FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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06-0842255
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1201 Louisiana Street, Suite 3100, Houston, TX
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77002
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(Address of principal executive offices)
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(Zip Code)
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(832) 962-4000
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(Registrant’s telephone number, including area code)
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated filer
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¨
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Smaller reporting company
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o
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(Do not check if a smaller reporting company)
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Emerging growth company
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¨
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Page
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Item 1.
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Condensed Consolidated Financial Statements
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Condensed Consolidated Balance Sheets
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Condensed Consolidated Statements of Operations
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Condensed Consolidated Statement of Changes in Stockholders’ Equity
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Condensed Consolidated Statements of Cash Flows
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Notes to Condensed Consolidated Financial Statements
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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Item 4.
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Controls and Procedures
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Item 1.
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Legal Proceedings
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Item 1A.
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Risk Factors
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Item 5.
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Other Information
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Item 6.
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Exhibits
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Signatures
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•
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our businesses and prospects;
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•
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planned or estimated capital expenditures;
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•
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availability of liquidity and capital resources;
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•
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our ability to obtain additional financing as needed and the terms of financing transactions, including at Driftwood Holdings LLC;
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•
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revenues and expenses;
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•
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progress in developing our projects and the timing of that progress;
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•
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future values of the Company’s projects or other interests, operations or rights; and
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•
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government regulations, including our ability to obtain, and the timing of, necessary governmental permits and approvals.
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•
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the uncertain nature of demand for and price of natural gas and LNG;
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•
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risks related to shortages of LNG vessels worldwide;
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•
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technological innovation which may render our anticipated competitive advantage obsolete;
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•
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risks related to a terrorist or military incident involving an LNG carrier;
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•
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changes in legislation and regulations relating to the LNG industry, including environmental laws and regulations that impose significant compliance costs and liabilities;
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•
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governmental interventions in the LNG industry;
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•
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uncertainties regarding our ability to maintain sufficient liquidity and capital resources to implement our projects;
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•
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our limited operating history;
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•
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our ability to attract and retain key personnel;
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•
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risks related to doing business in, and having counterparties in, foreign countries;
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•
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our reliance on the skill and expertise of third-party service providers;
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•
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the ability of our vendors to meet their contractual obligations;
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•
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risks and uncertainties inherent in management estimates of future operating results and cash flows;
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•
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development risks, operational hazards and regulatory approvals;
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•
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our ability to enter and consummate planned financing and other transactions; and
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•
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risks and uncertainties associated with litigation matters.
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ASU
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Accounting Standards Update
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Bcf
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Billion cubic feet of natural gas
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Bcf/d
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Bcf per day
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DD&A
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Depreciation, depletion and amortization
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EPC
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Engineering, procurement and construction
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FEED
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Front-End Engineering and Design
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FERC
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U.S. Federal Energy Regulatory Commission
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GAAP
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Generally accepted accounting principles in the U.S.
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LNG
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Liquefied natural gas
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LSTK
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Lump sum turnkey
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Mcf
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Thousand cubic feet of natural gas
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MMBtu
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Million British thermal unit
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MMcf
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Million cubic feet of natural gas
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MMcf/d
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MMcf per day
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MMcfe
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Million cubic feet of gas equivalent volumes using a ratio of 6 Mcf to 1 barrel of liquid
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Mtpa
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Million tonnes per annum
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Nasdaq
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Nasdaq Capital Market
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SEC
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U.S. Securities and Exchange Commission
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Train
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An industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG
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U.S.
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United States
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USACE
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U.S. Army Corps of Engineers
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TELLURIAN INC. AND SUBSIDIARIES
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|||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
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(in thousands, except share and per share amounts)
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|||||||
(unaudited)
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June 30, 2018
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December 31, 2017
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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196,846
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$
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128,273
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Accounts receivable, net of allowance for doubtful accounts of $15 and $0, respectively
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553
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583
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Accounts receivable due from related parties
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1,316
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1,377
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Prepaid expenses and other current assets
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3,160
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3,458
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Total
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201,875
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133,691
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Property, plant and equipment, net
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116,437
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115,856
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Deferred engineering costs
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44,100
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18,000
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Other non-current assets
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11,126
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9,276
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Total assets
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$
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373,538
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$
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276,823
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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2,118
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$
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11,462
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Accrued liabilities
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25,707
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39,101
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Other current liabilities
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—
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1,735
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Total
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27,825
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52,298
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Asset retirement obligation
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659
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638
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Total liabilities
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28,484
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52,936
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Commitments and contingencies (Note 7)
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Stockholders’ equity:
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Preferred stock, $0.01 par value, 100,000,000 authorized:
6,123,782 and zero shares outstanding, respectively
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43
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—
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Common stock, $0.01 par value, 400,000,000 authorized:
240,522,514 and 222,749,220 shares outstanding, respectively
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2,193
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2,043
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Additional paid-in capital
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731,970
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549,958
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Accumulated deficit
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(389,152
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)
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(328,114
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)
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Total stockholders’ equity
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345,054
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223,887
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Total liabilities and stockholders’ equity
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$
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373,538
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$
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276,823
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TELLURIAN INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(in thousands)
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(unaudited)
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Six Months Ended June 30,
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2018
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2017
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Cash flows from operating activities:
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Net loss
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$
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(61,038
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)
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$
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(173,872
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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DD&A
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719
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139
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Goodwill impairment
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—
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77,592
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Gain on Series A preferred stock exchange feature
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—
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(2,209
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)
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Share-based compensation
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2,368
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17,951
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Share-based payments
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—
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19,397
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Impairment charge and loss on transfer of assets
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1,809
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—
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Net changes in working capital (Note 10)
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4,103
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(11,089
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)
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Net cash used in operating activities
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(52,039
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)
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(72,091
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)
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Cash flows from investing activities:
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Cash received in acquisition
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—
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56
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Purchase of natural gas properties
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(268
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)
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—
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Proceeds from sale of asset
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167
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—
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Purchase of property, plant and equipment
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(3,333
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)
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(905
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)
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Proceeds from sale of available-for-sale securities
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—
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266
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Net cash used in investing activities
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(3,434
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)
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(583
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)
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Cash flows from financing activities:
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Proceeds from issuance of common stock
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133,800
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212,712
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Tax payments for net share settlement of equity awards (Note 10)
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(5,664
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)
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—
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Equity offering costs
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(4,090
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)
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(235
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)
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Net cash provided by financing activities
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124,046
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212,477
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Net increase in cash and cash equivalents
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68,573
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139,803
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Cash and cash equivalents, beginning of period
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128,273
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21,398
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Cash and cash equivalents, end of period
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$
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196,846
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$
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161,201
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June 30, 2018
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December 31, 2017
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Land
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$
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13,111
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$
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9,491
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Proved natural gas properties
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90,953
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90,869
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Unproved natural gas properties
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10,000
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13,000
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Wells in progress
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1,206
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345
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Corporate and other
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2,265
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2,693
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Total property, plant and equipment at cost
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117,535
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116,398
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Accumulated DD&A
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(1,098
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)
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(542
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)
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Total property, plant and equipment, net
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$
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116,437
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$
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115,856
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June 30, 2018
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December 31, 2017
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Land lease and purchase options
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$
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2,917
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$
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2,948
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Permitting costs
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6,720
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4,708
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Goodwill
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1,190
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1,190
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Other
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299
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430
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Total other non-current assets
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$
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11,126
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$
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9,276
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June 30, 2018
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December 31, 2017
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Project development activities
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$
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1,588
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$
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5,142
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Payroll and compensation
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15,385
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25,833
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Accrued taxes
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2,848
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2,764
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Professional services (e.g., legal, audit)
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4,449
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2,806
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Other
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1,437
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2,556
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Total accrued liabilities
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$
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25,707
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$
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39,101
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Six Months Ended June 30,
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2018
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2017
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||||
Accounts receivable, net
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$
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4
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|
$
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(8
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)
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Accounts receivable due from related parties
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62
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(1,819
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)
|
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Prepaid expenses and other current assets
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297
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|
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(86
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)
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Accounts payable and accrued liabilities
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7,611
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(8,884
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)
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Other, net
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(3,871
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)
|
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(292
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)
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Net changes in working capital
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$
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4,103
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$
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(11,089
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)
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Six Months Ended June 30,
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2018
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2017
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||||
Property, plant and equipment non-cash accruals
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$
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901
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$
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217
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Other non-current assets non-cash accruals
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2,584
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—
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Non-cash settlement of withholding taxes associated with the 2017 bonus accrual
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5,583
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—
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Non-cash settlement of the 2017 bonus accrual
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15,140
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—
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•
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Our Business
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•
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Overview of Significant Events
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•
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Liquidity and Capital Resources
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•
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Capital Development Activities
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•
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Results of Operations
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•
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Off-Balance Sheet Arrangements
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•
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Recent Accounting Standards
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Six Months Ended June 30,
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|||||||
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2018
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2017
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Cash used in operating activities
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$
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(52,039
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)
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$
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(72,091
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)
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Cash used in investing activities
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(3,434
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)
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(583
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)
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Cash provided by financing activities
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124,046
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212,477
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|
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Net increase in cash and cash equivalents
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68,573
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139,803
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Cash and cash equivalents, beginning of the period
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128,273
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21,398
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Cash and cash equivalents, end of the period
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$
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196,846
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$
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161,201
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Net working capital
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$
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174,050
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$
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148,424
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Three Months Ended June 30,
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Six Months Ended June 30,
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2018
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2017
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2018
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|
2017
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||||||||
Total revenue
|
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$
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813
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|
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$
|
—
|
|
|
$
|
7,614
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|
|
$
|
—
|
|
Cost of sales
|
|
217
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|
|
—
|
|
|
4,660
|
|
|
—
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|
||||
Development expenses
|
|
12,895
|
|
|
14,608
|
|
|
21,867
|
|
|
36,190
|
|
||||
DD&A
|
|
342
|
|
|
79
|
|
|
719
|
|
|
139
|
|
||||
General and administrative expenses
|
|
22,208
|
|
|
18,212
|
|
|
40,609
|
|
|
62,699
|
|
||||
Impairment charge and loss on transfer of assets
|
|
1,809
|
|
|
—
|
|
|
1,809
|
|
|
—
|
|
||||
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77,592
|
|
||||
Loss from operations
|
|
(36,658
|
)
|
|
(32,899
|
)
|
|
(62,050
|
)
|
|
(176,620
|
)
|
||||
Gain on Series A preferred stock exchange feature
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,209
|
|
||||
Other income, net
|
|
622
|
|
|
376
|
|
|
1,012
|
|
|
539
|
|
||||
Income tax benefit
|
|
182
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net loss
|
|
$
|
(35,854
|
)
|
|
$
|
(32,523
|
)
|
|
$
|
(61,038
|
)
|
|
$
|
(173,872
|
)
|
•
|
Cost of sales during the period increased by approximately $0.2 million compared to the same period in 2017 in connection with our natural gas sales transactions.
|
•
|
Depreciation, depletion and amortization during the period increased by approximately $0.3 million, primarily as a result of the acquisition of assets in the Haynesville Shale trend as outlined in “Our Business” above.
|
•
|
The $4.0 million increase in general and administrative expenses is mostly attributable to an overall increase in headcount when compared to the same period in 2017.
|
•
|
Revenue during the period increased by approximately $0.8 million compared to the same period in 2017. This increase is primarily due to natural gas sales revenue generated from the production of assets in the Haynesville Shale.
|
•
|
The $1.7 million decrease in development expenses is primarily due to the nature of invoices related to our largest development vendor, Bechtel. The services Bechtel provided during the three months ended June 30, 2018, primarily detailed engineering services for the Driftwood terminal, are being capitalized whereas the FEED studies on the Driftwood Project were expensed during the same period in 2017. For more information regarding the detailed engineering services provided by Bechtel, see Note 3,
Deferred Engineering Costs
.
|
•
|
Revenue during the period increased by approximately $7.6 million compared to the same period in 2017. This increase is primarily due to LNG sales and other LNG revenue of approximately $5.9 million and natural gas revenue of approximately $1.7 million.
|
•
|
The $14.3 million decrease in development expenses is primarily due to the nature of invoices related to our largest development vendor, Bechtel. The services Bechtel provided during the six months ended June 30, 2018, primarily detailed engineering services for the Driftwood terminal, are being capitalized, whereas the FEED studies on the Driftwood Project were expensed during the same period in 2017. For more information regarding the detailed engineering services provided by Bechtel, see Note 3,
Deferred Engineering Costs
.
|
•
|
The $22.1 million decrease in general and administrative expenses is attributable to a decrease in share-based compensation and share-based payments to vendors, partially offset by an increase in compensation expense due to an overall increase in headcount when compared to the same period in 2017.
|
•
|
Cost of sales during the period increased by approximately $4.7 million compared to the same period in 2017, primarily due to LNG marketing and natural gas transactions of approximately $4.0 million and $0.7 million, respectively.
|
•
|
The $1.8 million charge resulting from the impairment and loss on transfer of assets, which primarily consists of those associated with the transfer of the Australian exploration permit as outlined in Note 2,
Property, Plant and Equipment
, during the three months ended June 30, 2018. There were no such charges present in the comparative prior period.
|
Exhibit No.
|
|
Description
|
10.1*
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|
10.2*
|
|
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10.3*
|
|
Exhibit No.
|
|
Description
|
10.4*
|
|
|
31.1*
|
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31.2*
|
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32.1**
|
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32.2**
|
|
|
99.1
|
|
|
101.INS*
|
|
XBRL Instance Document
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB*
|
|
XBRL Taxonomy Extension Labels Linkbase Document
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
*
|
Filed herewith.
|
**
|
Furnished herewith.
|
|
|
TELLURIAN INC.
|
|
|
|
|
|
Date:
|
August 8, 2018
|
By:
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/s/ Antoine J. Lafargue
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Antoine J. Lafargue
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Senior Vice President and Chief Financial Officer
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(as Principal Financial Officer)
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Tellurian Inc.
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Date:
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August 8, 2018
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By:
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/s/ Khaled Sharafeldin
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Khaled Sharafeldin
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Chief Accounting Officer
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(as Principal Accounting Officer)
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Tellurian Inc.
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PROJECT NAME:
Driftwood LNG Phase 1
OWNER:
Driftwood LNG LLC
CONTRACTOR:
Bechtel Oil, Gas and Chemicals, Inc.
DATE OF AGREEMENT: 10 November 2017
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CHANGE ORDER NUMBER:
CO-001
DATE OF CHANGE ORDER:
18 May 2018
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The original Contract Price was
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USD 7,240,314,232
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EUR 375,344,119
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Net change by previously authorized Change Orders (# 0 )
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USD 0
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EUR 0
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The Contract Price prior to this Change Order was
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USD 7,240,314,232
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EUR 375,344,119
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The Contract Price will be
(increased) (decreased
) (unchanged)
by this Change Order in the amount of
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USD 0
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EUR 0
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The new Contract Price including this Change Order will be
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USD 7,240,314,232
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EUR 375,344,119
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Owner
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/s/ Howard Candelet
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Name
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Howard Candelet
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Title
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President
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Date of Signing
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June 30, 2018
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Contractor
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/s/ Andrey Polunin
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Name
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Andrey Polunin
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Title
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Senior Vice President
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Date of Signing
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June 14, 2018
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PROJECT NAME:
Driftwood LNG Phase 2
OWNER:
Driftwood LNG LLC
CONTRACTOR:
Bechtel Oil, Gas and Chemicals, Inc.
DATE OF AGREEMENT: 10 November 2017
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CHANGE ORDER NUMBER:
CO-001
DATE OF CHANGE ORDER:
18 May 2018
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The original Contract Price was
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USD 2,515,986,451
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EUR 166,316,651
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Net change by previously authorized Change Orders (# 0 )
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USD 0
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EUR 0
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The Contract Price prior to this Change Order was
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USD 2,515,986,451
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EUR 166,316,651
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The Contract Price will be
(increased) (decreased
) (unchanged)
by this Change Order in the amount of
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USD 0
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EUR 0
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The new Contract Price including this Change Order will be
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USD 2,515,986,451
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EUR 166,316,651
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Owner
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/s/ Howard Candelet
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Name
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Howard Candelet
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Title
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President
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Date of Signing
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June 30, 2018
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Contractor
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/s/ Andrey Polunin
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Name
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Andrey Polunin
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Title
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Senior Vice President
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Date of Signing
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June 14, 2018
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PROJECT NAME:
Driftwood LNG Phase 3
OWNER:
Driftwood LNG LLC
CONTRACTOR:
Bechtel Oil, Gas and Chemicals, Inc.
DATE OF AGREEMENT: 10 November 2017
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CHANGE ORDER NUMBER:
CO-001
DATE OF CHANGE ORDER:
18 May 2018
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The original Contract Price was
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USD 2,552,105,878
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EUR 165,167,044
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Net change by previously authorized Change Orders (# 0 )
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USD 0
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EUR 0
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The Contract Price prior to this Change Order was
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USD 2,552,105,878
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EUR 165,167,044
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The Contract Price will be
(increased) (decreased
) (unchanged)
by this Change Order in the amount of
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USD 0
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EUR 0
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The new Contract Price including this Change Order will be
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USD 2,552,105,878
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EUR 165,167,044
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Owner
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/s/ Howard Candelet
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Name
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Howard Candelet
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Title
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President
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Date of Signing
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June 30, 2018
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Contractor
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/s/ Andrey Polunin
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Name
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Andrey Polunin
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Title
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Senior Vice President
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Date of Signing
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June 14, 2018
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PROJECT NAME:
Driftwood LNG Phase 4
OWNER:
Driftwood LNG LLC
CONTRACTOR:
Bechtel Oil, Gas and Chemicals, Inc.
DATE OF AGREEMENT: 10 November 2017
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CHANGE ORDER NUMBER:
CO-001
DATE OF CHANGE ORDER:
18 May 2018
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The original Contract Price was
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USD 1,925,058,672
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EUR 148,365,834
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Net change by previously authorized Change Orders (# 0 )
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USD 0
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EUR 0
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The Contract Price prior to this Change Order was
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USD 1,925,058,672
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EUR 148,365,834
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The Contract Price will be
(increased) (decreased
) (unchanged)
by this Change Order in the amount of
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USD 0
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EUR 0
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The new Contract Price including this Change Order will be
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USD 1,925,058,672
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EUR 148,365,834
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Owner
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/s/ Howard Candelet
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Name
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Howard Candelet
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Title
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President
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Date of Signing
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June 30, 2018
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Contractor
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/s/ Andrey Polunin
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Name
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Andrey Polunin
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Title
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Senior Vice President
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Date of Signing
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June 14, 2018
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1.
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I have reviewed this quarterly report on Form 10-Q of Tellurian Inc.;
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2.
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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;
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3.
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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;
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4.
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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:
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a.
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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;
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b.
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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;
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c.
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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
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d.
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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
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5.
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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):
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a.
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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
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b.
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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.
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/s/ Meg A. Gentle
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Meg A. Gentle
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Chief Executive Officer
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(as Principal Executive Officer)
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Tellurian Inc.
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1.
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I have reviewed this quarterly report on Form 10-Q of Tellurian Inc.;
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2.
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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;
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3.
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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;
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4.
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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:
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a.
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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;
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b.
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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;
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c.
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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
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d.
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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
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5.
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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):
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a.
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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
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b.
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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.
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/s/ Antoine J. Lafargue
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Antoine J. Lafargue
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Senior Vice President and Chief Financial Officer
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(as Principal Financial Officer)
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Tellurian Inc.
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Meg A. Gentle
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Meg A. Gentle
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Chief Executive Officer
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(as Principal Executive Officer)
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Tellurian Inc.
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Antoine J. Lafargue
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Antoine J. Lafargue
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Senior Vice President and Chief Financial Officer
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(as Principal Financial Officer)
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Tellurian Inc.
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