Business Overview and History
NextDecade Corporation (NASDAQ: NEXT) is a Houston-based energy company primarily focused on the liquefaction of natural gas and the capture and storage of CO2 emissions. The company is currently constructing a large-scale natural gas liquefaction and export facility, the Rio Grande LNG Facility, located in the Rio Grande Valley in Brownsville, Texas.
NextDecade was founded in 2010 with the goal of developing LNG export projects in North America. The company initially focused on the development of the Rio Grande LNG Facility, which has been its primary focus since inception. In 2017, NextDecade became a publicly traded company, raising capital to support the development of the Rio Grande LNG Facility.
In the same year, NextDecade received Federal Energy Regulatory Commission (FERC) approval and Department of Energy (DOE) authorization to construct and operate the Rio Grande LNG Facility. The facility was approved for the construction of up to five liquefaction trains with a total export capacity of 27 million tonnes per annum (MTPA).
The Rio Grande LNG Facility has been a key priority for NextDecade over the past decade. In 2019, the company received approval from the Federal Energy Regulatory Commission (FERC) to construct and operate the facility, which is designed to have a total export capacity of 27 million tonnes per annum (MTPA) across five liquefaction trains. Construction on the first three trains, known as Phase 1, commenced in July 2023 following a positive final investment decision (FID) and the closing of project financing.
Phase 1 of the Rio Grande LNG Facility is being constructed by Bechtel under lump-sum turnkey engineering, procurement, and construction (EPC) contracts. This arrangement helps to mitigate construction risks and provides greater cost certainty for the project.
As of the third quarter of 2024, the overall project completion percentage for Trains 1 and 2, as well as the common facilities, was 30.5%, with engineering 76.1% complete, procurement 57.6% complete, and construction 5.5% complete. The overall project completion percentage for Train 3 was 9.8%, with engineering 17% complete, procurement 21.9% complete, and construction 0.1% complete. The company expects the first three trains to be operational by late 2027.
Liquidity and Financing
NextDecade has employed a multi-faceted financing strategy to fund the development of the Rio Grande LNG Facility. In July 2023, the company's partially owned subsidiary, Rio Grande LNG, LLC, obtained approximately $6.2 billion in equity capital commitments, entered into $11.6 billion in senior secured non-recourse bank credit facilities, and closed a $700 million senior secured non-recourse private notes offering. These capital resources are expected to fund the total estimated cost of Phase 1, which is currently $18 billion.
As of September 30, 2024, NextDecade had $38.2 million in cash and cash equivalents, which may not be sufficient to fund the company's planned operations and development activities through one year after the date the consolidated financial statements were issued. The company plans to alleviate this going concern issue by obtaining additional funding through equity, debt, or other means, as well as managing certain operating and overhead costs.
The company has secured significant debt and equity financing to fund the construction of Phase 1 of the Rio Grande LNG Facility. NextDecade has a $50 million senior secured revolving credit facility, a $522 million CD Senior Working Capital Facility, and a $178 million TCF Credit Facility available. The company's current ratio and quick ratio are both 0.486, indicating potential liquidity challenges in the near term.
Regulatory Challenges
In August 2024, the U.S. Court of Appeals for the D.C. Circuit issued a decision vacating the FERC's reauthorization of the Rio Grande LNG Facility, citing the need for a supplemental Environmental Impact Statement (EIS) during the remand process. This decision has created uncertainty around the project's timeline and regulatory approvals.
NextDecade has stated that it will pursue all available legal and regulatory actions, including appellate actions and other strategies, to ensure that construction on Phase 1 continues and that necessary regulatory approvals are maintained to enable the FID of Trains 4 and 5. The company is currently engaged in active resolution of the requisite issues to maintain the affected permit in its issued form or in a suitable replacement form. NextDecade has filed a petition for rehearing with the court to address these regulatory challenges.
Commercial Developments
Despite the regulatory challenges, NextDecade has made significant progress on the commercial front. In May 2024, the company entered into a 20-year LNG Sale and Purchase Agreement (SPA) with ADNOC, under which ADNOC will purchase 1.9 MTPA of LNG from Train 4 at the Rio Grande LNG Facility. Additionally, in June 2024, NextDecade entered into a non-binding Heads of Agreement with Aramco for a 20-year LNG SPA for offtake from Train 4, with Aramco expected to purchase 1.2 MTPA of LNG.
These commercial agreements, along with the company's existing long-term SPAs for Phase 1, provide a strong foundation of predictable, long-term cash flows to support the development of the Rio Grande LNG Facility. NextDecade continues to engage with potential customers to secure additional offtake agreements for future trains.
As of September 30, 2024, NextDecade has entered into long-term LNG Sale and Purchase Agreements (SPAs) with nine creditworthy counterparties for aggregate volumes of approximately 16.2 MTPA of LNG, which is over 90% of the expected Phase 1 nameplate LNG production capacity. The SPAs have a weighted average term of 19.2 years, providing a stable revenue base for the company once the facility becomes operational.
Operational and Financial Performance
As a company in the development stage, NextDecade has not historically generated significant cash flow from operations. For the nine months ended September 30, 2024, the company reported a net loss of $204 million, compared to a net loss of $34.2 million in the same period of the prior year. The increase in net loss was primarily due to higher general and administrative expenses, as well as increases in interest expense and losses on debt extinguishment.
NextDecade's cash flow from operations for the nine months ended September 30, 2024, was an outflow of $86.7 million, compared to an outflow of $52.6 million in the same period of the prior year. The increase in cash outflow was driven by higher employee costs and professional fees as the company constructs Phase 1 of the Rio Grande LNG Facility and continues to develop subsequent phases.
Investing cash outflows for the nine months ended September 30, 2024, amounted to $1.88 billion, compared to $1.01 billion in the same period of the prior year. This increase was primarily due to more extensive construction activity as Phase 1 of the Rio Grande LNG Facility commenced in July 2023.
Financing cash inflows for the nine months ended September 30, 2024, totaled $1.94 billion, compared to $1.45 billion in the same period of the prior year. This increase was driven by a $1.6 billion increase in debt and equity commitment proceeds, partially offset by $1.28 billion in debt repayments.
In the most recent quarter (Q3 2024), NextDecade reported: - Revenue: $0 - Net income: -$123,199,000 - Operating Cash Flow: -$63,844,000 - Free Cash Flow: $1,310,446,000
The company has not generated any revenue yet as it is still in the development and construction phase of the Rio Grande LNG Facility. The net loss, negative operating cash flow, and positive free cash flow in Q3 2024 were primarily due to ongoing development and construction activities, interest and financing costs, and changes in the fair value of the company's derivative instruments.
Outlook and Risks
NextDecade's success is largely tied to the successful construction and operation of the Rio Grande LNG Facility. The company's ability to maintain necessary regulatory approvals, secure additional commercial agreements, and obtain sufficient financing to fund future phases of development will be critical to its long-term success.
The recent court decision vacating the FERC's reauthorization of the Rio Grande LNG Facility poses a significant risk to the company's development plans. Delays in resolving this issue could adversely impact the project's timeline and financing. Additionally, the company's reliance on third-party contractors, global economic conditions, and the availability of natural gas supplies and LNG vessels could also affect the project's progress and financial performance.
Despite these challenges, NextDecade remains committed to the development of the Rio Grande LNG Facility and the capture and storage of CO2 emissions. The company's existing long-term SPAs and commercial agreements, as well as its multi-faceted financing strategy, provide a solid foundation for the project's future success, should the company be able to navigate the current regulatory hurdles.
NextDecade is also developing plans for additional liquefaction trains (Trains 4 and 5) at the Rio Grande LNG Facility, as well as potential carbon capture and storage (CCS) projects. However, these initiatives are subject to securing additional regulatory approvals, commercial arrangements, and financing.
Conclusion
NextDecade Corporation is a company in the midst of a transformative period, as it works to construct the Rio Grande LNG Facility, a large-scale natural gas liquefaction and export project in Texas. The company has made significant progress on the project's construction, secured long-term commercial agreements, and employed a diversified financing strategy to fund the development.
However, the recent court decision vacating the FERC's reauthorization of the project has created uncertainty around the timeline and regulatory approvals, posing a significant risk to NextDecade's plans. The company's ability to successfully navigate this challenge and obtain the necessary approvals will be crucial to the Rio Grande LNG Facility's future and the company's long-term success.
Investors should closely monitor NextDecade's progress in resolving the regulatory issues, as well as the company's ability to secure additional commercial agreements and financing to support the development of the project's subsequent phases. The company's performance in the coming months and years will be vital in determining its path to LNG dominance.