next20230630_10q.htm
0001612720 NextDecade Corp. false --12-31 Q2 2023 1,000 1,000 87,978 87,978 82,948 82,948 1,000 1,000 84,037 84,037 79,239 79,239 1,000 1,000 62,959 62,959 59,366 59,366 0.0001 0.0001 480,000 480,000 157,500 157,500 143,500 143,500 1,003,174 991,089 0.0001 0.0001 500 500 0 0 0 0 12,818 54,686 17,952 10,912 147,636 22,349 5,774 13,454 11,529 16,686 161,090 33,878 0.13 1.08 0.27 20 0 0 123,000 The IPO Warrants were issued in connection with our initial public offering in 2015 and expired July 24, 2022. 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Table of Contents



UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to

 

Commission File No. 001-36842

 

NEXTDECADE CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

    

46-5723951

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

1000 Louisiana Street, Suite 3900, Houston, Texas 77002

(Address of principal executive offices) (Zip Code)

 

(713) 574-1880

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, $0.0001 par value

 

NEXT

 

The Nasdaq Stock Market LLC

 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

☒   

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No ☒

 

As of August 10, 2023 the issuer had 241,428,210 shares of common stock outstanding.



 

 

 

NEXTDECADE CORPORATION

 

FORM 10-Q FOR THE QUARTER ENDED June 30, 2023

 

TABLE OF CONTENTS

 

 

Page

Organizational Structure

 

Part I. Financial Information

2

Item 1. Consolidated Financial Statements

2

Consolidated Balance Sheets

2

Consolidated Statements of Operations

3

Consolidated Statements of Stockholders’ Equity and Convertible Preferred Stock

4

Consolidated Statements of Cash Flows

6

Notes to Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3. Quantitative and Qualitative Disclosures About Market Risk

22

Item 4. Controls and Procedures

22

Part II. Other Information

23

Item 1. Legal Proceedings

23

Item 1A. Risk Factors

23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3. Defaults Upon Senior Securities

25

Item 4. Mine Safety Disclosures

25

Item 5. Other Information

25

Item 6. Exhibits

26

Signatures

27

 

 

 

 

Organizational Structure

 

The following diagram depicts our abbreviated organizational structure with references to the names of certain entities discussed in this Quarterly Report on Form 10-Q.  

 

 

https://cdn.kscope.io/81b89d933dfb681a6d491f670afb74bb-abbreviatedorgchartforkandqa.jpg

 

Unless the context requires otherwise, references to “NextDecade,” the “Company,” “we,” “us” and “our” refer to NextDecade Corporation (NASDAQ: NEXT) and its consolidated subsidiaries, and references to “Rio Grande” refer to Rio Grande LNG, LLC and its subsidiaries.

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

NextDecade Corporation

Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

 

  

June 30,

  

December 31,

 
  

2023

  

2022

 

Assets

        

Current assets

        

Cash and cash equivalents

 $40,012  $62,789 

Prepaid expenses and other current assets

  13,328   1,149 

Total current assets

  53,340   63,938 

Property, plant and equipment, net

  266,427   218,646 

Operating lease right-of-use assets, net

  951   1,474 

Other non-current assets, net

  32,068   28,372 

Total assets

 $352,786  $312,430 
         

Liabilities, Convertible Preferred Stock and Stockholders’ Equity

        

Current liabilities

        

Accounts payable

 $12,815  $1,084 

Accrued liabilities and other current liabilities

  19,762   23,184 

Current common stock warrant liabilities

  8,702    

Current derivative liability

  3,395    

Current operating lease liabilities

  634   1,093 

Total current liabilities

  45,308   25,361 

Non-current common stock warrant liabilities

  3,910   6,790 

Non-current operating lease liabilities

  331   465 

Non-current derivative liability

  84,055    

Other non-current liabilities

  23,000   23,000 

Total liabilities

  156,604   55,616 
         

Commitments and contingencies (Note 13)

          
         

Series A Convertible Preferred Stock, $1,000 per share liquidation preference; Issued and outstanding: 87,978 shares and 82,948 shares at June 30, 2023 and December 31, 2022, respectively

  78,056   73,026 

Series B Convertible Preferred Stock, $1,000 per share liquidation preference ; Issued and outstanding: 84,037 shares and 79,239 shares at June 30, 2023 and December 31, 2022, respectively

  78,206   73,408 

Series C Convertible Preferred Stock, $1,000 per share liquidation preference; Issued and outstanding: 62,959 shares and 59,366 shares at June 30, 2023 and December 31, 2022, respectively

  59,602   56,009 

Stockholders’ equity (deficit)

        

Common stock, $0.0001 par value Authorized: 480.0 million shares at June 30, 2023 and December 31, 2022; Issued and outstanding: 157.5 million shares and 143.5 million shares at June 30, 2023 and December 31, 2022, respectively

  16   14 

Treasury stock: 1,003,174 shares and 991,089 shares at June 30, 2023 and December 31, 2022, respectively, at cost

  (4,657)  (4,587)

Preferred stock, $0.0001 par value Authorized: 0.5 million, after designation of the Convertible Preferred Stock Issued and outstanding: none at June 30, 2023 and December 31, 2022

      

Additional paid-in-capital

  362,735   289,084 

Accumulated deficit

  (377,776)  (230,140)

Total stockholders’ equity (deficit)

  (19,682)  54,371 

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 $352,786  $312,430 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

 

 

NextDecade Corporation

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Revenues

 $  $  $  $ 

Operating expenses

                

General and administrative expense

  26,795   11,293   53,067   14,616 

Development expense, net

  418   1,193   882   2,738 

Lease expense

  325   290   662   509 

Depreciation expense

  38   42   75   89 

Total operating expenses

  27,576   12,818   54,686   17,952 

Total operating loss

  (27,576)  (12,818)  (54,686)  (17,952)

Other income (expense)

                

(Loss) gain on common stock warrant liabilities

  (5,455)  1,886   (5,822)  (4,418)

Derivative loss

  (87,450)     (87,450)   

Other, net

  192   20   322   21 

Total other expense

  (92,713)  1,906   (92,950)  (4,397)

Net loss attributable to NextDecade Corporation

  (120,289)  (10,912)  (147,636)  (22,349)

Preferred stock dividends

  (6,754)  (5,774)  (13,454)  (11,529)

Net loss attributable to common stockholders

 $(127,043) $(16,686) $(161,090) $(33,878)
                 

Net loss per common share - basic and diluted

 $(0.84) $(0.13) $(1.08) $(0.27)
                 

Weighted average shares outstanding - basic and diluted

  150,933   126,314   148,943   123,835 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

 

NextDecade Corporation

Consolidated Statement of Stockholders Equity and Convertible Preferred Stock

(in thousands)

(unaudited)

   

  

For the Three Months Ended June 30, 2023

 
   Common Stock       Treasury Stock               Total   Series A   Series B   Series C 
      

Par

          

Additional

      

Stockholders’

  

Convertible

  

Convertible

  

Convertible

 
      

Value

          

Paid-in

  

Accumulated

  

Equity

  

Preferred

  

Preferred

  

Preferred

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

(Deficit)

  

Stock

  

Stock

  

Stock

 

Balance at March 31, 2023

  149,431  $15   1,000  $(4,634) $318,942  $(257,487) $56,836  $75,532  $75,798  $57,799 

Share-based compensation

              10,561      10,561          

Restricted stock vesting

  40                            

Shares repurchased related to share-based compensation

  (3)     3   (23)        (23)         

Issuance of common stock, net

  8,026   1         39,986      39,987          

Preferred stock dividends

              (6,754)     (6,754)  2,524   2,408   1,803 

Net income

                 (120,289)  (120,289)         

Balance at June 30, 2023

  157,494  $16   1,003  $(4,657) $362,735  $(377,776) $(19,682) $78,056  $78,206  $59,602 

 

  

For the Six Months Ended June 30, 2023

 
   Common Stock       Treasury Stock               Total   Series A   Series B   Series C 
      

Par

          

Additional

      

Stockholders’

  

Convertible

  

Convertible

  

Convertible

 
      

Value

          

Paid-in

  

Accumulated

  

Equity

  

Preferred

  

Preferred

  

Preferred

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

(Deficit)

  

Stock

  

Stock

  

Stock

 

Balance at December 31, 2022

  143,549  $14   991  $(4,587) $289,084  $(230,140) $54,371  $73,026  $73,408  $56,009 

Share-based compensation

              12,120      12,120          

Restricted stock vesting

  96                            

Shares repurchased related to share-based compensation

  (12)     12   (70)        (70)         

Issuance of common stock, net

  13,861   2         74,985      74,987          

Preferred stock dividends

              (13,454)     (13,454)  5,030   4,798   3,593 

Net loss

                 (147,636)  (147,636)         

Balance at June 30, 2023

  157,494  $16   1,003  $(4,657) $362,735  $(377,776) $(19,682) $78,056  $78,206  $59,602 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

  

For the Three Months Ended June 30, 2022

 
  

Common Stock

  

Treasury Stock

              

Series A

  

Series B

  

Series C

 
      

Par

          

Additional

      

Total

  

Convertible

  

Convertible

  

Convertible

 
      

Value

          

Paid-in

  

Accumulated

  

Stockholders’

  

Preferred

  

Preferred

  

Preferred

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equity

  

Stock

  

Stock

  

Stock

 

Balance at March 31, 2022

  121,554  $12   541  $(1,779) $183,138  $(181,506)  (135) $66,016  $66,725  $51,230 

Share-based compensation

              2,886      2,886          

Restricted stock vesting

  762                            

Shares repurchased related to share-based compensation

  (201)     201   (1,288)        (1,288)         

Issuance of Series C Convertible Preferred Stock

  4,618   1         29,935      29,936          

Exercise of common stock warrants

  521            3,564      3,564          

Preferred stock dividends

              (5,774)     (5,774)  2,243   2,138   1,374 

Net loss

                 (10,912)  (10,912)         

Balance at June 30, 2022

  127,254  $13   742  $(3,067) $213,749  $(192,418) $18,277  $68,259  $68,863  $52,604 

 

  

For the Six Months Ended June 30, 2022

 
  

Common Stock

  

Treasury Stock

              

Series A

  

Series B

  

Series C

 
      

Par

          

Additional

      

Total

  

Convertible

  

Convertible

  

Convertible

 
      

Value

          

Paid-in

  

Accumulated

  

Stockholders’

  

Preferred

  

Preferred

  

Preferred

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equity

  

Stock

  

Stock

  

Stock

 

Balance at December 31, 2021

  120,838  $12   346  $(1,315) $191,264  $(170,069)  19,892  $63,791  $64,602  $40,007 

Share-based compensation

              515      515          

Restricted stock vesting

  1,673                            

Shares repurchased related to share-based compensation

  (396)     396   (1,752)        (1,752)         

Issuance of common stock, net

  4,618   1         29,935      29,936          

Exercise of common stock warrants

  521            3,564      3,564          

Issuance of Series C Convertible Preferred Stock

                             9,836 

Preferred stock dividends

              (11,529)     (11,529)  4,468   4,261   2,761 

Net loss

                 (22,349)  (22,349)         

Balance at June 30, 2022

  127,254  $13   742  $(3,067) $213,749  $(192,418) $18,277  $68,259  $68,863  $52,604 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

 

NextDecade Corporation.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

  

Six Months Ended

 
  

June 30,

 
  

2023

  

2022

 

Operating activities:

        

Net loss attributable to NextDecade Corporation

 $(147,636) $(22,349)

Adjustment to reconcile net loss to net cash used in operating activities

        

Depreciation

  75   89 

Share-based compensation expense

  12,340   515 

Loss on common stock warrant liabilities

  5,822   4,418 

Derivative loss

  87,450    

Amortization of right-of-use assets

  523   330 

Amortization of other non-current assets

     354 

Changes in operating assets and liabilities:

        

Prepaid expenses and other current assets

  (51)  (166)

Accounts payable

  309   432 

Operating lease liabilities

  (593)  (266)

Accrued expenses and other liabilities

  557   (832)

Net cash used in operating activities

  (41,204)  (17,475)

Investing activities:

        

Acquisition of property, plant and equipment

  (52,953)  (2,602)

Acquisition of other non-current assets

  (3,518)  (3,608)

Net cash used in investing activities

  (56,471)  (6,210)

Financing activities:

        

Proceeds from sale of Series C Convertible Preferred Stock

     10,500 

Proceeds from sale of common stock

  75,000   30,000 

Equity issuance costs

     (76)

Preferred stock dividends

  (32)  (39)

Shares repurchased related to share-based compensation

  (70)  (1,752)

Net cash provided by financing activities

  74,898   38,633 

Net (decrease) increase in cash and cash equivalents

  (22,777)  14,948 

Cash and cash equivalents – beginning of period

  62,789   25,552 

Cash and cash equivalents – end of period

 $40,012  $40,500 
         

Non-cash investing activities:

        

Accounts payable for acquisition of property, plant and equipment

 $7,066  $777 

Accrued liabilities for acquisition of property, plant and equipment

     1,227 

Accrued liabilities for acquisition of other non-current assets

  457    

Non-cash financing activities:

        

Paid-in-kind dividends on Convertible Preferred Stock

  13,421   11,490 

Accounts payable for debt and equity issuance costs

  4,473    

Accrued liabilities for debt and equity issuance costs

  7,627   9 
         
         

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

NextDecade Corporation

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1 — Background and Basis of Presentation

 

NextDecade Corporation (“we” or the “Company”) engages in development activities related to the liquefaction and sale of liquefied natural gas (“LNG”) and the capture and storage of CO2 emissions. We have focused our development activities on the Rio Grande LNG terminal facility at the Port of Brownsville in southern Texas (the “Terminal”), a carbon capture and storage project at the Terminal (the “Terminal CCS project”) and other carbon capture and storage projects (“CCS projects”) with third-party industrial source facilities.  

 

In July 2023, we commenced construction on the first three liquefaction trains and related common facilities (“Phase 1”) of the Terminal following a final investment decision (“FID”) and the closing of project financing by our subsidiary, Rio Grande LNG, LLC (“Rio Grande”). In connection with and subsequent to FID, the Company and Rio Grande entered into a number of transactions that are described in Note 16Subsequent Events. These consolidated financial statements and the notes thereto should be read in conjunction with Note 16Subsequent Events.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022. In our opinion, all adjustments, consisting only of normal recurring items, which are considered necessary for a fair presentation of the unaudited consolidated financial statements, have been included. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results for the full year.

 

Certain reclassifications have been made to conform prior period information to the current presentation.  The reclassifications did not have a material effect on the Company's financial position, results of operations or cash flows.

 

The Company has incurred operating losses since its inception and management expects operating losses and negative cash flows to continue for the foreseeable future and, as a result, the Company will require additional capital to fund its operations and execute its business plan. As of June 30, 2023, the Company had $40.0 million in cash and cash equivalents, which may not be sufficient to fund the Company's planned operations and development activities for future phases of the Terminal and CCS projects through one year after the date the consolidated financial statements are issued.  In addition, the Company has a remaining commitment to invest approximately $69.4 million into the construction of Phase 1 of the Terminal following the FID on Phase 1 of the Terminal, which was announced by the Company on July 12, 2023.  As disclosed in Note 10 - Stockholders' Equity, the Company is party to an agreement to sell shares of its common stock for approximately $70 million, subject to the approval of the Company’s stockholders.  Accordingly, there is substantial doubt about the Company's ability to continue as a going concern. The analysis used to determine the Company's ability to continue as a going concern does not include cash sources outside of the Company's direct control that management expects to be available within the next twelve months.

 

The Company plans to alleviate the going concern issue by obtaining sufficient funding through additional equity, equity-based or debt instruments or any other means and managing certain operating and overhead costs.  The Company's ability to raise additional capital in the equity and debt markets, should the Company choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for the Company's equity or debt securities, which itself is subject to a number of business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are satisfactory to the Company. In the event the Company is unable to obtain sufficient additional funding, there can be no assurance that it will be able to continue as a going concern.

 

These consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event the Company can no longer continue as a going concern.

 

Note 2 — Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following (in thousands):

 

  

June 30,

  

December 31,

 
  

2023

  

2022

 

Prepaid subscriptions

 $578  $423 

Prepaid insurance

  157   619 

Prepaid marketing and sponsorships

  246    

Debt and equity issuance costs

  12,088    

Other

  259   107 

Total prepaid expenses and other current assets

 $13,328  $1,149 
 

Note 3 — Sale of Equity Interests in Rio Bravo

 

On March 2, 2020, NextDecade LLC closed the transactions (the “Closing”) contemplated by that certain Omnibus Agreement, dated February 13, 2020, with Spectra Energy Transmission II, LLC, a wholly owned subsidiary of Enbridge Inc. (“Buyer”), pursuant to which NextDecade LLC sold one hundred percent of the equity interests (the “Equity Interests”) in Rio Bravo Pipeline Company, LLC (“Rio Bravo”) to Buyer for consideration of approximately $19.4 million. Buyer paid $15.0 million of the Purchase Price to NextDecade LLC at the Closing and the remainder will be paid within five business days after the date that Rio Grande has received, after a final positive investment decision, the initial funding of financing for the development, construction and operation of the Terminal. Rio Bravo is developing a proposed interstate natural gas pipeline (the “Pipeline”) to supply natural gas to the Terminal.  In connection with the Closing, Rio Grande LNG Gas Supply LLC, an indirect wholly-owned subsidiary of the Company (“Rio Grande Gas Supply”), entered into (i) a Precedent Agreement for Firm Natural Gas Transportation Service for the Rio Bravo Pipeline (the “RBPL Precedent Agreement”) with Rio Bravo and (ii) a Precedent Agreement for Natural Gas Transportation Service (the “VCP Precedent Agreement”) with Valley Crossing Pipeline, LLC (“VCP”). VCP and, as of the Closing, Rio Bravo are wholly owned subsidiaries of Enbridge Inc. The Valley Crossing Pipeline is owned and operated by VCP.

 

 

7

 

Pursuant to the RBPL Precedent Agreement, Rio Bravo agreed to provide Rio Grande Gas Supply with firm natural gas transportation services on the Pipeline in a quantity sufficient to match the full operational capacity of each proposed liquefaction train of the Terminal. Under the RBPL Precedent Agreement, in consideration for the provision of such firm transportation services, Rio Bravo will be remunerated on a dollar-per-dekatherm, take-or-pay basis, subject to certain adjustments, over a term of at least twenty years, all in compliance with the federal and state authorizations associated with the Pipeline.

 

Pursuant to the VCP Precedent Agreement, VCP agreed to provide Rio Grande Gas Supply with natural gas transportation services on the Valley Crossing Pipeline in a quantity sufficient to match the commissioning requirements of each proposed liquefaction train of the Terminal. VCP’s obligation to construct, install, own, operate and maintain the necessary interconnection to the Terminal and the Pipeline is conditioned on its receipt, no later than December 31, 2024, of notice that Rio Grande Gas Supply or its affiliate has issued a full notice to proceed to the EPC Contractor for the construction of the Terminal. VCP will be responsible, at its sole cost and expense, to construct, install, own, operate and maintain the tap, riser and valve facilities (the “VCP Transporter Facilities”), which shall connect to Rio Grande Gas Supply’s custody transfer meter and such other facilities as necessary in order for the Terminal to receive gas from the VCP Transporter Facilities (the “Rio Grande Gas Supply Facilities”). Rio Grande Gas Supply will be responsible, at its sole cost and expense, to construct, install, own, operate and maintain the Rio Grande Gas Supply Facilities. Under the VCP Precedent Agreement, in consideration for the provision of the commissioning transportation services, VCP will be remunerated on the same dollar-per-dekatherm, take-or-pay basis as set forth in the RBPL Precedent Agreement for the duration of such commissioning services, all in compliance with the federal and state authorizations associated with the Valley Crossing Pipeline.

 

If Rio Grande or its affiliate fails to issue a full notice to proceed to the EPC Contractor on or prior to December 31, 2024, Buyer has the right to sell the Equity Interests back to NextDecade LLC and NextDecade LLC has the right to repurchase the Equity Interests from Buyer, in each case at a price not to exceed $23 million. Accordingly, the proceeds from the sale of the Equity Interests and additional costs incurred by Buyer are presented as a non-current liability and the assets of Rio Bravo have not been de-recognized in the consolidated balance sheet at June 30, 2023.

 

Note 4 — Property, Plant and Equipment

 

Property, plant and equipment consisted of the following (in thousands):

 

  

June 30,

  

December 31,

 
  

2023

  

2022

 

Fixed Assets

        

Computers

 $779  $780 

Furniture, fixtures, and equipment

  610   610 

Leasehold improvements

  101   101 

Total fixed assets

  1,490   1,491 

Less: accumulated depreciation

  (1,081)  (1,006)

Total fixed assets, net

  409   485 

Project Assets (not placed in service)

        

Terminal

  245,001   197,144 

Pipeline

  21,017   21,017 

Total Terminal and Pipeline assets

  266,018   218,161 

Total property, plant and equipment, net

 $266,427  $218,646 

 

Depreciation expense was $38 thousand and $42 thousand for the three months ended  June 30, 2023 and 2022, respectively, and $75 thousand and $89 thousand for the six months ended  June 30, 2023 and 2022, respectively.

 

Note 5 — Derivatives

 

In June 2023, with the expectation of entering into definitive debt facilities shortly thereafter to pay for a portion of the costs of constructing and placing into service Phase 1 of the Terminal, Rio Grande entered into contingent interest rate swaps (“Contingent Interest Rate Swaps”) to protect against interest rate volatility of future cash flows and hedge a portion of the expected floating-rate interest payments that would be provided for in such debt facilities.  At execution, the Contingent Interest Rate Swaps were conditional upon certain conditions including reaching a positive FID to commence construction of Phase 1 of the Terminal.  As of June 30, 2023, Rio Grande has the following Contingent Interest Rate Swaps outstanding (in thousands):

 

Initial Notional Amount

 

Maximum Notional Amount

 

Maturity

 

Weighted Average Fixed Interest Rate Paid

 

Variable Interest Rate Received

$86,000 $5,905,000 

March 28, 2049

 3.2% 

USD - SOFR

         

 

The Contingent Interest Rate Swaps are not designated as cash flow hedging instruments, and changes in fair value are recorded within our Consolidated Statements of Operations.

 

The Company values the Contingent Interest Rate Swaps using valuations based on the initial trade prices.  Using an income-based approach, subsequent valuations are based on observable inputs to the valuation model including interest rate curves, risk adjusted discount rates, credit spreads and other relevant data.  The fair value of the Contingent Interest Rate Swaps is approximately $(87.5) million as of June 30, 2023, and is classified as Level 2 in the fair value hierarchy.

 

8

 
 

Note 6 — Leases

 

Our leased assets consist of office space. 

 

Operating lease right-of-use assets are as follows (in thousands):

 

  

June 30,

  

December 31,

 
  

2023

  

2022

 

Office leases

 $951  $1,474 

Total operating lease right-of-use assets, net

 $951  $1,474 

 

Operating lease liabilities are as follows (in thousands):

 

  

June 30,

  

December 31,

 
  

2023

  

2022

 

Office leases

 $634  $1,093 

Total current lease liabilities

 $634  $1,093 

Non-current office leases

  331   465 

Total lease liabilities

 $965  $1,558 

 

Operating lease expense is as follows (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Office leases

 $300  $221  $609  $378 

Total operating lease expense

  300   221   609   378 

Short-term lease expense

  25   69   53   131 

Total lease expense

 $325  $290  $662  $509 

 

Maturity of operating lease liabilities as of June 30, 2023 are as follows (in thousands, except lease term and discount rate):

 

2023 (remaining)

 $652 

2024

  270 

2025

  248 

2026

   

2027

   

Thereafter

   

Total undiscounted lease payments

  1,170 

Discount to present value

  (205)

Present value of lease liabilities

 $965 
     

Weighted average remaining lease term - years

  1.9 

Weighted average discount rate - percent

  12.0 

 

Other information related to our operating leases is as follows (in thousands):

 

  

Six Months Ended June 30,

 
  

2023

  

2022

 

Cash paid for amounts included in the measurement of operating lease liabilities:

        

Cash flows from operating activities

 $593  $288 

Noncash right-of-use assets recorded for operating lease liabilities:

        

In exchange for new operating lease liabilities during the period

     1,332 
  
 

 

9

 

Note 7 — Other Non-Current Assets

 

Other non-current assets consisted of the following (in thousands):

 

  

June 30,

  

December 31,

 
  

2023

  

2022

 

Permitting costs(1)

 $9,006  $8,540 

Rio Grande Site Lease initial direct costs

  22,877   19,647 

Deposits and other

  185   185 

Total other non-current assets, net

 $32,068  $28,372 

 

(1)

Permitting costs primarily represent costs incurred in connection with permit applications to the United States Army Corps of Engineers and the U.S. Fish and Wildlife Service for mitigation measures for potential impacts to wetlands and habitat that may be caused by the construction of the Terminal.

 

Note 8 — Accrued Liabilities and Other Current Liabilities

 

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

  

June 30,

  

December 31,

 
  

2023

  

2022

 

Employee compensation expense

 $4,877  $6,650 

Terminal costs

     12,046 

Debt and equity issuance costs

  7,627    

Permitting costs

  457   279 

Accrued legal services

  5,990   3,124 

Share-based compensation liability

  403   182 

Other accrued liabilities

  408   903 

Total accrued liabilities and other current liabilities

 $19,762  $23,184 
 

Note 9 – Preferred Stock and Common Stock Warrants

 

Preferred Stock

 

As of December 31, 2022, the Company had outstanding 82,948 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), 79,239 shares of Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”) and 59,366 shares of Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock” and, together with the Series A Preferred Stock and the Series B Preferred Stock, the “Convertible Preferred Stock”).

 

The shares of Convertible Preferred Stock bear dividends at a rate of 12% per annum, which are cumulative and accrue daily from the respective dates of issuance on the $1,000 stated value per share. Such dividends are payable quarterly and may be paid in cash or in-kind. During the six months ended June 30, 2023 and 2022, the Company paid-in-kind $13.4 million and $11.5 million of dividends, respectively, to the holders of the Convertible Preferred Stock.  On July 13, 2023, the Company declared dividends to the holders of the Convertible Preferred Stock as of the close of business on June 15, 2023.  On July 17, 2023, the Company paid-in-kind $7.0 million of dividends to the holders of the Convertible Preferred Stock.

 

As of June 30, 2023, shares of Series A Preferred Stock and Series B Preferred Stock were convertible into shares of Company common stock at a conversion price of approximately $5.00 per share and $5.05 per share, respectively, and shares of Series C Preferred Stock were convertible into shares of Company common stock at a weighted average conversion price of approximately $2.73 per share.

 

The Company has the option to convert all, but not less than all, of the Convertible Preferred Stock into shares of Company common stock at the applicable conversion price on any date on which the volume weighted average trading price of shares of Company common stock for each trading day during any 60 of the prior 90 trading days is equal to or greater than 175% of the Series B Conversion Price, in each case subject to certain terms and conditions. Furthermore, the Company must convert all of the Convertible Preferred Stock into shares of Company common stock at the applicable conversion price on the earlier of (i) ten (10) business days following an FID Event, as defined in the certificates of designations of the Convertible Preferred Stock, and (ii) the respective dates that are the tenth (10th) anniversaries of the closings of the issuances of the Convertible Preferred Stock, as applicable.

 

10

 

Common Stock Warrants

 

The Company issued warrants exercisable to purchase Company common stock in connection with its issuances of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (collectively, the “Common Stock Warrants”).  The Company revalues the Common Stock Warrants at each balance sheet date and recognized a loss of $5.5 million and a gain of $1.9 million during the three months ended June 30, 2023 and 2022, respectively, and losses of $5.8 million and $4.4 million for the six months ended June 30, 2023 and 2022, respectively. The Common Stock Warrant liabilities are included in Level 3 of the fair value hierarchy.

 

The assumptions used in the Monte Carlo simulation model to estimate the fair value of the Common Stock Warrants are as follows:

 

  

June 30,

  

December 31,

 
  

2023

  

2022

 

Stock price

 $8.21  $4.94 

Exercise price

 $0.01  $0.01 

Risk-free rate

  5.0%  4.6%

Volatility

  46.7%  52.5%

Term (years)

  1.0   1.5 
 

Note 10 — Stockholders' Equity

 

Common Stock Purchase Agreement

 

On  February 3, 2023, the Company entered into a common stock purchase agreement (the “Stock Purchase Agreement”) for a private placement (the “Private Placement”) with HGC NEXT INV LLC and Ninteenth Investment Company LLC (the “Purchasers”), pursuant to which the Company sold an aggregate of 5,835,277 shares of the Company common stock at a purchase price of $5.998 per share, representing the average closing trading price of the Company common stock for the five trading days immediately preceding signing the Stock Purchase Agreement, for an aggregate purchase price of $35.0 million.

 

On June 13, 2023, the Company entered into a common stock purchase agreement for three private placements (the “TTE Private Placement”) with Global LNG North America Corp., an affiliate of TotalEnergies SE (the “TTE Member”), pursuant to which the Company agreed to sell (i) 8,026,165 shares (the “Tranche 1 Shares”) of Company common stock at a purchase price of $4.9837 per share, for an aggregate purchase price of $40.0 million, (ii) promptly after conversion of the Convertible Preferred Stock, 22,072,103 shares (the “Tranche 2 Shares”) of Company common stock, at a purchase price of $4.9837 per share, for an aggregate purchase price of $110.0 million, and (iii) promptly after, and conditioned upon, receipt of approval of the Company’s stockholders, a number of shares of Company common stock such that, following the conversion of the Convertible Preferred Stock, the TTE Purchaser will own, when including the Tranche 1 Shares and Tranche 2 Shares, an aggregate of 17.5% of the Company common stock then-outstanding (the “Tranche 3 Shares” and together with the Tranche 1 Shares and Tranche 2 Shares, the “Shares”), for an aggregate purchase price of $69.4 million.  On June 14, 2023, the Company closed the sale of the Tranche 1 Shares.

 

11

 
 

Note 11 — Net Loss Per Share

 

The following table (in thousands, except for loss per share) reconciles basic and diluted weighted average common shares outstanding for each of the three and six months ended June 30, 2023 and 2022:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Weighted average common shares outstanding:

                

Basic

  150,933   126,314   148,943   123,835 

Dilutive unvested stock, convertible preferred stock, Common Stock Warrants and IPO Warrants

            

Diluted

  150,933   126,314   148,943   123,835 
                 

Basic and diluted net loss per share attributable to common stockholders

 $(0.84) $(0.13) $(1.08) $(0.27)

 

Potentially dilutive securities not included in the diluted net loss per share computations because their effect would have been anti-dilutive were as follows (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Unvested stock and stock units (1)

  2,014   1,981   2,033   1,666 

Convertible preferred stock

  57,039   41,725   56,239   40,159 

Common Stock Warrants

  1,448   1,474   1,414   1,463 

IPO Warrants (2)

     12,082      12,082 

Total potentially dilutive common shares

  60,501   57,262   59,686   55,370 

 


(1)

Includes the impact of unvested shares containing performance conditions to the extent that the underlying performance conditions are satisfied based on actual results as of the respective dates. 

 

(2)

The IPO Warrants were issued in connection with our initial public offering in 2015 and expired on July 24, 2022. 

 

Note 12 — Share-based Compensation

 

We have granted shares of Company common stock, restricted Company common stock and restricted stock units to employees, consultants and non-employee directors under our 2017 Omnibus Incentive Plan, as amended (the “2017 Plan”).

 

Total share-based compensation consisted of the following (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Share-based compensation expense:

                

Equity awards

 $10,561  $2,886  $12,120  $515 

Liability awards

  220      220    

Total share-based compensation expense

 $10,781  $2,886  $12,340  $515 
 

Note 13 — Income Taxes

 

Due to our cumulative loss position, we have established a full valuation allowance against our deferred tax assets at June 30, 2023 and December 31, 2022. Due to our full valuation allowance, we have not recorded a provision for federal or state income taxes during either of the six months ended June 30, 2023 or 2022.

 

Note 14 — Commitments and Contingencies

 

Obligation under LNG Sale and Purchase Agreement

 

In March 2019, Rio Grande entered into a 20-year sale and purchase agreement (the “SPA”) with Shell NA LNG LLC (“Shell”) for the supply of approximately two million tonnes per annum of liquefied natural gas from the Terminal. Pursuant to the SPA, Shell will purchase LNG on a free-on-board (“FOB”) basis starting from the date the first liquefaction train of the Terminal that is commercially operable, with approximately three-quarters of the purchased LNG volume indexed to Brent and the remaining volume indexed to domestic United States gas indices, including Henry Hub.

 

In the first quarter of 2020, pursuant to the terms of the SPA, the SPA became effective upon the conditions precedent in the SPA being satisfied or waived.  The SPA obligates Rio Grande to deliver the contracted volumes of LNG to Shell at the FOB delivery point, subject to the first liquefaction train at the Terminal being commercially operable.

 

12

 

Other Commitments

 

On March 6, 2019, Rio Grande entered into a lease agreement (the “Rio Grande Site Lease”) with the Brownsville Navigation District of Cameron County, Texas (“BND”) for the lease by Rio Grande of approximately 984 acres of land situated in Brownsville, Cameron County, Texas for the purposes of constructing, operating, and maintaining (i) a liquefied natural gas facility and export terminal and (ii) gas treatment and gas pipeline facilities.  On April 20, 2022, Rio Grande and the BND amended the Rio Grande Site Lease (the “Rio Grande Site Lease Amendment”) to extend the effective date for commencing the Rio Grande Site Lease to May 6, 2023 (the “Effective Date”).  The Rio Grande Site Lease Amendment further provides that Rio Grande has the right, exercisable in its sole discretion, to extend the effective date for commencing the Rio Grande Site Lease to May 6, 2024, by providing the BND with written notice of its election no later than May 6, 2023.  Rio Grande delivered such written notice on April 24, 2023.

 

In connection with the Rio Grande Site Lease Amendment, Rio Grande is committed to pay approximately $1.6 million per quarter to the BND through the earlier of the Effective Date and lease commencement.

 

Legal Proceedings

 

From time to time the Company may be subject to various claims and legal actions that arise in the ordinary course of business. As of  June 30, 2023, management is not aware of any claims or legal actions that, separately or in the aggregate, are likely to have a material adverse effect on the Company’s financial position, results of operations or cash flows, although the Company cannot guarantee that a material adverse effect will not occur.

 

Note 15 — Recent Accounting Pronouncements

 

The following table provides a brief description of recent accounting standards that have been adopted by the Company during the reporting period:

 

Standard

 

Description

 

Date of Adoption

 

Effect on our Consolidated Financial Statements or Other Significant Matters

ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in Entity's Own Equity

 

This standard simplifies the accounting for convertible instruments primarily by eliminating the existing cash conversion and beneficial conversion models within Subtopic 470-20, which will result in fewer embedded conversion options being accounted for separately from the host.  This standard also amends and simplifies the calculation of earnings per share relating to convertible instruments.  

 

January 1, 2022

 

The Company adopted this standard using the modified retrospective approach, which did not have an effect on the Company's consolidated financial statements.

 

 

Note 16 — Subsequent Events

 

FID Equity Transactions

 

On July 12, 2023, the Company made a positive FID to construct Phase 1 of the Terminal. In conjunction with FID, Rio Grande LNG Intermediate Super Holdings, LLC, an indirect subsidiary of the Company (the “NextDecade Member”), entered into an amended and restated limited liability company agreement (the “JV Agreement”) of Rio Grande LNG Intermediate Holdings, LLC (“Intermediate Holdings”), and the other members party thereto.  Following such transactions, Intermediate Holdings indirectly wholly owns Rio Grande, which will own Phase 1 of the Terminal.  The members of Intermediate Holdings, including the NextDecade Member, committed to fund $6.2 billion in aggregate to Intermediate Holdings.  The NextDecade Member committed to fund cash contributions of approximately $283 million to Intermediate Holdings, including approximately $125 million in contributions paid before FID, and as of the date of issuance of these financial statements, NextDecade Member has a remaining equity commitment of approximately $69.4 million. 

 

 Except for the Member Reserved Matters, as defined below, the affairs of Intermediate Holdings will otherwise be managed by a board of managers (the “Intermediate Holdings Board”). The Intermediate Holdings Board will be composed of up to four managers appointed by the NextDecade Member (the “Class A Managers”), including one Class A Manager designated by the TTE Member, and managers appointed by members holding a minimum percentage of the Class B limited liability company interests in Intermediate Holdings (the “Class B Managers”). Approval of any matter by the Intermediate Holdings Board will require the consent of a majority of the Class A Managers voting on the matter and Class B Managers representing a majority of the Class B limited liability company interests in Intermediate Holdings for such matter, as applicable; provided that (i) certain specified “qualified matters,” “supermajority matters,” and “unanimous matters” are reserved to the approval of the members of Intermediate Holdings (the “Member Reserved Matters”) holding a requisite percentage of the applicable classes of limited liability company interests in Intermediate Holdings, and (ii) related party transactions will be subject to approval in accordance with the procedures specified in the JV Agreement.

 

FID Debt Transactions

 

On July 12, 2023, Rio Grande entered into a Credit Agreement (the “CD Credit Agreement”) that provides for the following facilities:

 

 

A construction/term loan in an amount up to $10.3 billion available to finance partially the design, engineering, development, procurement, construction, installation, testing, completion, ownership, operation and maintenance of Phase 1, to pay certain fees and expenses associated with the CD Credit Agreement and the loans made thereunder, and to fund the debt service reserve account relating thereto, up to an amount equal to six months of scheduled debt service; and

 

 

a revolving loan and letter of credit facility in an amount up to $500 million available to Rio Grande to finance certain working capital requirements of Rio Grande.

 

13

 

On July 12, 2023, Rio Grande entered into a TCF Credit Agreement (the “TCF Credit Agreement” and together with the CD Credit Agreement, the “Credit Agreements”) that provides for a two-tranche construction/term loan facility in an aggregate amount up to $800 million available to Rio Grande to partially finance the design, engineering, development, procurement, construction, installation, testing, completion, ownership, operation and maintenance of Phase 1, to pay certain fees and expenses associated with the TCF Credit Agreement and the loans made thereunder, and to fund the debt service reserve account relating thereto, up to an amount equal to six months of scheduled debt service. TotalEnergies Holdings SAS (“Total Holdings”) agreed to provide contingent credit support to the lenders under the TCF Credit Agreement pursuant to, and subject to the terms and conditions of, a support agreement entered into at closing, pursuant to which Total Holdings agreed that it will pay past due amounts owing from Rio Grande under the TCF Credit Agreement upon demand.

 

On July 12, 2023, Rio Grande entered into a Note Purchase Agreement through which it sold $700 million of 6.67% Secured Senior Notes due 2033 (the “Notes”).  The Notes were issued pursuant to an indenture between Rio Grande and Wilmington Trust, National Association as trustee and accrue interest that is payable semi-annually in cash on March 30 and September 30 each year, beginning on September 30, 2023.

 

Effective July 12, 2023, Rio Grande amended the Contingent Interest Rate Swaps disclosed in Note 5 - Derivatives and executed additional interest rate swaps to protect against interest rate volatility and hedge a portion of the floating-rate interest payments provided for under the Credit Agreements.  As a result of amending the Contingent Interest Rate Swaps, the derivative liability of $110.9 million at June 30, 2023 was reversed in July 2023 upon amendment.  Effective July 12, 2023, Rio Grande has the following Interest Rate Swaps outstanding (in thousands):

 

Initial Notional Amount

  

Maximum Notional Amount

 

Maturity

 

Weighted Average Fixed Interest Rate Paid

 

Variable Interest Rate Received

$123,000  $8,500,000 

July 12, 2030

  3.4% 

USD - SOFR

 

Following completion of the transactions set forth above, on July 12, 2023, Rio Grande issued a final notice to proceed to Bechtel Energy, Inc. under the EPC agreements for Phase 1 at the Terminal.

 

On July 12, 2023, Rio Grande commenced its site lease with the Brownsville Navigation District for the 984 acres on which Phase 1 of the Terminal will be constructed. Refer to Note 14 - Commitments and Contingencies for further information on the Rio Grande Site Lease.

 

On July 17, 2023, the Company completed its sale of the Equity Interests in the Rio Bravo Pipeline Company, LLC to Buyer.  As part of the completion of the sale, the Company received the remaining $4.4 million of purchase price, and de-recognized the assets of Rio Bravo as well as the non-current liability associated with the Buyer option to put the Equity Interests back to NextDecade LLC.  Refer to Note 3 - Sale of Equity Interests in Rio Bravo for further information.

 

Conversion of Convertible Preferred Stock, Issuance of Common Stock

 

The Convertible Preferred Stock converted into approximately 59.5 million shares of common stock on July 26, 2023. Refer to Note 9 - Convertible Preferred Stock and Common Stock Warrants for further information on the Convertible Preferred Stock.

 

On July 27, 2023 the second tranche of the TTE Private Placement discussed in Note 10 - Stockholders' Equity closed, pursuant to which the Company sold 22,072,103 shares of common stock at a price of $4.9837 per share for a purchase price of approximately $110 million to the TTE Member.

 

14

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “anticipate,” “contemplate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “would,” “could,” “should,” “can have,” “likely,” “continue,” “design” and other words and terms of similar expressions, are intended to identify forward-looking statements.

 

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs.

 

Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ from those expressed in our forward-looking statements. Our future financial position and results of operations, as well as any forward-looking statements are subject to change and inherent risks and uncertainties, including those described in the section titled “Risk Factors” in our most recent Annual Report on Form 10-K as supplemented by Item 1A of this Quarterly Report on Form 10-Q. You should consider our forward-looking statements in light of a number of factors that may cause actual results to vary from our forward-looking statements including, but not limited to:

 

 

our progress in the development of our liquefied natural gas (“LNG”) liquefaction and export project and any carbon capture and storage projects (“CCS projects”) we may develop and the timing of that progress;

 

 

the timing and cost of the development, construction and operation of the first three liquefaction trains and related common facilities (“Phase 1”) of the multi-plant integrated natural gas and liquefaction and LNG export terminal facility to be located at the Port of Brownsville in southern Texas (the “Terminal”);

 

 

the availability and frequency of cash distributions available to us from our joint venture owning Phase 1 of the Terminal;

 

 

the timing and cost of the development of Trains 4 and 5 at the Terminal;

 

 

the ability to generate sufficient cash flow to satisfy Rio Grande's significant debt service obligations or to refinance such obligations ahead of their maturity;

 

 

restrictions imposed by Rio Grande's debt agreements that limit flexibility in operating its business;

 

 

increases in interest rates governing Rio Grande's variable rate indebtedness increasing the cost of servicing Rio Grande's substantial indebtedness;

 

 

our reliance on third-party contractors to successfully complete the Terminal, the pipeline to supply gas to the Terminal and any CCS projects we develop;

 

 

our ability to develop our NEXT Carbon Solutions business through implementation of our CCS projects;

 

 

our ability to secure additional debt and equity financing in the future, including any refinancing of outstanding indebtedness, on commercially acceptable terms and to continue as a going concern;

 

 

the accuracy of estimated costs for the Terminal and CCS projects;

 

 

our ability to achieve operational characteristics of the Terminal and CCS projects, when completed, including amounts of liquefaction capacities and amount of CO2 captured and stored, and any differences in such operational characteristics from our expectations;

 

 

the development risks, operational hazards and regulatory approvals applicable to our LNG and carbon capture and storage development, construction and operation activities and those of our third-party contractors and counterparties;

 

 

technological innovation which may lessen our anticipated competitive advantage or demand for our offerings;

 

 

the global demand for and price of LNG;

 

 

the availability of LNG vessels worldwide;

 

 

changes in legislation and regulations relating to the LNG and carbon capture industries, including environmental laws and regulations that impose significant compliance costs and liabilities;

 

 

scope of implementation of carbon pricing regimes aimed at reducing greenhouse gas emissions;

 

 

global development and maturation of emissions reduction credit markets;

 

 

adverse changes to existing or proposed carbon tax incentive regimes;

 

 

global pandemics, including the 2019 novel coronavirus (“COVID-19”) pandemic, the Russia-Ukraine conflict, other sources of volatility in the energy markets and their impact on our business and operating results, including any disruptions in our operations or development of the Terminal and the health and safety of our employees, and on our customers, the global economy and the demand for LNG or carbon capture;

 

 

 

risks related to doing business in and having counterparties in foreign countries;

 

 

our ability to maintain the listing of our securities on the Nasdaq Capital Market or another securities exchange or quotation medium;

 

 

changes adversely affecting the businesses in which we are engaged;

 

 

management of growth;

 

 

general economic conditions, including inflation and rising interest rates;

 

 

our ability to generate cash; and

 

 

the result of future financing efforts and applications for customary tax incentives.

 

Should one or more of the foregoing risks or uncertainties materialize in a way that negatively impacts us, or should the underlying assumptions prove incorrect, our actual results may vary materially from those anticipated in our forward-looking statements, and our business, financial condition, and results of operations could be materially and adversely affected.

 

The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. 

 

Except as required by applicable law, we do not undertake any obligation to publicly correct or update any forward-looking statements. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in our most recent Annual Report on Form 10-K as well as other filings we have made and will make with the Securities and Exchange Commission (the “SEC”) and our public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

 

 

Overview

 

NextDecade Corporation engages in development and construction activities related to the liquefaction and sale of LNG and the capture and storage of CO2 emissions.  In July 2023, Rio Grande commenced construction on Phase 1 of the Terminal following a final investment decision (“FID”) and the closing of project financing by our subsidiary, Rio Grande LNG, LLC (“Rio Grande”) , which will own Phase 1 of the Terminal. We have also undertaken and continue to undertake various initiates to evaluate, design and engineer a carbon capture and storage (“CCS”) project at the Terminal and other CCS projects that would be hosted at industrial source facilities.

 

Unless the context requires otherwise, references to “NextDecade,” “the Company,” “we,” “us,” and “our” refer to NextDecade Corporation and its consolidated subsidiaries, and references to “Rio Grande” refer to Rio Grande LNG, LLC and its subsidiaries.

.

 

Recent Developments

 

Rio Grande Development Activity 

 

Overview

 

On July 12, 2023, the Company announced a positive FID to construct Phase 1 of the Terminal and Rio Grande issued a final notice to proceed to Bechtel Energy Inc. under the EPC agreements for Phase 1. In connection therewith, Rio Grande LNG Intermediate Super Holdings, LLC, our wholly owned subsidiary (the “NextDecade Member”) entered into a joint venture agreement with third-party equity partners to own Rio Grande.  Rio Grande also entered into and closed senior secured non-recourse bank credit facilities and a senior secured non-recourse private notes offering, which will be used, along with the equity capital commitments of our equity partners and the NextDecade Member, to fund the development, construction and operation of Phase 1.

 

 

LNG Sale and Purchase Agreements

 

In June 2023, Rio Grande entered into a 20-year sale and purchase agreement with TotalEnergies SE (“TotalEnergies”) for the supply of 5.4 mtpa of LNG indexed to Henry Hub delivered on a free-on-board basis from the Terminal.

 

As of August 10, 2023, Rio Grande’s portfolio of LNG sales and purchase agreements (“SPAs”) was as follows:

 

Customer

 

Volume (mtpa)

 

Tenor (years)

 

Delivery Model

TotalEnergies   5.4   20   FOB

Shell NA LNG LLC (“Shell”)

 

2.0

 

20

 

FOB

ENN LNG Singapore Pte Ltd.

 

2.0

 

20

 

FOB

ENGIE S.A.

 

1.75

 

15

 

FOB

China Gas Hongda Energy Trading Co., LTD

 

1.0

 

20

 

FOB

Guangdong Energy Group

 

1.0

 

20

 

Ex Ship

Exxon Mobil LNG Asia Pacific

 

1.0

 

20

 

FOB

Galp Trading S.A.

 

1.0

 

20

 

FOB

Itochu

 

1.0

 

15

 

FOB

Total

 

16.15

 

19.2 years

weighted average

   

 

In the first quarter of 2020, the SPA with Shell became effective upon the conditions precedent in such SPA being satisfied or waived.  The SPA obligates Rio Grande to deliver the contracted volumes of LNG to Shell at the FOB delivery point, subject to the first liquefaction train at the Terminal becoming commercially operable.  

 

Each of Rio Grande’s other SPAs became effective in July 2023 upon a positive FID to construct Phase 1 of the Terminal.

 

Engineering, Procurement and Construction (EPC”) Agreements

 

On May 18, 2023, Rio Grande amended its EPC agreements with Bechtel Energy, Inc. for the construction of the first three trains of the Terminal to extend the price validity under such agreements to July 15, 2023. 

 

On July 12, 2023, Rio Grande issued a final notice to proceed to Bechtel Energy Inc. under the EPC agreements for Phase 1. The final EPC lump-sum contract pricing for Phase 1 was approximately $11.96 billion at FID. The commercial operation date for the first train of Phase 1 is expected to occur in 2027.

 

 

Federal Energy Regulatory Commission (FERC) Update

 

On April 21, 2023, the FERC issued the order on remand (the “Remand Order”) reaffirming the order issued by FERC on November 22, 2019, authorizing the siting, construction and operation of the Rio Grande LNG Terminal (the “Order”).  The Remand Order reaffirmed that the Rio Grande LNG Terminal is not inconsistent with the public interest under the Natural Gas Act section 3.

 

The Remand Order was issued as a result of the decision of the U.S. Court of Appeals for the District of Columbia dated August 3, 2021, which denied all petitions filed by parties who filed requests for re-hearing of the Order, except for two technical issues dealing with environmental justice and GHG emissions, which were remanded to the FERC for further consideration. 

 

On May 22, 2023, Vecinos para el Bienestar de la Comunidad Costera, Sierra Club, City of Port Isabel and the Carrizo/Comecrudo Tribe of Texas filed a joint request for rehearing of the Order on Remand.  The request for rehearing was denied by operation of law on June 22, 2023.  On July 10, 2023 the Petitioners petitioned the D.C. Circuit for review of the Order on Remand.  Consistent with federal appellate practice, the petition for review does not include any arguments by the Petitioners.  The petition only initiates the appeal process.

 

Rio Grande Site Lease

 

On March 6, 2019, Rio Grande entered into a lease agreement (the “Rio Grande Site Lease”) with the Brownsville Navigation District of Cameron County, Texas (the “BND”) for the lease by Rio Grande of approximately 984 acres of land situated in Brownsville, Cameron County, Texas for the purposes of constructing, operating, and maintaining (i) a liquefied natural gas facility and export terminal and (ii) gas treatment and gas pipeline facilities.

 

On April 20, 2022, Rio Grande and the BND amended the Rio Grande Site Lease (the “Rio Grande Site Lease Amendment”) to extend the effective date for commencing the Rio Grande Site Lease to May 6, 2023.  The Rio Grande Site Lease Amendment further provides that Rio Grande has the right, exercisable in its sole discretion, to extend the effective date for commencing the Rio Grande Site Lease to May 6, 2024 by providing the BND with written notice of its election no later than May 6, 2023.  Rio Grande delivered such written notice on April 24, 2023.

 

On July 12, 2023, Rio Grande commenced the Rio Grande Site Lease.

 

 NEXT Carbon Solutions Development Activity

 

Front-end Engineering and Design (FEED”) Agreement

 

In May 2022, we entered into an agreement with California Resources Corporation, whereby NEXT Carbon Solutions will perform a FEED study for the post combustion capture and compression of up to 95% of the CO2 produced at the Elk Hills Power Plant.  The FEED study was successfully completed in the first quarter of 2023.  NEXT Carbon Solutions and California Resources Corporation continue to review the FEED results and are engaging in commercial discussions to progress the project.

 

Financing Activity

 

Private Placement of Company Common Stock

 

In February 2023, we sold 5,835,277 shares of Company common stock for gross proceeds of $35 million to HGC NEXT INV LLC and Ninteenth Investment Company.

 

On June 13, 2023, we entered into a common stock purchase agreement for three private placements (the “TTE Private Placement”) with Global LNG North America Corp., an affiliate of TotalEnergies SE (the “TTE Member”), pursuant to which we agreed to sell (i) 8,026,165 shares (the “Tranche 1 Shares”) of Company common stock at a purchase price of $4.9837 per share, for an aggregate purchase price of $40.0 million, (ii) promptly after conversion of the Convertible Preferred Stock, 22,072,103 shares (the “Tranche 2 Shares”) of Company common stock, at a purchase price of $4.9837 per share, for an aggregate purchase price of $110.0 million, and (iii) promptly after, and conditioned upon, receipt of approval of the Company’s stockholders, a number of shares of Company common stock such that, following the conversion of the Convertible Preferred Stock, the TTE Purchaser will own, when including the Tranche 1 Shares and Tranche 2 Shares, an aggregate of 17.5% of the Company common stock then-outstanding (the “Tranche 3 Shares” and together with the Tranche 1 Shares and Tranche 2 Shares, the “Shares”), for an aggregate purchase price of $69.4 million.  On June 14, 2023, the Company closed the sale of the Tranche 1 Shares, and on July 26, we closed the sale of the Tranche 2 Shares.

 

 

Liquidity and Capital Resources

 

Phase 1 FID Rio Grande Financing

 

In connection with the FID of Phase 1, Rio Grande obtained approximately $6.2 billion in equity capital commitments, inclusive of commitments from the NextDecade Member, entered into senior secured non-recourse bank credit facilities of $11.6 billion, consisting of $11.1 billion in construction term loans and a $500 million working capital facility, and closed a $700 million senior secured non-recourse private notes offering.  Rio Grande will utilize these capital resources to fund the EPC cost to construct Phase 1, which was approximately $11.96 billion at FID, and to fund owner’s costs and contingencies, dredging for the Brazos Island Harbor Channel Improvement Project, conservation of more than 4,000 acres of wetland and wildlife habitat area and installation of utilities, and interest during construction and other financing costs.

 

Near Term Liquidity and Capital Resources of NextDecade Corporation

 

In connection with the FID, the Company, through NextDecade Member, its wholly owned subsidiary, committed to invest approximately $283 million, including $125 million of pre-FID capital investments, into construction of Phase 1 of the Terminal, and the Company has funded $88 million of its remaining equity commitment as of the date hereof. We expect to fund the remaining portion of our equity commitment with the proceeds of the sale of the third tranche of our common stock to Global LNG North America Corp., the closing of which is subject to conditions precedent, including the approval of our stockholders.  If stockholder approval is not obtained or the third tranche does not close for any other reason, we would need to raise other capital to fund our remaining committed equity contributions, and there can be no assurance that we will be able to raise capital from alternative sources on acceptable terms, or at all.

 

Prior to the FID on Phase 1 of the Terminal, our primary cash needs historically were funding development activities in support of the Terminal and our CCS projects, which included payments of initial direct costs of the Rio Grande site lease and expenses in support of engineering and design activities, regulatory approvals and compliance, commercial and marketing activities and corporate overhead. We spent approximately $97.7 million on such development activities during the six months ended June 30, 2023, which we funded through our cash on hand and proceeds from the issuances of equity and equity-based securities. Following the FID of Phase 1 of the Terminal, costs associated with the Phase 1 EPC agreements, Rio Grande site lease, and other Phase 1 related costs will be funded by debt and equity proceeds received by Rio Grande.

 

Because our businesses and assets are in development, we have not historically generated significant cash flow from operations, nor do we expect to do so until the Terminal is operational or until we install CCS systems on third-party industrial facilities. We intend to fund development activities for the foreseeable future with cash and cash equivalents on hand and through the sale of additional equity, equity-based or debt securities in us or in our subsidiaries. There can be no assurance that we will succeed in selling equity or equity-based securities or, if successful, that the capital we raise will not be expensive or dilutive to stockholders.

 

Our consolidated financial statements as of and for the three and six months ended June 30, 2023 have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Based on our balance of cash and cash equivalents of $40.0 million at June 30, 2023, there is substantial doubt about our ability to continue as a going concern within one year after the date that our consolidated financial statements were issued. Our ability to continue as a going concern will depend on managing certain operating and overhead costs and our ability to raise capital through equity, equity-based or debt financings. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty, which could have a material adverse effect on our financial condition.

 

Our capital raising activities since January 1, 2022 have included the following:

 

In March 2022, we sold 10,500 shares of Series C Preferred Stock at $1,000 per share together with associated warrants to purchase Company common stock for a purchase price of $10.5 million and issued an additional 210 shares of Series C Preferred Stock as origination fees.

 

In April 2022, we sold 4,618,226 shares of Company common stock for approximately $30 million.

 

In September 2022, we sold 15,454,160 shares of Company common stock for approximately $85 million.

 

In February 2023, we sold 5,835,277 shares of Company common stock for $35 million.

 

In June and July 2023, we sold 30,098,268 shares of Company common stock in the first two tranches of the TTE Private Placement for approximately $150 million.

 

Long Term Liquidity and Capital Resources of NextDecade Corporation

 

We will not receive significant cash flows from Phase 1 of the Terminal until it is operational, and the commercial operation date for the first train of Phase 1 is expected to occur in 2027. Any future phases of development at the Terminal and CCS projects will similarly take an extended period of time to develop, construct and become operational and will require significant capital deployment.