our Consolidated Balance Sheets. The carrying value of cash,
cash equivalents and restricted cash approximates their fair value.
Concentration of Cash
We maintain cash balances and restricted cash at financial institutions, which may, at times, be in excess of federally insured levels. We have not incurred losses
related to these balances to date.
Derivative Instruments
We use derivative instruments to hedge our exposure to cash flow variability from commodity price risk. Derivative instruments are recorded at fair value and included
in our Consolidated Balance Sheets as assets or liabilities, depending on the derivative position and the expected timing of settlement, unless they satisfy the criteria for and we
elect the normal purchases and sales exception.
We have not elected and do not apply hedge accounting for our derivative instruments; therefore, all changes in fair value of the Company’s derivative instruments are
recognized within Other income, net, in the Consolidated Statements of Operations. Settlements of derivative instruments are reported as a component of cash flows from
operations in the Consolidated Statements of Cash Flows.
Property, Plant and Equipment
Natural gas development and production activities are accounted for using the successful efforts method of accounting. Costs incurred to acquire a property (whether
proved or unproved) are capitalized when incurred. Costs to develop proved reserves are capitalized and we deplete our natural gas reserves using the units-of-production
method.
Fixed assets are recorded at cost. We depreciate our property, plant and equipment, excluding land, using the straight-line depreciation method over the estimated
useful life of the asset. Upon retirement or other disposition of property, plant and equipment, the cost and related accumulated depreciation are removed, and the resulting
gains or losses are recorded in our Consolidated Statements of Operations.
Management tests property, plant and equipment for impairment whenever there are indicators that the carrying amount of property, plant and equipment might not be
recoverable. The carrying values of our proved natural gas properties are reviewed for impairment when events or circumstances indicate that the remaining carrying value may
not be recoverable. If there is an indication that the carrying amount of our proved natural gas properties may not be recoverable, we compare the estimated expected
undiscounted future cash flows from our natural gas properties to the carrying values of those properties. Proved properties that have carrying amounts in excess of estimated
future undiscounted cash flows are written down to fair value.
Leases
The Company adopted Accounting Standards Update ASU 2016-02, Leases (Topic 842), and subsequent amendments thereto (“ASC 842”) on January 1, 2019 using
the optional transition approach to apply the standard at the beginning of the first quarter of 2019 with no retrospective adjustments to prior periods. We elected the transition
package of practical expedients to carry-forward prior conclusions related to lease identification and classification for existing leases, combine lease and non-lease
47
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
components of an arrangement for all classes of our leased assets and omit short-term leases with a term of 12 months or less from recognition on the balance sheet.
The Company determines if an arrangement is a lease at inception. Leases are recognized as either finance or operating leases on our Consolidated Balance Sheets by
recording a lease liability representing the obligation to make future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term.
Refer to Note 17 - Leases for operating and finance right-of-use assets and lease liabilities classification within our Consolidated Balance Sheets. In the absence of a readily
determinable implicitly interest rate, we discount our expected future lease payments using our incremental borrowing rate. Options to renew a lease are included in the lease
term and recognized as part of the right-of-use asset and lease liability, only to the extent they are reasonably certain to be exercised.
Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Lease expense for finance leases is recognized as the sum of the
amortization of the right-of-use assets on a straight-line basis and the interest on lease liabilities over the lease term.
Accounting for LNG Development Activities
As we have been in the preliminary stage of developing the Driftwood terminal, substantially all the costs related to such activities have been expensed. These costs
primarily include professional fees associated with FEED studies and complying with FERC for authorization to construct our terminal and other required permitting for the
Driftwood Project.
Costs incurred in connection with a project to develop the Driftwood terminal shall generally be treated as development expenses until the project has reached the
notice-to-proceed state (“NTP State”) and the following criteria (the “NTP Criteria”) have been met: (i) the necessary regulatory permits have been obtained, (ii) financing for
the project has been secured and (iii) management has committed to commence construction.
In addition, certain costs incurred prior to achieving the NTP State will be capitalized although the NTP Criteria have not been met. Costs to be capitalized prior to
achieving the NTP State include land purchase costs, land improvement costs, costs associated with preparing the facility for use and any fixed structure construction costs
(fence, storage areas, drainage, etc.). Furthermore, activities directly associated with detailed engineering and/or facility designs shall be capitalized. All amounts capitalized are
periodically assessed for impairment and may be impaired if indicators are present. For additional details regarding capitalized amounts, please refer to Note 5, Deferred
Engineering Costs.
Debt
Discounts, fees and expenses incurred with the issuance of debt are amortized over the term of the debt. These amounts are presented as a reduction of our indebtedness
on the accompanying Consolidated Balance Sheets. See Note 10, Borrowings, for additional details about our loans.
Share-Based Compensation
We have awarded share-based compensation in the form of stock, restricted stock, restricted stock units and stock options to employees, directors and outside
consultants. Share-based compensation transactions are measured based on the grant-date estimated fair value. For awards containing only service conditions or performance
conditions deemed probable of occurring, the fair value is recognized as expense over the requisite service period using the straight-line method. We recognize compensation
cost for awards with performance conditions if and when we conclude that it is probable that the performance condition will be achieved. For awards where the performance or
market condition is not considered probable, compensation cost is not recognized until the performance or market condition becomes probable. We reassess the probability of
vesting at each reporting period for awards with performance conditions and adjust compensation cost based on our probability assessment. We recognize forfeitures as they
occur.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences
between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to be realized or
settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider
current and historical financial results, expectations for future taxable income and the availability of tax planning strategies that can be implemented, if necessary, to realize
deferred tax assets. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we will make an adjustment to
the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
48
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Postemployment benefits
The Company provides cash and other termination benefits pursuant to ongoing benefit arrangements to its employees in connection with a qualifying termination of
their employment. The cost of providing postemployment benefits is recognized when the obligation is probable of occurring and can be reasonably estimated.
Net Loss Per Share (EPS)
Basic net loss per share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period.
Diluted net loss per share reflects potential dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period
increased by the number of additional common shares that would have been outstanding if the potential common shares had been issued and were dilutive.
NOTE 3 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
The components of prepaid expenses and other current assets consist of the following (in thousands):
Prepaid expenses
Deposits
Derivative asset, net - current (Note 7)
Other current assets
Total prepaid expenses and other current assets
NOTE 4 — PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment consist of the following (in thousands):
Land and Land improvements
Proved properties
Wells in progress
Corporate and other
Total property, plant and equipment, at cost
Accumulated depreciation, depletion and amortization
Right of use asset — finance leases
Total property, plant and equipment, net
December 31,
2021
2020
605
3,589
8,693
65
12,952
$
$
December 31,
2021
2020
25,399
96,297
17,653
3,476
142,825
(50,163)
57,883
150,545
$
$
1,156
100
843
6
2,105
13,808
62,227
492
3,476
80,003
(38,764)
20,018
61,257
$
$
$
$
Depreciation, depletion and amortization expenses for the years ended December 31, 2021, 2020 and 2019 were approximately $11.5 million, $17.2 million and
$20.4 million, respectively.
Land and Land improvements
We own land in Louisiana for the purpose of constructing the Driftwood terminal. During the year ended December 31, 2021, we capitalized approximately
$9.4 million in land improvement costs to prepare the land for its intended use.
Proved Properties
During the year ended December 31, 2021, we completed the drilling and put in production four new Haynesville operated natural gas wells. We also participated in
the drilling of six Haynesville non-operated natural gas wells.
During the year ended December 31, 2020, we recognized an Impairment charge of approximately $81.1 million primarily associated with our assets located in
northern Louisiana.
49
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 — DEFERRED ENGINEERING COSTS
Deferred engineering costs of approximately $110.0 million and $110.5 million at December 31, 2021 and 2020, respectively, represent detailed engineering services
related to the Driftwood terminal. 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 6 — OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following (in thousands):
Land lease and purchase options
Permitting costs
Right of use asset — operating leases
Restricted cash
Other
Total other non-current assets
Land Lease and Purchase Options
December 31,
2021
2020
6,368
13,408
10,166
1,778
1,798
33,518
$
$
5,831
13,092
11,884
3,440
2,090
36,337
$
$
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 are amortized over the life of the lease once obtained
or capitalized into the 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 require us to mitigate the impact to Louisiana wetlands 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.
Restricted Cash
Restricted cash as of December 31, 2021 represents cash collateralization of a letter of credit associated with a finance lease. Restricted cash as of December 31, 2020
represents unused proceeds from the 2018 Term Loan as described under Note 10 - Borrowings.
NOTE 7 — FINANCIAL INSTRUMENTS
Natural Gas Financial Instruments
During the year ended December 31, 2021, we entered into natural gas future options to economically hedge the commodity price exposure for a portion of our natural
gas production. As of December 31, 2021, there were no open natural gas financial instruments positions.
LNG Financial Futures
During the fourth quarter of 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 are 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 December 31, 2021, the Company hedged approximately 2.4 million MMBtu of LNG, which represents a portion of its expected LNG cargo
transactions. The open LNG financial futures positions at December 31, 2021 had maturities extending through April 2022.
The following table summarizes the effect of the Company’s financial instruments on the consolidated Statements of Operations (in thousands):
50
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Natural Gas Financial Instruments
Realized (loss) gain
Unrealized loss
LNG Financial Futures
Realized gain
Unrealized gain
Year ended December 31,
2021
Year ended December
31, 2020
$
(826) $
—
1,010
8,693
5,050
(2,618)
—
—
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 Consolidated Balance Sheets (in thousands):
Current Assets:
Natural Gas Financial Instruments
LNG Financial Futures
Non-Current Assets:
Natural Gas Financial Instruments
Year ended December 31,
2021
Year ended December 31,
2020
$
— $
8,693
—
843
—
84
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 8 — RELATED PARTY TRANSACTIONS
Accounts Payable due to Related Parties
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. We paid approximately $5.1 million to third parties to settle outstanding amounts incurred by Mr. Houston for reasonable
attorneys’ fees and expenses for the year ended December 31, 2020. As of December 31, 2021 and 2020, we had also paid Mr. Houston approximately $ 0.9 million and
$1.4 million, respectively, for other expenses he incurred in connection with the litigation. As of December 31, 2021, all amounts owed to Mr. Houston were fully settled.
Other
A member of our Board of Directors is a partner at a law firm that has provided legal services to the Company. Fees incurred for such services were $0.1 million and
$0.4 million for the years ended December 31, 2020 and 2019, respectively. There were no fees incurred for such services for the year ended December 31, 2021.
NOTE 9 — ACCRUED AND OTHER LIABILITIES
The components of accrued and other liabilities consist of the following (in thousands):
51
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2021
2020
26,421
50,243
991
2,934
—
2,279
3,078
85,946
$
3,228
9,454
1,057
1,004
3,774
1,950
1,536
22,003
$
Project development activities
Payroll and compensation
Accrued taxes
Professional services (e.g., legal, audit)
Warrant liabilities
Lease liabilities
Other
Total accrued and other liabilities
NOTE 10 — BORROWINGS
The following tables summarize the Company’s borrowings as of December 31, 2021, and December 31, 2020 (in thousands):
Senior Notes due 2028
2020 Unsecured Note
2019 Term Loan, due March 2022
2018 Term Loan, due September 2021
Total borrowings
2020 Unsecured Note
2019 Term Loan, due March 2022
2018 Term Loan, due September 2021
(a)
Total borrowings
Principal repayment
obligation
December 31, 2021
Unamortized debt issuance
costs and discounts
Carrying value
56,500 $
—
—
—
56,500 $
(2,813) $
—
—
—
(2,813) $
53,687
—
—
—
53,687
December 31, 2020
Principal repayment
obligation and
other fees
Unamortized debt issuance
costs and discounts
Carrying value
16,000 $
43,217
60,000
119,217 $
(2,376) $
(4,942)
(805)
(8,123) $
13,624
38,275
59,195
111,094
$
$
$
$
(a) Includes paid-in-kind interest on the 2019 Term Loan of $3.3 million.
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. During the year ended December 31, 2021, we did not sell any additional Senior
Notes under the at-the-market debt offering program. See Note 19, Subsequent Events, for further information.
2020 Senior Unsecured Note
52
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 29, 2020, we issued a zero coupon $56.0 million senior unsecured note (the “2020 Unsecured Note”) to an unrelated third party. The 2020 Unsecured Note
was repaid in installments with the final contractually required payment made on March 31, 2021.
2019 Term Loan
On May 23, 2019, Driftwood Holdings LP (“Driftwood Holdings”), 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 July 16, 2019, the principal amount was increased by an additional $15.0 million. Upon
maturity or early repayment of the 2019 Term Loan, Driftwood Holdings was obligated to pay to the lender a fee equal to 20% of the principal amount borrowed less financing
costs and cash interest paid (the “Final Payment Fee”). We issued to the lender a warrant to purchase approximately 1.5 million shares of our common stock at $10.00 per share
(the “Original Warrant”). On March 3, 2020, the Original Warrant was replaced with a new warrant (the “Replacement Warrant”) which provided the lender with the right to
purchase 9.0 million shares of our common stock at $1.00 per share.
On March 12, 2021 (the “Extinguishment Date”), we finalized a voluntary repayment of the remaining outstanding principal balance of the 2019 Term Loan. 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 Consolidated
Statements of Operations for the year ended December 31, 2021. As a result of repaying the outstanding balance prior to its contractual maturity, an approximately $ 4.4 million
in unamortized debt issuance costs and discount were written off and included in the computation of the gain from the extinguishment of the 2019 Term Loan for the year ended
December 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, and their respective fair value was included in the computation of the
gain on extinguishment of the 2019 Term Loan.
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 April 23, 2021, we voluntarily repaid the remaining outstanding principal balance of the 2018 Term Loan. As a result of the voluntary repayment, we recognized an
approximately $0.7 million loss, which was recognized within Gain on extinguishment of debt, net, on our Consolidated Statements of Operations for the year ended December
31, 2021.
Covenant Compliance
As of December 31, 2021, the Company was in compliance with all covenants under the indentures governing the Senior Notes.
Fair Value
The Senior Notes are traded on the NYSE American under the symbol “TELZ,” and are classified as Level 1 within the fair value hierarchy. As of December 31, 2021,
the closing market price of $25.02 per Senior Note was substantially the same as its carrying value.
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 the period ended
December 31, 2021, no amounts were drawn under this credit line.
NOTE 11 — COMMITMENTS AND CONTINGENCIES
Contractual Obligations
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.
53
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — 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.
For the year ended December 31, 2021, we issued approximately 95.9 million shares of our common stock under our at-the-market programs for net proceeds of approximately
$292.0 million. As of December 31, 2021, we had remaining availability under the at-the-market programs to raise aggregate gross sales proceeds of up to approximately $432.8
million. See Note 19, Subsequent Events, for further information.
Common Stock Issuances
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.
Common Stock Purchase 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, which vested immediately, will expire in October 2025. The 2020 Warrant was valued using a
Black-Scholes option pricing model that resulted in a relative fair value of approximately $16.1 million on the Issuance Date and is not subject to subsequent remeasurement.
The 2020 Warrant has been classified as equity and is recognized within Additional paid-in capital on our Consolidated Balance Sheets. The 2020 Warrant 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.
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 10, 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 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 13 — 2020 SEVERANCE AND REORGANIZATION
We implemented a cost reduction and reorganization plan during the first quarter of 2020 due to the sharp decline in oil and natural gas prices as well as the negative
economic effects of the COVID-19 pandemic. We satisfied all amounts owed to former employees and incurred approximately $6.4 million of severance and reorganization
charges during the year ended December 31, 2020.
Employee Retention Plan
In July 2020, the Company’s Board of Directors approved an employee retention incentive plan (the “Employee Retention Plan”) aggregating $12.0 million. The
Employee Retention Plan vests in four equal installments upon the attainment of a ten-day average closing price of the Company’s common stock above $2.25, $3.25, $4.25 and
$5.25 (the “Stock Performance Targets”). Subject to continued employment, the Employee Retention Plan’s awards are payable over a period of twelve months commencing
with the later of (i) the first month following the month in which the applicable Stock Performance
54
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Target is attained, and (ii) June 2021. The Employee Retention Plan will expire if the Stock Performance Targets are not attained by March 31, 2022. During the year ended
December 31, 2021, three of the four installments vested and we recognized approximately $7.9 million in retention charges within General and administrative expenses and
Development expenses in our Consolidated Statements of Operations, of which $3.7 million will be paid during 2022.
NOTE 14 — 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 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 made under the Legacy Plan.
For the years ended December 31, 2021, 2020 and 2019, Tellurian recognized approximately $6.0 million, $2.7 million and $4.2 million, respectively, of share-based
compensation expense related to all share-based awards. As of December 31, 2021, unrecognized compensation expense, based on the grant date fair value, for all share-based
awards totaled approximately $200.7 million.
Restricted Stock
As of December 31, 2021, we had approximately 30.8 million shares of performance-based Restricted Stock outstanding, of which approximately 19.2 million shares
will vest entirely based upon an affirmative FID by the Company’s Board of Directors, as defined in the award agreements, and approximately 10.8 million shares will vest in
one-third increments at FID and the first and second anniversaries of FID. The remaining shares of primarily performance-based Restricted Stock, totaling
approximately 0.8 million shares, will vest based on other criteria. As of December 31, 2021, no expense had been recognized in connection with performance-based Restricted
Stock.
The approximately 30.8 million shares of performance-based and time-based Restricted Stock 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.
The following table provides a summary of our Restricted Stock transactions for the year ended December 31, 2021 (shares and units in thousands):
(1)
Unvested at January 1, 2021
Granted
Vested
Forfeited
Unvested at December 31, 2021
Shares
Weighted-Average
Grant
Date Fair Value
34,961 $
1,857
(5,658)
(356)
30,804 $
5.78
2.90
1.31
5.59
6.43
(1)
The weighted-average per share grant date fair values of Restricted Stock granted during the years ended December 31, 2020 and 2019 were $1.17 and $8.53, respectively.
The total grant date fair value of restricted stock vested during the years ended December 31, 2021, 2020 and 2019 were approximately $7.4 million, $11.7 million and
$1.2 million, respectively.
Stock Options
Participants in the 2016 Plan have been granted non-qualified options to purchase shares of common stock. Stock options are granted at a price not less than the market
price of the common stock on the date of grant. The following table provides a summary of our stock option transactions for the year ended December 31, 2021 (stock options
in thousands):
55
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Outstanding at January 1, 2021
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2021
Exercisable at December 31, 2021
Stock Options
Weighted Average
Exercise Price
11,355 $
—
—
(276)
11,079
4,413 $
5.19
—
—
10.32
5.07
5.17
The stock options that were granted to a member of the Company’s executive management team during the year ended December 31, 2020, vest and become
exercisable upon the achievement of both triggers as follows (stock options in thousands):
(1)
Service Trigger
December 15, 2021
December 15, 2022
December 15, 2023
(3)
(2)
Stock Price Trigger
$3.50
$4.50
$5.50
Amount
3,333
3,333
3,334
10,000
(1)
(2)
(3)
Satisfied through continued employment or other service to the Company through the designated date.
Satisfied upon the Company’s common stock price closing at a price per share at or equal to the designated closing price for any ten consecutive trading days.
Vested during the year ended December 31, 2021.
The stock options granted during the year ended December 31, 2020, expire on the fifth anniversary of the date of its grant. There were no stock options granted
during the years ended December 31, 2019 or 2018.
The fair value of each stock option awarded in 2020 was estimated using a Monte Carlo simulation and, due to the service trigger, is being recognized as compensation
expense ratably over the vesting term. Valuation assumptions used to value stock options granted during the year ended December 31, 2020 were as follows:
Expected volatility
Expected dividend yields
Risk-free rate
113.6 %
— %
0.4 %
Due to our limited history, the expected volatility is based on a blend of our historical annualized volatility and the implied volatility utilizing options quoted or traded.
The expected dividend yield is based on historical yields on the date of grant. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant.
There were approximately zero, zero and seven thousand stock options exercised during the years ended December 31, 2021, 2020, and 2019, respectively. Further, the
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.
56
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 — 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.
Short-term incentive awards
Short-term incentive (“STI”) awards are payable in cash annually at the discretion of the Company’s Board of Directors. Compensation expense for STI awards is
recognized over the performance period when it is probable that the performance condition will be achieved. For the year ended December 31, 2021, we recognized
approximately $26.2 million in compensation expenses for STI awards.
Long-term incentive awards
Long-term incentive (“LTI”) awards are granted in the form of “tracking units,” at the discretion of the Company’s Board of Directors. Each tracking unit will have 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. Tracking units will vest in three equal tranches at grant date, and the first and second anniversaries of the grant date. As of December 31,
2021, no tracking units for LTI awards had been granted under the ICP.
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 LTI award that vests at the grant date is recognized over the performance period
when it is probable that the performance condition will be achieved. Compensation expense for the second and third tranches will be 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 the
changes in the Company’s stock price and actual forfeitures. For the year ended December 31, 2021, we recognized approximately $19.9 million in compensation expenses for
LTI awards that have been earned over the 2021 performance period.
NOTE 16 — INCOME TAXES
Income tax benefit (provision) included in our reported net loss consisted of the following (in thousands):
Current:
Federal
State
Foreign
Total Current
Deferred:
Federal
State
Foreign
Total Deferred
Total income tax benefit (provision)
2021
Year Ended December 31,
2020
2019
$
$
— $
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
The sources of loss from operations before income taxes were as follows (in thousands):
Domestic
Foreign
Total loss before income taxes
2021
(111,114)
(3,624)
(114,738)
$
$
Year Ended December 31,
2020
$
$
(202,831)
(7,865)
(210,696)
$
$
2019
(139,654)
(12,113)
(151,767)
The reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows:
57
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax benefit (provision) at U.S. statutory rate
Share-based compensation
Impairment
Change in U.S. tax rate
Change in valuation allowance due to change in U.S. tax rate
U.S. state tax
Change in valuation allowance
Other
Total income tax benefit (provision)
2021
Year Ended December 31,
2020
2019
$
$
24,095 $
1,352
—
—
—
4,333
(29,648)
(132)
— $
44,246 $
—
—
—
—
8,563
(49,802)
(3,007)
— $
Significant components of our deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
Capitalized engineering costs
Capitalized start-up costs
Compensation and benefits
Property, plant and equipment
Lease liability
Net operating loss carryforwards and credits:
Federal
State
Foreign
Other, net
Deferred tax assets
Less valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities
Property and equipment
Net deferred tax assets
December 31,
2021
2020
$
$
59,366 $
15,012
14,740
—
15,514
80,246
13,406
5,687
1,593
205,564
(201,366)
4,198
(4,198)
— $
31,871
—
—
—
—
7,529
(38,953)
(447)
—
45,865
16,361
4,475
10,569
5,977
68,515
11,449
5,242
3,329
171,782
(171,782)
—
—
—
As of December 31, 2021, we had federal, state and international net operating loss (“NOL”) carryforwards of approximately $360.8 million, $253.7 million and $31.4
million, respectively. Approximately $270.5 million of these NOLs have an indefinite carryforward period. All other NOLs will expire between 2036 and 2037.
Due to our historical losses and other available evidence related to our ability to generate taxable income, we have established a valuation allowance to fully offset our
federal, state and international deferred tax assets as of December 31, 2021 and 2020. We will continue to evaluate the realizability of our deferred tax assets in the future. The
increase in the valuation allowance was approximately $29.6 million for the year ended December 31, 2021.
In addition, we experienced a Section 382 ownership change in April 2017. An analysis of the annual limitation on the utilization of our NOLs was performed in
accordance with IRC Section 382. It was determined that IRC Section 382 will not materially limit the use of our NOLs over the carryover period. We will continue to monitor
trading activity in our shares which could cause an additional ownership change. If the Company experiences a Section 382 ownership change, it could further affect our ability
to utilize our existing NOL carryforwards.
As of December 31, 2021, the Company determined that it has no uncertain tax positions, interest or penalties as defined within ASC 740-10. The Company does not
have unrecognized tax benefits. The Company does not believe that it is reasonably possible that the total unrecognized benefits will significantly increase within the next 12
months.
58
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We are subject to tax in the U.S. and various state and foreign jurisdictions. We are not currently under audit by any taxing authority. Federal and state tax returns filed
with each jurisdiction remain open to examination under the normal three-year statute of limitations.
Pursuant to ASC 740-30-25-17, the Company recognizes deferred tax liabilities associated with outside basis differences on investments in foreign subsidiaries unless
the difference is considered essentially permanent in duration. As of December 31, 2021, the Company has not recorded any deferred taxes on unremitted earnings as the
Company has no undistributed earnings and profits. If circumstances change in the foreseeable future and it becomes apparent that some or all of the undistributed earnings and
profits will not be reinvested indefinitely, or will be remitted in the foreseeable future, a deferred tax liability will be recorded for some or all of the outside basis difference.
NOTE 17 — 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
2021
2020
December 31,
Right of use asset
Operating
Finance
Total Leased Assets
Liabilities
Current
Operating
Finance
Non-Current
Operating
Finance
Total leased liabilities
Other Non-Current Assets
Property, plant and equipment, net
Accrued and other liabilities
Accrued and other liabilities
Other non-current liabilities
Other non-current liabilities
$
$
$
$
10,166 $
57,883
68,049 $
2,147 $
132
9,563
50,103
61,945 $
Lease costs recognized in our Consolidated Statements of Operations is summarized as follows (in thousands):
Lease Costs
Operating lease cost
Finance lease cost
Amortization of lease assets
Interest on lease liabilities
Finance lease cost
Total lease cost
2021
Year Ended December 31,
2020
2019
$
$
$
2,519 $
788
2,904
3,692 $
6,211 $
2,741 $
367
1,694
2,061 $
4,802 $
11,884
20,018
31,902
1,947
3
11,709
13,506
27,165
3,616
44
197
241
3,857
59
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other information about lease amounts recognized in our Consolidated Financial Statements is as follows:
Lease term and discount rate
Weighted average remaining lease term (years)
Operating lease
Finance lease
Weighted average discount rate
Operating lease
Finance lease
December 31,
2021
2020
4.7
49.4
8.0 %
9.4 %
5.7
50.2
8.0 %
13.5 %
The following table includes other quantitative information for our operating and finance leases (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
2021
Year Ended December 31,
2020
2019
$
$
$
2,953 $
1,813 $
1,926 $
2,847 $
1,056 $
1,777 $
3,173
—
2,224
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
December 31, 2021 (in thousands):
2022
2023
2024
2025
2026
After 2026
Total lease payments
Less: discount
Present value of lease liability
Operating
Finance
3,006
3,044
3,081
3,119
1,261
600
14,111
2,401
11,710
$
$
$
4,111
4,111
4,111
4,111
4,111
182,222
202,777
152,542
50,235
$
$
$
60
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 — SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides information regarding the net changes in working capital (in thousands):
Accounts receivable
Prepaid expenses and other current assets
Accounts payable
Accounts payable due to related parties
Accrued liabilities
Other, net
Net changes in working capital
2021
Year Ended December 31,
2020
2019
$
$
(4,770) $
(2,536)
(5,514)
(910)
55,884
(1,137)
41,017 $
506 $
6,915
(1,069)
910
(6,842)
(1,986)
(1,566) $
The following table provides supplemental disclosure of cash flow information (in thousands):
Non-cash accruals of property, plant and equipment and other non-current assets
Non-cash settlement of Final Payment Fee
Future proceeds from sale of Magellan Petroleum UK
Tradable equity securities
Non-cash settlement of withholding taxes associated with the 2019 and 2018 bonus paid
and vesting of certain awards, respectively
Non-cash settlement of the 2019 and 2018 bonus paid, respectively
Asset retirement obligation additions and revisions
2021
$
56,305
—
—
—
3,064
5,430
76
Year Ended December 31,
2020
2019
8,370
8,539
—
—
1,659
7,602
—
(3,508)
1,147
(699)
—
18,167
(3,929)
11,178
11,759
—
1,384
5,069
6,686
18,396
182
For the year ended December 31, 2020, the statement of cash flows reflects approximately $78.5 million and $2.1 million in non-cash movements related to the 2019
Term Loan and the Replacement Warrant, respectively. For the year ended December 31, 2019, t he statement of cash flows reflects a non-cash movement of approximately $0.4
million associated with funds deposited in escrow in December 2018 that were cleared in March 2019 for the purchase of land.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of
such amounts shown in the Consolidated Statements of Cash Flows (in thousands):
Cash and cash equivalents
Non-current restricted cash
Total cash, cash equivalents and restricted cash in the statement of cash flows
2021
Year Ended December 31,
2020
2019
$
$
305,496
1,778
307,274 $
78,297
3,440
81,737 $
64,615
3,867
68,482
NOTE 19 — SUBSEQUENT EVENTS
At-the-Market Programs
Since January 1, 2022, and through February 7, 2022, we sold approximately $1.2 million aggregate principal amount of Senior Notes for total proceeds of
approximately $1.1 million after fees and commissions and 17.9 million shares of common stock for total proceeds of approximately $48.2 million, net of approximately $1.5
million in fees and commissions under our at-the-market debt and equity offering programs, respectively. As of the date of this filing, we have remaining availability to
61
TELLURIAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
raise aggregate gross sales proceeds of approximately $581.9 million under our at-the-market debt and equity offering programs.
Cancellation of a Commitment to Purchase LNG Cargos
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. The Company will be nrequired to pay a cancellation fee of approximately $1.0 million for all three LNG cargos. Refer to Note 11,
Commitments and Contingencies, for further information.
62
TELLURIAN INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SUPPLEMENTAL DISCLOSURES ABOUT NATURAL GAS PRODUCING ACTIVITIES
In accordance with FASB and SEC disclosure requirements for natural gas producing activities, this section provides supplemental information on Tellurian’s natural
gas producing activities in six separate tables. Tables I through III provide historical cost information pertaining to costs incurred in exploration, property acquisitions and
development; capitalized costs; and results of operations. Tables IV through VI present information on the Company’s estimated net proved reserve quantities, standardized
measure of estimated discounted future net cash flows related to proved reserves and changes in estimated discounted future net cash flows.
Table I — Capitalized Costs Related to Natural Gas Producing Activities
Capitalized costs related to Tellurian’s natural gas producing activities are summarized as follows (in thousands):
Proved properties
Unproved properties
Gross capitalized costs
Accumulated DD&A
Net capitalized costs
2021
December 31,
2020
2019
$
$
113,950 $
—
113,950
(48,637)
65,313 $
62,718 $
—
62,718
(37,639)
25,079 $
142,494
—
142,494
(21,010)
121,484
Table II — Costs Incurred in Exploration, Property Acquisitions and Development
Costs incurred in natural gas property acquisition (inclusive of producing well costs), exploration and development activities are summarized as follows (in thousands):
Property acquisitions:
Proved
Unproved
Exploration costs
Development
Costs incurred
2021
Year Ended December 31,
2020
2019
$
$
3,409 $
—
—
28,955
32,364 $
1,307 $
—
—
—
1,307 $
45,484
—
—
800
46,284
Table III — Results of Operations for Natural Gas Producing Activities
The following table includes revenues and expenses directly associated with our natural gas and condensate producing activities. It does not include any interest costs
or indirect general and administrative costs and, therefore, is not necessarily indicative of the contribution to consolidated net operating results of our natural gas operations.
Tellurian’s results of operations from natural gas and condensate producing activities for the periods presented are as follows (in thousands):
Natural gas sales
Operating costs
Depreciation, depletion and amortization
Impairment charge
Total operating costs and expenses
Results of operations
2021
Year Ended December 31,
2020
2019
51,499 $
20,576
10,998
—
31,574
19,925 $
30,441 $
15,814
16,703
81,065
113,582
(83,141) $
28,774
14,923
19,736
—
34,659
(5,885)
$
$
63
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TELLURIAN INC.
Table IV — Natural Gas Reserve Quantity Information
Our estimated proved reserves are located in Louisiana. We caution that there are many uncertainties inherent in estimating proved reserve quantities and in projecting
future production rates and the timing of development expenditures. Accordingly, these estimates are expected to change as further information becomes available. Material
revisions of reserve estimates may occur in the future, development and production of the natural gas and condensate reserves may not occur in the periods assumed, and actual
prices realized and actual costs incurred may vary significantly from those used in these estimates.
The estimates of our proved reserves as of December 31, 2021, 2020 and 2019 have been prepared by Netherland, Sewell & Associates, Inc., independent petroleum
consultants.
Proved reserves:
December 31, 2018
Extensions, discoveries and other additions
Revisions of previous estimates
Production
Sale of reserves-in-place
Purchases of reserves-in-place
December 31, 2019
Extensions, discoveries and other additions
Revisions of previous estimates
Production
Sale of reserves-in-place
Purchases of reserves-in-place
December 31, 2020
Extensions, discoveries and other additions
Revisions of previous estimates
Production
Sale of reserves-in-place
Purchases of reserves-in-place
December 31, 2021
Proved developed reserves:
December 31, 2019
December 31, 2020
December 31, 2021
Proved undeveloped reserves:
December 31, 2019
December 31, 2020
December 31, 2021
2020 to 2021 Overall Reserve Changes
Gas
(MMcf)
Condensate
(Mbbl)
Gas Equivalent
(MMcfe)
264,854
12,848
4,737
(13,901)
—
—
268,538
—
(152,132)
(16,898)
—
—
99,508
202,897
35,237
(14,306)
—
—
323,336
30,699
26,593
73,927
237,839
72,915
249,409
7
—
(6)
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
264,899
12,848
4,696
(13,905)
—
—
268,538
—
(152,132)
(16,898)
—
—
99,508
202,897
35,237
(14,306)
—
—
323,336
30,699
26,593
73,927
237,839
72,915
249,409
•
•
Added 203 Bcfe of proved reserves comprised of 152 Bcfe from additional proved undeveloped locations and 51 Bcfe of proved developed reserves from drilling
activities.
Had total positive revisions of approximately 35 Bcfe, comprised primarily of a 9 Bcfe positive revision due to an increase in commodity prices, a 15 Bcfe positive
revision from changes in ownership and an 11 Bcfe positive revision from improved well performance.
2020 to 2021 PUD Changes
64
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TELLURIAN INC.
•
•
Added approximately 152 Bcfe from additional proved undeveloped locations.
Had total positive revisions of approximately 25 Bcfe, comprised of a 3 Bcfe positive revision due to an increase in commodity prices, a 16 Bcfe positive revision from
changes in ownership and a 6 Bcfe positive revision from improved well performance.
2019 to 2020 Overall Reserve Changes
•
Had total negative revisions of approximately 152 Bcfe, comprised primarily of a 149 Bcfe negative revision due to the downturn in commodity prices and a 17 Bcfe
negative revision from the loss of leases. These downward revisions were offset by a 14 Bcfe positive revision due to improved well performance.
2019 to 2020 PUD Changes
•
Had total negative revisions of approximately 165 Bcfe, comprised of a 148 Bcfe negative revision due to the downturn in commodity prices and a 17 Bcfe negative
revision from lease expirations.
2018 to 2019 Overall Reserve Changes
•
•
Added approximately 13 Bcfe of proved reserves, comprised of 12 Bcfe from additional proved undeveloped locations and 1 Bcfe from drilling activities.
Had total positive revisions of approximately 4 Bcfe, comprised of a 4 Bcfe negative revision due to prices, a 2 Bcfe negative revision from changes in operating
expenses, a 9 Bcfe positive revision from well performance and a 1 Bcfe positive revision from changes in ownership.
2018 to 2019 PUD Changes
•
•
•
Converted approximately 29 Bcfe to proved developed reserves.
Added approximately 12 Bcfe from additional proved undeveloped locations.
Had total positive revisions of approximately 8 Bcfe, comprised primarily of a 9 Bcfe positive revision from well performance, a 2 Bcfe negative revision due to prices
and a 1 Bcfe positive revision from changes in ownership.
65
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TELLURIAN INC.
Table V — Standardized Measure of Discounted Future Net Cash Flows Related to Proved Natural Gas Reserves
ASC 932 prescribes guidelines for computing a standardized measure of future net cash flows and changes therein relating to estimated proved reserves. Tellurian has
followed these guidelines, which are briefly discussed below.
Future cash inflows and future production and development costs as of December 31, 2021, 2020 and 2019 were determined by applying the average of the first-day-
of-the-month prices for the 12 months of the year and year-end costs to the estimated quantities of natural gas and condensate to be produced. Actual future prices and costs may
be materially higher or lower than the prices and costs used. For each year, estimates are made of quantities of proved reserves and the future periods during which they are
expected to be produced based on the continuation of the economic conditions applied for that year. Estimated future income taxes are computed using current statutory income
tax rates, including consideration of the current tax basis of the properties and related carryforwards, giving effect to permanent differences and tax credits. The resulting future
net cash flows are reduced to present value amounts by applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed by the FASB and do not necessarily reflect our expectations of actual revenue to be
derived from those reserves or their present worth. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the
standardized measure computations since these estimates reflect the valuation process.
The following summary sets forth our future net cash flows relating to proved natural gas and condensate reserves based on the standardized measure (in thousands):
Future cash inflows
Future production costs
Future development costs
Future income tax provisions
Future net cash flows
Less effect of a 10% discount factor
Standardized measure of discounted future net cash flows
2021
Year Ended December 31,
2020
2019
$
$
945,651 $
(133,909)
(211,836)
(54,401)
545,505
(181,302)
364,203 $
132,563 $
(34,624)
(71,557)
—
26,382
(19,497)
6,885 $
534,577
(102,268)
(287,111)
(6,612)
138,586
(85,415)
53,171
66
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TELLURIAN INC.
Table VI — Changes in Standardized Measure of Discounted Future Net Cash Flows Related to Proved Natural Gas Reserves
The following table sets forth the changes in the standardized measure of discounted future net cash flows (in thousands):
December 31, 2018
Sales and transfers of gas and condensate produced, net of production costs
Net changes in prices and production costs
Extensions, discoveries, additions and improved recovery, net of related costs
Development costs incurred
Revisions of estimated development costs
Revisions of previous quantity estimates
Accretion of discount
Net change in income taxes
Purchases of reserves in place
Sales of reserves in place
Changes in timing and other
December 31, 2019
Sales and transfers of gas and condensate produced, net of production costs
Net changes in prices and production costs
Extensions, discoveries, additions and improved recovery, net of related costs
Development costs incurred
Revisions of estimated development costs
Revisions of previous quantity estimates
Accretion of discount
Net change in income taxes
Purchases of reserves in place
Sales of reserves in place
Changes in timing and other
December 31, 2020
Sales and transfers of gas and condensate produced, net of production costs
Net changes in prices and production costs
Extensions, discoveries, additions and improved recovery, net of related costs
Development costs incurred
Revisions of estimated development costs
Revisions of previous quantity estimates
Accretion of discount
Net change in income taxes
Purchases of reserves in place
Sales of reserves in place
Changes in timing and other
December 31, 2021
67
$
$
$
$
145,811
(21,704)
(134,366)
2,019
23,485
6,165
(12,660)
17,821
28,316
—
—
(1,716)
53,171
(20,211)
(58,136)
—
—
—
26,133
5,725
4,077
—
—
(3,874)
6,885
(39,806)
110,850
255,246
—
10,643
35,012
688
(27,455)
—
—
12,140
364,203
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Octávio Simões, the Company’s Chief Executive Officer and President, in his capacity as principal executive officer, and Kian Granmayeh, the Company’s Chief
Financial Officer, in his capacity as principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021, the end of the
period covered by this report. Based on that evaluation and as of the date of that evaluation, these officers concluded that the Company’s disclosure controls and procedures
were effective, providing effective means to ensure that the information we are required to disclose under applicable laws and regulations is recorded, processed, summarized,
and reported within the time periods specified in the SEC’s rules and forms and accumulated and communicated to our management, including our principal executive officer
and principal financial officer, to allow timely decisions regarding required disclosure. We made no changes in our internal control over financial reporting during the year
ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We periodically
review the design and effectiveness of our disclosure controls, including compliance with various laws and regulations that apply to our operations both inside and outside the
U.S. We make modifications to improve the design and effectiveness of our disclosure controls and may take other corrective action if our reviews identify deficiencies or
weaknesses in our controls.
Management’s Annual Report on Internal Control Over Financial Reporting; Report of Independent Registered Public Accounting Firm
The management report called for by Item 308(a) of Regulation S-K is set forth in Item 8 of Part II of this Annual Report on Form 10-K.
The independent auditors report called for by Item 308(b) of Regulation S-K is set forth in Item 8 of Part II of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended December 31, 2021, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable
68
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this Item is incorporated by reference from Tellurian’s Definitive Proxy Statement with respect to its 2022 Annual Meeting of
Stockholders to be filed not later than May 2, 2022.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from Tellurian’s Definitive Proxy Statement with respect to its 2022 Annual Meeting of
Stockholders to be filed not later than May 2, 2022.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTER
The information required by this Item with respect to security ownership of certain beneficial owners and management is incorporated by reference from Tellurian’s
Definitive Proxy Statement with respect to its 2022 Annual Meeting of Stockholders to be filed not later than May 2, 2022.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference from Tellurian’s Definitive Proxy Statement with respect to its 2022 Annual Meeting of
Stockholders to be filed not later than May 2, 2022.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated by reference from Tellurian’s Definitive Proxy Statement with respect to its 2022 Annual Meeting of
Stockholders to be filed not later than May 2, 2022.
69
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) The following financial statements, financial statement schedules and exhibits are filed as part of this report:
1. Financial Statements. Tellurian’s consolidated financial statements are included in Item 8 of Part II of this report. Reference is made to the accompanying Index to
Financial Statements.
2. Financial Statement Schedules. Our financial statement schedules filed herewith are set forth in Item 8 of Part II of this report as follows: All valuation and qualifying
accounts schedules were omitted since the subject matter thereof is either not present or is not present in amounts sufficient to require submission of the schedule.
3. Exhibits. The exhibits listed below are filed, furnished or incorporated by reference pursuant to the requirements of Item 601 of Regulation S-K.
Exhibit No.
1.1‡
1.2‡
1.3‡
3.1
3.1.1
3.1.2
3.2
4.1*
4.2
4.3
4.4
4.5*
4.6
10.1††
10.1.1
Description
Amended and Restated Distribution Agency Agreement, dated as of January 21, 2020, by and between Tellurian Inc. and Credit Suisse Securities
(USA) LLC (incorporated by reference to Exhibit 1.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2019)
Distribution Agency Agreement, dated as of December 17, 2021, by and between Tellurian Inc. and T.R. Winston & Company, LLC (incorporated
by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on December 17, 2021)
At Market Issuance Sales Agreement, dated as of December 17, 2021, by and between Tellurian Inc. and B. Riley Securities, Inc. (incorporated by
reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K filed on December 17, 2021)
Amended and Restated Certificate of Incorporation of Tellurian Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on
Form 8-K filed on September 22, 2017)
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Tellurian Inc. (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on June 10, 2020)
Certificate of Designations of Series C Convertible Preferred Stock of Tellurian Inc. (incorporated by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on March 21, 2018)
Amended and Restated Bylaws of Tellurian Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on
September 22, 2017)
Description of Capital Stock
Warrant to Purchase Common Stock, dated as of April 29, 2020, issued to HT Investments MA LLC (incorporated by reference to Exhibit 4.4 to
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020)
Indenture, dated as of November 10, 2021, by and between the Tellurian Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 10, 2021)
First Supplemental Indenture, dated as of November 10, 2021, by and between the Tellurian Inc. and The Bank of New York Mellon Trust
Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on November 10, 2021)
Second Supplemental Indenture, dated as of November 10, 2021, by and between the Tellurian Inc. and The Bank of New York Mellon Trust
Company, N.A., as trustee
Form of 8.25% Senior Note due 2028 (included as Exhibit A to Exhibit 4.5)
Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Driftwood LNG Phase 1 Liquefaction Facility, dated as
of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and Chemicals, Inc. (portions of this exhibit have been omitted
and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment) (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 13, 2017)
Change Order CO-001, dated as of June 12, 2018, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the
Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and
Chemicals, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018)
70
Exhibit No.
10.1.2††
10.1.3††
10.1.4††
10.1.5††
10.1.6††
10.2††
10.2.1
10.2.2††
10.2.3††
10.2.4††
10.3††
10.3.1
Description
Change Order CO-002, dated as of July 24, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the
Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and
Chemicals, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30,
2019)
Change Order CO-003, executed on July 24, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of
the Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2019)
Change Order CO-004, executed on October 21, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction
of the Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.5.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2019)
Change Order CO-005, executed on December 17, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and
Construction of the Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and
Bechtel Oil, Gas and Chemicals, Inc. (incorporated by reference to Exhibit 10.5.5 to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2019)
Change Order CO-006, executed on October 20, 2020, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction
of the Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc.
Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Driftwood LNG Phase 2 Liquefaction Facility, dated as
of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and Chemicals, Inc. (portions of this exhibit have been omitted
and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment) (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 13, 2017)
Change Order CO-001, dated as of June 12, 2018, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the
Driftwood LNG Phase 2 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and
Chemicals, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018)
Change Order CO-002, executed on July 24, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of
the Driftwood LNG Phase 2 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2019)
Change Order CO-003, executed on October 21, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction
of the Driftwood LNG Phase 2 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.6.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2019)
Change Order CO-004, dated as of January 21, 2020, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of
the Driftwood LNG Phase 2 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2020)
Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Driftwood LNG Phase 3 Liquefaction Facility, dated as
of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and Chemicals, Inc. (portions of this exhibit have been omitted
and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment) (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 13, 2017)
Change Order CO-001, dated as of June 12, 2018, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the
Driftwood LNG Phase 3 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and
Chemicals, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018)
71
Exhibit No.
10.3.2
10.3.3††
10.3.4††
10.4††
10.4.1
10.4.2
10.4.3††
10.4.4††
10.5††‡
10.6††‡
10.7††‡
10.8††‡
10.9†‡
10.10†‡
Description
Change Order CO-002, executed on July 24, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of
the Driftwood LNG Phase 3 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2019)
Change Order CO-003, executed on October 21, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction
of the Driftwood LNG Phase 3 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.7.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2019)
Change Order CO-004, dated as of January 21, 2020, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of
the Driftwood LNG Phase 3 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2020)
Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Driftwood LNG Phase 4 Liquefaction Facility, dated as
of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and Chemicals, Inc. (portions of this exhibit have been omitted
and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment) (incorporated by reference to
Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on November 13, 2017)
Change Order CO-001, dated as of June 12, 2018, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the
Driftwood LNG Phase 4 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and
Chemicals, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018)
Change Order CO-002, executed on July 24, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of
the Driftwood LNG Phase 4 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2019)
Change Order CO-003, executed on October 21, 2019, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction
of the Driftwood LNG Phase 4 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.8.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2019)
Change Order CO-004, dated as of January 21, 2020, to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of
the Driftwood LNG Phase 4 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas
and Chemicals, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2020)
LNG Sale and Purchase Agreement by and between Driftwood LNG LLC and Gunvor Singapore Pte Ltd, dated as of May 27, 2021 (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 27, 2021)
LNG Sale and Purchase Agreement by and between Driftwood LNG LLC and Vitol Inc., dated as of June 2, 2021 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 3, 2021)
LNG Sale and Purchase Agreement 1 by and between Driftwood LNG LLC and Shell NA LNG LLC, dated as of July 29, 2021 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 29, 2021)
LNG Sale and Purchase Agreement 2 by and between Driftwood LNG LLC and Shell NA LNG LLC, dated as of July 29, 2021 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 29, 2021)
Executive Chairman Employment Agreement, effective as of October 1, 2021, by and between Tellurian Inc. and Charif Souki (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2021)
President and Chief Executive Officer Employment Agreement, effective as of October 1, 2021, by and between Tellurian Inc. and Octávio
Simões (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 4, 2021)
72
Exhibit No.
10.11†
10.12†
10.13†
10.14†‡
10.15†‡*
10.16†
10.17†
10.18†
10.18.1†
10.18.2†
10.18.3†
10.18.4†
10.18.5†
10.18.6†
10.18.7†*
10.18.8†
10.18.9†
10.18.10†
10.19†
10.19.1†
10.19.2†
10.20†
Description
Employment Letter Agreement by and between Tellurian Investments Inc. and R. Keith Teague, dated as of September 23, 2016 (incorporated by
reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-4/A filed on November 8, 2016)
Employment Letter Agreement by and between Tellurian Services LLC and Daniel A. Belhumeur, dated as of September 23, 2016 (incorporated
by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-4/A filed on November 8, 2016)
Employment Letter Agreement, by and between Tellurian Services LLC and Khaled Sharafeldin, dated as of January 9, 2017 (incorporated by
reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017)
Tellurian Inc. Executive Severance Plan, effective as of January 6, 2022 (incorporated by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K filed on January 6, 2022)
Tellurian Inc. Employee Severance Plan, effective as of January 1, 2022
Form of Indemnification Agreement (Officers) (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2019)
Form of Indemnification Agreement (Directors) (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2019)
Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on September 22, 2017)
Form of Restricted Stock Agreement pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan (U.S.
Selected Senior Management) (Milestone-Based Vesting) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed on January 31, 2018)
Form of Restricted Stock Agreement pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan (U.S.
Selected Senior Management) (incorporated by reference to Exhibit 10.23.3 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2021)
Form of Restricted Stock Agreement pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan
(Directors) (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019)
Form of Restricted Stock Unit Agreement pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan
(U.S. Employees) (Time-Based Vesting) (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2020)
Form of Restricted Stock Unit Agreement pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan
(U.S. Employees) (Milestone-Based Vesting) (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2020)
Form of Restricted Stock Unit Agreement pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan
(U.S. Selected Senior Management) (Milestone-Based Vesting) (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2021)
Form of Restricted Stock Unit Agreement pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan
(U.S. Selected Senior Management) (Milestone-Based Vesting)
Form of Stock Option Agreement pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan (U.S.
Selected Senior Management) (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2017)
Stock Option Agreement pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive Compensation Plan, dated December 15,
2020, by and between Tellurian Inc. and Charif Souki
Form of Omnibus Amendment to Outstanding Restricted Stock Agreement under Tellurian Inc. Amended and Restated 2016 Omnibus Incentive
Compensation Plan, effective as of January 6, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on January 6, 2022)
Tellurian Inc. Incentive Compensation Program, effective as of November 18, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on January 6, 2022)
Form Long Term Incentive Award Agreement under the Tellurian Inc. Incentive Compensation Program (U.S. Selected Senior Management)
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on January 6, 2022)
Long Term Incentive Award Agreement under the Tellurian Inc. Incentive Compensation Program, effective as of January 13, 2022, by and
between Tellurian Inc. and Khaled Sharafeldin
Amended and Restated Tellurian Investments Inc. 2016 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s
Current Report on Form 8-K filed on February 13, 2017)
73
Exhibit No.
10.20.1†
10.20.2†
10.20.3†
10.20.4†
10.21†
10.22†
10.23†
10.24†*
21.1*
23.1*
23.2*
31.1*
31.2*
32.1**
32.2**
99.1*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104
Description
Form of Restricted Stock Amendment Letter regarding the Amended and Restated Tellurian Investments Inc. 2016 Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 13, 2017)
Form of Notice of Grant and Restricted Stock Award Agreement pursuant to the 2016 Tellurian Investments Omnibus Incentive Plan (Milestone-
Based Vesting) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 13, 2017)
Form of Amendment to Restricted Stock Agreement pursuant to the Amended and Restated Tellurian Investments Inc. 2016 Omnibus Incentive
Plan (Employees) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2017)
Form of Omnibus Amendment to Outstanding Restricted Stock Agreement under Tellurian Investments Inc. 2016 Omnibus Incentive Plan,
effective as of January 6, 2022 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 6,
2022)
Form of Construction Incentive Award Agreement (U.S. Selected Senior Management) (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on April 23, 2018)
Form of Construction Incentive Award Agreement (U.S. Employees) (incorporated by reference to Exhibit 10.20 to the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2018)
Form of Performance-based Retention Incentive Award Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2020)
2020 Cash Incentive Award Agreement, dated as of September 28, 2020, by and between Tellurian Management Services LLC and Octávio
Simões (Milestone-Based Vesting)
Subsidiaries of Tellurian Inc.
Consent of Deloitte & Touche LLP
Consent of Netherland, Sewell & Associates, Inc.
Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act
Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Summary Reserves Report of Netherland, Sewell & Associates, Inc.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the
Inline XBRL document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Labels Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document
74
*
**
†
††
‡
Filed herewith.
Furnished herewith.
Management contract or compensatory plan or arrangement.
Portions of this exhibit have been omitted in accordance with Item 601(b)(2) or 601(b)(10) of Regulation S-K. The omitted information is not material and would
likely cause competitive harm to the registrant if publicly disclosed. The registrant hereby agrees to furnish supplementally an unredacted copy of this exhibit to the
Securities and Exchange Commission upon request.
Certain schedules or similar attachments to this exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The registrant hereby agrees to
furnish supplementally to the Securities and Exchange Commission upon request a copy of any omitted schedule or attachment to this exhibit.
ITEM 16. FORM 10-K SUMMARY
None.
75
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGNATURES
TELLURIAN INC.
Date:
February 23, 2022
By:
Date:
February 23, 2022
By:
/s/ L. Kian Granmayeh
L. Kian Granmayeh
Chief Financial Officer
(as Principal Financial Officer)
Tellurian Inc.
/s/ Khaled A. Sharafeldin
Khaled A. Sharafeldin
Chief Accounting Officer
(as Principal Accounting Officer)
Tellurian Inc.
76
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Octávio M.C. Simões
President and Chief Executive Officer, Tellurian Inc. (as Principal Executive Officer)
/s/ L. Kian Granmayeh
L. Kian Granmayeh, Chief Financial Officer, Tellurian Inc. (as Principal Financial Officer)
/s/ Khaled A. Sharafeldin
Khaled A. Sharafeldin, Chief Accounting Officer, Tellurian Inc. (as Principal Accounting
Officer)
/s/ Charif Souki
Charif Souki, Director and Executive Chairman, Tellurian Inc.
/s/ Martin J. Houston
Martin J. Houston, Director and Vice Chairman, Tellurian Inc.
/s/ Jean P. Abiteboul
Jean P. Abiteboul, Director, Tellurian Inc.
/s/ James D. Bennett
James D. Bennett, Director, Tellurian Inc.
/s/ Diana Derycz-Kessler
Diana Derycz-Kessler, Director, Tellurian Inc.
/s/ Dillon J. Ferguson
Dillon J. Ferguson, Director, Tellurian Inc.
/s/ Jonathan S. Gross
Jonathan S. Gross, Director, Tellurian Inc.
/s/ Claire R. Harvey
Claire R. Harvey, Director, Tellurian Inc.
/s/ Brooke A. Peterson
Brooke A. Peterson, Director, Tellurian Inc.
/s/ Don A. Turkleson
Don A. Turkleson, Director, Tellurian Inc.
77
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
Date: February 23, 2022
DESCRIPTION OF CAPITAL STOCK
Exhibit 4.1
The following is a description of each class of securities of Tellurian Inc. (“Tellurian” the “Company,” “we,” “us,” or “our”) that is registered under Section 12 of the
Securities Exchange Act of 1934, as amended, and does not purport to be complete. For a complete description of the terms and provisions of such securities, refer to our
amended and restated articles of incorporation, as amended by a certificate of amendment, our amended and restated by-laws, and the certificate of designations governing the
shares of Tellurian Series C convertible preferred stock (the “Series C Preferred Shares”), which are incorporated herein by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on September 22, 2017, Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
with the SEC on June 10, 2020, Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 22, 2017, and Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed with the SEC on March 21, 2018, respectively. This summary is qualified in its entirety by reference to these documents.
Our amended and restated certificate of incorporation authorizes us to issue 800,000,000 shares of common stock, $0.01 par value per share, and 100,000,000 shares of
preferred stock, $0.01 per share. As of February 7, 2022, 518,493,398 shares of our common stock were issued and outstanding and 6,123,782 Series C Preferred Shares were
issued and outstanding. The rights of the holders of our common stock and Series C Preferred Shares are governed by the Delaware General Corporation Law (the “DGCL”),
our amended and restated certificate of incorporation, our amended and restated by-laws and the certificate of designations governing the Series C Preferred Shares.
Common Stock
Voting Rights
Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Cumulative voting in the election of directors
is not permitted. Under our amended and restated by-laws, unless otherwise provided in our amended and restated certificate of incorporation or the DGCL with respect to a
specified action, matters to be voted on by stockholders are generally decided by a majority of the votes cast, except that contested elections of directors will be decided by a
plurality vote. Our amended and restated by-laws provide that the presence at a stockholders’ meeting of one-third of the voting power of our outstanding stock entitled to vote
at the meeting will constitute a quorum.
Dividend and Distribution Rights
Holders of outstanding shares of our common stock are entitled to dividends when, as, and if declared by our board of directors out of funds legally available for the
payment of dividends. As a Delaware corporation, we may pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which a dividend is
declared and/or the preceding fiscal year. In the event of our liquidation, dissolution, or winding up of our affairs, holders of our common stock will be entitled to receive
ratably our net assets available to the stockholders.
Preemptive, Conversion and Redemption Rights
Holders of our outstanding common stock have no conversion or redemption rights. In addition, holders of our common stock have no preemptive rights under the
DGCL. To the extent that additional shares of our common stock may be issued in the future, the relative interests of the then-existing stockholders may be diluted.
Registrar and Transfer Agent
Our registrar and transfer agent for all shares of common stock is Broadridge Corporate Issuer Solutions, Inc.
Preferred Stock Generally
Our amended and restated certificate of incorporation authorizes our board of directors, subject to any limitations prescribed by law, without further stockholder
approval, to establish and to issue from time to time one or more classes or series of preferred stock, covering up to an aggregate of 100,000,000 shares of preferred stock. Each
class or series of preferred stock will cover the number of shares and will have the powers, preferences, rights, qualifications, limitations and restrictions determined by our
board of directors, which may include, among others, dividend rights, liquidation preferences, voting rights, conversion rights and redemption rights.
Series C Convertible Preferred Stock
Voting Rights
Holders of the Series C Preferred Shares will be entitled to one vote for each Series C Preferred Share held on matters submitted to a vote of common stockholders.
Conversion
Holders of the Series C Preferred Shares may convert all or any portion of such shares for shares of Tellurian 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 Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the
Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC, a Delaware limited liability company and a subsidiary of
Tellurian, and Bechtel Oil, Gas and Chemicals, Inc., or at any time after March 21, 2028, Tellurian has the right, at its option, to cause not less than all of the Series C Preferred
Shares to be converted into shares of Tellurian common stock on a one-for-one basis. The conversion ratio will be subject to customary anti-dilution adjustments.
Dividends
The Series C Preferred Shares do not have dividend rights. Tellurian will be prohibited from paying dividends on its common stock so long as the Series C Preferred
Shares remain outstanding.
Liquidation
In the event of any liquidation, dissolution or winding up of the affairs of Tellurian (a “Liquidation Event”), after payment or provision for payment of the debts and
other liabilities of Tellurian, holders of the Series C Preferred Shares will be entitled to receive the greater of (i) an amount in cash equal to $8.16489 per share and (ii) the
amount that would be received by the holders of the Series C Preferred Shares had such holders converted those shares into Tellurian common stock immediately prior to the
Liquidation Event.
Priority
So long as any Series C Preferred Shares remain outstanding, Tellurian may not, without the consent of the holders of at least a majority of the Series C Preferred
Shares, authorize the issuance of any class of shares that is pari passu with or senior to the Series C Preferred Shares in the payment of dividends or the distribution of assets
following a Liquidation Event, except in limited circumstances.
Anti-Takeover Provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws
Our amended and restated certificate of incorporation and amended and restated by-laws also contain provisions that we describe in the following paragraphs, which
may delay, defer, discourage, or prevent a change in control of us, the removal of our existing management or directors, or an offer by a potential acquirer to our stockholders,
including an offer by a potential acquirer at a price higher than the market price for the stockholders’ shares.
Among other things, our amended and restated certificate of incorporation and amended and restated by-laws:
•
•
•
•
•
•
•
divide our board of directors into three classes serving staggered three-year terms, which could have the effect of increasing the length of time necessary to change the
composition of a majority of the board of directors;
provide that all vacancies on the board of directors, including newly created directorships, will, except as otherwise required by law, be filled by the vote of a majority of
directors then in office;
provide our board of directors with the ability to authorize currently undesignated preferred stock. This ability makes it possible for our board of directors to issue,
without stockholder approval, preferred stock with voting or other rights or preferences designated by the board that could have the effect of impeding the success of any
attempt to change control of us;
establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought
before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the
meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days, and not more than
120 days, prior to the first anniversary of the prior year’s annual meeting (or, in the case of a special meeting, not less than 90 days or more than 120 days prior to the
date of the meeting). Our amended and restated by-laws specify the information that must be included in a stockholder’s notice. These requirements may prevent
stockholders from bringing matters before the stockholders at an annual or special meeting;
provide that stockholders may not act by written consent in lieu of a meeting unless the action, and the taking of such action by written consent, has been approved in
advance by the board of directors;
provide that stockholders are not permitted to call special meetings of stockholders. Only our chairman of the board, president, and the board of directors are permitted to
call a special meeting of stockholders; and
provide that our board of directors may alter, amend, or repeal our by-laws or approve new by-laws without further stockholder approval, and provide that a stockholder
amendment to the by-laws requires a favorable vote of two-thirds of the voting power of all outstanding voting stock.
2
Anti-Takeover Provisions of Delaware Law
We are subject to the anti-takeover provisions of Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a
“business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner.
Section 203 defines a “business combination” as a merger, asset sale, or other transaction resulting in a financial benefit to the interested stockholder. Section 203
defines an “interested stockholder” as a person who, together with affiliates and associates, owns, or, in some cases, within the three prior years did own, 15% or more of the
corporation’s voting stock. Under Section 203, a business combination between us and an interested stockholder is subject to the three-year moratorium unless:
•
•
•
our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder prior to the date
the person attained that status;
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting
stock outstanding at the time the transaction commenced, excluding, for purposes of determining the number of shares outstanding, shares owned by persons who are
directors and also officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan
will be tendered in a tender or exchange offer; or
the business combination is approved by our board of directors on or subsequent to the date the person became an interested stockholder and authorized at an annual or
special meeting of the stockholders by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock that is not owned by the interested
stockholder.
These provisions may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including by discouraging takeover
attempts that might result in a premium over the market price for the shares of our stock and that are favored by the holders of a majority of our then-outstanding stock.
3
Tellurian Inc.
and
The Bank of New York Mellon Trust Company, N.A.,
as Trustee
SECOND SUPPLEMENTAL INDENTURE
Dated as of November 10, 2021
to the Indenture dated as of November 10, 2021
and to the First Supplemental Indenture dated as of November 10, 2021
8.25% Senior Notes due 2028
Exhibit 4.5
Execution Version
4862195.13
TABLE OF CONTENTS
ARTICLE 1 APPLICATION OF SECOND SUPPLEMENTAL INDENTURE
Section 1.01 Application of Second Supplemental Indenture.
ARTICLE 2 DEFINITIONS
Section 2.01 Certain Terms Defined in the Indenture.
Section 2.02 Definitions.
ARTICLE 3 FORM AND TERMS OF THE NOTES
Section 3.01 Form and Dating.
Section 3.02 Terms of the Notes.
Section 3.03 Optional Redemption.
ARTICLE 4 CERTAIN COVENANTS
Section 4.01 Merger, Consolidation or Sale of Assets.
Section 4.02 Reporting.
Section 4.03 Payment of Taxes.
ARTICLE 5 EVENTS OF DEFAULT
Section 5.01 Events of Default.
ARTICLE 6 MISCELLANEOUS
Section 6.01 Trust Indenture Act Controls.
Section 6.02 New York Law to Govern.
Section 6.03 Counterparts.
Section 6.04 Severability.
Section 6.05 Ratification.
Section 6.06 Effectiveness.
Section 6.07 Trustee Makes No Representation.
-i-
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SECOND SUPPLEMENTAL INDENTURE (this “Second Supplemental Indenture”), dated as of November 10, 2021, between Tellurian Inc., a Delaware corporation
(the “Company”), and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).
SECOND SUPPLEMENTAL INDENTURE
RECITALS OF THE COMPANY
WHEREAS, the Company and the Trustee executed and delivered an Indenture, dated as of November 10, 2021 (the “Base Indenture”), as supplemented by the First
Supplemental Indenture, dated as of November 10, 2021 (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), to provide for the issuance
by the Company from time to time of Securities to be issued in one or more series as provided in the Indenture;
WHEREAS, Section 9.1 of the Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Indenture,
without the consent of any Holders of Securities, to establish the form of any Security, as permitted by Section 2.1 of the Indenture, and to provide for the issuance of the Notes
(as defined below), as permitted by Section 3.1 of the Indenture, and to set forth the terms thereof;
WHEREAS, the Company desires to execute this Second Supplemental Indenture, pursuant to Section 2.1 of the Indenture, to establish the form and, pursuant to
Section 3.1 of the Indenture, to provide for the issuance, of a series of its senior notes designated as its 8.25% Senior Notes due 2028 (the “Notes”), in an initial aggregate
principal amount of up to $57,500,000. The Notes are a series of Securities as referred to in Section 3.1 of the Indenture;
WHEREAS, the Company has requested and hereby requests that the Trustee execute and deliver this Second Supplemental Indenture;
WHEREAS, the execution and delivery of this Second Supplemental Indenture has been duly authorized by the Company and all things necessary have been done by
the Company to make this Second Supplemental Indenture, when executed and delivered by the Company, a valid and binding supplement to the Indenture and agreement of the
Company;
WHEREAS, all things necessary have been done by the Company to make the Notes, when executed by the Company and authenticated and delivered by the Trustee
in accordance with the provisions of the Indenture, the valid and binding obligations of the Company; and
WHEREAS, all conditions precedent provided for in the Indenture relating to this Second Supplemental Indenture have been complied with.
NOW, THEREFORE, in consideration of the premises stated herein and the purchase of the Notes by the Holders thereof, the Company and the Trustee mutually
covenant and agree for the equal and proportionate benefit of the respective Holders from time to time of the Notes as follows:
Section 1.01
Application of Second Supplemental Indenture.
APPLICATION OF SECOND SUPPLEMENTAL INDENTURE
ARTICLE 1
Notwithstanding any other provision of this Second Supplemental Indenture, all provisions of this Second Supplemental Indenture are expressly and solely for the
benefit of the Holders of the Notes, and any such provisions shall not be deemed to apply to any other Securities issued under the Indenture and shall not be deemed to amend,
modify or supplement the Indenture for any purpose other than with respect to the Notes. Unless otherwise expressly specified, references in this Second Supplemental
Indenture to specific Article numbers or Section numbers refer to Articles and Sections contained in this Second Supplemental Indenture and not the Indenture or any other
document. All Initial Notes and Additional Notes, if any, shall be treated as a single class for all purposes of the Indenture, including waivers, amendments, redemptions and
offers to purchase.
Section 1.01
Certain Terms Defined in the Indenture.
ARTICLE 2
DEFINITIONS
For purposes of this Second Supplemental Indenture, all capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Indenture.
Section 1.02
Definitions.
(a) For the benefit of the Holders of the Notes, the following terms shall have the meanings set forth in this Section 2.02:
“Additional Notes” has the meaning specified in Section 3.02(b) of this Second Supplemental Indenture.
“Depositary” has the meaning specified in Section 3.01(c) of this Second Supplemental Indenture.
“Global Notes” means the Notes in the form of Global Securities issued to the Depositary or its nominee, substantially in the form of Exhibit A.
“Initial Notes” has the meaning specified in Section 3.02(b) of this Second Supplemental Indenture.
“Make-Whole Amount” means, in connection with any optional redemption of any Note, the excess, if any, of (i) the sum of the present values, as of the Redemption
Date, of the remaining scheduled payments of principal (including the applicable redemption price of such Note at November 30, 2023) of, and interest (exclusive of interest
accrued to, but excluding, the Redemption Date) on, such Note, assuming such Note matured on, and that accrued and unpaid interest on such Note was payable through,
November 30, 2023, determined by the Company or its designee by discounting, on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months), such
principal and interest at the Reinvestment Rate (determined on the third business day preceding the Redemption Date) over (ii) the aggregate principal amount of such Notes
being redeemed.
“Notes” has the meaning specified in the recitals of this Second Supplemental Indenture.
“Reinvestment Rate” means, 0.500%, or 50 basis points, plus the arithmetic mean (rounded to the nearest one-hundredth of one percent) of the yields displayed for
each day in the preceding calendar week published in the most recent Statistical Release under the caption “Treasury constant maturities” for the maturity (rounded to the
nearest month) corresponding to the remaining life to maturity of the Notes (assuming that the Notes matured on November 30, 2023) as of the Redemption Date. If no maturity
exactly corresponds to such remaining life to maturity, yields for the two published maturities most closely corresponding to such remaining life to maturity shall be calculated
pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purpose of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination
of the Reinvestment Rate shall be used.
“Statistical Release” means that statistical release designated “H.15” or any successor publication that is published daily by the Federal Reserve System and that
establishes yields on actively traded United States Treasury securities adjusted to constant maturities, or, if such statistical release (or a successor publication) is not published at
the time of any determination under the Indenture, as supplemented by this Second Supplemental Indenture, then such other reasonably comparable index that shall be
designated by the Company.
Section 1.01
Form and Dating.
ARTICLE 3
FORM AND TERMS OF THE NOTES
a)
The Notes and the Trustee’s certificate of authentication shall be substantially in the form of Exhibit A attached hereto. The Notes shall be executed
on behalf of the Company by an Officer of the Company. The Notes may have notations, legends or endorsements required by law, stock exchange rules or usage. Each Note
shall be dated the date of its authentication. The Notes and any beneficial interest in the Notes shall be in minimum denominations of $25 and integral multiples of $25 in
excess thereof.
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execution and delivery of this Second Supplemental Indenture, expressly agrees to such terms and provisions and to be bound thereby.
b)
The terms and notations contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture, and the Company, by its
Global Notes. The Notes shall be issued initially in the form of fully registered Global Securities, which shall be deposited on behalf of the
purchasers of the Notes represented thereby with The Depository Trust Company, New York, New York (the “ Depositary”) or its custodian and registered in the name of Cede
& Co., the Depositary’s nominee, duly executed by the Company and authenticated by the Trustee.
c)
Book-Entry Provisions. This Section 3.01(d) shall apply only to the Global Notes deposited with or on behalf of the Depositary. The Company shall
execute and the Trustee shall, in accordance with this Section 3.01(d), authenticate and deliver the Global Notes that shall be registered in the name of the Depositary or the
nominee of the Depositary and shall be delivered by the Trustee to the Depositary or its custodian.
d)
the Notes and the Corporate Trust Office of the Trustee is hereby designated as the Place of Payment where the Notes may be presented for payment.
e)
Paying Agent. The Company initially appoints the Trustee as Paying Agent for the payment of the principal of (and premium, if any) and interest on
Section 1.02
Terms of the Notes.
The following terms relating to the Notes are hereby established:
a)
Title. The Notes shall constitute a series of Securities having the title “8.25% Senior Notes due 2028”.
b)
Principal Amount. The aggregate principal amount of the Notes that may be initially authenticated and delivered under the Indenture (the “Initial
Notes”) shall be up to $57,500,000 (except for Notes authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Notes pursuant to
Sections 3.4, 3.5, 3.6, 9.6 or 11.7 of the Indenture). The Company may from time to time, without the consent of the Holders of Notes, issue additional Notes (in any such case
“Additional Notes”) having the same terms as to status, redemption or otherwise (except the price to public, the issue date and, if applicable, the initial interest accrual date and
the initial interest payment date) that may constitute a single fungible series with the Initial Notes; provided that if any such Additional Notes are not fungible with the Initial
Notes for U.S. federal income tax purposes, such Additional Notes will have one or more separate CUSIP numbers. Any Additional Notes and the Initial Notes shall constitute
a single series under the Indenture and all references to the Notes shall include the Initial Notes and any Additional Notes unless the context otherwise requires.
c)
Maturity Date. The entire outstanding principal amount of the Notes shall be payable on November 20, 2028 (the “Maturity Date”).
d)
Interest Rate. The rate at which the Notes shall bear interest shall be 8.25% per annum; the date from which interest shall accrue on the Notes shall
be November 10, 2021, or the most recent Interest Payment Date to which interest has been paid or provided for; the Interest Payment Dates for the Notes shall be January 31,
April 30, July 31 and October 31 of each year and on the Maturity Date, beginning January 31, 2022; the interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date, will be paid, in immediately available funds, to the Persons in whose names the Notes (or predecessor Notes) are registered (which shall initially be the
Depositary) at the close of business on the Regular Record Date for such interest, which shall be the January 15, April 15, July 15 or October 15 (whether or not a Business
Day), as the case may be, preceding such Interest Payment Date, and the November 15 immediately preceding the Maturity Date. Interest shall be computed on the basis of a
360-day year comprised of twelve 30-day months. For so long as the Notes are represented in global form by one or more Global Securities, all payments of principal (and
premium, if any) and interest shall be made by wire transfer of immediately available funds to the Depositary or its nominee, as the case may be, as the registered owner of the
Global Security representing such Notes. In the event that definitive Notes shall have been issued, all payments of principal (and premium, if any) and interest shall be made by
wire transfer of immediately available funds to the accounts of the registered Holders thereof; provided, that the Company may elect to make such payments at the office of the
Paying Agent in the City of Chicago; and provided further, that the Company may at its option pay interest by check to the registered address of each Holder of a definitive
Note.
Notes shall be made in United States Dollars.
e)
Currency. The currency of denomination of the Notes is United States Dollars. Payment of principal of and interest and premium, if any, on the
f)
Sinking Fund. The Notes are not subject to any sinking fund.
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g)
Additional Interest. At the Company’s election, the sole remedy with respect to an Event of Default due to a failure to comply with reporting
requirements under the Trust Indenture Act or under Section 4.02 below, for the first 180 calendar days after the occurrence of such Event of Default, consists exclusively of the
right to receive additional interest on the Notes at an annual rate equal to (1) 0.25% for the first 90 calendar days after such Event of Default and (2) 0.50% for calendar days 91
through 180 after such Event of Default. On the 181st day after such Event of Default, if such violation is not cured or waived, the Trustee or the Holders of not less than 25% of
the outstanding principal amount of the Notes may declare the principal, together with accrued and unpaid interest, if any, on the Notes to be due and payable immediately. If
the Company chooses to pay such additional interest, the Company must notify the Trustee and the Holders of the Notes by certificate of the Company’s election at any time on
or before the close of business on the first business day following the Event of Default.
Section 1.03
Optional Redemption.
a)
b)
The provisions of Article XI of the Indenture, as supplemented by the provisions of this Second Supplemental Indenture, shall apply to the Notes.
At any time prior to November 30, 2023, the Company may redeem the Notes for cash in whole or in part at any time at its option at a redemption
price equal to 100.0% of the principal amount thereof plus the Make-Whole Amount as of, and accrued and unpaid interest to, but excluding, the Redemption Date.
c)
In addition, the Company may redeem the Notes for cash in whole or in part at any time at its option (i) on or after November 30, 2023 and prior to
November 30, 2024, at a price equal to $25.75 per note, plus accrued and unpaid interest to, but excluding, the Redemption Date, (ii) on or after November 30, 2024 and prior
to November 30, 2025, at a price equal to $25.50 per note, plus accrued and unpaid interest to, but excluding, the Redemption Date, (iii) on or after November 30, 2025 and
prior to November 30, 2026, at a price equal to $25.25 per note, plus accrued and unpaid interest to, but excluding, the Redemption Date, and (iv) on or after November 30,
2026 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date.
d)
In each case, redemption shall be upon notice not fewer than 30 days and not more than 60 days prior to the Redemption Date. If less than all of the
Notes are to be redeemed, the particular Notes to be redeemed will be selected not more than 45 days prior to the Redemption Date by the Trustee from the outstanding Notes
not previously called for redemption, by lot, or in the Trustee’s discretion, on a pro-rata basis, provided that the unredeemed portion of the principal amount of any Notes will be
in an authorized denomination (which will not be less than the minimum authorized denomination) for such Notes. The Trustee will promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed, provided that, any Notes held in the
form of Global Notes, or portions thereof called for redemption that are registered in the name of the Depositary or its nominee will be selected by the Depositary in accordance
with the Depositary’s applicable procedures and the Trustee shall have no duty to notify the Company of the Depositary’s selection. The Trustee shall have no obligation to
calculate any redemption price, including any Make-Whole Amount, or any component thereof, and the Trustee shall be entitled to receive and conclusively rely upon an
Officer’s Certificate delivered by the Company that specifies any redemption price.
called for redemption.
e)
Unless the Company defaults on the payment of the redemption price, on and after the Redemption Date, interest will cease to accrue on the Notes
ARTICLE 4
CERTAIN COVENANTS
The following covenants shall be applicable to the Company for so long as any of the Notes are Outstanding. Nothing in this Article will, however, affect the
Company’s rights or obligations under any other provision of the Indenture or this Second Supplemental Indenture.
Section 1.01
Merger, Consolidation or Sale of Assets.
The Company shall not merge or consolidate with or into any other Person (other than a merger of a wholly owned Subsidiary of the Company into the Company) or
sell, transfer, lease, convey or otherwise dispose of all or substantially all of its property (provided that, for the avoidance of doubt, a pledge of assets pursuant to any secured
debt instrument of the Company or its Subsidiaries shall not be deemed to be any such sale, transfer, lease, conveyance or disposition) in one transaction or series of related
transactions unless:
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the Company shall be the surviving Person (the “Surviving Person”) or the Surviving Person (if other than the Company) formed by such merger or
consolidation or to which such sale, transfer, lease, conveyance or disposition is made shall be a corporation or limited liability company organized and existing under the laws
of the United States of America, any state thereof or the District of Columbia;
a)
b)
the Surviving Person (if other than the Company) expressly assumes, by supplemental indenture in form reasonably satisfactory to the Trustee,
executed and delivered to the Trustee by such Surviving Person, the due and punctual payment of the principal of, and premium, if any, and interest on, all the Notes
Outstanding, and the due and punctual performance and observance of all the covenants and conditions of the Indenture (as supplemented by this Second Supplemental
Indenture) to be performed by the Company;
occurred and be continuing; and
c)
immediately before and immediately after giving effect to such transaction or series of related transactions, no Default or Event of Default shall have
d)
in the case of a merger where the Surviving Person is other than the Company, the Company or such Surviving Person shall deliver, or cause to be
delivered, to the Trustee, an Officer’s Certificate and an Opinion of Counsel, each stating that such transaction and the supplemental indenture, if any, in respect thereto comply
with this Section 4.01 and that all conditions precedent in the Indenture (as supplemented by this Second Supplemental Indenture) relating to such transaction have been
complied with.
Section 1.02
Reporting.
If, at any time, the Company is not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act to file any periodic reports with the Securities and
Exchange Commission, the Company agrees to furnish to Holders and the Trustee, for the period of time during which the Notes are outstanding, its audited annual consolidated
financial statements, within 90 days of its fiscal year end, and unaudited interim consolidated financial statements, within 45 days of its fiscal quarter end (other than the
Company’s fourth fiscal quarter). All such financial statements will be prepared, in all material respects, in accordance with Generally Accepted Accounting Principles, as
applicable.
Delivery of such reports, information and documents to the Trustee pursuant to this Section 4.02 is for informational purposes only and the Trustee’s receipt of such
shall not constitute actual or constructive knowledge or notice of any information contained therein or determinable from information contained therein, including the
Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on an Officer’s Certificate).
Section 1.03
Payment of Taxes.
The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, all taxes, assessments and governmental charges
levied or imposed upon the Company or upon the income, profits or property of the Company, except where the failure to do so would not be reasonably expected to have a
material adverse effect on the business, assets, financial condition or results of operations of the Company; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment or charge whose amount, applicability or validity is being contested in good faith by appropriate
proceedings.
ARTICLE 5
EVENTS OF DEFAULT
Section 1.01
Events of Default.
Solely for the benefit of the Holders of the Notes, Section 5.1 of the Indenture is hereby deleted in its entirety and replaced with the following:
“Section 5.1. Events of Default.
“Event of Default”, wherever used herein with respect to the Notes means any one of the following events:
(1) default in the payment of any interest upon any Note when it becomes due and payable, and continuance of such default for a period of 30 days;
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(2) default in the payment of the principal of any Note when due and payable;
(3) default in the performance, or breach, of any covenant of the Company in the Indenture (as supplemented by this Second Supplemental Indenture) with respect to
the Notes, and continuance of such default or breach for a period of 60 days after receipt by the Company from the Trustee or from the Holders of at least 25% in principal
amount of the Notes, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” under the Indenture
(as supplemented by this Second Supplemental Indenture);
(4) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of all or substantially all of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90
consecutive days; or
(5) the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company
in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state
law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or of all or substantially all of its property, or the making by the Company of an assignment for the benefit of creditors, or the admission by the
Company in writing of its inability to pay its debts generally as they become due.
The Trustee shall not be deemed to have notice or be charged with knowledge of an Event of Default hereunder (except for those described in paragraphs (1) and (2)
above if the Trustee is then the Paying Agent) unless written notice of such Event of Default from the Company or any Holder is received by a Responsible Officer of the
Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and the Indenture (as supplemented by this Second Supplemental Indenture).
Section 1.01
Trust Indenture Act Controls.
ARTICLE 6
MISCELLANEOUS
If any provision of this Second Supplemental Indenture limits, qualifies or conflicts with another provision which is required to be included in this Second
Supplemental Indenture by the Trust Indenture Act, the required provision shall control. If any provision of this Second Supplemental Indenture modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Second Supplemental Indenture as so modified
or to be excluded, as the case may be.
Section 1.02
New York Law to Govern.
This Second Supplemental Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York.
Section 1.03
Counterparts.
This Second Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument. The exchange of copies of this Second Supplemental Indenture and of signature pages that are executed
by manual signatures that are scanned, photocopied or faxed or by other electronic signing created on an electronic platform (such as DocuSign) or by digital signing (such as
Adobe Sign), in each case that is approved by the Trustee, shall constitute effective execution and delivery of this Second Supplemental Indenture for all purposes. Signatures
of the parties hereto that are executed by manual signatures that are scanned, photocopied or faxed or by other electronic signing created on an electronic platform (such as
DocuSign) or by digital signing (such as Adobe
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Sign), in each case that is approved by the Trustee, shall be deemed to be their original signatures for all purposes of this Second Supplemental Indenture as to the parties hereto
and may be used in lieu of the original.
Anything in the Indenture, this Second Supplemental Indenture or the Notes to the contrary notwithstanding, for the purposes of the transactions contemplated by the
Indenture, this Second Supplemental Indenture, the Notes and any document to be signed in connection with the Indenture, this Second Supplemental Indenture or the Notes
(including the Trustee’s Certificate of Authentication on the Notes, amendments, waivers, consents and other modifications, Officer’s Certificates, Company Requests,
Company Orders and Opinions of Counsel and other issuance, authentication and delivery documents) or the transactions contemplated hereby may be signed by manual
signatures that are scanned, photocopied or faxed or other electronic signatures created on an electronic platform (such as DocuSign) or by digital signature (such as Adobe
Sign), in each case that is approved by the Trustee, and contract formations on electronic platforms approved by the Trustee, and the keeping of records in electronic form, are
hereby authorized, and each shall be of the same legal effect, validity or enforceability as a manually executed signature in ink or the use of a paper-based recordkeeping
system, as the case may be.
Section 1.04
Severability.
If any provision of this Second Supplemental Indenture or the Notes shall be held to be illegal or unenforceable under applicable law, then the remaining provisions
hereof shall be construed as though such invalid, illegal or unenforceable provision were not contained therein.
Section 1.05
Ratification.
The Indenture, as supplemented by this Second Supplemental Indenture, is in all respects ratified and confirmed. All provisions included in this Second Supplemental
Indenture supersede any conflicting provisions included in the Indenture, unless not permitted by law. The Trustee accepts the trusts created by the Indenture, as supplemented
by this Second Supplemental Indenture, and agrees to perform the same upon the terms and conditions of the Indenture (as supplemented by this Second Supplemental
Indenture).
Section 1.06
Effectiveness.
The provisions of this Second Supplemental Indenture shall become effective as of the date hereof.
Section 1.07
Trustee Makes No Representation.
The recitals and statements contained herein and in the Notes are made solely by the Company and not by the Trustee, and the Trustee assumes no responsibility for the
correctness thereof. The Trustee makes no representation as to the validity, adequacy or sufficiency of this Second Supplemental Indenture or the Notes. All rights, protections,
privileges, indemnities, immunities and benefits granted or afforded to the Trustee under the Indenture shall be deemed incorporated herein by this reference and shall be
deemed applicable to all actions taken, suffered or omitted to be taken by the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to
act under this Second Supplemental Indenture.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the date first above written.
TELLURIAN INC.
By:
Name:
Title:
[Signature Page to Second Supplemental Indenture]
THE BANK OF NEW YORK MELLON TRUST COMPANY N.A., as
Trustee
By:
Name:
Title:
[Signature Page to Tellurian Inc. Second Supplemental Indenture]
EXHIBIT A
THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY (AS DEFINED IN THE INDENTURE) OR A NOMINEE THEREOF. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR ITS NOMINEE ONLY IN LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS GLOBAL SECURITY
MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION (“DTC”), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TELLURIAN INC.
8.25% Senior Note due 2028
No.
CUSIP No. 87968A203
ISIN No. US87968A2033
Principal Amount
$50,000,000
Tellurian Inc., a Delaware corporation (hereinafter called the “Company”, which term includes any successor Person under the Indenture referred to below), for value
received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of Fifty Million Dollars (U.S. $50,000,000.00) on November 30, 2028 (the “Maturity
Date”) and to pay interest thereon from November 10, 2021 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, quarterly on
January 31, April 30, July 31 and October 31 in each year and on the Maturity Date (each an “Interest Payment Date”), beginning January 31, 2022 at the rate of 8.25% per
annum, until the principal hereof is paid or duly made available for payment. The interest so payable and punctually paid or duly provided for on any Interest Payment Date
shall, as provided in such Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the January 15, April 15, July 15 or October 15 (whether or not a Business Day), as the case may be, preceding such Interest
Payment Date, and the November 15 immediately preceding the Maturity Date. Any such interest which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date shall forthwith cease to be payable to the Holder hereof on the relevant Regular Record Date by virtue of having been such Holder, and may be paid to
the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of the Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
The amount of interest payable for any interest period, including interest payable for any partial interest period, will be computed on the basis of a 360-day year
comprised of twelve 30-day months. If an interest payment date falls on a non-Business Day, the applicable interest payment will be made on the next Business Day and no
additional interest will accrue as a result of such delayed payment.
Payment of the principal of (and premium, if any) and the interest on this Note shall be made at the designated office of the Trustee (as defined below) at The Bank of
New York Mellon Trust Company, N.A., 2 North LaSalle Street, 7 Floor, Chicago, IL 60602, in such currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, for so long as the Notes are represented in global form by one or more Global Securities, all payments
of principal (and premium, if any) and interest shall be made by wire transfer of immediately available funds to the Depositary or its nominee, as the case
th
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may be, as the registered owner of the Global Security representing such Notes. In the event that definitive Notes shall have been issued, all payments of principal (and
premium, if any) and interest shall be made by wire transfer of immediately available funds to the accounts of the registered Holders thereof; provided, that the Company may at
its option pay interest by check to the registered address of each Holder of a definitive Note.
This Note is one of the duly authorized series of Securities of the Company, designated as the Company’s “8.25% Senior Notes due 2028”, initially limited to an
aggregate principal amount of $57,500,000 all issued or to be issued under and pursuant to an Indenture (the “Base Indenture”), dated as of November 10, 2021, between the
Company and The Bank of New York Mellon Trust Company, N.A., as trustee (hereinafter referred to as the “ Trustee”), as supplemented by the First Supplemental Indenture
thereto, dated as of November 10, 2021 (the “First Supplemental Indenture”), and by the Second Supplemental Indenture thereto, dated as of November 10, 2021 (the “Second
Supplemental Indenture” and, together with the Base Indenture and the First Supplemental Indenture, the “Indenture”). Reference is hereby made to the Indenture for a
description of the respective rights, limitation of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Notes.
At any time prior to November 30, 2023, the Company may redeem the Notes for cash in whole or in part at any time at its option at a redemption price equal to
100.0% of the principal amount thereof plus the Make-Whole Amount as of, and accrued and unpaid interest to, but excluding, the Redemption Date.
In addition, the Company may redeem the Notes for cash in whole or in part at any time at its option (i) on or after November 30, 2023 and prior to November 30,
2024, at a price equal to $25.75 per note, plus accrued and unpaid interest to, but excluding, the Redemption Date, (ii) on or after November 30, 2024 and prior to November
30, 2025, at a price equal to $25.50 per note, plus accrued and unpaid interest to, but excluding, the Redemption Date, (iii) on or after November 30, 2025 and prior to
November 30, 2026, at a price equal to $25.25 per note, plus accrued and unpaid interest to, but excluding, the Redemption Date, and (iv) on or after November 30, 2026 and
prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date.
In each case, redemption shall be upon notice not fewer than 30 days and not more than 60 days prior to the Redemption Date. If less than all of the Notes are to be
redeemed, the Notes to be redeemed shall be selected not more than 45 days prior to the Redemption Date by the Trustee from the outstanding Notes not previously called for
redemption, by lot, or in the Trustee’s discretion, on a pro-rata basis, provided that the unredeemed portion of the principal amount of any Notes will be in an authorized
denomination (which will not be less than the minimum authorized denomination) for such Notes. The Trustee will promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed, provided that, any Notes held in the form of
Global Notes, or portions thereof called for redemption that are registered in the name of the Depositary or its nominee will be selected by the Depositary in accordance with the
Depositary’s applicable procedures and the Trustee shall have no duty to notify the Company of the Depositary’s selection.
The Notes are not subject to any sinking fund.
The Trustee shall have no obligation to calculate any redemption price, including any Make-Whole Amount, or any component thereof, and the Trustee shall be
entitled to receive and conclusively rely upon an Officer’s Certificate delivered by the Company that specifies any redemption price.
If an Event of Default with respect to the Notes shall occur and be continuing, the principal of the Notes may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the
rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less
than a majority in aggregate principal amount of the Securities at the time Outstanding of each series affected thereby. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Securities of any series at the time Outstanding, on behalf of the Holders of all Securities of such series, to
waive certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation
of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the right of the Holder of this Note, which is absolute and
unconditional, to receive payment of the principal of and interest on this Note at the Maturity thereof (or in the case of redemption, on the redemption date) and to institute
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suit for the enforcement of any such payment unless the Holder of this Note shall have consented to the impairment of such right.
As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered in the Security Register, upon surrender of
this Note for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Note are payable, duly
endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by the Holder hereof or by such
Holder’s attorney duly authorized in writing, and thereupon one or more new Notes of this series and of any authorized denominations and of a like aggregate principal amount
and tenor, shall be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in minimum denominations of $25 and integral multiples of $25 in excess thereof. Subject to certain
limitations therein set forth in the Indenture and in this Note, the Notes are exchangeable for a like aggregate principal amount of Notes of this series in different authorized
denominations, as requested by the Holders surrendering the same.
No service charge shall be made for any such registration of transfer or for exchange of this Note, but the Company or the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of a Note, other than in certain cases
provided in the Indenture.
Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose
name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected
by notice to the contrary.
The Indenture contains provisions whereby (i) the Company may be discharged from its obligations with respect to the Notes (subject to certain exceptions) or (ii) the
Company may be released from its obligations under specified covenants and agreements in the Indenture, in each case if the Company irrevocably deposits with the Trustee
money or U.S. Government Obligations sufficient to pay and discharge the entire indebtedness on all Notes of this series, and satisfies certain other conditions, all as more fully
provided in the Indenture.
This Note shall be governed by and construed in accordance with the laws of the State of New York.
All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee under the Indenture by the manual signature (which may be scanned,
photocopied or faxed or otherwise signed electronically (including by DocuSign or Adobe Sign)) of one of its authorized signatories, this Note shall not be entitled to any
benefits under the Indenture or be valid or obligatory for any purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-3
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.
Dated:
TELLURIAN INC.
By:
Name:
Title:
[Signature Page to Tellurian Inc. Global Note]
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
TRUSTEE’S CERTIFICATE OF AUTHENTICATION
Dated:
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as
Trustee
By:
Authorized Signatory
[Authentication Certificate to Tellurian Inc. Global Note]
The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to
applicable laws or regulations.
ABBREVIATIONS
UNIF GIFT MIN ACT - . . .Custodian
(Cust) (Minor)
Under Uniform Gifts to
Minor Act
(State)
TEN COM - as tenants
in common
TEN ENT - as tenants by
the entireties
JT TEN - as joint tenants
with right of
survivorship and
not as tenants in
common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto
(Please insert Assignee’s legal name)
(Please insert Social Security or other identifying number of Assignee)
(Please print or typewrite name and address including postal zip code of Assignee)
the within Note of TELLURIAN INC. and does hereby irrevocably constitute and appoint attorney to transfer the said Note on the books of the Company, with full power of
substitution in the premises. Dated:
Your
Signature:
(Sign exactly as your name appears on the
face of this Note)
[NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or
enlargement or any change whatever.]
Exhibit 10.15
TELLURIAN INC.
__________________________________________________
EMPLOYEE SEVERANCE PLAN
(Effective January 1, 2022)
__________________________________________________
TELLURIAN INC.
EMPLOYEE SEVERANCE PLAN
(Effective January 1, 2022)
ARTICLE I
INTRODUCTION; ESTABLISHMENT OF PLAN
Tellurian, Inc. (the “Company”) hereby establishes a severance benefit plan known as the Tellurian Inc. Employee Severance Plan (the
“Plan”), effective as of the Effective Date, as set forth in this document. The Plan is intended to provide separation benefits to certain specified
employees who are designated as eligible for benefits under this Plan, who lose their employment (other than for Cause) under the
circumstances set forth herein.
ARTICLE II
DEFINITIONS
1.1
Defined Terms . As used herein, the following words and phrases shall have the following respective meanings unless the
context clearly indicates otherwise.
(a)
Affiliate. The Company and any entity that is treated as the same employer as the Company under Sections 414(b), (c),
(m), or (o) of the Code, any entity required to be aggregated with the Company pursuant to regulations adopted under Section 409A of the
Code, or any entity otherwise designated as an Affiliate by the Company.
(b)
Base Pay. The Eligible Employee’s monthly base pay, determined as follows:
Employee’s Date of Termination multiplied by 2080, with the result divided by 12.
(i)
Hourly Employees. For Eligible Employees paid on an hourly basis, the regular hourly rate of pay on the Eligible
by 12.
(ii)
Salaried Employees. The Eligible Employee’s annualized base salary in effect on the Date of Termination, divided
(c)
Board. The Board of Directors of the Company.
(d)
Cause. Termination of employment resulting from (a) the Participant’s indictment for, conviction of, or pleading of
guilty or nolo contendere to, any felony or any crime involving fraud, dishonesty or moral turpitude; (b) the Participant’s gross negligence with
regard to the Company or any Affiliate (including Tellurian Services LLC) in respect of the Participant’s duties for the Company or any
Affiliate (including Tellurian Services LLC); (c) the Participant’s willful misconduct having or, which in the good faith discretion of the Plan
Administrator could have, an adverse impact on the Company or any Affiliate (including Tellurian Services LLC) economically or reputation-
wise; (d) the Participant’s material breach of the Plan, or any employment, consulting or similar agreement between the Participant and the
Company or one of its Affiliates (including Tellurian Services LLC) or material breach of any code of conduct or ethics or any other policy of
the Company or any Affiliate (including Tellurian Services LLC), which breach (if curable in the good faith discretion of the Plan
Administrator) has remained uncured for a period of ten (10) days following delivery of written notice to the Participant specifying the manner
in which the agreement or policy has been materially breached; or (e) the Participant’s continued or repeated failure to perform his or her duties
or responsibilities to the Company or any Affiliate (including Tellurian Services LLC) at a level and in a manner satisfactory to the Plan
Administrator or its designee in its sole discretion,
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which failure has not been cured to the satisfaction of the Plan Administrator or its designee following notice to the Participant. Any voluntary
termination of a Participant’s employment in anticipation of a termination of such Participant’s employment by the Company or any of its
Affiliates for Cause shall be deemed to be a termination by the Company for Cause. Whether the Participant has been terminated for Cause will
be determined by the Company’s Chief Executive Officer (or his or her designee) in his or her sole discretion or, if the Participant is or is
reasonably expected to become subject to the requirements of Section 16 of the Exchange Act, by the Board in its sole discretion.
(e)
Change in Control. Means the occurrence of any of the following after the Effective Date:
(i)
any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (an
“Exchange Act Person”) acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50%
or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B)
the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors
(the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (1) any acquisition directly from the Company or any Subsidiary or Affiliate, (2) any acquisition
by the Company or any Subsidiary or Affiliate, (3) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any entity controlled by the Company, (4) any acquisition pursuant to a transaction which complies with
clauses (A) and (B) of Section 2.1(e)(iii), below, or (5) any acquisition of additional securities by any Exchange Act Person who, as of
the Effective Date, held 15% or more of either (x) the Outstanding Company Common Stock or (y) the Outstanding Company Voting
Securities;
(ii)
individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date
whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf
of a person other than the Board; or
(iii)
consummation by the Company of a reorganization, merger, or consolidation, or sale or other disposition of all or
substantially all of the assets of the Company, or the acquisition of assets of another entity (a “Business Combination”), in each case,
unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be,
of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction
owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common
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Stock and Outstanding Company Voting Securities, as the case may be, and (B) at least a majority of the members of the board of
directors (or equivalent governing authority) of the entity resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination.
(iv)
approval by the stockholders of a complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, in any circumstance or transaction in which compensation payable pursuant to this Plan would be
subject to the tax under Section 409A of the Code if the foregoing definition of “Change in Control” were to apply, but would not be so subject
if the term “Change in Control” were defined herein to mean a “change in control event” within the meaning of Treasury Regulation § 1.409A-
3(i)(5), then “Change in Control” means, but only with respect to the applicable Participant and only to the extent necessary to prevent such
compensation from becoming subject to the tax under Section 409A of the Code, a transaction or circumstance that satisfies the requirements
of both (1) a Change in Control under the applicable clause (a) through (c) above, and (2) a “change in control event” within the meaning of
Treasury Regulation § 1.409A-3(i)(5).
(f)
(g)
(h)
(i)
Code. The Internal Revenue Code of 1986, as amended from time to time.
Company. Tellurian Inc. and any successor to such entity.
Date of Termination. The date on which a Participant has a Separation from Service from the Participant’s Employer.
Disability. The Participant is eligible to receive benefits under the Company’s group long-term disability plan
maintained by the Company or the applicable Employer, as in effect from time to time.
(j)
Effective Date. January 1, 2022.
(k)
Eligible Employee. Any full-time employee of the Company or a Related Entity, other than (i) any employee who is
eligible to participate in any other severance plan, program or policy sponsored by the Company or an Employer or that is entitled to receive
severance benefits pursuant to an employment agreement with the Company or an Employer, (ii) an individual classified by the Employer as an
independent contractor, (iii) a temporary employee, (iv) an employee covered by a collective bargaining agreement between the Employer and
a union, (v) a leased employee, (vi) a part-time employee, or (vii) an employee in the Probationary Period.
(l)
Employer. The Company or Related Entity that is the common law employer of the Eligible Employee.
(m)
ERISA. The Employee Retirement Income Security Act of 1974, as amended from time to time.
(n)
(o)
Exchange Act. The Securities Exchange Act of 1934, as amended, and any successor law thereto.
Participant. An Eligible Employee who meets the requirements of ARTICLE III.
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(p)
(q)
(r)
Change in Control.
(s)
Plan. The Tellurian Inc. Employee Severance Plan, as set forth in this document.
Plan Administrator. The Company shall be the Plan Administrator.
Probationary Period. The first six (6) months of a Participant’s employment with an Employer.
Protection Period. The period beginning on the date of a Change in Control and ending on the first anniversary of such
Treasury Regulation Section 1.409A-1(h)(3).
(t)
Related Entity. Any Affiliate that is treated as the same “service recipient” or “employer” as the Company pursuant to
(u)
Separation from Service. A “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and
Treasury Regulation Section 1.409A-1(h).
(v)
Schedules appended to this Plan.
Severance Pay. Cash severance payable to a Participant as determined pursuant to ARTICLE IV and the Severance
months of Base Pay to which the Participant is entitled to receive as Severance Pay.
(w)
Severance Period. The period of time over which Severance Pay is payable, which shall be equal to the number of
(x)
Severance Schedule. The schedules appended to this Plan that set forth the severance guidelines for Eligible Employees
based on job designation/level. Each Eligible Employee shall be provided with a copy of the Severance Schedule for his or her
designation/employment level only, and no Eligible Employee shall have any right to view or receive the Severance Schedule for any other job
designation/employment level.
(y)
Subsidiary. A corporation, partnership, joint venture, limited liability company, limited liability partnership, or other
entity in which the Company owns directly or indirectly, fifty percent (50%) or more of the voting power or profit interests, or as to which the
Company or one of its Affiliates serves as general or managing partner or in a similar capacity.
(z)
Target STI Amount . The product of (i) the current target short-term incentive multiple established for the Participant
under the short-term incentive compensation component of the Tellurian Inc. Incentive Compensation Program as of immediately preceding
the Date of Termination, multiplied by (ii) the Participant’s current annual Base Pay.
ARTICLE III
ELIGIBILITY FOR BENEFITS
1.1
Eligibility Requirements. Only Eligible Employees who meet all of the requirements of Sections 3.2 through 3.3 of this
ARTICLE III shall become Participants in the Plan and be entitled to the severance benefits set forth in ARTICLE IV.
1.2
Qualifying Termination. The Eligible Employee’s employment with an Employer must be terminated by an Employer other than
for Cause, death or Disability (a “Qualifying Termination”). Notwithstanding the foregoing, the termination of an Eligible Employee’s
employment by an Employer that occurs because the Eligible Employee was offered but unwilling to accept another position with the
Employer or Related Entity shall not be deemed to be a Qualifying Termination.
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1.3
Active Employment Required. The Eligible Employee must continue to work productively for the Employer, as determined in
the sole discretion of the Plan Administrator, until it is determined that the Eligible Employee’s services are no longer necessary. If the
Eligible Employee terminates employment prior to the Eligible Employee’s termination date that would otherwise qualify under Section 3.2,
the Eligible Employee will not be eligible for severance benefits hereunder.
ARTICLE IV
SEPARATION BENEFITS
1.1
Outside of Protection Period. In the event the Participant’s Date of Termination as resulting from a Qualifying Termination
occurs outside of the Protection Period, and contingent upon (i) the Participant timely executing and not revoking the Release in accordance
with Section 4.3 below, and (ii) the Participant’s compliance with the restrictive covenants set forth in ARTICLE VII below, the Company
shall pay or provide to Participant the Severance Pay and benefits set forth in the applicable Severance Schedule.
1.2
During Protection Period Upon a Change in Control. In the event the Participant’s Date of Termination resulting from a
Qualifying Termination occurs during the Protection Period and contingent upon (i) the Participant timely executing and not revoking the
Release in accordance with Section 4.3 below, and (ii) the Participant’s compliance with the restrictive covenants set forth in ARTICLE VII
below, the Company shall pay or provide to Participant the Severance Pay and benefits set forth in the applicable Severance Schedule.
1.3
Release. As a condition precedent to the payment or provision by the Company of the amounts or benefits due under the
relevant sections of this ARTICLE IV, the Participant must execute a release in substantially the form attached hereto as Exhibit A (the
“Release”) within twenty-one (21) days following the Date of Termination, or within forty-five (45) days following the Date of Termination in
case of a group layoff, and not revoke such Release within the subsequent seven (7) day revocation period (if applicable). No severance
payments under this Plan shall be paid or provided unless and until the Release becomes effective. Any payments that would otherwise have
been due prior to the date the Release becomes effective shall be withheld and paid on the first payroll period on which severance pay is paid.
1.4
Board Resignation. As a condition precedent to the payment or provision by the Company of the amounts or benefits due under
the relevant sections of this ARTICLE IV, the Participant must tender his or her resignation from the Board and the board of directors of any of
the Company’s Affiliates upon termination of Participant’s employment with the Company, which resignation the Board or the applicable
board of directors may or may not accept.
ARTICLE V
REEMPLOYMENT BY EMPLOYER OR SUCCESSOR
1.1
Severance Offset. If a Participant who has received Severance Pay under ARTICLE IV of this Plan, or any other severance
payment or benefits from the Company or an Employer within the previous 24 months (collectively, the “Prior Severance”) is reemployed by
any Employer, then in the event of such Participant’s subsequent Qualifying Termination, the Participant’s Severance Pay payable to the
Participant under this Plan shall be offset by the amount of any such Prior Severance. For the avoidance of doubt, in the event that the amount
of any Prior Severance equals or exceeds any Severance Pay payable pursuant to this Plan upon a subsequent Qualifying Termination, the
Participant shall not be eligible to receive any Severance Pay under this Plan.
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1.2
Ineligibility for Certain Engagements. Participants who have received or are currently receiving Severance Pay shall not be
eligible for temporary employment, or work as an independent contractor or a contract laborer with any Employer, unless the Participant agrees
as a condition of such engagement to forfeit any Severance Pay otherwise payable during the period of that engagement.
ARTICLE VI
SUCCESSOR TO COMPANY
This Plan shall bind any successor of the Company, its assets or its businesses (whether direct or indirect, by purchase, merger,
consolidation or otherwise), in the same manner and to the same extent that the Company would be obligated under this Plan if no succession
had taken place. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by
this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company’s obligations
under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken
place. The term “Company,” as used in this Plan, shall mean the Company as hereinbefore defined and any successor or assignee to the
business or assets which by reason hereof becomes bound by this Plan.
CONFIDENTIAL MATERIAL AND PARTICIPANT OBLIGATIONS
ARTICLE VII
1.1
Proprietary and Confidential Information. Each Participant’s employment with the Company allows the Participant access to
Proprietary and Confidential Information to which Participant would not otherwise be privy. For purposes of this Plan, “Proprietary and
Confidential Information” is defined as all information and any idea in whatever form, tangible or intangible, of a confidential or secret nature
that pertains in any manner to the business of the Company or its Affiliates. This includes, but is not limited to, any and all non-public
information relating to the Company, its Affiliates, or their business, operations, financial affairs, performance, assets, pricing and pricing
strategies, technology, research and development, processes, products, contracts, customers, licensees, sublicensees, suppliers, personnel, plans
or prospects, whether or not in written form and whether or not expressly designated as confidential, including any such information consisting
of or otherwise relating to trade secrets, know-how, technology (including software and programs), designs, drawings, photographs, samples,
processes, license or sublicense arrangements, formulae, proposals, product specifications, customer lists or preferences, referral sources,
marketing or sales techniques or plans, operating manuals, service manuals, financial information or projections, lists of suppliers or
distributors or sources of supply. Proprietary and Confidential Information includes both information developed by Participant for the
Company and its Affiliates and information Participant obtained while in the Company’s employment. All Proprietary and Confidential
Information, whether created by Participant or other employees, shall remain the property of the Company and its Affiliates.
1.2
Non-Disclosure and Return. Each Participant understands and agrees that the Proprietary and Confidential Information is
confidential information that the law treats as privileged, thereby protecting an employer from use without consent. Accordingly, as a condition
of participation in this Plan, each Participant agrees that the Participant will not, under any circumstances, or at any time, whether as an
individual, partnership, or corporation, or employee, principal, agent, partner or shareholder thereof, in any way, either directly or indirectly,
divulge, disclose, copy, use, divert or attempt to divulge, disclose, copy, use or divert the Company’s Proprietary and Confidential Information,
except to the extent authorized and necessary to carry out Participant’s responsibilities during employment with the Company, or as required by
law. Upon termination of a Participant’s employment with the Company, the
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Participant shall immediately return to the Company all property in Participant’s possession or control that belongs to the Company, including
all property in electronic form and all copies of Proprietary and Confidential Information.
1.3
Statutory Notification. 18 U.S.C. § 1833(b) provides: “An individual shall not be held criminally or civilly liable under any
Federal or State trade secret law for the disclosure of a trade secret that—(A) is made—(i) in confidence to a Federal, State, or local
government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected
violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”
Nothing in this Agreement is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly
allowed by 18 U.S.C. § 1833(b). Accordingly, Participants have the right to disclose in confidence trade secrets to federal, state, and local
government officials, or to an attorney, for the sole purpose of reporting or investigating a suspected violation of law. Participants also have the
right to disclose trade secrets in a document filed in a lawsuit or other proceeding, but only if the filing is made under seal and protected from
public disclosure.
1.4
Former Employer Information. Each Participant agrees that the Participant will not, during the Participant’s employment with
the Company, improperly use or disclose any proprietary information or trade secrets of any former or concurrent employer or other person or
entity and that the Participant will not bring onto the premises of the Company any unpublished document or proprietary information belonging
to any such employer, person or entity unless consented to in writing by such employer, person or entity.
1.5
Third Party Information. Each Participant recognizes that the Company may have received and in the future may continue to
receive from third parties their confidential or proprietary information as they may so designate, subject to a duty on the Company’s part to
maintain the confidentiality of such information and to use it only for certain limited purposes. Each Participant agrees to hold all such
confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as
necessary in carrying out the Participant’s work for the Company consistent with the Company’s agreement with such third party.
1.6
Notification to New Employer. In the event that a Participant’s employment with the Company ends, the Participant consents to
notification by the Company to any subsequent employer of the Participant’s rights and obligations under this Plan.
1.7
No Solicitation of Clients Using Proprietary and Confidential Information. Each Participant further agrees not to, directly or
indirectly, during or after termination of employment, make known to any person, firm, or company any Proprietary and Confidential
Information concerning any of the clients of the Company. In addition, each Participant shall not use any such Proprietary and Confidential
Information to solicit, take away, or attempt to call on, solicit or take away any of the clients of the Company on whom the Participant called or
whose accounts the Participant had serviced during employment with the Company, whether on the Participant’s own behalf or for any other
person, firm, or the Company.
1.8
No Solicitation of Employees. Each Participant understands and acknowledges that as an employee of the Company the
Participant has certain fiduciary duties to the Company that would be violated by the solicitation and/or encouragement of the Company
employees to leave the employ of the Company. Each Participant therefore agrees that the Participant will not, either during employment or for
a number of months equal to the Severance Period applicable to the Participant (the “Restricted Period”), solicit any of the Company’s
employees for a competing business or otherwise induce or attempt to induce such employees to terminate employment with the Company,
either directly or through any third parties. Each Participant
- 7 -
agrees that any such solicitation during the Restricted Period would constitute unfair competition.
1.9
Remedies. Each Participant acknowledges and agrees that the Company's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in the event of a breach or threatened breach by the Participant of
any of the provisions of this Plan, it is agreed that the Company will be entitled to equitable relief in the form of specific performance, a
temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available, without posting
bond or other security. Each Participant acknowledges that the granting of a temporary injunction, a temporary restraining order or other
permanent injunction merely prohibiting the Participant from engaging in any business activities would not be an adequate remedy upon breach
or threatened breach of this Plan, and consequently agrees upon any such breach or threatened breach to the granting of injunctive relief
prohibiting the Participant from engaging in any activities prohibited by this Plan. No remedy herein conferred is intended to be exclusive of
any other remedy, and each and every such remedy will be cumulative and will be in addition to any other remedy given hereunder now or
hereinafter existing at law or in equity or by statute or otherwise. In addition, in the event of any breach or suspected breach of the provisions
of this ARTICLE VII or of any protective covenants or similar provisions in any other agreement with the Company or any Affiliate
(including, but not limited to, any protective covenants set forth in any grant agreement or other award agreement), the Company shall have the
right to terminate immediately any payments or benefits that may otherwise be due the Participant pursuant to this Plan.
DURATION, AMENDMENT AND TERMINATION
ARTICLE VIII
1.1
Duration. The Plan shall continue in full force and effect until terminated pursuant to Section 8.2 below; provided, however, that
all Participants who previously become entitled to any payments hereunder shall continue to receive such payments notwithstanding the
termination of the Plan.
1.2
Amendment or Termination. The Board may amend or terminate this Plan for any reason prior to a Change in Control. In the
event of a Change in Control, this Plan may not be amended or terminated during the Protection Period unless (i) required by law, (ii) the
amendment increases the benefits payable to Eligible Employees or otherwise improves their rights under the Plan, or (iii) the amendment or
termination is otherwise consented to in writing by the affected Eligible Employees.
1.3
Procedure for Extension, Amendment or Termination . Any amendment or termination of this Plan by the Board in accordance
with the foregoing shall be made by action of the Board in accordance with the Company’s charter and by-laws and applicable law.
ARTICLE IX
MISCELLANEOUS
1.1
Offset. To the extent permitted under Section 409A of the Code, a Participant’s Severance Pay or other benefits under this Plan
shall be reduced by any amount that the Participant owes to the Employer or a Related Entity on the Participant’s Date of Termination.
1.2
Employment Status. This Plan does not constitute a contract of employment or impose on the Participant or the Employer any
obligation for the Participant to remain an employee or change the status of the Participant’s employment or the policies of the Employer
regarding termination of employment.
- 8 -
1.3
Named Fiduciary; Administration.
(a)
Plan Administration. The Company is the named fiduciary and Plan Administrator of the Plan and shall administer the
Plan acting through its chief human resources officer or other designee. The Plan Administrator shall have full and complete discretionary
authority to administer, construe, and interpret the Plan, to decide all questions of eligibility, to determine the amount, manner and time of
payment, and to make all other determinations deemed necessary or advisable for the Plan, which determinations (to the extent made in good
faith) shall be final and conclusive on all persons claiming payments or benefits hereunder. The Plan Administrator shall review and determine
all claims for benefits under this Plan.
(b)
Indemnification. The Company shall indemnify and hold harmless any designee in the performance of his or her duties
under the Plan against any and all expenses and liabilities arising out of his or her administrative functions or fiduciary responsibilities under
the Plan, including any expenses and liabilities that are caused by or result from an act or omission constituting the negligence of such member
in the performance of such functions or responsibilities, but excluding expenses and liabilities that are caused by or result from such member’s
own gross negligence or willful misconduct. Expenses against which any designee shall be indemnified shall include, without limitation, the
amounts of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted or a
proceeding brought or settlement thereof.
1.4
Claim Procedure. In the event that the Plan is subject to ERISA, all claims and inquiries concerning benefits under the Plan shall
be processed in a manner compliant with Section 502(a) of ERISA.
1.5
Unfunded Plan Status. All payments pursuant to the Plan shall be made from the general funds of the Company (or if so
provided by the Company, the relevant Employer) and no special or separate fund shall be established or other segregation of assets made to
assure payment. No Participant or other person shall have under any circumstances any interest in any particular property or assets of the
Company or any Affiliate as a result of participating in the Plan. Notwithstanding the foregoing, the Company or any Employer may (but shall
not be obligated to) create one or more grantor trusts, the assets of which are subject to the claims of the Company’s or the Employer’s
creditors, to assist in accumulating funds to pay obligations under the Plan.
1.6
Section 409A.
(a)
General. The payments and benefits provided hereunder are intended to be exempt from or compliant with the
requirements of Section 409A of the Code. Notwithstanding any provision of this Plan to the contrary, in the event that the Company
reasonably determines that any payments or benefits hereunder are not either exempt from or compliant with the requirements of Section 409A
of the Code, the Company shall have the right to adopt such amendments to this Plan or adopt such other policies and procedures (including
amendments, policies and procedures with retroactive effect), or take any other actions, that are necessary or appropriate (i) to preserve the
intended tax treatment of the payments and benefits provided hereunder, to preserve the economic benefits with respect to such payments and
benefits, and/or (ii) to exempt such payments and benefits from Section 409A of the Code or to comply with the requirements of Section 409A
of the Code and thereby avoid the application of penalty taxes thereunder; provided, however, that this Section 9.6 does not, and shall not be
construed so as to, create any obligation on the part of the Company to adopt any such amendments, policies or procedures or to take any other
such actions or to indemnify any Participant for any failure to do so.
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(b)
Exceptions to Apply. The Company shall apply the exceptions provided in Treasury Regulation Section 1.409A-1(b)(4),
Treasury Regulation Section 1.409A-1(b)(9) and all other applicable exceptions or provisions of Code Section 409A to the payments and
benefits provided under this Plan so that, to the maximum extent possible, (i) such payments and benefits are not deemed to be “nonqualified
deferred compensation” subject to Code Section 409A, and (ii) such payments and benefits are not subject to the payment delay required by
Section 9.6(c) below. All payments and benefits provided under this Plan shall be deemed to be separate payments (and any payments made in
installments shall be deemed a series of separate payments) for purposes of Code Section 409A.
(c)
Specified Employees. Notwithstanding anything to the contrary in this Plan, no compensation or benefits that are
“nonqualified deferred compensation” subject to Code Section 409A shall be paid to a Participant during the 6-month period following his or
her Date of Termination to the extent that the Company determines that the Participant is a “specified employee” as of the Date of Termination
and that paying such amounts at the time or times indicated in this Plan would be a prohibited distribution under Code Section 409A(a)(2)(B)
(i). If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such
6-month period (or such earlier date upon which such amount can be paid under Code Section 409A without being subject to such additional
taxes, including as a result of the Participant’s death), the Company shall pay to the Participant a lump-sum amount equal to the cumulative
amount that would have otherwise been payable to the Participant during such 6-month period.
(d)
Taxable Reimbursements. To the extent that any payments or reimbursements provided to the Participant are deemed to
constitute “nonqualified deferred compensation” subject to Code Section 409A, such amounts shall be paid or reimbursed reasonably promptly,
but not later than December 31 of the year following the year in which the expense was incurred. The amount of any payments or expense
reimbursements that constitute compensation in one year shall not affect the amount of payments or expense reimbursements constituting
compensation that are eligible for payment or reimbursement in any subsequent year, and the Participant’s right to such payments or
reimbursement of any such expenses shall not be subject to liquidation or exchange for any other benefit.
1.7
Validity and Severability. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or
enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
1.8
Governing Law. The validity, interpretation, construction and performance of the Plan shall in all respects be governed by the
laws of Texas, without reference to principles of conflict of law, except to the extent pre-empted by Federal law.
1.9
Venue. Any controversy or claim under the Plan that has not been resolved after exhaustion of the claims procedure set forth in
Section 9.4 shall be shall be brought in a court located in Houston, Harris County, Texas.
1.10 Notices. All notices and all other communications which are required to be given under this Plan must be in writing and shall be
deemed to have been duly given when (i) personally delivered, (ii) mailed by United States registered or certified mail postage prepaid, (iii)
sent via a nationally recognized overnight courier service, (iv) sent via facsimile to the recipient, or (v) sent via e-mail to the recipient, in each
case (A) if to the Company or to the Plan Administrator, to Tellurian Inc., 1201 Louisiana Street, Suite 3100, Houston, TX 77002, Attn: Daniel
Belhumeur, EVP and General Counsel and Margie Harris, SVP, Chief Human Resources Officer (or to the Company’s then-current
headquarters if different than above), or to the EVP
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and General Counsel’s and Chief Human Resources Officer’s then-current e-mail or facsimile, and (B) if to a Participant, to the most recent
contact information on file with the Employer.
1.11
Payment Obligation May be Satisfied by Employer; Tax Withholding . The Company may satisfy any payment obligation under
this Plan by having the Employer make the payment due hereunder. All payments made to Participants in accordance with the provisions of
this Plan shall be subject to applicable withholding of local, state, Federal and foreign taxes, as determined in the sole discretion of the
Company or the Employer making such payment.
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SUMMARY PLAN DESCRIPTION PROVISIONS
I. WHAT ARE MY RIGHTS REGARDING THIS PLAN AND ANY BENEFITS DUE ME UNDER THE PLAN?
If you are a participant in the Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security
Act of 1974 (“ERISA”). ERISA provides that all Plan participants shall be entitled to:
Receive Information About Your Plan and Benefits. Examine, without charge, at the Plan Administrator’s office and at other specified
locations, such as worksites, all documents governing the Plan, including a copy of the latest annual report (Form 5500 Series) filed by the Plan
with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration.
Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including copies of
the latest annual report (Form 5500 Series) and updated summary plan description. The Plan Administrator may make a reasonable charge for
the copies.
Prudent Actions by Plan Fiduciaries. In addition to creating rights for Plan participants, ERISA imposes duties upon the people who
are responsible for the operation of the Plan. The people who operate your Plan, called “fiduciaries” of the Plan, have a duty to do so prudently
and in the interest of you and other Plan participants and beneficiaries. No one, including the Company or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining a benefit that the employer has promised you in writing under this
Plan or exercising your rights under ERISA.
Enforce Your Rights. If your Plan eligibility or your benefit claim is denied or ignored, in whole or in part, you have a right to know
why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time
schedules.
Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents or the
latest annual report from the Plan and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may
require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were
not sent because of reasons beyond the control of the Plan Administrator. If you have been selected as the recipient of benefits under this Plan
and you have a claim for those benefits which is denied or ignored, in whole or in part, you may file suit in a State or Federal court. If you are
discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal
court. The court will decide who should pay court costs and legal fees. If you are successful the court may order the person you have sued to
pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.
Assistance With Your Questions. If you have any questions about the Plan, you should contact the Plan Administrator. If you have any
questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator,
you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone
directory or the Division of
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Technical Assistance and Inquiries, Employee Benefit Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the
publications hotline of the Employee Benefits Security Administration or on the World Wide Web (http://askebsa.dol.gov/).
II. OTHER IMPORTANT FACTS
1. Plan Name:
Tellurian Inc. Employee Severance Plan
2. Plan Year:
The Plan year is the calendar year.
3. Name and Address of Plan Sponsor:
Tellurian Inc.
1201 Louisiana Street, Suite 3100
Houston, TX 77002
4. Type of Plan:
The Plan is a severance plan and is a welfare plan under ERISA. It is unfunded. Benefits under the Plan are paid from the Company’s
general assets.
5. Plan Numbers:
The Plan Number is 511.
6. Employer Identification Number of the Company, the Plan Sponsor, is:
06-0842255.
7. Amendment or Termination of Plan:
The Company may amend or terminate the Plan for any reason prior to a Change in Control. In the event of a Change in Control, the Plan
may not be amended or terminated during the one-year period following the Change in Control unless (i) the amendment is required by
law, (ii) the amendment increases the benefits payable to eligible employees or otherwise improves their rights under the Plan, or (iii) the
amendment or termination is otherwise consented to in writing by the affected eligible employees.
8. Plan Administrator:
The Plan Administrator shall be the Company or its designated representative. The Plan Administrator authorizes benefits payments,
resolves claims and makes rules to ensure the Plan is administered correctly.
9. Agent for Legal Process:
Service of legal process may be made upon the Plan Administrator.
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SEVERANCE SCHEDULES
Senior Vice Presidents and Vice Presidents
Appendix A - Severance Benefits for Termination Outside of Protection Period
(a) A cash severance payment equal to six (6) months of Base Pay, payable in equal installments on regular payroll dates over the Severance
Period (subject to the payment timing rules in Section 4.3);
(b) Any earned but unpaid short-term incentive under the Tellurian Inc. Incentive Compensation Plan for any performance period completed as
of the date of the Qualifying Termination, with payment to occur no later than sixty (60) days after the Date of Termination;
(c) An additional amount equal to a pro-rated Target STI Amount, determined by multiplying the Target STI Amount by a fraction, the
numerator of which is the number of days during the fiscal year of termination that the Participant is employed by the Company and the
denominator of which is 365, to be paid in a single lump sum no later than sixty (60) days after the Date of Termination;
(d) Subject to the Participant’s timely election of continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended (“COBRA”), the Company shall subsidize and cover the full cost of COBRA coverage for the Participant and the
Participant’s eligible dependents’ for the period of six (6) months; provided, however, that the foregoing subsidy shall immediately cease
on the date on which the Participant obtains other employment that offers group health benefits, irrespective of whether the Participant
elects to be covered under such other group health benefits. Notwithstanding the foregoing, in the event that the Company determines in
its sole discretion that the provision of the COBRA subsidy provided under this paragraph cannot be provided without potentially
violating applicable law, or the provision of the subsidy under this paragraph would subject the Company or any of its Affiliates or the
Participant to a material tax or penalty, the Participant shall be provided, in lieu of the COBRA subsidy, with a taxable monthly payment
in an amount equal to the monthly premium that the Participant would be required to pay to continue the Participant’s and his or her
covered dependents’ group health benefit coverages under COBRA as then in effect (which amount shall be based on the premiums for
the first month of COBRA coverage) for the remainder of the Benefits Continuation Period (the benefits described in this paragraph
being the “H&W Benefits”); and
(e) Outplacement services with a provider of the Company’s choice at a level commensurate with the Participant’s position for the period of
six (6) months following the Date of Termination.
Senior Vice Presidents and Vice Presidents
Appendix B - Severance Benefits for Termination Within Protection Period
(a) A cash severance payment equal to twelve (12) months of Base Pay, payable in a lump sum no later than sixty (60) days after the Date of
Termination (subject to the payment timing rules in Section 4.3);
(b) Any earned but unpaid short-term incentive under the Tellurian Inc. Incentive Compensation Plan for any performance period completed as
of the date of the Qualifying Termination, with payment to occur no later than sixty (60) days after the Date of Termination;
(c) An additional amount equal to 100% of the Target STI Amount, payable a single lump sum no later than sixty (60) days after the Date of
Termination;
(d) The H&W Benefits set forth in Section (c) of Appendix A; and
(e) Outplacement services with a provider of the Company’s choice at a level commensurate with the Participant’s position for the period of
three (6) months following the Date of Termination.
Exhibit 10.24
2020 FID-Based Cash Incentive Award (Simões)
To: Octávio M.C. Simões (“you” or the “Grantee”)
2020 CASH INCENTIVE AWARD AGREEMENT
Congratulations! Tellurian Management Services LLC (the “Employer”) hereby awards you (“you” or the “Grantee”) the opportunity
to participate in a cash incentive award (the “Award”) on the terms and subject to the conditions (including the vesting restrictions) set forth
in this 2020 Cash Incentive Award Agreement (this “Agreement”).
All capitalized words used in this Agreement that are not defined in the main body of this Agreement are defined in the Glossary at
the end of this Agreement.
Grant Date: 09/28/2020 (the “Grant Date”)
Award Generally: The Award under this Agreement consists of an opportunity to vest and receive payments in respect of a fixed dollar
bonus amount, subject to your Continuous Service. The terms and conditions, including as to vesting and payment,
of the Award are set forth below.
Aw a rd : The Award shall be in an amount equal to $5,000,000 (the “Award Amount”), which shall vest and become payable in
accordance with the terms and conditions set forth below.
Award Vesting: Subject to the other provisions contained herein, the Award shall vest and become payable to you as follows, subject to
your Continuous Service following the Grant Date and through and including each applicable vesting date (and
there shall be no proportionate or partial vesting in the periods prior to the applicable vesting date):
• One-third (1/3) of the Award Amount will vest upon the affirmative final investment decision by the Board
with respect to the Driftwood LNG project (“FID”, and the date of FID, the “FID Date”);
• One-third (1/3) of the Award Amount will vest on the one (1)- year anniversary of the FID Date; and
• One-third (1/3) of the Award Amount will vest on the two (2)- year anniversary of the FID Date.
Payment: Subject to your satisfaction of the vesting conditions set forth above, on or as soon as administratively practicable following each
applicable vesting date, and in any event not later than thirty (30) days after the
vesting date, you will be paid an amount in cash equal to the vested portion of the Award Amount (subject to
applicable withholdings and deductions, as set forth below).
Notwithstanding the foregoing, all or any portion of any payment in respect of the Award may, in the sole
discretion of the Employer (or its successors or assigns) and the Company (or such other parent of the Employer,
successor or assignee) (the “Relevant Entity”), be satisfied through delivery of a number of shares of Common
Stock (or securities or other equity interests of a permitted successor or assignee) having an equivalent fair market
value on the applicable date of payment; provided, however, that such Common Stock (or securities or other equity
interests of a permitted successor or assignee, to the extent applicable), if any, shall be delivered solely to the extent
determined by the Relevant Entity in its sole discretion and shall be issued only pursuant to a written award
agreement under and subject to the terms and conditions of a shareholder-approved equity compensation plan.
2
Termination of Service (Generally):
Termination Without Cause; Termination of Service Due to Death;
Termination of Service due to Disability:
In the event of your Termination of Service for any reason (whether
notice of termination is given by you or the Company, the
Employer, one of their Subsidiaries or the Partnership, or such
Termination of Service is due to your death), except as otherwise
provided below, you shall not be entitled to receive and shall forfeit,
without any right to compensation, any rights in respect of the
Award that are unvested as of the date of such Termination of
Service.
If you experience a Termination of Service that is (A) a
Termination Without Cause, (B) due to your death or (C) by reason
of Disability, in each case, while any portion of the Award is
unvested, then notwithstanding anything in the foregoing to the
contrary, such unvested portion of the Award shall remain
outstanding and vest in accordance with the terms of this
Agreement without regard to the requirement of your Continuous
Service, subject to and conditioned upon, other than in the case of a
Termination of Service as a result of your death: (1) your continued
compliance with the Restrictive Covenants; and (2) your timely
execution and delivery (without revocation) to the Employer of the
Release within twenty-one (21) days (or such longer period as may
be required by law) after delivery of the form of Release by the
Employer.
Change of Control: In the event of a Change of Control during your Continuous Service while any portion of the Award is unvested, such
unvested portion of the Award shall remain outstanding and vest in accordance with the terms of this Agreement,
except as otherwise determined by the Board, subject to Code Section 409A.
3
Withholding of Taxes: Amounts payable in respect of the Award shall be subject to withholding and deductions for federal, state and/or local
taxes, and the Employer shall have the right to withhold such amounts from any amounts otherwise payable to you
in respect of the Award or to otherwise require, prior to the grant, vesting or payment of the Award, payment by you
of any federal, state or local taxes required by law to be withheld.
Code Section 409A: It is intended that this Agreement and the Award granted hereunder will comply with or be exempt from Code Section
409A, and this Agreement will be construed and interpreted in accordance with such intent.
A termination of employment (or other service, as the case may be) shall not be deemed to have occurred for
purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or
following a termination of employment (or other service, as the case may be) unless such termination is also a
“separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this
Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from
service.”
Notwithstanding anything herein to the contrary, the following shall apply, if and to the extent required by Code
Section 409A, in the event that (A) you are deemed to be a “specified employee” within the meaning of Code
Section 409A(a)(2)(B)(i) and (B) amounts or benefits under the Award or any other program, plan or arrangement
of the Employer or a controlled group affiliate thereof are due or payable on account of “separation from service”
within the meaning of Treasury Regulations Section 1.409A-1(h): No such payments that are “nonqualified
deferred compensation” subject to Code Section 409A shall be made prior to the date that is six (6) months after the
date of separation from service or, if earlier, the date of death; following any applicable six (6) month delay, all
such delayed payments will be paid in a single lump sum (without interest) on the earliest permissible payment
date.
Notwithstanding anything herein to the contrary, to the extent that the Award is (i) subject to Code Section 409A
and (ii) a Change of Control would accelerate the timing of payment thereunder, the payment of such Award shall
not occur until the earliest of (I) the Change of Control if such Change of Control constitutes a “change in the
ownership of the corporation,” a “change in the effective control of the corporation” or a “change in the ownership
of a substantial portion of the assets of the corporation,” within the meaning of Code Section 409A(2)(A)(v), (II)
the date such Award would otherwise be settled pursuant to the terms of this Agreement and (III) your “separation
of service” within the meaning of Code Section 409A.
4
No Right to Employment or Consultancy Service:
5
Nothing in this Agreement shall confer upon you any right with
respect to continuation as an employee, consultant or director with
the Company, the Employer, any of their Subsidiaries or the
Partnership, nor shall it interfere with or restrict in any way the
right of the Company, the Employer, any of their Subsidiaries or
the Partnership, which is hereby expressly reserved, to remove,
terminate or discharge you at any time for any reason whatsoever,
with or without cause and with or without advance notice. This
Agreement is not intended to and does not amend any existing
the
employment or consultancy contract between you and
Company, the Employer, any of their Subsidiaries or the
Partnership.
No Shareholder Rights:
The grant of the Award hereunder shall not make you, nor give
you any of the rights or privileges of, a shareholder of the
Company or any of its Affiliates.
Unsecured Obligation: The obligations of the Employer with respect to the Award is an unfunded and unsecured promise, and ultimately
your right to receive payment in respect of the Award and this Agreement shall be no greater than the rights of any
other unsecured general creditor of the Employer.
Restrictions on Transfer:
You shall not sell, transfer, pledge, hypothecate, assign or
otherwise dispose of any portion of the Award or any rights or
interest therein, including without limitation any rights under
this Agreement or any amounts payable in respect of any
portion of the Award, prior to payment hereunder. Any
attempted sale, transfer, pledge, hypothecation, assignment or
other disposition of any portion of the Award in violation of
this provision shall be void and of no effect.
Severability: If any provision of this Agreement (or part of any provision) is found by any court or other authority of competent jurisdiction
to be invalid, illegal or unenforceable, that provision or part-provision shall, to the extent required, be deemed not to
form part of this agreement, and the validity and enforceability of the other provisions of this Agreement shall not
be affected.
Counterparts: This Agreement may be executed in one or more counterparts but shall not be effective until each party has executed at least
one counterpart. Each such counterpart shall constitute an original of this Agreement but all the counterparts shall
together constitute the same instrument.
Governing Law: All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity,
interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with
the internal laws of the State of Delaware, without giving effect to principles of conflict of laws which would result
in the application of the laws of any other jurisdiction. The Award and
6
any payments in connection therewith shall be subject to all applicable federal, state and local laws, rules and
regulations, and to such approvals by any regulatory or governmental agency as may be required, if any.
This Agreement is intended to be a cash “bonus program” (as described in 29 C.F.R. Section 2510.3-2(c) or any
successor thereto), and not a pension or welfare benefit plan that is subject to the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), and shall be construed accordingly. All interpretations and
determinations hereunder shall be made on a basis consistent with that status and intent.
Data Protection: By accepting the Award (whether by electronic means or otherwise), you hereby consent to the holding and processing of
personal data provided by you to the Company and the Employer for all purposes necessary for the operation of this
Agreement and the Award. This includes, but is not limited to, administering and maintaining records regarding
you; providing information to third party administrators of benefit plans and awards; and providing information to
future purchasers of the Company, the Employer or the business in which you work. You are hereby advised and
directed to refer to any Employer data protection policy and/or notice from time to time in place for more details
about how your personal data is used.
7
Successors and Assigns:
The Employer and/or the Company (or their respective
successors and assigns) may require any of their respective
subsidiaries or any of their respective successors or assigns to
expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Employer and/or
the Company (or their respective successors and assigns, as
applicable), would be required to perform it if no such
succession or assignment had taken place. All obligations of
the Employer granted hereunder shall be binding on the
Employer and any such successors and assigns.
Waiver: No failure or delay by a party to exercise any right or remedy provided under this Agreement or by law shall constitute a waiver of
that or any other right or remedy, nor shall it preclude or restrict the further exercise of that or any other right or
remedy. No single or partial exercise of any right or remedy provided under this Agreement shall preclude or restrict
the further exercise of that or any other right or remedy.
Entire Agreement: This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes
any prior agreements between you and the Company or the Employer with respect to the subject matter hereof. This
Agreement may not be modified, amended or terminated except by an instrument in writing, signed by you and a
duly authorized officer of the Employer.
8
No party has been induced to enter into this Agreement in reliance upon, nor have they been given, any warranty,
representation, statement, assurance, covenant, agreement, undertaking, indemnity or commitment of any nature
whatsoever other than as are expressly set out in this Agreement and, to the extent that any of them have been, they
unconditionally and irrevocably waive any claims, rights or remedies which any of them might otherwise have had
in relation thereto.
[Remainder of page intentionally blank.]
9
By your signature and the signature of the Employer’s representative below, you and the Employer hereby acknowledge that you have been
issued the right to participate in the Award with effect from the Grant Date on the terms and conditions of this Agreement. Further, you
acknowledge your agreement to be bound to the terms of this Agreement in connection with your acceptance of the Award issued hereby
through procedures, including electronic procedures, provided by or on behalf of the Employer.
To accept this award, execute this form and return an executed copy to Margie M. Harris, (the “Designated Recipient”) by October 28,
2020. Failure to return the executed copy to the Designated Recipient by such date will render this award invalid.
EMPLOYER
Tellurian Management Services LLC
By: /s/ Margie M. Harris
Name: Margie M. Harris
Title: SVP, Chief Human Resources Officer
GRANTEE
Accepted by:
/s/ Octávio M.C. Simões
Octávio M.C. Simões
Date: 9/29/2020
10
GLOSSARY
(a)
“Affiliate” shall mean any person that directly or indirectly controls, is controlled by or is under common control with the
Company. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied
to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of
such person, whether through the ownership of voting or other securities, by contract or otherwise.
(b)
“Board” shall mean the Board of Directors of the Company.
(c)
“Cause” shall mean a Termination of Service resulting from (a) your indictment for, conviction of, or pleading of guilty or nolo
contendere to, any felony or any crime involving fraud, dishonesty or moral turpitude; (b) your gross negligence with regard to the Company
or any Affiliate (including the Employer) in respect of your duties for the Company or any Affiliate (including the Employer); (c) your
willful misconduct having or, which in the good faith discretion of the Board could have, an adverse impact on the Company or any Affiliate
(including the Employer) economically or reputation-wise; (d) your material breach of this Agreement, or any employment, consulting or
similar agreement between you and the Company or one of its Affiliates (including the Employer) or material breach of any code of conduct
or ethics or any other policy of the Company or any Affiliate (including the Employer), which breach (if curable in the good faith discretion
of the Board) has remained uncured for a period of ten (10) days following delivery of written notice to you specifying the manner in which
the agreement or policy has been materially breached; or (e) your continued or repeated failure to perform your duties or responsibilities to
the Company or any Affiliate (including the Employer) at a level and in a manner satisfactory to the applicable party in its sole discretion
(including by reason of your habitual absenteeism or due to your insubordination), which failure has not been cured to the satisfaction of the
applicable party following notice to you. Whether you have been terminated for Cause will be determined by the Company’s Chief Executive
Officer (or his or her designee) in his or her sole discretion or, if you are or are reasonably expected to become subject to the requirements of
Section 16 of the Exchange Act, by the Board in its sole discretion. To the extent you are terminated as a member of the Board of the
Company or the board of directors of any Subsidiary, “Cause” shall include a termination of such directorship for “cause” as determined in
accordance with the provisions of Section 141(k) of the Delaware General Corporation Law. In addition to the foregoing, if you are an
employee or other service provider of the Partnership at the time of your Termination of Service, then a termination by the Partnership for
any act or omission by you that, if done (or not done) with respect to the Company or an Affiliate would be grounds for “Cause” hereunder or
in any applicable employment, consulting or similar agreement between you and the Partnership that is then in-effect, then such termination
shall be deemed to be a Termination of Service for Cause for purposes of this Agreement.
(d)
“Change of Control” shall mean the occurrence of any of the following:
(i)
any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”)
acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (A)
the then outstanding shares of Common Stock of the Company (the “Outstanding Company
11
Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company or
any Subsidiary or Affiliate, (2) any acquisition by the Company or any Subsidiary or Affiliate, (3) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, (4) any acquisition
pursuant to a transaction which complies with clauses
(A) and (B) of Section d(iii) of this Glossary, below, or (5) any acquisition of additional securities by any Person who, as of the Grant
Date, held 15% or more of either (x) the Outstanding Company Common Stock or (y) the Outstanding Company Voting Securities;
(ii)
individuals who, as of the Grant Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Grant Date whose
election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a person other than the Board;
(iii)
consummation by the Company of a reorganization, merger, or consolidation, or sale or other disposition of all or
substantially all of the assets of the Company, or the acquisition of assets of another entity (a “Business Combination”), in each case,
unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of Common Stock
and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the
case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (B) at least a majority of the
members of the board of directors (or equivalent governing authority) of the entity resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for
such Business Combination. Notwithstanding anything in the foregoing to the contrary, a sale or other disposition of the Partnership
or the Company’s interest in the Partnership shall not constitute a sale or other disposition of all or substantially all of the assets of the
Company or any other Change of Control for purposes of this Agreement; or
12
(iv)
approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
(e)
“Code” shall mean The U.S. Internal Revenue Code of 1986, as amended from time to time, and any successor thereto, the
Treasury Regulations thereunder and other relevant interpretive guidance issued by the Internal Revenue Service or the Treasury Department.
Reference to any specific section of the Code shall be deemed to include such regulations and guidance, as well as any successor provision of
the Code.
(f)
“Common Stock” shall mean the Common Stock of the Company, $0.01 par value per share.
(g)
“Company” shall mean Tellurian Inc.
(h)
“Continuous Service” shall mean continued employment or other service to the Employer, the Company, any of their
Subsidiaries or the Partnership from the Grant Date through the relevant date.
(i)
“Disability” shall mean you have experienced a “permanent and total disability” within the meaning of Code Section 22(e)(3).
The determination of whether you have experienced a Disability shall be determined under procedures established by the Board.
Notwithstanding the foregoing, if the Award constitutes “non-qualified deferred compensation” pursuant to Code Section 409A, the
foregoing definition shall apply for purposes of vesting of the Award, provided that for purposes of payment of the Award, the Award shall
not be paid until the earliest of: (A) your “disability” within the meaning of Code Section 409A(a)(2)(C)(i) or (ii), (B) your “separation from
service” within the meaning of Code Section 409A and (C) the date your Award would otherwise be paid pursuant to the terms of this
Agreement.
(j)
thereunder.
“Exchange Act” shall mean U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
(k)
“Partnership” shall mean Driftwood Holdings LP and its subsidiaries and successors.
(l)
“Release” shall mean a general release of all claims of any kind that you have or may have (including but not limited to
contractual and statutory rights for unfair dismissal and unlawful discrimination arising out of your employment and/or its termination)
against the Company and its Affiliates (including the Employer) and their respective affiliates, officers, directors, employees, shareholders,
agents and representatives, in a form satisfactory to the Employer.
(m)
“Restrictive Covenants” shall mean all confidentiality obligations and post- termination provisions and restrictive covenants to
which you are subject under your contract of employment or otherwise.
(n)
“Subsidiary” shall mean a corporation, partnership, joint venture, limited liability company, limited liability partnership, or
other entity in which the Company owns directly or
13
indirectly, fifty percent (50%) or more of the voting power or profit interests, or as to which the Company or one of its Affiliates serves as
general or managing partner or in a similar capacity.
(o)
“Termination of Service” shall mean the termination of your Continuous Service for any reason (and whether such termination
results from notice from you, the Company, the Employer, one of their Subsidiaries or the Partnership); provided, however, that
notwithstanding the foregoing, a Termination of Service will not be deemed to occur for purposes of this Agreement if you become an
employee or other service provider of the Partnership immediately following a Termination of Service with the Company, the Employer or
any of their Subsidiaries (or if you become an employee or other service provider of the Company, the Employer or any of their Subsidiaries
immediately following a Termination of Service with the Partnership), or if your employment or other service with the Company, the
Employer or any of their Subsidiaries is transferred, assigned or seconded to the Partnership (or if your employment or other service with the
Partnership is transferred, assigned or seconded to the Company, the Employer or any of their Subsidiaries), it being understood that in such
cases, continuous employment or other service with the Company, the Employer, any of their Subsidiaries and/or the Partnership shall be
treated as continuous service with the Company for purposes of the Award, and a Termination of Service shall be deemed to occur upon the
cessation of all employment or other service to the Company, the Employer, any of their Subsidiaries and the Partnership.
(p)
“Termination Without Cause” shall mean a Termination of Service by the Company, the Employer or any of their Subsidiaries
(or the Partnership, if applicable) other than
(i) for Cause or (ii) as a result of your death or Disability. If you incur a Termination of Service by the Company, the Employer or any of
their Subsidiaries (or the Partnership, if applicable) after rejecting an offer of employment or other service with any entity for which such
employment or other service would be credited as continued service with the Company or a Subsidiary for purposes of the vesting of the
Award, there will be no deemed Termination Without Cause.
KPT6UD2N
09/29/2020 11:49 AM U.S. Eastern Standard Time ACCEPTED
14
Exhibit 10.18.7
TELLURIAN INC. RESTRICTED STOCK UNIT AGREEMENT
PURSUANT TO THE TELLURIAN INC.
AMENDED AND RESTATED 2016 OMNIBUS INCENTIVE COMPENSATION PLAN
This RESTRICTED STOCK UNIT AGREEMENT (“ Agreement”) is effective as of [_____], [__], 20[__] (the “Grant Date”), between
Tellurian Inc., a Delaware corporation (the “Company”), and [INSERT NAME] (the “Participant”).
Terms and Conditions
The Participant is hereby granted as of the Grant Date, pursuant to the Amended and Restated Tellurian Inc. 2016 Omnibus Incentive
Compensation Plan (as it may be amended and/or restated from time to time, the “Plan”), in order to retain and reward the Participant, and incentivize
the Participant to promote strong Company performance, and for other good and valuable consideration, the number of Restricted Stock Units in respect
of shares of the Company’s Common Stock set forth in Section 1 below. Except as otherwise indicated, any capitalized term used but not defined herein
shall have the meaning ascribed to such term in the Plan. A copy of the Plan and the prospectus with regard to the shares under an effective registration
on Form S-8 have been delivered or made available to the Participant. By signing and returning this Agreement, the Participant acknowledges having
received and read a copy of the Plan and the prospectus and agrees to comply with the Plan, this Agreement and all applicable laws and regulations.
Accordingly, the parties hereto agree as follows:
1.
Grant of Restricted Stock Units. Subject in all respects to the Plan and the terms and conditions set forth herein and therein, effective as
of the Grant Date, the Company hereby grants to the Participant an award consisting of [________]restricted stock units (the “Restricted Stock Units”)
in respect of shares of its Common Stock (“Shares”). Such Restricted Stock Units are subject to certain vesting restrictions set forth in Section 2 hereof
and, to the extent vested, shall be settled in Shares, cash or a combination thereof, as determined pursuant to Section 3 hereof.
2.
Restricted Stock Units.
(a)
Rights as a Holder of Restricted Stock Units . The Company shall record in its books and records the number of Restricted
Stock Units granted to the Participant. No Shares shall be issued to the Participant at the time the grant is made and, except as set forth in this Section
2(a), the Participant shall not be, nor have any of the rights or privileges of, a stockholder of the Company, including the right to vote the underlying
Shares and receive dividends and other distributions paid with respect to the underlying Shares, with respect to any Restricted Stock Units, unless (and
in such case, until) settled in Shares; provided, however, that, pursuant to Section 11.4 of the Plan, to the extent that the Company pays a dividend on
Shares after the Grant Date, but prior to the settlement of the Restricted Stock Units, subject to and upon vesting and settlement of the Restricted Stock
Units, dividend equivalents will be credited to the Participant in the form of additional Restricted Stock Units in respect of a number of Shares having a
Fair Market Value equal to the fair market value of the corresponding dividend and paid in Shares, cash or a combination thereof, as determined
pursuant to Section 3 hereof, at such time as the Restricted Stock Units to which such additional Restricted Stock Units relate vest and settle. The
Participant shall not have any interest in any fund or specific assets of the Company by reason of this Agreement.
(b)
Vesting. Subject to Section 2(c) below, the Restricted Stock Units shall only vest in accordance with this Section 2(b) based on
the following (and there shall be no proportionate or partial vesting in the periods prior to the applicable vesting date(s) and all vesting shall occur only
on the applicable vesting date(s)), subject to the Participant’s continued employment or other service to the Company and its Subsidiaries through the
applicable vesting date:
(i) One-third of the Restricted Stock Units shall vest upon the affirmative final investment decision by the Board with
respect to the Driftwood LNG project (“FID”, and the date of FID, the “FID Date”);
(ii) One-third of the Restricted Stock Units shall vest on the one-year anniversary of the FID Date;
(iii) One-third of the Restricted Stock Units shall vest on the two-year anniversary of the FID Date.
(c)
Termination of Service.
(i) Except as otherwise provided in this Section 2(c), in the event the Participant experiences a Termination of Service for
any reason, the Participant shall forfeit to the Company, without compensation, any Restricted Stock Units that are unvested as of the
date of such Termination of Service.
(ii) Notwithstanding the foregoing, if the Participant experiences (A) a Termination of Service due to the Participant’s death
or Disability, or (B) a Termination of Service by the Company without “Cause” (as defined below), in either case, while any of the
Restricted Stock Units are unvested, the Restricted Stock Units shall not be forfeited and instead shall remain outstanding and eligible
to vest in accordance with Section 2(b), without regard to the requirement of the Participant’s continued employment or other service
through the date of vesting; provided however that, if the FID Date has not occurred as of such Termination of Service, the FID Date
must occur no later than one (1) year following the date of such Termination of Service in order for such Restricted Stock Units to
remain outstanding and eligible to vest; provided further that such continued vesting shall be subject to and conditioned upon, other
than in the case of a Termination of Service due to the Participant’s death: (I) the Participant’s continued compliance with all
confidentiality obligations and restrictive covenants to which the Participant is subject and (II) the Participant’s timely execution and
delivery (without revocation) to the Company of a general release of all claims of any kind that Participant has or may have against the
Company and its Affiliates and their respective affiliates, officers, directors, employees, shareholders, agents and representatives, in a
form satisfactory to the Company, within twenty-one (21) days (or such longer period as may be required by law) after delivery of the
form of release by the Company. For the avoidance of doubt, if the FID Date has not occurred as of the date of the Participant’s
Termination of Service and does not occur within one (1) year following the date of such Termination of Service the Participant shall
forfeit to the Company, without compensation, any Restricted Stock Units that are unvested as of such one (1) year anniversary of
such Termination of Service.
(iii) For purposes of this Agreement, notwithstanding anything in the Plan to the contrary, “ Cause” shall have the meaning
assigned to such term in any employment, consulting or similar agreement between the Participant and the Company
or one of its Subsidiaries. To the extent that the Participant is not a party to any such agreement, or there is no definition assigned to
“Cause” in such agreement, “Cause” shall mean a Termination of Service resulting from (A) the Participant’s indictment for,
conviction of, or pleading of guilty or nolo contendere to, any felony or any crime involving fraud, dishonesty or moral turpitude; (B)
the Participant’s gross negligence with regard to the Company or any Affiliate in respect of the Participant’s duties for the Company or
any Affiliate; (C) the Participant’s willful misconduct having or, which in the good faith discretion of the Board could have, an
adverse impact on the Company or any Affiliate economically or reputation-wise; (D) the Participant’s material breach of this
Agreement, or any employment, consulting or similar agreement between the Participant and the Company or one of its Affiliates or
material breach of any code of conduct or ethics or any other policy of the Company, which breach (if curable in the good faith
discretion of the Board) has remained uncured for a period of ten (10) days following the Company’s delivery of written notice to the
Participant specifying the manner in which the agreement or policy has been materially breached; or (E) the Participant’s continued or
repeated failure to perform the Participant’s duties or responsibilities to the Company or any Affiliate at a level and in a manner
satisfactory to the Company in its sole discretion (including by reason of the Participant’s habitual absenteeism or due to the
Participant’s insubordination), which failure has not been cured to the Company’s satisfaction following notice to the Participant.
Whether the Participant has been terminated for Cause will be determined by the Company’s Chief Executive Officer (or his or her
designee) in his or her sole discretion or, if the Participant is or is reasonably expected to become subject to the requirements of
Section 16 of the Exchange Act, by the Board or the Compensation Committee in its sole discretion. To the extent the Participant is
terminated as a member of the Board of the Company or any of its Affiliates, such termination for “cause” shall be determined in
accordance with the provisions of Section 141(k) of the Delaware General Corporation Law.
(d)
Change of Control.
(i)
In the event the Participant experiences (A) a Termination of Service by the Company without Cause or (B) a
Termination of Service by the Participant for Good Reason, in either case, within one (1) year following a “Change of Control” (as
defined below) that is not a “100% Change of Control” (as defined below), all outstanding and unvested Restricted Stock Units shall
immediately vest in full effective as of the date of such Termination of Service, subject to and conditioned upon (A) the Participant’s
continued compliance with all confidentiality obligations and restrictive covenants to which the Participant is subject, and (B) the
Participant’s timely execution and delivery (without revocation) to the Company of a general release of all claims of any kind that
Participant has or may have against the Company and its Affiliates and their respective affiliates, officers, directors, employees,
shareholders, agents and representatives, in a
form satisfactory to the Company, within twenty-one (21) days (or such longer period as may be required by law) after delivery of the
form of release by the Company.
(ii)
Upon the occurrence of a 100% Change of Control, all outstanding and unvested Restricted Stock Units shall
immediately vest in full effective as of the date of such 100% Change of Control.
(iii)
Subject to Section 11 of this Agreement, for purposes of this Agreement and notwithstanding anything in the Plan to the
contrary, “100% Change of Control” shall mean the occurrence of any of the following after the Grant Date:
(A)
shall be replaced with “[100]%”; or
an event as defined in Section 2 (d)(iv)(A), provided that the phrase “more than 50%” as set forth in such clause
(B)
with “[any of]”.
an event as defined in Section 2 (d)(iv)(C), provided that the phrase “more than 50% of” shall be replaced
(iv)
Subject to Section 11 of this Agreement, for purposes of this Agreement and notwithstanding anything in the Plan to the
contrary, “Change of Control” shall mean the occurrence of any of the following after the Grant Date:
(A)
any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
“Person”) acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than
50% of either (1) the then outstanding shares of Common Stock of the Company (the “Outstanding Company Common
Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this
subsection (A), the following acquisitions shall not constitute a Change of Control: (I) any acquisition directly from the
Company or any Subsidiary or Affiliate, (II) any acquisition by the Company or any Subsidiary or Affiliate, (III) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the
Company, (IV) any acquisition pursuant to a transaction which complies with clauses (1) and (2) of Section 2(d)(ii)(C) of this
Agreement, below, or (V) any acquisition of additional securities by any Person who, as of the Grant Date, held 15% or more of
either
(x) the Outstanding Company Common Stock or (y) the Outstanding Company Voting Securities;
(B)
a majority of the individuals who, as of the Grant Date, constitute the Board (the “ Incumbent Board”) cease for
any reason during any twelve (12)-month period to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Grant Date whose election, or nomination for election by the Company’s
stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual
or threatened solicitation of proxies or consents by or on behalf of a person other than the Board;
(C)
consummation by the Company of a reorganization, merger, or consolidation, or sale or other disposition of all or
substantially all of the assets of the Company, or the acquisition of assets of another entity (a “Business Combination”), in each
case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding
shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets
either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior
to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, and (2) at least a majority of the members of the board of directors (or equivalent governing authority) of the
entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such Business Combination; or
(D)
approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
(v) For purposes of this Agreement, notwithstanding anything in the Plan to the contrary, “ Good Reason” shall have the
meaning assigned to such term in any employment, consulting or similar agreement between the Participant and the Company or one of
its Subsidiaries. To the extent that the Participant is not a party to any such agreement, or there is no definition assigned to “Good
Reason” in such agreement, “Good Reason” shall mean the occurrence of any of the following events: (A) a material diminution in the
Participant’s base compensation, or (B) a material change in the geographic location at which the Participant must perform services, in
each case, subject to delivery of written notice by the Participant to the Company (or applicable employer) of the existence of one or
more of the above conditions not later than sixty (60) days following the first occurrence thereof, and provided that the Company (or
applicable employer) shall have thirty (30) following its receipt of such written notice to cure such conditions in all material respects and
that the Participant must resign within ninety (90) days following the Company’s (or the applicable employer’s) failure to so cure such
conditions.
3.
Settlement. Upon becoming vested, each Restricted Stock Unit shall be settled in cash, Shares or a combination thereof, as determined
by the Company in its sole discretion. Such settlement (regardless of form) shall occur as soon as administratively practicable following the applicable
vesting date, and in any event not later than thirty (30) days after the date of vesting, subject to the provisions of Section 11. With respect to any portion
of the Participant’s Restricted Stock Units that are settled in cash, the Company shall pay to the Participant an amount in cash equal to the product of (i)
the number of such Restricted Stock Units (including any Restricted Stock Units credited thereon pursuant to Section
2(a) above, if applicable), and (ii) the Fair Market Value of a Share on the applicable vesting date. With respect to any portion of the Participant’s
Restricted Stock Units that are settled in Shares, the Company shall issue to the Participant a number of Shares equal to the number of such Restricted
Stock Units (including any Restricted Stock Units credited thereon pursuant to Section 2(a) above, if applicable), and deliver to the Participant any stock
certificate registered in the Participant’s name evidencing such issuance, or credit to a book entry account maintained by the Company (or its designee)
on behalf of the Participant, in the sole discretion of the Plan Administrator. The payment of cash or the issuance and delivery of Shares in settlement of
the Restricted Stock Units shall in either case be subject to applicable tax withholding, as set forth in Section 6, below.
4.
Delivery Delay; Compliance with Laws and Regulations . To the extent that the Restricted Stock Units are settled in Shares, the
delivery of any certificate or book entry (as applicable) representing the Shares may be postponed by the Company for such period as may be required
for it to comply with any applicable foreign, federal, state or provincial securities law, or any national securities exchange listing requirements. The
Company is not obligated to issue or deliver any securities if, in the opinion of counsel for the Company, such issuance or delivery shall constitute a
violation by the Participant or the Company of any provisions of any applicable foreign, federal, state or provincial law or of any regulations of any
governmental authority or any national securities exchange. Moreover, the Restricted Stock Units may not be settled if such settlement, or the receipt of
Shares pursuant thereto (if applicable), would be contrary to applicable law. If at any time the Company determines, in its discretion, that the listing,
registration, or qualification of Shares upon any national securities exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable, the Company shall not be required to deliver any Shares or any certificates or book entry (as
applicable) for Shares to the Participant or any other person pursuant to this Agreement unless and until such listing, registration, qualification, consent,
or approval has been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Company. If the Participant is currently
a resident or is likely to become a resident in the United Kingdom at any time during the period that the Restricted Stock Units remain unvested, the
Participant acknowledges and understands that the Company has the discretion to meet its delivery obligations in Shares, except as may be prohibited by
law or described in this Agreement or supplementary materials.
5.
Certain Legal Restrictions. The Plan, this Agreement, the granting and vesting of the Restricted Stock Units, the settlement of the
Restricted Stock Units in cash or Shares, and any obligations of the Company under the Plan and this Agreement, shall be subject to all applicable
federal, state and local laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required, and to any rules
or regulations of any exchange on which the Common Stock is listed.
6.
Withholding of Taxes.
The Company shall have the right to deduct from any payment to be made pursuant to this Agreement and the Plan, or to
otherwise require, prior to the issuance, vesting, or settlement of any Restricted Stock Units, payment by the Participant of, any federal, state or local
taxes required by law to be withheld, in accordance with Section 18.10 of the Plan.
(a)
(b)
To the extent that the Restricted Stock Units are settled in Shares, except as otherwise agreed in writing by the Participant and the
Company or determined pursuant to the establishment by the Plan Administrator of an alternate procedure, (i) if the Participant, at the time of issuance,
vesting or settlement, is an executive officer of the Company or an individual subject to Rule 16b-3, tax withholding obligations shall be effectuated by
the Company withholding a number of Shares otherwise payable upon the settlement of the Restricted Stock Units (any such shares valued at Fair
Market Value on the applicable date), subject to Section 18.10 of the Plan and applicable law, and (ii) if the
Participant, at the time of issuance, vesting or settlement, is not an executive officer of the Company or an individual subject to Rule 16b-3, required
withholding shall be implemented through the Participant executing a “sell to cover” transaction through a broker designated or approved by the
Company with, in each case, the amount required to satisfy any amounts of tax referred to in Section 6(a).
(c)
To the extent permitted under Code Section 409A, the Company shall have the right, in its sole discretion, to accelerate the
vesting and settlement of any portion of the Restricted Stock Units in its sole discretion in order to pay any income and/or employment taxes required in
respect of the Restricted Stock Units prior to settlement (provided that the Participant shall have no discretion, and may not be given a direct or indirect
election, with respect to whether the Company exercises such discretion to accelerate).
7.
Provisions of Plan Control. This Agreement is subject to all the terms, conditions and provisions of the Plan, including, without
limitation, the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Plan
Administrator and as may be in effect from time to time. The Plan is incorporated herein by reference. If and to the extent that any provision of this
Agreement conflicts or is inconsistent with the terms set forth in the Plan, the Plan shall control, and this Agreement shall be deemed to be modified
accordingly.
8.
Restrictions on Transfer . The Participant shall not sell, transfer, pledge, hypothecate, assign or otherwise dispose of the Restricted
Stock Units or any rights or interest therein, including without limitation any rights under this Agreement or any Shares payable in respect of the
settlement of the Restricted Stock Units prior to settlement under Section 3 (to the extent applicable), except as permitted in the Plan or Agreement. Any
attempted sale, transfer, pledge, hypothecation, assignment or other disposition of the Restricted Stock Units or any Shares payable in respect of any
Restricted Stock Units prior to settlement under Section 3 (to the extent applicable), in violation of the Plan or this Agreement shall be void and of no
effect and the Company shall have the right to disregard the same on its books and records and to issue “stop transfer” instructions to its transfer agent.
9.
Recoupment Policy. The Participant acknowledges and agrees that the Restricted Stock Units and any Shares issued or amounts paid
upon settlement thereof (as applicable) shall be subject to the terms and provisions of any “clawback” or recoupment policy that may be adopted by the
Company from time to time or as may be required by any applicable law (including, without limitation, the Dodd- Frank Wall Street Reform and
Consumer Protection Act and rules and regulations thereunder).
10.
No Right to Employment or Consultancy Service. This Agreement is not an agreement of employment or to provide consultancy
services. None of this Agreement, the Plan or the grant of the Restricted Stock Units hereunder shall (a) guarantee that the Company or its Subsidiaries
will employ or retain the Participant as an employee or consultant for any specific time period or (b) modify or limit in any respect the right of the
Company or its Subsidiaries to terminate or modify the Participant’s employment, consultancy arrangement or compensation. Moreover, this Agreement
is not intended to and does not amend any existing employment or consulting contract between the Participant and the Company or any of its
Subsidiaries.
11.
Section 409A. Subject to and without limitation on Section 19.3 of the Plan, it is intended that the Restricted Stock Units comply with or
be exempt from Code Section 409A, and this Agreement shall be construed and interpreted in accordance with such intent. In no event whatsoever will
Company be liable for any additional tax, interest or penalties that may be imposed on the Participant under Code Section 409A or any damages for
failing to comply with Code Section 409A. A termination of employment shall not be deemed to have occurred for purposes of any provision of this
Agreement providing for the payment of any amounts or benefits subject to Code Section 409A upon or following a
termination of employment unless such termination is also a "separation from service" within the meaning of Code Section 409A and, for purposes of
any such provision of this Agreement, references to a "termination," "termination of employment" or like terms shall mean "separation from service." If
the Participant is a “specified employee” upon his or her “separation from service” (within the meaning of such terms in Code Section 409A under such
definitions and procedures as established by the Company in accordance with Code Section 409A), any portion of a payment, settlement, or other
distribution made upon such a “separation from service” that would cause the acceleration of, or an addition to, any taxes pursuant to Code Section
409A will not commence or be paid until a date that is six (6) months and one
(1) day following the applicable “separation from service.” Any payments, settlements, or other distributions that are delayed pursuant to this Section 11
following the applicable “separation from service” shall be accumulated and paid to the Participant in a lump sum without interest on the first business
day immediately following the required delay period. Notwithstanding anything in this Agreement, including Sections 2(d) or 3, to the contrary, to the
extent that the award of Restricted Stock Units hereunder (a) is subject to Code Section 409A and (b) a Change of Control would affect the timing of
payment thereof, then “Change of Control” as defined in this Agreement (including Sections 2(d) and
3) shall mean, but only to the extent necessary to prevent such Restricted Stock Units from becoming subject to the tax under Code Section 409A, a
transaction that satisfies the requirements of both (1) a Change of Control or 100% Change of Control, as applicable, as defined in Section 2(d) and (2) a
“change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5). Whenever a payment under this Agreement specifies a
payment period with reference to a number of days (e.g., “payment shall be made within thirty (30) days following the date of termination”), the actual
date of payment within the specified period shall be within the sole discretion of Company.
12.
Notices. Any notice or communication given hereunder shall be in writing or by electronic means and, if in writing, shall be deemed to
have been duly given: (a) when delivered in person or by electronic means; (b) three days after being sent by United States mail; or (c) on the first
business day following the date of deposit if delivered by a nationally recognized overnight delivery service, in each case, to the appropriate party at the
following address (or such other address as the party shall from time to time specify): (i) if to the Company, to Tellurian Inc. at its then current
headquarters; and (ii) if to the Participant, to the address on file with the Company.
13. Mode of Communications. The Participant agrees, to the fullest extent permitted by applicable law, in lieu of receiving documents in
paper format, to accept electronic delivery of any documents that the Company or any of its Affiliates may deliver in connection with this grant of
Restricted Stock Units and any other grants offered by the Company, including, without limitation, prospectuses, grant notifications, account statements,
annual or quarterly reports, and other communications. The Participant further agrees that electronic delivery of a document may be made via the
Company’s email system or by reference to a location on the Company’s intranet or website or the online brokerage account system.
14.
Unsecured Obligation. The Company’s obligation under this Agreement shall be an unfunded and unsecured promise. Participant’s right
to receive the payments and benefits contemplated hereby from the Company under this Agreement shall be no greater than the right of any unsecured
general creditor of the Company, and Participant shall not have nor acquire any legal or equitable right, interest or claim in or to any property or assets
of the Company. Nothing contained in this Agreement, and no action taken pursuant to its provisions, will create or be construed to create a trust of any
kind or a fiduciary relationship between Participant and the Company or any other person.
15. Governing Law. All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity,
interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of
Delaware, without giving effect to principles of conflict of laws which would result in the application of the laws of any other jurisdiction.
16.
Successors. The Company will require any successors or assigns to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. The terms of this
Agreement and all of the rights of the parties hereunder will be binding upon, inure to the benefit of, and be enforceable by, the Participant’s personal or
legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
17. WAIVER OF JURY TRIAL . EACH PARTY TO THIS AGREEMENT, FOR ITSELF AND ITS AFFILIATES, HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THE ACTIONS OF THE PARTIES HERETO OR THEIR RESPECTIVE
AFFILIATES PURSUANT TO THIS AGREEMENT OR IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT OF THIS AGREEMENT.
18.
Construction. All section titles and captions in this Agreement are for convenience only, shall not be deemed part of this Agreement, and
in no way shall define, limit, extend or describe the scope or intent of any provisions of this Agreement. Wherever any words are used in this Agreement
in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply. As used
herein, (a) “or” shall mean “and/or” and (b) “including” or “include” shall mean “including, without limitation.” Any reference herein to an agreement in
writing shall be deemed to include an electronic writing to the extent permitted by applicable law.
19.
Severability of Provisions. If at any time any of the provisions of this Agreement shall be held invalid or unenforceable, or are prohibited
by the laws of the jurisdiction where they are to be performed or enforced, by reason of being vague or unreasonable as to duration or geographic scope
or scope of the activities restricted, or for any other reason, such provisions shall be considered divisible and shall become and be immediately amended
to include only such restrictions and to such extent as shall be deemed to be reasonable and enforceable by the court or other body having jurisdiction
over this Agreement, and the Company and the Participant agree that the provisions of this Agreement, as so amended, shall be valid and binding as
though any invalid or unenforceable provisions had not been included.
20.
No Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement
or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
21.
Entire Agreement . This Agreement, together with the Plan, contains the entire understanding of the parties with respect to the subject
matter hereof and supersedes any prior agreements between the Company and the Participant with respect to the subject matter hereof.
22.
Data Protection. By accepting this Agreement (whether by electronic means or otherwise), the Participant hereby consents to the
holding and processing of personal data provided by him to the Company for all purposes necessary for the operation of the Plan. These include, but are
not limited to, administering and maintaining Participant records; providing information to any registrars,
brokers or third party administrators of the Plan; and providing information to future purchasers of the Company or the business in which the Participant
works.
23.
Acceptance. To accept the grant of the Restricted Stock Units, the Participant must execute and return the Agreement by (the
“Acceptance Deadline”). By accepting this grant, the Participant will have agreed to the terms and conditions set forth in this Agreement and the terms
and conditions of the Plan. The grant of the Restricted Stock Units will be considered null and void, and acceptance thereof will be of no effect, if the
Participant does not execute and return the Agreement by the Acceptance Deadline.
24.
Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one
instrument. Execution and delivery of this Agreement by facsimile or other electronic signature is legal, valid and binding for all purposes.
[Remainder of Page Left Intentionally Blank]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.
TELLURIAN INC.
By: Name:
Title:
PARTICIPANT
By:
Name:
[Signature Page to Restricted Stock Unit Agreement]
Exhibit 10.19.2
LONG TERM INCENTIVE AWARD AGREEMENT
THIS LONG TERM INCENTIVE AWARD AGREEMENT (the “Agreement”), is made
effective as of 01/13/2022 (the “Grant Date”) by and between Tellurian Inc., a Delaware corporation (the “Company”), and the
individual signatory hereto (“Participant”) (each a “Party”, and collectively, the “Parties”).
W I T N E S S E T H:
WHEREAS, the Company may make Awards pursuant to the Tellurian, Inc. Incentive Compensation Program (as may be amended,
modified, supplemented or restated from time to time, the “Program”);
WHEREAS, capitalized terms used and not otherwise defined in this Agreement shall have the meanings set forth in the Program; and
WHEREAS, the Company desires to grant Participant an Award, subject to the terms and conditions set forth in this Agreement and
the Program.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
Section 1 Definitions. Except as expressly set forth in this Agreement, capitalized terms used herein shall have the meanings ascribed
them in this Section 1.
(a)
“Cause” shall have the meaning ascribed to that term in Participant’s Individual Agreement or, if such term is not defined in
Participant’s Individual Agreement or there is no such agreement, then “Cause” shall mean (i) Participant’s indictment for, conviction of, or
pleading of guilty or nolo contendere to, any felony or any crime involving fraud, dishonesty or moral turpitude; (ii) Participant’s gross
negligence with regard to the Company or any Affiliate in respect of Participant’s duties for the Company or any Affiliate; (iii) Participant’s
willful misconduct having or, which in the good faith discretion of the Board could have, an adverse impact on the Company or any Affiliate
economically or reputation-wise; (iv) Participant’s material breach of this Agreement, any other material agreement between Participant and
the Company, including, but not limited to, any incentive or equity or equity-based award or agreement, or any code of conduct or ethics or any
other policy of the Company, which breach (if curable in the good faith discretion of the Board) has remained uncured for a period of ten (10)
days following the Company’s delivery of written notice to Participant specifying the manner in which the agreement or policy has been
materially breached; or (v) Participant’s continued or repeated failure to perform Participant’s duties or responsibilities to the Company or any
Affiliate at a level and in a manner satisfactory to the Board in its sole discretion, which failure has not been cured to the satisfaction of the
Board following notice to Participant. To the extent Participant is terminated as a member of the Board or the board of directors of any
Subsidiary of the Company, “Cause” shall include a termination of such directorship for “cause” as determined in accordance with the
provisions of
1
Section 141(k) of the Delaware General Corporation Law. Any voluntary termination of Participant’s employment in anticipation of a
termination of Participant’s employment by any member of the Company Group for Cause shall be deemed to be a termination by the
Company for Cause.
(b)
“Employer” shall mean as to Participant on any date, the Company Group member that employs or retains Participant
on such date.
(c)
thereunder.
“Exchange Act” shall mean U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
(d)
“Individual Agreement” shall mean an employment or similar agreement between Participant and a member of the Company
Group.
(e)
“One Year Anniversary” shall mean the date that is the one (1) year anniversary of the Grant Date.
(f)
“Qualifying Termination” shall mean a Termination of Employment by any member of the Company Group due to
Participant’s death, or by the Company without Cause (including disability).
(g)
“Release Requirement” shall mean the execution, delivery, and nonrevocation of a release of claims by Participant,
Participant’s power of attorney or the Participant’s estate, as applicable, in favor of the Company and its Subsidiaries and its and their
respective Affiliates on such terms and conditions and subject to such provisions as are reasonably determined by the Company, and any
revocation period applicable to such release must have expired before the earlier of the fifty-ninth (59th) day after the date of Termination of
Employment.
(h)
“Termination of Employment” shall mean the time when the employee-employer relationship between an Employee and the
Company or any Employer is terminated for any reason, including, without limitation, a termination by resignation, discharge, death,
disability, or retirement, but excluding terminations where the Employee simultaneously commences or re- mains in employment with the
Company or any Employer. Notwithstanding the foregoing, to the extent necessary to comply with Section 409A as determined by the
Committee, a termination of service means a “separation from service” (within the meaning of Section 409A).
(i)
“Two Year Anniversary” shall mean the date that is the two (2) year anniversary of the Grant Date.
Section 2. Award. Subject to the terms and conditions set forth in the Program and this Agreement, the Committee grants Participant
an Award under the Program, effective as of the Grant Date, entitling Participant to 466,666 Tracking Units.
Section 3. Vesting and Payment. Except as otherwise provided in Section 4, the Tracking Units shall vest and settle as follows, subject
to (i) Participant’s continued employment through and including the applicable vesting date (and not having received notice from any member
of the Company Group of intent to terminate Participant’s employment for Cause), and
2
(ii)
Participant’s continued compliance with any restrictive covenants by which Participant may be bound:
(a)
Tranche 1. One-third (1/3) (rounded down to the nearest whole number, if applicable) of the Tracking Units (“ Tranche 1”) shall
vest on the Grant Date (“Tranche 1 Vesting Date”). Subject to Section 6, as soon as practicable following the Tranche 1 Vesting Date, and in
no event later than March 15 in the year following the Performance Period, the Company will deliver to Participant an amount in cash equal to
the closing Company stock price on the trading day prior to the Grant Date multiplied by the vested Tranche 1 Tracking Units (such amount,
the “Tranche 1 Payment” and such actual date of payment, the “Tranche 1 Payment Date”).
(b)
Tranche 2. One-third (1/3) (rounded down to the nearest whole number, if applicable) of the Tracking Units (“ Tranche 2”) shall
vest on the One Year Anniversary (“ Tranche 2 Vesting Date ”). Subject to Section 6, as soon as practicable following the Tranche 2 Vesting
Date, and in no event later than thirty (30) days after such date, the Company will deliver to Participant an amount in cash equal to the closing
Company stock price on the trading day prior to the Tranche 2 Vesting Date multiplied by the vested Tranche 2 Tracking Units (such amount,
the “Tranche 2 Payment”).
(c)
Tranche 3. The remaining Tracking Units (“Tranche 3”) shall vest on the Two Year Anniversary (“ Tranche 3 Vesting Date ”).
Subject to Section 6, as soon as practicable following the Tranche 3 Vesting Date, and in no event later than thirty (30) days after such date,
the Company will deliver to Participant an amount in cash equal to the closing Company stock price on the trading day prior to the Tranche 3
Vesting Date multiplied by the vested Tranche 3 Tracking Units (such amount, the “Tranche 3 Payment”).
Section 4. Termination of Employment.
(a)
Termination for Cause. Upon a Participant’s Termination of Employment by any member of the Company Group for Cause, all
Tracking Units granted hereunder, whether vested or unvested, will immediately and automatically be forfeited as of the date of such
termination for no consideration and without any action by the Company. Participant shall have no further right or interest in or with respect to
such Tracking Units.
(b)
Resignation. Upon a Termination of Employment by Participant, all vested and unvested Tracking Units granted hereunder will
immediately and automatically be forfeited as of the date of such termination for no consideration and without any action by the Company and
Participant shall have no further right or interest in or with respect to such Tracking Units.
(c) Qualifying Termination. In the event of a Qualifying Termination, subject to the satisfaction of the Release Requirement and
Participant’s continued compliance with all confidentiality obligations and restrictive covenants to which Participant is subject:
i.
any previously vested Tracking Units, if any, to the extent not yet paid pursuant to Section 3 hereof, shall be paid in
accordance with, and in an amount calculated pursuant to, Section 3 hereof;
3
ii.
all unvested Tracking Units shall remain eligible to vest following such Termination of Employment in accordance with
Section 3 hereof without regard to the continuous service requirement and the Company will deliver to Participant an amount in cash
calculated pursuant to Section 3 hereof, which shall be paid, subject to Section 6 hereof, on the later of the date the payment would be made
pursuant to Section 3 hereof and the first payroll date following the sixtieth (60 ) day after the date of Termination of Employment.
th
Section 5. Award Subject to the Program. By entering into this Agreement, Participant acknowledges and agrees that (a) Participant
has received and read the copy of the Program, (b) the Award is subject to the Program, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein, and (c) Participant shall execute, and return to the Company, an executed copy of
this Agreement. In the event of any conflict between this Agreement and the Program, the terms of the Program shall govern.
Section 6. Other Terms.
(a)
Tax Withholding . Payments made pursuant to this Agreement will be reduced by withholding for any applicable federal, state,
foreign and local taxes and, to the extent applicable in the relevant jurisdiction, social security and levies required to be withheld by the
Company or one of its Subsidiaries or other authorized payroll deductions.
(b)
Section 409A. It is intended that this Agreement be interpreted and administered so that the payment of any Award shall either
be exempt from the requirements of Section 409A, or shall comply with the requirements of such provisions, and accordingly, to the
maximum extent permitted, shall be interpreted to be exempt from or in compliance with Section 409A. Notwithstanding any provision of this
Agreement to the contrary, neither the Company nor any of its respective Subsidiaries or Affiliates, nor any of their respective directors,
officers, employees, advisors or agents guarantees any particular tax treatment and none of the foregoing shall have any liability for the failure
of the terms of this Agreement as written to be exempt from the provisions of Section 409A.
Each payment under this Agreement to which Section 409A applies shall be treated as a separate identified payment for purposes of
Section 409A. In no event may Participant, directly or indirectly, designate the calendar year of any payment to be made under this
Agreement, which constitutes a “deferral of compensation” within the meaning of Section 409A. To the extent any payment under this
Agreement is subject to Section 409A, any reference to termination of service or similar terms shall mean a “separation from service” under
Section 409A.
Notwithstanding any provision of this Agreement to the contrary, if on the date of Participant’s termination of employment, Participant
is deemed to be a “specified employee” within the meaning of Section 409A using the identification methodology selected by the Company
from time to time, or if none, the default methodology under Section 409A, any payments or benefits due upon a termination of Participant’s
employment under any arrangement that constitutes a “deferral of compensation” within the meaning of Section 409A shall be delayed and
paid or provided in a single lump sum (without interests) on the first payroll date on or following the earlier of (i) the date which is six (6)
months and one (1) day after Participant’s termination of employment for any reason other than death, and (ii) the date of Participant’s death,
4
and any remaining payments and benefits shall be paid or provided in accordance with the normal payment dates specified for such payment or
benefit.
(c)
Section 280G. Notwithstanding any other provision of this Agreement or any other plan, arrangement or agreement to the
contrary, if any of the payments or benefits provided or to be provided by the Company or any of its Affiliates to Participant or for
Participant’s benefit pursuant to the terms of this Agreement or otherwise (“ Covered Payments”) constitute “excess parachute payments”
within the meaning of Section 280G of the Code and would, but for this Section 7(c), be (x) nondeductible under Section 280G of the Code
and/or (y) subject to the excise tax imposed under Section 4999 of the Code (or any successor provisions applicable to such Sections) or any
similar tax imposed by state or local law or any interest or penalties with respect to such taxes (collectively, the “Excise Tax ”), then the
Covered Payments will be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment
or benefit, as so reduced, is subject to the Excise Tax; provided, however, that the foregoing reduction will be made only if and to the extent
that such reduction would result in an increase in the aggregate payment and benefits to be provided, determined on an after-tax basis after
taking into account the applicable federal, state, local and foreign income, employment and excise taxes (including the Excise Tax). Any
reductions hereunder shall be made in accordance with Section 409A and the following: (A) the payments and benefits that do not constitute
nonqualified deferred compensation subject to Section 409A shall be reduced first; and (B) all other payments and benefits shall then be
reduced as follows: (I) cash payments shall be reduced before non-cash payments; and (II) payments to be made on a later payment date shall
be reduced before payments to be made on an earlier payment date. Any determination required under this Section 6(c), including, but not
limited to, whether any payments or benefits are or could be “parachute payments” within the meaning of Section 280G of the Code, shall be
determined by the Committee (or its designee).
(d)
Restriction on Transfer. Participant shall not sell, transfer, pledge, hypothecate, assign or otherwise dispose of the Award or any
rights or interest therein, including without limitation any rights under this Agreement or any amounts payable in settlement of the Award. Any
attempted sale, transfer, pledge, hypothecation, assignment or other disposition by Participant of the Award in violation of this provision shall
be null and void ab initio and of no effect.
(e)
Severability. If any provision of this Agreement (or part of any provision) is found by any court or other authority of competent
jurisdiction to be invalid, illegal or unenforceable, that provision or part-provision shall, to the extent required, be deemed not to form part of
this agreement, and the validity and enforceability of the other provisions of this agreement shall not be affected.
(f)
Counterparts. This Agreement may be executed in one or more counterparts but shall not be effective until each Party has
executed at least one counterpart. Each such counterpart shall constitute an original of this Agreement but all the counterparts shall together
constitute the same instrument.
(g) Governing Law. This Agreement and all questions concerning the construction, interpretation, and validity this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to any choice or
conflict
5
of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(h) Waiver and Amendment. No failure or delay by a party to exercise any right or remedy provided under this Agreement or by law
shall constitute a waiver of that or any other right or remedy, nor shall it preclude or restrict the further exercise of that or any other right or
remedy. No single or partial exercise of any right or remedy provided under this Agreement shall preclude or restrict the further exercise of
that or any other right or remedy. Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only
if made in writing and signed by each of the Parties.
(i)
Notices. Any notice provided for in this Agreement or under the Program must be in writing and must be either personally
delivered, transmitted via electronic mail, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable
overnight courier service (charges prepaid) to the recipient at the address below indicated or at such other address or to the attention of such
other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given
hereunder and received when delivered personally, when received if transmitted via electronic mail, five (5) days after deposit in the U.S. mail
and one (1) day after deposit for overnight delivery with a reputable overnight courier service.
If to the Company, to:
Tellurian Inc.
1201 Louisiana Street, Suite 3100
Houston, Texas 77002 Attention: General Counsel
Attention: EVP, Chief Human Resources Officer
Email: legal.notices@tellurianinc.com Email: HR@tellurianinc.com
If to Participant, to Participant’s physical and/or email address most recently on file with the Company with a copy (which shall not
constitute notice) to such other persons as may be designated by Participant in writing.
(j)
Entire Agreement. This Agreement contains the entire understanding of the Parties with respect to the subject matter hereof and
supersedes any prior agreements between Participant and the Company with respect to the subject matter hereof.
(k) Data Protection. By accepting the Award (whether by electronic means or otherwise), Participant hereby consents to the holding
and processing of personal data provided by Participant to the Company and its Subsidiaries for all purposes necessary for the operation of this
Agreement and the Award. This includes, but is not limited to, administering and maintaining records regarding Participant; providing
information to third party administrators of benefit plans and awards; and providing information to future purchasers of the Company or the
business in which Participant works. Participant is hereby advised and directed to refer to any Company and/or Subsidiary data protection
policy and/or notice from time to time in place for more details about how Participant’s personal data is used.
6
(l)
Acknowledgment. By Participant’s signature and the signature of the Company’s representative below, Participant and the
Company hereby acknowledge that Participant has been granted the right to participate in the Award with effect from the Grant Date on the
terms and conditions of this Agreement. Further, Participant acknowledges Participant’s agreement to be bound to the terms of this Agreement
in connection with Participant’s acceptance of the Award issued hereby through procedures, including electronic procedures, provided by or
on behalf of the Company and/or its Subsidiaries.
[signature page follows]
7
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Grant Date.
TELLURIAN INC.
/s/ Margie M. Harris
Name: Margie M. Harris
Title: EVP, Chief Human Resources Officer
PARTICIPANT:
/s/ Khaled Sharafeldin
Name: KHALED SHARAFELDIN
M376B0YS
01/15/2022 10:59 AM U.S. Eastern Standard Time ACCEPTED
Signature Page to Long Term Incentive Award Agreement
Below is a list of all direct and indirect subsidiaries of Tellurian Inc. as of December 31, 2021:
SUBSIDIARIES OF THE REGISTRANT
Subsidiary
Tellurian Inc. owns the following subsidiaries directly:
Tellurian Investments LLC (formerly known as Tellurian Investments Inc.)
Driftwood LP Holdings LLC
Driftwood GP Holdings LLC
Tellurian International Holdings Ltd
Tellurian Investments LLC owns the following subsidiaries directly:
Tellurian Production Holdings LLC
Tellurian LandCo LLC (formerly known as Parallax LNG LandCo LLC and MBTU LandCo LLC)
Tellurian Supply & Trade LLC
Purity Pipeline LLC
Delhi Connector LLC
Tellurian Midstream Holdings LLC
Tellurian Services LLC (formerly known as Parallax Services LLC)
Tellurian Management Services LLC (formerly known as Tellurian O&M LLC and Driftwood Operating LLC)
Magellan Petroleum Australia Pty Ltd
Driftwood LP Holdings LLC owns the following subsidiary directly:
Driftwood Holdings LP (formerly known as Driftwood Holdings LLC)
Tellurian International Holdings Ltd owns the following subsidiaries directly:
Tellurian Trading UK Ltd
Tellurian LNG Singapore Pte. Ltd.
Tellurian LNG UK Ltd
Tellurian Production Holdings LLC owns the following subsidiaries directly:
Tellurian Operating LLC
Tellurian Production LLC
Magellan Petroleum Australia Pty Ltd owns the following subsidiary directly:
Magellan Petroleum (Offshore) Pty Ltd
Driftwood Holdings LP owns the following subsidiary directly:
Driftwood Holdco LLC
Driftwood Holdco LLC owns the following subsidiaries directly:
Tellurian Pipeline LLC
Tellurian LNG LLC (formerly known as Parallax LNG LLC)
Driftwood Production Holdings LLC
Tellurian Pipeline LLC owns the following subsidiaries directly:
Haynesville Global Access Pipeline LLC
Permian Global Access Pipeline LLC
Driftwood Pipeline LLC (formerly known as Driftwood LNG Pipeline LLC)
Tellurian LNG LLC owns the following subsidiaries directly:
Driftwood LNG Tug Services LLC
Driftwood LNG LLC
Exhibit 21.1
State or Other Jurisdiction
of Incorporation or
Organization
Ownership
Delaware
Delaware
Delaware
United Kingdom
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Australia
Delaware
United Kingdom
Singapore
United Kingdom
Delaware
Delaware
Australia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0% (1)
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Driftwood LP Holdings LLC owns 100% of Driftwood Holdings LP, of which Driftwood GP Holdings LLC is the general partner.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-235793 and 333-232732 on Form S-3ASR and Registration Statement Nos. 333-220641, 333-
216010, 333-189614, 333-171149, 333-162668 and 333-70567 on Form S-8 of our reports dated February 23, 2022, relating to the financial statements of Tellurian Inc. and the
effectiveness of Tellurian Inc.’s internal control over financial reporting appearing in this Annual Report on Form 10-K of Tellurian Inc. for the year ended December 31, 2021.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 2022
Exhibit 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3ASR of Tellurian Inc. (No. 333-235793 and No. 333-232732) and to the
incorporation by reference in the Registration Statements on Form S-8 of Tellurian Inc. (No. 333-220641, No. 333-216010, No. 333-189614, No. 333-171149, No. 333-162668
and No. 333-70567) of all references to our firm and information from our reserves report dated January 20, 2022 included in or made a part of Tellurian Inc.’s Annual Report
on Form 10-K for the year ended December 31, 2021, and our summary report attached as Exhibit 99.1 to the Annual Report on Form 10-K.
Houston, Texas
February 23, 2022
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Danny D. Simmons
Danny D. Simmons, P.E.
President and Chief Operating Officer
Exhibit 31.1
I, Octávio M.C. Simões, certify that:
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
1. I have reviewed this annual report on Form 10-K of Tellurian Inc.:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: February 23, 2022
/s/ Octávio M.C. Simões
Octávio M.C. Simões
Chief Executive Officer
(as Principal Executive Officer)
Tellurian Inc.
Exhibit 31.2
I, L. Kian Granmayeh, certify that:
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
1. I have reviewed this annual report on Form 10-K of Tellurian Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: February 23, 2022
/s/ L. Kian Granmayeh
L. Kian Granmayeh
Chief Financial Officer
(as Principal Financial Officer)
Tellurian Inc.
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the annual report of Tellurian Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Octávio M.C. Simões, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 23, 2022
/s/ Octávio M.C. Simões
Octávio M.C. Simões
Chief Executive Officer
(as Principal Executive Officer)
Tellurian Inc.
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the annual report of Tellurian Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, L. Kian Granmayeh, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 23, 2022
/s/ L. Kian Granmayeh
L. Kian Granmayeh
Chief Financial Officer
(as Principal Financial Officer)
Tellurian Inc.
January 20, 2022
Exhibit 99.1
Ms. Ami Arief
Tellurian Production LLC
1201 Louisiana Street, Suite 3100
Houston, Texas 77002
Dear Ms. Arief:
In accordance with your request, we have estimated the proved reserves and future revenue, as of December 31, 2021, to the Tellurian Production LLC
(Tellurian) interest in certain gas properties located in Louisiana. We completed our evaluation on or about the date of this letter. It is our understanding that the
proved reserves estimated in this report constitute all of the proved reserves owned by Tellurian. The estimates in this report have been prepared in accordance
with the definitions and regulations of the U.S. Securities and Exchange Commission (SEC) and, with the exception of the exclusion of future income taxes,
conform to the FASB Accounting Standards Codification Topic 932, Extractive Activities—Oil and Gas. Definitions are presented immediately following this
letter. This report has been prepared for Tellurian's use in filing with the SEC; in our opinion the assumptions, data, methods, and procedures used in the
preparation of this report are appropriate for such purpose.
We estimate the gross (100 percent) gas reserves and the net gas reserves and future net revenue to the Tellurian interest in these properties, as of December
31, 2021, to be:
Category
Proved Developed Producing
Proved Developed Non-Producing
Proved Undeveloped
Gas Reserves (MMCF)
Future Net Revenue (M$)
Gross
(100%)
173,352.3
70,423.6
476,572.1
Net
Total
Present Worth
at 10%
50,393.7
23,532.6
249,409.4
110,241.0
61,254.8
428,410.1
93,654.6
49,661.2
248,342.4
Total Proved
720,347.8
323,335.7
599,905.9
391,658.1
Totals may not add because of rounding.
Gas volumes are expressed in millions of cubic feet (MMCF) at standard temperature and pressure bases. These properties have never produced commercial
volumes of condensate.
Reserves categorization conveys the relative degree of certainty; reserves subcategorization is based on development and production status. As requested,
probable and possible reserves that exist for these properties have not been included. The estimates of reserves and future revenue included herein have not
been adjusted for risk. This report does not include any value that could be attributed to interests in undeveloped acreage beyond those tracts for which
undeveloped reserves have been estimated.
Gross revenue is Tellurian's share of the gross (100 percent) revenue from the properties prior to any deductions. Future net revenue is after deductions for
Tellurian's share of production taxes, ad valorem taxes, capital costs, abandonment costs, and operating expenses but before consideration of any income
taxes. The future net revenue has been discounted at an annual rate of 10 percent to determine its present worth, which is shown to indicate the effect of time
on the value of money. Future net revenue presented in this report, whether discounted or undiscounted, should not be construed as being the fair market value
of the properties.
Gas prices used in this report are based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period
January through December 2021. The average Henry Hub spot price of $3.598 per MMBTU is adjusted for energy content, transportation fees, and market
differentials. The fees associated with Tellurian's gathering and transportation contracts are included as a deduction to gas revenue. Gas prices are held
constant throughout the lives of the properties. The average adjusted gas price weighted by production over the remaining lives of the properties is $2.925 per
MCF.
Operating costs used in this report are based on operating expense records of Tellurian. These costs include the per-well overhead expenses allowed under
joint operating agreements along with estimates of costs to be incurred at and below the district and field levels. Operating costs have been divided into project-
level costs, per-well costs, and per-unit-of-production costs. Headquarters general and administrative overhead expenses of Tellurian are included to the extent
that they are covered under joint operating agreements for the operated properties. Operating costs are not escalated for inflation.
Capital costs
Capital costs used in this report were provided by Tellurian and are based on authorizations for expenditure and actual costs from recent activity.
are included as required for workovers, new development wells, and production equipment. Based on our understanding of future development plans, a review
of the records provided to us, and our knowledge of similar properties, we regard these estimated capital costs to be reasonable. Abandonment costs used in
this report are Tellurian's estimates of the costs to abandon the wells and production facilities, net of any salvage value. Capital costs and abandonment costs
are not escalated for inflation.
For the purposes of this report, we did not perform any field inspection of the properties, nor did we examine the mechanical operation or condition of the wells
and facilities. We have not investigated possible environmental liability related to the properties; therefore, our estimates do not include any costs due to such
possible liability.
We have made no investigation of potential volume and value imbalances resulting from overdelivery or underdelivery to the Tellurian interest. Therefore, our
estimates of reserves and future revenue do not include adjustments for the settlement of any such imbalances; our projections are based on Tellurian receiving
its net revenue interest share of estimated future gross production. Additionally, we have been informed by Tellurian that it is not party to any firm transportation
contracts for these properties.
The reserves shown in this report are estimates only and should not be construed as exact quantities. Proved reserves are those quantities of oil and gas which,
by analysis of engineering and geoscience data, can be estimated with reasonable certainty to be economically producible; probable and possible reserves are
those additional reserves which are sequentially less certain to be recovered than proved reserves. Estimates of reserves may increase or decrease as a result
of market conditions, future operations, changes in regulations, or actual reservoir performance. In addition to the primary economic assumptions discussed
herein, our estimates are based on certain assumptions including, but not limited to, that the properties will be developed consistent with current development
plans as provided to us by Tellurian, that the properties will be operated in a prudent manner, that no governmental regulations or controls will be put in place
that would impact the ability of the interest owner to recover the reserves, and that our projections of future production will prove consistent with actual
performance. If the reserves are recovered, the revenues therefrom and the costs related thereto could be more or less than the estimated amounts. Because
of governmental policies and uncertainties of supply and
demand, the sales rates, prices received for the reserves, and costs incurred in recovering such reserves may vary from assumptions made while preparing this
report.
For the purposes of this report, we used technical and economic data including, but not limited to, well logs, geologic maps, seismic data, well test data,
production data, historical price and cost information, and property ownership interests. The reserves in this report have been estimated using deterministic
methods; these estimates have been prepared in accordance with the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information
promulgated by the Society of Petroleum Engineers (SPE Standards). We used standard engineering and geoscience methods, or a combination of methods,
including performance analysis and analogy, that we considered to be appropriate and necessary to categorize and estimate reserves in accordance with SEC
definitions and regulations. A substantial portion of these reserves are for undeveloped locations; such reserves are based on analogy to properties with similar
geologic and reservoir characteristics. As in all aspects of oil and gas evaluation, there are uncertainties inherent in the interpretation of engineering and
geoscience data; therefore, our conclusions necessarily represent only informed professional judgment.
The data used in our estimates were obtained from Tellurian, public data sources, and the nonconfidential files of Netherland, Sewell & Associates, Inc. (NSAI)
and were accepted as accurate. Supporting work data are on file in our office. We have not examined the titles to the properties or independently confirmed the
actual degree or type of interest owned. The technical persons primarily responsible for preparing the estimates presented herein meet the requirements
regarding qualifications, independence, objectivity, and confidentiality set forth in the SPE Standards. Chad E. Ireton, a Licensed Professional Engineer in the
State of Texas, has been practicing consulting petroleum engineering at NSAI since 2012 and has over 11 years of prior industry experience. Zachary R. Long,
a Licensed Professional Geoscientist in the State of Texas, has been practicing consulting petroleum geoscience at NSAI since 2007 and has over 2 years of
prior industry experience. We are independent petroleum engineers, geologists, geophysicists, and petrophysicists; we do not own an interest in these
properties nor are we employed on a contingent basis.
Sincerely,
NETHERLAND, SEWELL & ASSOCIATES, INC.
Texas Registered Engineering Firm F-2699
/s/ C.H. (Scott) Rees III
By:
C.H. (Scott) Rees III, P.E.
Chairman and Chief Executive Officer
/s/ Chad E. Ireton /s/ Zachary R. Long
By: By:
Chad E. Ireton, P.E. 115760 Zachary R. Long, P.G. 11792
Vice President Vice President
Date Signed: January 20, 2022 Date Signed: January 20, 2022
CEI:DEC
Please be advised that the digital document you are viewing is provided by Netherland, Sewell & Associates, Inc. (NSAI) as a convenience to our clients. The digital document is intended to be
substantively the same as the original signed document maintained by NSAI. The digital document is subject to the parameters, limitations, and conditions stated in the original document. In the event of
any differences between the digital document and the original document, the original document shall control and supersede the digital document.
DEFINITIONS OF OIL AND GAS RESERVES
Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)
The following definitions are set forth in U.S. Securities and Exchange Commission (SEC) Regulation S-X Section 210.4‑10(a). Also included is supplemental information from (1) the 2018
Petroleum Resources Management System approved by the Society of Petroleum Engineers, (2) the FASB Accounting Standards Codification Topic 932, Extractive Activities—Oil and Gas,
and (3) the SEC's Compliance and Disclosure Interpretations.
(1) Acquisition of properties. Costs incurred to purchase, lease or otherwise acquire a property, including costs of lease bonuses and options to purchase or lease properties, the portion of costs
applicable to minerals when land including mineral rights is purchased in fee, brokers' fees, recording fees, legal costs, and other costs incurred in acquiring properties.
(2) Analogous reservoir. Analogous reservoirs, as used in resources assessments, have similar rock and fluid properties, reservoir conditions (depth, temperature, and pressure) and drive
mechanisms, but are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation of more limited data and
estimation of recovery. When used to support proved reserves, an "analogous reservoir" refers to a reservoir that shares the following characteristics with the reservoir of interest:
(i) Same geological formation (but not necessarily in pressure communication with the reservoir of interest);
(ii) Same environment of deposition;
(iii) Similar geological structure; and
(iv) Same drive mechanism.
Instruction to paragraph (a)(2): Reservoir properties must, in the aggregate, be no more favorable in the analog than in the reservoir of interest.
(3) Bitumen. Bitumen, sometimes referred to as natural bitumen, is petroleum in a solid or semi-solid state in natural deposits with a viscosity greater than 10,000 centipoise measured at
original temperature in the deposit and atmospheric pressure, on a gas free basis. In its natural state it usually contains sulfur, metals, and other non-hydrocarbons.
(4) Condensate. Condensate is a mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at
surface pressure and temperature.
(5) Deterministic estimate. The method of estimating reserves or resources is called deterministic when a single value for each parameter (from the geoscience, engineering, or economic data)
in the reserves calculation is used in the reserves estimation procedure.
(6) Developed oil and gas reserves. Developed oil and gas reserves are reserves of any category that can be expected to be recovered:
(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and
(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
Supplemental definitions from the 2018 Petroleum Resources Management System:
Developed Producing Reserves – Expected quantities to be recovered from completion intervals that are open and producing at the effective date of the estimate. Improved
recovery Reserves are considered producing only after the improved recovery project is in operation.
Developed Non-Producing Reserves – Shut-in and behind-pipe Reserves. Shut-in Reserves are expected to be recovered from (1) completion intervals that are open at the
time of the estimate but which have not yet started producing, (2) wells which were shut-in for market conditions or pipeline connections, or (3) wells not capable of
production for mechanical reasons. Behind-pipe Reserves are expected to be recovered from zones in existing wells that will require additional completion work or future
re-completion before start of production with minor cost to access these reserves. In all cases, production can be initiated or restored with relatively low expenditure
compared to the cost of drilling a new well.
(7) Development costs. Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas. More specifically, development
costs, including depreciation and applicable operating costs of support equipment and facilities and other costs of development activities, are costs incurred to:
Definitions - Page 1 of 7
DEFINITIONS OF OIL AND GAS RESERVES
Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)
(i) Gain access to and prepare well locations for drilling, including surveying well locations for the purpose of determining specific development drilling sites, clearing ground, draining,
road building, and relocating public roads, gas lines, and power lines, to the extent necessary in developing the proved reserves.
(ii) Drill and equip development wells, development-type stratigraphic test wells, and service wells, including the costs of platforms and of well equipment such as casing, tubing,
pumping equipment, and the wellhead assembly.
(iii) Acquire, construct, and install production facilities such as lease flow lines, separators, treaters, heaters, manifolds, measuring devices, and production storage tanks, natural gas
cycling and processing plants, and central utility and waste disposal systems.
(iv) Provide improved recovery systems.
(8) Development project. A development project is the means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single
reservoir or field, an incremental development in a producing field, or the integrated development of a group of several fields and associated facilities with a common ownership may
constitute a development project.
(9) Development well. A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.
(10) Economically producible. The term economically producible, as it relates to a resource, means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the
costs of the operation. The value of the products that generate revenue shall be determined at the terminal point of oil and gas producing activities as defined in paragraph (a)(16) of this
section.
(11) Estimated ultimate recovery (EUR). Estimated ultimate recovery is the sum of reserves remaining as of a given date and cumulative production as of that date.
(12) Exploration costs. Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects of containing oil and gas
reserves, including costs of drilling exploratory wells and exploratory-type stratigraphic test wells. Exploration costs may be incurred both before acquiring the related property (sometimes
referred to in part as prospecting costs) and after acquiring the property. Principal types of exploration costs, which include depreciation and applicable operating costs of support equipment
and facilities and other costs of exploration activities, are:
(i) Costs of topographical, geographical and geophysical studies, rights of access to properties to conduct those studies, and salaries and other expenses of geologists, geophysical crews,
and others conducting those studies. Collectively, these are sometimes referred to as geological and geophysical or "G&G" costs.
(ii) Costs of carrying and retaining undeveloped properties, such as delay rentals, ad valorem taxes on properties, legal costs for title defense, and the maintenance of land and lease
records.
(iii) Dry hole contributions and bottom hole contributions.
(iv) Costs of drilling and equipping exploratory wells.
(v) Costs of drilling exploratory-type stratigraphic test wells.
(13) Exploratory well. An exploratory well is a well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir.
Generally, an exploratory well is any well that is not a development well, an extension well, a service well, or a stratigraphic test well as those items are defined in this section.
(14) Extension well. An extension well is a well drilled to extend the limits of a known reservoir.
(15) Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There
may be two or more reservoirs in a field which are separated vertically by intervening impervious strata, or laterally by local geologic barriers, or by both. Reservoirs that are associated by
being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms "structural feature" and "stratigraphic condition" are intended to identify
localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas-of-interest, etc.
(16) Oil and gas producing activities.
(i) Oil and gas producing activities include:
(A) The search for crude oil, including condensate and natural gas liquids, or natural gas ("oil and gas") in their natural states and original locations;
Definitions - Page 2 of 7
DEFINITIONS OF OIL AND GAS RESERVES
Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)
(B) The acquisition of property rights or properties for the purpose of further exploration or for the purpose of removing the oil or gas from such properties;
(C) The construction, drilling, and production activities necessary to retrieve oil and gas from their natural reservoirs, including the acquisition, construction, installation, and
maintenance of field gathering and storage systems, such as:
(1) Lifting the oil and gas to the surface; and
(2) Gathering, treating, and field processing (as in the case of processing gas to extract liquid hydrocarbons); and
(D) Extraction of saleable hydrocarbons, in the solid, liquid, or gaseous state, from oil sands, shale, coalbeds, or other nonrenewable natural resources which are intended to be
upgraded into synthetic oil or gas, and activities undertaken with a view to such extraction.
Instruction 1 to paragraph (a)(16)(i): The oil and gas production function shall be regarded as ending at a "terminal point", which is the outlet valve on the lease or field storage tank. If
unusual physical or operational circumstances exist, it may be appropriate to regard the terminal point for the production function as:
a.
b.
The first point at which oil, gas, or gas liquids, natural or synthetic, are delivered to a main pipeline, a common carrier, a refinery, or a marine terminal; and
In the case of natural resources that are intended to be upgraded into synthetic oil or gas, if those natural resources are delivered to a purchaser prior to upgrading, the first point at
which the natural resources are delivered to a main pipeline, a common carrier, a refinery, a marine terminal, or a facility which upgrades such natural resources into synthetic oil or
gas.
Instruction 2 to paragraph (a)(16)(i): For purposes of this paragraph (a)(16), the term saleable hydrocarbons means hydrocarbons that are saleable in the state in which the hydrocarbons
are delivered.
(ii) Oil and gas producing activities do not include:
(A) Transporting, refining, or marketing oil and gas;
(B) Processing of produced oil, gas, or natural resources that can be upgraded into synthetic oil or gas by a registrant that does not have the legal right to produce or a revenue interest
in such production;
(C) Activities relating to the production of natural resources other than oil, gas, or natural resources from which synthetic oil and gas can be extracted; or
(D) Production of geothermal steam.
(17) Possible reserves. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.
(i) When deterministic methods are used, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When
probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible
reserves estimates.
(ii) Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves where data control and interpretations of available data are progressively less certain.
Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area and vertical limits of commercial production from the reservoir by a
defined project.
(iii) Possible reserves also include incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than the recovery quantities assumed for probable
reserves.
(iv) The proved plus probable and proved plus probable plus possible reserves estimates must be based on reasonable alternative technical and commercial interpretations within the
reservoir or subject project that are clearly documented, including comparisons to results in successful similar projects.
(v) Possible reserves may be assigned where geoscience and engineering data identify directly adjacent portions of a reservoir within the same accumulation that may be separated from
proved areas by faults with displacement less than formation thickness or other geological discontinuities and that have not been penetrated by a wellbore, and the registrant believes
that such adjacent portions are in communication with the known (proved) reservoir. Possible reserves may be assigned to areas that are structurally higher or lower than the proved
area if these areas are in communication with the proved reservoir.
Definitions - Page 3 of 7
DEFINITIONS OF OIL AND GAS RESERVES
Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)
(vi) Pursuant to paragraph (a)(22)(iii) of this section, where direct observation has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved
oil reserves should be assigned in the structurally higher portions of the reservoir above the HKO only if the higher contact can be established with reasonable certainty through
reliable technology. Portions of the reservoir that do not meet this reasonable certainty criterion may be assigned as probable and possible oil or gas based on reservoir fluid properties
and pressure gradient interpretations.
(18) Probable reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to
be recovered.
(i) When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When
probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates.
(ii) Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted
reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved
area if these areas are in communication with the proved reservoir.
(iii) Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.
(iv) See also guidelines in paragraphs (a)(17)(iv) and (a)(17)(vi) of this section.
(19) Probabilistic estimate. The method of estimation of reserves or resources is called probabilistic when the full range of values that could reasonably occur for each unknown parameter
(from the geoscience and engineering data) is used to generate a full range of possible outcomes and their associated probabilities of occurrence.
(20) Production costs.
(i) Costs incurred to operate and maintain wells and related equipment and facilities, including depreciation and applicable operating costs of support equipment and facilities and other
costs of operating and maintaining those wells and related equipment and facilities. They become part of the cost of oil and gas produced. Examples of production costs (sometimes
called lifting costs) are:
(A) Costs of labor to operate the wells and related equipment and facilities.
(B) Repairs and maintenance.
(C) Materials, supplies, and fuel consumed and supplies utilized in operating the wells and related equipment and facilities.
(D) Property taxes and insurance applicable to proved properties and wells and related equipment and facilities.
(E) Severance taxes.
(ii) Some support equipment or facilities may serve two or more oil and gas producing activities and may also serve transportation, refining, and marketing activities. To the extent that the
support equipment and facilities are used in oil and gas producing activities, their depreciation and applicable operating costs become exploration, development or production costs, as
appropriate. Depreciation, depletion, and amortization of capitalized acquisition, exploration, and development costs are not production costs but also become part of the cost of oil
and gas produced along with production (lifting) costs identified above.
(21) Proved area. The part of a property to which proved reserves have been specifically attributed.
(22) Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior
to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods
are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable
time.
(i) The area of the reservoir considered as proved includes:
(A) The area identified by drilling and limited by fluid contacts, if any, and
Definitions - Page 4 of 7
DEFINITIONS OF OIL AND GAS RESERVES
Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)
(B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of
available geoscience and engineering data.
(ii)
In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience,
engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be
assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable
certainty.
(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved
classification when:
(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the
reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program
was based; and
(B) The project has been approved for development by all necessary parties and entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month
period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such
period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
(23) Proved properties. Properties with proved reserves.
(24) Reasonable certainty. If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered. If probabilistic methods are used,
there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be
achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate
recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease.
(25) Reliable technology. Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide
reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.
(26) Reserves. Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development
projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production,
installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.
Note to paragraph (a)(26): Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as
economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally
low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
Definitions - Page 5 of 7
DEFINITIONS OF OIL AND GAS RESERVES
Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)
Excerpted from the FASB Accounting Standards Codification Topic 932, Extractive Activities—Oil and Gas:
932-235-50-30 A standardized measure of discounted future net cash flows relating to an entity's interests in both of the following shall be disclosed as of the
end of the year:
a. Proved oil and gas reserves (see paragraphs 932-235-50-3 through 50-11B)
b. Oil and gas subject to purchase under long-term supply, purchase, or similar agreements and contracts in which the entity participates in the
operation of the properties on which the oil or gas is located or otherwise serves as the producer of those reserves (see paragraph 932-235-50-7).
The standardized measure of discounted future net cash flows relating to those two types of interests in reserves may be combined for reporting purposes.
932-235-50-31 All of the following information shall be disclosed in the aggregate and for each geographic area for which reserve quantities are
disclosed in accordance with paragraphs 932-235-50-3 through 50-11B:
a. Future cash inflows. These shall be computed by applying prices used in estimating the entity's proved oil and gas reserves to the year-end quantities
of those reserves. Future price changes shall be considered only to the extent provided by contractual arrangements in existence at year-end.
b. Future development and production costs. These costs shall be computed by estimating the expenditures to be incurred in developing and producing
the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. If estimated
development expenditures are significant, they shall be presented separately from estimated production costs.
c. Future income tax expenses. These expenses shall be computed by applying the appropriate year-end statutory tax rates, with consideration of future
tax rates already legislated, to the future pretax net cash flows relating to the entity's proved oil and gas reserves, less the tax basis of the properties
involved. The future income tax expenses shall give effect to tax deductions and tax credits and allowances relating to the entity's proved oil and gas
reserves.
d. Future net cash flows. These amounts are the result of subtracting future development and production costs and future income tax expenses from future
cash inflows.
e. Discount. This amount shall be derived from using a discount rate of 10 percent a year to reflect the timing of the future net cash flows relating to
proved oil and gas reserves.
f. Standardized measure of discounted future net cash flows. This amount is the future net cash flows less the computed discount.
(27) Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is
individual and separate from other reservoirs.
(28) Resources. Resources are quantities of oil and gas estimated to exist in naturally occurring accumulations. A portion of the resources may be estimated to be recoverable, and another
portion may be considered to be unrecoverable. Resources include both discovered and undiscovered accumulations.
(29) Service well. A well drilled or completed for the purpose of supporting production in an existing field. Specific purposes of service wells include gas injection, water injection, steam
injection, air injection, salt-water disposal, water supply for injection, observation, or injection for in-situ combustion.
(30) Stratigraphic test well. A stratigraphic test well is a drilling effort, geologically directed, to obtain information pertaining to a specific geologic condition. Such wells customarily are
drilled without the intent of being completed for hydrocarbon production. The classification also includes tests identified as core tests and all types of expendable holes related to hydrocarbon
exploration. Stratigraphic tests are classified as "exploratory type" if not drilled in a known area or "development type" if drilled in a known area.
(31) Undeveloped oil and gas reserves. Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing
wells where a relatively major expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using
reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
Definitions - Page 6 of 7
DEFINITIONS OF OIL AND GAS RESERVES
Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)
(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years,
unless the specific circumstances, justify a longer time.
From the SEC's Compliance and Disclosure Interpretations (October 26, 2009):
Although several types of projects — such as constructing offshore platforms and development in urban areas, remote locations or environmentally
sensitive locations — by their nature customarily take a longer time to develop and therefore often do justify longer time periods, this determination must
always take into consideration all of the facts and circumstances. No particular type of project per se justifies a longer time period, and any extension
beyond five years should be the exception, and not the rule.
Factors that a company should consider in determining whether or not circumstances justify recognizing reserves even though development may extend
past five years include, but are not limited to, the following:
• The company's level of ongoing significant development activities in the area to be developed ( for example, drilling only the minimum number of
wells necessary to maintain the lease generally would not constitute significant development activities);
• The company's historical record at completing development of comparable long-term projects;
• The amount of time in which the company has maintained the leases, or booked the reserves, without significant development activities;
• The extent to which the company has followed a previously adopted development plan (for example, if a company has changed its development plan
several times without taking significant steps to implement any of those plans, recognizing proved undeveloped reserves typically would not be
appropriate); and
• The extent to which delays in development are caused by external factors related to the physical operating environment (for example, restrictions on
development on Federal lands, but not obtaining government permits), rather than by internal factors (for example, shifting resources to develop
properties with higher priority).
(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by
other evidence using reliable technology establishing reasonable certainty.
(32) Unproved properties. Properties with no proved reserves.
Definitions - Page 7 of 7