Over the course of his colourful career, Charif Souki has been an investment banker, a restaurateur, a wildcatter and now a US natural gas export pioneer. His latest business bet may be the costliest one yet.
Tellurian, the company Mr Souki co-founded four years ago to build a $29 billion (Dh106bn) liquefied natural gas export plant in Louisiana, has been thrown into turmoil by a slump in the international market for the fuel and concern the project won’t secure the necessary backing. And now the fast-spreading coronavirus is stifling demand for LNG, making a massive global glut even worse.
Mr Souki’s career has been characterised by reinvention, a skill that may prove useful as Tellurian struggles to right itself. Born in Cairo in 1953 and raised in Beirut, he got his start as an investment banker focusing on the oil and gas industry. He later teamed up with his brother to open a chain of restaurants, including Los Angeles’ Mezzaluna. The celebrity hotspot became notorious after the murders of employee Ron Goldman and Nicole Brown Simpson, who ate her last meal there. Mr Souki closed the restaurant in 1997.
In 1996, Mr Souki founded Cheniere Energy to explore for oil in the Gulf of Mexico. When the company failed to hit a gusher, Mr Souki transformed it into a developer of natural gas import terminals. At the time, gas prices were soaring to record highs amid dwindling domestic production. That all changed with the shale boom, which flooded the US market with supply. Mr Souki swiftly changed course again, converting Cheniere’s import terminal in Louisiana into an export facility and putting the company on track to become the first to ship gas from the lower 48 states.
Cheniere became the biggest supplier of American gas to overseas buyers, vaulting the US into the ranks of the world’s top LNG exporters. But Mr Souki wasn’t around to see the company reach those heights: He was ousted in 2015 amid a push from billionaire investor Carl Icahn, months before Cheniere shipped its first cargo. Mr Icahn accused Mr Souki of overspending and said his aggressive expansion plans were putting the company in jeopardy.
Mr Souki had “all these - I hate to say it - harebrained ideas,” including buying oil companies, Mr Icahn said in a 2016 interview. “I’ll tell you now what he knew - he knew how to go almost bankrupt, because that’s what happened to him.”
In an interview earlier this year, Mr Souki responded to Mr Icahn’s criticism, sounding an optimistic note on the outlook for Tellurian before its recent stock slump.
“Carl decided to describe the venture I wanted to invest in as ‘harebrained’ and four years later it turns out maybe Tellurian isn’t so harebrained,” he said.
Mr Souki co-founded Tellurian just three months after his departure from Cheniere. In his role as chairman of the new company, he remained the consummate salesman, using his track record as an LNG trailblazer to help drum up interest from investors. Tellurian’s market capitalisation soon soared above $4bn.
“This is easy compared to what we had at Cheniere,” Mr Souki said in a 2016 interview. “I have money and we don’t have any debt.”
At Tellurian, Mr Souki’s ambitions to expand beyond LNG exports were undimmed. The company spent $85 million in 2017 to buy shale assets in Louisiana, becoming the first US developer to secure gas for its export terminal by producing the fuel itself.
Though Tellurian hasn’t reached a final investment decision on Driftwood, a project that wouldn’t start producing LNG until at least 2023, the company had operating expenses of about $9.4m a month last year. By the end of December, it had 176 employees and office space in Houston, Washington, London and Singapore.
Mr Souki initially proposed a novel way to fund Driftwood: avoid debt by asking investors to pay a total of $12bn up front, in return for a stake in the project and the ability to buy fuel at cost. Total signed on last year.
But larger market forces have gotten in the way of Mr Souki’s plans. New export terminals from the US to Australia inundated the global LNG market, sending prices for the fuel plunging and clouding the outlook for new projects. Cheniere said last week that two buyers had decided to cancel cargoes for April, a move that could be an ominous sign for an already oversupplied market.
Trade tensions between the US and China have so far prevented American export developers from signing new deals with the world’s second-largest economy. The coronavirus outbreak, meanwhile, has sent global markets spiraling lower, adding to Tellurian’s woes. The epidemic has hit China, South Korea and Japan, the world’s biggest LNG importers, particularly hard.
The impact of the virus is unknown and “everybody’s panicked” and travel restrictions mean LNG won’t be finalised, Mr Souki said by phone on Monday. “We get on video conference very often, but at the end of the day when you make a deal you have to make it in person,” Mr Souki said. “For the time being everything has been delayed a few months.”
India’s Petronet LNG, a potential major customer that Tellurian has courted, is seeking competing offers, people with knowledge of the matter told Bloomberg February 27. The move by Petronet highlights the mounting pressure on sellers amid the worldwide glut, and adds to doubts that Tellurian will be able to secure a sizeable anchor investment from Petronet for Driftwood.
Tellurian plunged 72 per cent last week, and Mr Souki and co-founder Martin Houston were forced to sell some of their stakes in the company to satisfy loan requirements. The company said Monday it’s in talks to extend the maturity of a loan and will slash corporate overhead, and that it plans to sell as much as $200m of stock. That will mean job cuts and Tellurian will also slow work with its contractors, Bechtel and Baker Hughes, Mr Souki said. He expects projects to be finalised later this year.
“The relatively unsurprising delay to a potential deal with Petronet creates real access to capital concerns and liquidity concerns,” Katie Bays, co-founder of advisory firm Sandhill Strategy, said Monday. “The market reaction posits the question, ‘If buyers don’t need contracted US cargoes, why will they sign up for even more US LNG?”
