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") 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 production, LNG
marketing, and infrastructure assets that includes an LNG terminal facility (the
"Driftwood terminal") and related pipelines (the "Pipeline Network"). We refer
to the Driftwood terminal, the Pipeline Network and required natural gas
production assets collectively as the "Driftwood Project." Our existing natural
gas production assets consist of 9,373 net acres and interests in 72 producing
wells located in the Haynesville Shale trend of northern Louisiana. Our Business
may be developed in phases.
In connection with the implementation of our Business, we are offering
partnership interests in the Driftwood Project. Partners will contribute cash in
exchange for equity in the Driftwood Project and will receive LNG volumes at the
cost of production, including the cost of debt, for the life of the Driftwood
terminal. We plan to retain a portion of the ownership in the Driftwood Project
and have engaged Goldman Sachs & Co. and Société Générale to serve as financial
advisors.
We continue to evaluate, and discuss with potential partners, the scope and
other aspects of the Driftwood Project in light of the evolving economic
environment, needs of potential partners and other factors. Whether we implement
changes to the project will be based on a variety of factors, including the
results of our continuing analysis, changing business conditions and investor
feedback.
Overview of Significant Events
2019 Term Loan
On May 23, 2019, Driftwood Holdings LP, a Delaware limited partnership and an
indirect wholly owned subsidiary of Tellurian Inc. ("Driftwood Holdings"),
entered into a senior secured term loan agreement (the "2019 Term Loan") to
borrow an aggregate principal amount of $60.0 million, an amount that was
subsequently increased to $75.0 million. In conjunction with the 2019 Term Loan,
we issued to the lender a warrant to purchase approximately 1.5 million shares
of our common stock at $10.00 per share. During 2020, we entered into several
amendments to the 2019 Term Loan and, in connection with those amendments, we
issued to the lender a total of approximately 9.3 million shares of our common
stock to retire $15.0 million of
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principal amount of the loan, repaid $19.1 million of principal amount of the
loan in cash, replaced the original warrant with a warrant to purchase 9.0
million shares of our common stock at $1.00 per share and issued to the lender a
new warrant to purchase 4.7 million shares of our common stock at $1.542 per
share.
As amended, (i) the maturity date of the 2019 Term Loan is March 23, 2022, (ii)
amounts borrowed bear interest at 16%, with an option on our part to defer 8%
per annum as paid-in-kind, (iii) interest payments are made on a monthly basis,
and (iv) we are required to maintain a month-end cash balance of at least $12.0
million. Following exercises of the warrants by the lender and reductions in the
number of shares purchasable under the warrants resulting from partial
repayments of amounts due under the 2019 Term Loan, the warrants give the lender
the right, as of February 9, 2021, to purchase approximately 3.5 million shares
of our common stock for $1.00 and approximately 0.2 million shares of our common
stock for $1.542.
2020 Unsecured Note
On April 29, 2020, we issued a zero coupon $56.0 million senior unsecured note
(the "2020 Unsecured Note") to a third party, raising proceeds of approximately
$47.4 million, net of approximately $2.6 million in fees and $6.0 million in
original issue discount. We also issued to the lender a warrant to purchase 20.0
million shares of our common stock at a strike price of $1.542 per share. The
2020 Unsecured Note is subject to certain cash sweep provisions, and a portion
of the 2020 Unsecured Note must be paid on the first day of every month,
beginning on June 1, 2020. Due to the amount of proceeds generated from the sale
of our common stock under our at-the-market program in June 2020, as well as the
equity offering completed on July 24, 2020, these cash sweep provisions were
triggered on July 1, 2020 and August 3, 2020, requiring us to make a total of
$8.0 million in additional repayments of the outstanding principal balance. As a
result of these additional repayments, the final payment associated with the
2020 Unsecured Note is scheduled to occur on April 1, 2021 instead of June 1,
2021 as originally scheduled.
Equity Offering
On July 24, 2020, we completed a registered direct offering pursuant to which we
sold an aggregate of 35.0 million shares of our common stock at an offering
price of $1.00 per share. Net proceeds from the transaction were approximately
$32.8 million.
LNG Marketing
In July 2020, we purchased the first cargo of LNG pursuant to the master LNG
sale and purchase agreement entered into on April 23, 2019. This cargo was
subsequently sold to an unrelated third party resulting in revenue of
approximately $7.0 million.
Restructuring
In March 2020, we implemented a cost reduction and reorganization plan due to
the sharp decline in oil and natural gas prices as well as the growing negative
economic effects of the COVID-19 pandemic. We incurred approximately $6.4
million of severance and reorganization charges due to the reduction in
workforce. We have satisfied all amounts owed to former employees.
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 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.
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 $78.3 million of
cash and cash equivalents as of December 31, 2020 on a consolidated basis, of
which approximately $47.0 million is maintained at a wholly owned subsidiary of
Tellurian Production Holdings LLC. We currently maintain an at-the-market equity
offering program under which, as of the date of this filing, we have remaining
availability to raise aggregate gross sales proceeds of approximately $274.9
million. Since January 1, 2021, and through February 9, 2021, we have sold
approximately 25.6 million shares of common stock under our at-the-market
program for total proceeds of approximately $57.2 million, net of approximately
$1.8 million in fees and commissions.
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As of December 31, 2020, we had total indebtedness of approximately $111.1
million, of which approximately $72.8 million is scheduled to be repaid within
the next twelve months. We also had contractual obligations associated with our
finance and operating leases totaling $108.6 million, of which $4.8 million is
scheduled to be paid within the next twelve months. Since January 1, 2021, we
have repaid approximately $56.6 million in principal associated with our
indebtedness.
We are planning to generate proceeds from our at-the-market program and have
determined that it is probable that such proceeds will satisfy our obligations
and fund our working capital needs for at least twelve months following the
issuance of the financial statements. We also continue to evaluate generating
additional proceeds from various other potential financing transactions, such as
issuances of equity, equity-linked and debt securities or similar transactions
to fund our obligations and working capital needs.
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):
                                                                            Year Ended December 31,
                                                                            2020                  2019
Cash used in operating activities                                    $    (69,965)            $ (113,008)
Cash used in investing activities                                          (1,307)               (65,943)
Cash provided by financing activities                                      84,527                 63,844

Net increase (decrease) in cash, cash equivalents and restricted cash

                                                            13,255               (115,107)

Cash, cash equivalents and restricted cash, beginning of the period

                                                                     68,482                183,589

Cash, cash equivalents and restricted cash, end of the period $ 81,737

$   68,482

Net working capital                                                  $    (34,403)            $  (50,344)


Cash used in operating activities for the year ended December 31, 2020 decreased
by approximately $43.0 million compared to the same period in 2019 due to an
overall decrease in disbursements in the normal course of business.
Cash used in investing activities for the year ended December 31, 2020 decreased
by approximately $64.6 million compared to the same period in 2019. This
decrease is predominantly driven by decreased natural gas development
activities.
Cash provided by financing activities for the year ended December 31, 2020
increased by approximately $20.7 million compared to the same period in 2019.
This increase primarily relates to common stock issuances that raised net
proceeds of approximately $99.7 million offset by approximately $60.1 million in
principal repayments of our indebtedness and by an overall decrease in
borrowings of approximately $25.0 million. See Note 9, Borrowings, and Note 11,
Stockholders' Equity, of our Notes to Consolidated Financial Statements for
further information.
Capital Development Activities
The activities we have proposed will require significant amounts of capital and
are subject to risks and delays in completion. We have received all regulatory
approvals 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 currently estimate the total cost of the Driftwood Project to be
approximately $28.9 billion, including owners' costs, transaction costs and
contingencies but excluding interest costs incurred during construction of the
Driftwood terminal and other financing costs. We have entered into four LSTK EPC
agreements currently totaling $15.5 billion, or $561 per tonne, with Bechtel
Oil, Gas and Chemicals, Inc. ("Bechtel") for construction of the Driftwood
terminal. The proposed Driftwood terminal will have a liquefaction capacity of
up to approximately 27.6 Mtpa and will be situated on approximately 1,000 acres
in Calcasieu Parish, Louisiana. The proposed Driftwood terminal will include up
to 20 liquefaction Trains, three full containment LNG storage tanks and three
marine berths.
In addition, part of our strategy involves acquiring additional natural gas
properties, including properties in the Haynesville shale trend. We intend to
pursue potential acquisitions of such assets, or public or private companies
that own such assets, in 2021. We would expect to use stock, cash on hand, or
cash raised in financing transactions to complete an acquisition of this type.
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We anticipate funding our more immediate liquidity requirements relative to the
detailed engineering work and other developmental costs, natural gas development
costs, and general and administrative costs through the use of cash on hand,
proceeds from operations, and proceeds from completed and future issuances of
securities by us. Consistent with our overall financing strategy, the Company
has considered, and in some cases discussed with investors, various potential
financing transactions, including issuances of debt, equity and equity-linked
securities or similar transactions, to support its short- and medium-term
capital requirements. The Company will continue to evaluate its cash needs and
business outlook, and it may execute one or more transactions of this type in
the future.
We currently expect that our long-term capital requirements will be financed by
proceeds from future debt, equity and/or equity-linked transactions. In
addition, part of our financing strategy is expected to involve seeking equity
investments by LNG customers at a subsidiary level.
Results of Operations
The following table summarizes costs and expenses for the periods presented (in
thousands):
                                                                Year Ended December 31,
                                                          2020            2019            2018
Total revenue                                         $   37,434      $   28,774      $   10,286
Cost of sales                                             17,223           7,071           6,115
Development expenses                                      27,492          59,629          44,034
Depreciation, depletion and amortization                  17,228          20,446           1,567
General and administrative expenses                       47,349          87,487          81,777
Impairment charge and loss on transfer of assets          81,065               -           4,513
Severance and reorganization charges                       6,359               -               -
Related party charges                                      7,357               -               -
Loss from operations                                    (166,639)       (145,859)       (127,720)
Interest income (expense), net                           (43,445)        (16,355)          1,574
Other income, net                                           (612)         10,447             211
Income tax benefit (provision)                                 -               -             190
Net loss                                              $ (210,696)     $ (151,767)     $ (125,745)


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 production and falling demand brought about by
current economic conditions. For further information regarding this impairment
charge, see Note 3, Property, Plant and Equipment, of our Notes to Consolidated
Financial Statements.
•Increase of approximately $27.1 million in interest expense, net, which is
primarily attributable to both the 2019 Term Loan and 2020 Unsecured Note
incurring interest charges during the current period compared to only a portion
of the 2019 Term Loan incurring charges 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 current
period compared to zero in the prior period. For further information regarding
these related party charges, see Note 7, Related Party Transactions, of our
Notes to Consolidated Financial Statements.
•Approximately $6.4 million in severance and reorganization charges incurred
during the period compared to zero in the prior period. For further information
regarding the severance and reorganization charges, see Note 12, Severance and
Reorganization, of our Notes to 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.
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A discussion of variances between 2019 and 2018 can be found in the "Results of
Operations" section on pages 39 through 40 of the Company's 2019 Annual Report
on Form 10-K filed with the SEC on February 24, 2020.
Commitments and Contingencies
The information set forth in Note 10, 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 1, Basis of
Presentation and Summary of Significant Accounting Policies, of our Notes to
Consolidated Financial Statements included in this report. As disclosed in Note
1, 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 identified
our most critical accounting estimates to be:
•valuations of long-lived assets; and
•share-based compensation.
We believe that the following discussion addresses our critical accounting
policies, which are those that require our most difficult, subjective or complex
judgments about future events and related estimations that are fundamental to
our results of operations.
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 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.

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