Tellurian CEO
Meg Gentle is on a mission to change how the world gets its natural gas
It was a Monday morning in 2008 when Meg Gentle heard the news that Lehman Brothers declared bankruptcy, sending the Dow industrial average down 500 points in one day and catapulting the world into a crippling financial disaster.
Gentle already was dealing with disasters of her own — both natural and man-made. Hurricane Ike had just landed on the Gulf Coast, inflicting billions of dollars of damage on the Houston region, forcing her then company, Cheniere Energy Inc., to temporarily shutter its gas terminal in Sabine Pass, La., and evacuate its employees. Gentle also was fighting to keep the company solvent as it plunged into its own financial crisis. She was then in charge of financial strategic planning at Cheniere, which had overleveraged its liquefied natural gas project to build a massive multibillion dollar import terminal as international competition intensified.
Gentle was waiting for a roughly $1.7 billion loan to close — on Monday, Sept. 15, 2008 — when the stock market crashed, potentially jeopardizing a refinancing deal the company desperately needed, she recalled. By a stroke of luck, the lenders had already put the money into Escrow before the financial markets crashed. It was the last high-yield bond to close in the market for the next 18 months as the economy reeled from the recession, Gentle said.
“I was happy to be lucky,” Gentle said with a laugh. Of course it took more than luck to pull Cheniere out of financial crisis, raise $25 billion in the midst of a recession and later transform what was supposed to be an import terminal into a project focused on exporting huge amounts of U.S. liquefied natural gas at a time when the country’s LNG exports were unknown.
While Cheniere’s former frontman Charif Souki is credited with transforming the U.S. liquefied natural gas industry, that transformation likely wouldn’t have been possible without the fortitude and financial planning that Gentle brought to the company, observers who know Gentle and the industry say. Now, Gentle wants to transform the U.S. LNG market again, this time as CEO of Tellurian Inc., which Souki formed in 2016 with former BG Group Chief Operating Officer Martin Houston after Souki was ousted from Cheniere. Gentle aims to grow Tellurian into a business capable of supplying the world with 10 percent of its liquefied natural gas needs within the next 10 years.
Through Tellurian, Gentle wants to transform how the world gets its natural gas by slashing production costs, lowering prices for customers and turning liquefied natural gas into a commodity that has the same flexibility and pricing transparency as oil, gold or wheat. By doing so, Gentle wants to hasten the global shift to the cleaner-burning fuel at a time when countries are searching for ways to power their economies with less greenhouse gas emissions.
“There is a larger mission at stake because we are bringing clean air to cities around the world that are very, very polluted … and as we talk about climate change, sustainability and
lower carbon emissions, overall, natural gas is really a fundamental part of that solution,” Gentle said.
She still has her work cut out for her. Gentle must persuade investors to buy into a new business model — considered by some to be risky — as she seeks to raise $28 billion to build a network of gas pipelines and a 27 million metric ton liquefaction terminal, called Driftwood LNG, south of Lake Charles, La. If she’s successful, she and Souki could once again change how the world gets an energy source that is increasingly in demand.
An architect for energy
Gentle is more comfortable with change than most; she grew up in a military family where constant moving forced her to adapt. She runs 3 miles every morning before cramming her day with meetings and still manages to be home in time for dinner with her husband, Kirk, and their younger sons every night. She and Kirk raise Clydesdale horses on their ranch in La Grange when she isn’t traversing the globe for work. People who know her describe her as unflappably calm with a quiet confidence that is palpable in her measured responses to questions.
“In a time when the ‘art of the deal’ may call for threats, table pounding and calling one’s opponents some unfortunate names, Meg succeeds in negotiations by being precisely the opposite,” said Steven R. Miles, a lawyer who specializes in LNG as a partner with the international law firm Baker Botts. “She shows up at the table armed to he teeth with facts, relationships and integrity. She spends hours in preparation to make sure that when the meeting begins, she knows more about the deal, and indeed the industry, than does almost anyone else present.”
Industry investors who have negotiated deals with Gentle said she is able to gain trust and mutual respect even from adversaries in the most bruising negotiations.
“I see her as a very bright, innovative, creative person who has the ability to understand the LNG market better than most and has a good understanding of where she wants to take her company,” said Al Walker, CEO of Houston-based oil company Anadarko Petroleum, who has known Gentle professionally for several years. “They obviously did some innovative things at Cheniere as they moved from a re-gas facility to an LNG export one. That took a lot creativity and innovation both operationally and financially.”
After studying international affairs and economics at James Madison University in Virginia, Gentle took a job as a gas analyst for Pace Global Energy Services in 1996 that launched a 23-year career in natural gas. She moved to Houston in 1998 to work as an analyst and later a planner for Anadarko. There she learned how to be an architect of sorts, studying how a natural gas discovery could change the company’s bottom line and customer base.
When she returned to school for finance at Rice University in 2002, a classmate encouraged her to check out Cheniere — then just a startup with a few dozen employees building a natural gas terminal. She took a job as a strategic planner there in 2004 and spent the next 12 years climbing the ranks of the company to become its chief financial officer as it grew into an international business with 1,300 employees.
“When I went to Cheniere originally it was because I wanted to change the gas business. And what I thought was that by importing LNG in the U.S., we were going to change the way the U.S. gas business works,” Gentle said. “What I didn’t anticipate was we would actually be changing global gas business, which frankly is a lot more inspiring.”
After Cheniere’s finances faltered — at one point it had $2 billion in debt but only $50 million in cash on hand, the New York Times reported — Souki persuaded foreign companies such as Britain’s BG Group (acquired by Royal Shell in 2016) to sign long-term contracts for future deliveries, which gave lenders and bond investors reassurance that Tellurian’s vision would come to fruition.
Gentle raised $250 million to keep the business afloat then raised another $25 billion for Cheniere’s Sabine Pass terminal. She formed the financial model that would underpin the first project to export U.S. LNG in 2016 — when Cheniere shipped its first exports from Sabine Pass, setting off a wave of liquefied natural gas projects that will transform the Gulf Coast into a gas hub.
After Gentle spent more than a decade at Cheniere, including a three-year stint in London, Cheniere shifted from the business development stage to focusing on constructing, building and operating their two Gulf Coast terminals. That left Gentle without a major project to plan and develop, a process to which she had dedicated her entire career.
For Gentle, it was as if she were an architect who had just seen her drawings constructed into a building. She needed a new project, a new vision, one that would help her scratch a nagging itch to leave an even bigger mark on the gas business. That’s when her former boss, Souki, and Martin Houston of BG Group called to ask her to run their new company, Tellurian.
A new model for gas
Houston, Souki and Gentle formed a unique business model that diverges in many ways from a traditional LNG project. Its strategy allows LNG buyers to invest upfront in the project as
an equity investor in exchange for securing low cost gas later on. It’s also offering gas at prices linked to LNG commodity pricing benchmarks instead of linking its prices to other commodities such as oil. And unlike many independent LNG terminal operators, Tellurian is getting into the business of producing its own gas instead of relying exclusively on a third party for supplies.
The goal is to slash costs by having more control over the production process from the wellhead where gas is extracted to the terminal where the product is loaded on ships. But it needs more land to achieve that yet. By some estimates, the company would need to become the 25th largest producer of natural gas in the U.S. to supply its Louisiana terminal with all the fuel it needed, the Wall Street Journal reported. Now it has more than 10,000 acres with an estimated 1.4 trillion cubic feet of gas resources in the Haynesville shale play in Louisiana. Talks to buy additional land in Haynesville are ongoing.
The project’s financing structure also allows Tellurian to cut costs, Gentle said, because instead of charging customers to pay back debt for constructing the project, the project is partly financed upfront by investors. About 30 percent of the project’s costs — or $8 billion — will be raised through investors buying a stake in company.
“The buyers of the LNG owning their stake in the project … that’s sort of revolutionary,” said Sam Margolin, senior analyst with Wolfe Research, a New York financial research firm. Offering equity ownership can allow major consumers of LNG, such as power companies and big energy companies with lots of capital to invest, to take a stake in creating new supply instead of waiting for a third party to build or operate a new LNG terminal. It also shifts some operating risk away from the LNG operator, in this case Tellurian, Margolin noted.
Originally, the project was to be financed 100 percent with equity from investors, but Tellurian instead has shifted to a mostly debt-financing model, a change that may make banks and investors more comfortable.
Tellurian also is planning a 625-mile pipeline from the Permian Basin, which suggests a willingness to buy third-party gas, too, at least for the first phase of the project, said Jason Gabelman, vice president of Cowen, a New York investment bank and financial services company.
Now the company’s business model, as it is more debt-financed and apparently open to buying third party gas for the first phase, is “less disruptive than what was originally proposed,” Gabelman said. It used to be the opposite of Cheniere ’s model, but now it’s “somewhere in the middle.” Even still, Gabelman said, the company’s approach is novel in its financing structure and in the fact that it’s building a major pipeline instead of just a smaller one that taps into a bigger pipeline, as other independent LNG operators have done.
This all means Tellurian can charge about $3 per million British thermal units of gas — essentially the cost of production — rather than $6 to $8 per million British thermal units that its competitors would have to charge after factoring in fees.
For Gentle, the Driftwood project in Lake Charles is only the beginning. She wants Tellurian to become a $30 billion business capable of supplying the world with 10 percent of its natural gas needs, or about 50 million metric tons of the projected 500 million metric tons the LNG market is projected to grow into in the next decade, Gentle said. And she sees more terminals and projects in its future.
A huge task ahead
But Gentle still has a way to go before her vision becomes a reality.
Her first major task is raising the $20 billion of debt and $8 billion of equity to build Tellurian’s first major project. In a crowded LNG development landscape, investors had been slow to commit to Tellurian’s newer model. The company’s stock dropped to $7.11 a share in early January, half of what it was when it first debuted on Wall Street in February 2017, although its stock price is climbing again and settled at about $10.26 per a share for the past two months. Last year the company posted a $126 million loss, but similar to other LNG companies, Tellurian relies on investors to endure losses during the yearslong permitting and construction process.
The construction group Bechtel, which is also building the Driftwood terminal, also has $50 million in the company. GE Oil & Gas (now Baker Hughes) invested $25 million in 2016. And recently the French oil major Total S.A. announced it is increasing its investment in the project — taking about a 25 percent stake in the company and committing about $900 million in aggregate to Tellurian and its parent company, Driftwood Holdings.
So far, Total is the only major company to take on an equity partnership, although Tellurian has memorandum of understandings with the Indian LNG buyer Petronet and the British energy company Vitol, which are considering equity investments too.
“They still have a lot of money to raise and that’s the other risky part they have to find partners,” said Margolin, the analyst with Wolfe research. “It does sound like it’s advancing and they’re making progress.” And Total boosting its investment was “a big step.”
Having another large investor in the project — especially someone other than Total, which was already involved in the project — would add more credibility, said Gabelman, the analyst with Cowen.
Tellurian is reportedly on the shortlist of LNG companies that Saudi Aramco is potentially considering investing in as it looks to get into the U.S. liquefied natural gas market, the Wall Street Journal reported. Gentle declined to comment on those potential talks but said there are Middle Eastern energy companies with upstream experience in extracting petroleum, something Tellurian could use as plans to produce its own gas.
Though she has a long road ahead of her to raise $28 billion, people who know Gentle say her time at Cheniere and her experience raising massive amounts of funding give her an edge in building new U.S. LNG terminals. And Gentle would tend to agree.
“People look at me and say, ‘How are you going to raise $20 billion?’ And I remind them, ‘Well, I have actually done it once before,’ ” Gentle said.