NEXTDECADE CORPORATION 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. 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 of achieving a final investment decision ("FID") in the
construction and operation of a 27 million tonne per annum ("mtpa") LNG
export facility at the Port of Brownsville in southern Texas (the
"Terminal");
? our reliance on third-party contractors to successfully complete theTerminal, 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 to
complete the Terminal and other CCS projects 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
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
Market or another securities exchange or quotation medium;
? changes adversely affecting the businesses in which we are engaged;
? management of growth;
? general economic conditions;
? our ability to generate cash; and
? the result of future financing efforts and applications for customary tax
incentives.
13--------------------------------------------------------------------------------
Table of Contents
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 theSecurities 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. OverviewNextDecade Corporation engages in development activities related to the liquefaction and sale of LNG and the capture and storage of CO2 emissions. We have undertaken and continue to undertake various initiatives to evaluate, design and engineer the Terminal, including the Terminal CCS project, that we expect will result in demand for LNG supply at the Terminal, and other CCS projects that would be hosted at industrial source facilities.
Unless the context requires otherwise, references to "
Recent Developments
Rio Grande Development Activity
LNG Sale and Purchase Agreements
InApril 2022 , we entered into a 20-year sale and purchase agreement ("SPA") withENN LNG (Singapore) Pte Ltd ("ENN LNG") for the supply of 1.5 mtpa of LNG indexed toHenry Hub on a free-on-board basis from the Terminal ("ENN LNG SPA"). The LNG supplied to ENN LNG will be from the first two trains at the Terminal. InApril 2022 , we also entered into a 15-year SPA with ENGIE S.A. ("ENGIE") for the supply of 1.75 mtpa of LNG indexed toHenry Hub on a free-on-board basis from the Terminal ("ENGIE SPA"). The LNG supplied to ENGIE will be from the first two trains at the Terminal. InJuly 2022 , we entered into a 20-year SPA withChina Gas Hongda Energy Trading Co., LTD ("China Gas ") for the supply of 1.0 mtpa of LNG indexed toHenry Hub on a free-on-board basis from the Terminal ("China Gas SPA"). The LNG supplied toChina Gas will be from the second train at the Terminal. InJuly 2022 , we also entered into a 20-year SPA withGuangdong Energy Group ("Guangdong Energy") for the supply of 1.0 mtpa of LNG indexed toHenry Hub delivered on an ex-ship basis from the Terminal ("Guangdong Energy SPA"). The LNG supplied to Guangdong Energy will be from the first train at the Terminal. InJuly 2022 , we also entered into a 20-year SPA with ExxonMobil LNG Asia Pacific ("EMLAP"), an affiliate of ExxonMobil, for the supply of 1.0 mtpa of LNG indexed toHenry Hub delivered on a free-on-board basis from the Terminal ("EMLAP SPA"). The LNG supplied to EMLAP will be from the first two trains at the Terminal.
Each of the ENN LNG SPA,
Rio Grande Site Lease OnMarch 6, 2019 , Rio Grande entered into a lease agreement (the "Rio Grande Site Lease") with theBrownsville Navigation District ofCameron County, Texas (the "BND") for the lease by Rio Grande of approximately 984 acres of land situated inBrownsville ,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. OnApril 20, 2022 , Rio Grande and the BND amended the Rio Grande Site Lease to extend the effective date for commencing the Rio Grande Site Lease toMay 6, 2023 .
Engineering, Procurement and Construction ("EPC") Agreements
By amendments dated
NEXT Carbon Solutions Development Activity
Front-end Engineering and Design ("FEED") Agreements
InMay 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 theElk Hills Power Plant. During the FEED, NEXT Carbon Solutions and California Resources Corporation expect to finalize definitive commercial documents allowing the project to proceed with a final investment decision. InJune 2022 , we entered into agreements with an energy infrastructure fund to perform preliminary FEED studies at two power generation facilities. Through performance of the preliminary FEED studies, we expect to generate cash proceeds of$1.0 million in the second half of 2022. 14
--------------------------------------------------------------------------------
Table of Contents Financing Activity
Private Placement of Company Common Stock
In
Note 9 - Stockholders' Equity in the Notes to Consolidated Financial Statements.
Private Placement of Series C Convertible Preferred Stock
InMarch 2022 , we sold an aggregate of 10,500 shares of Series C Convertible Preferred Stock, par value$0.0001 per share (the "Series C Preferred Stock"), at$1,000 per share for an aggregate purchase price of$10.5 million and issued an additional 210 shares of Series C Preferred Stock in aggregate as origination fees. Warrants representing the right to acquire an aggregate number of shares of our common stock equal to approximately 14.91 basis points (0.1491%) of all outstanding shares of Company common stock, measured on a fully diluted basis, on the applicable exercise date with a strike price of$0.01 per share were issued together with the issuances of the Series C Preferred Stock. For further descriptions of the Series C Preferred Stock and related warrants, see Note 8 - Preferred Stock and Common Stock Warrants , in the Notes to Consolidated Financial Statements. 15
--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources
Near Term Liquidity and Capital Resources
Our primary cash needs have historically been funding development activities in support of the Terminal and our CCS projects, which include payments of initial direct costs of our 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$37 million on such development activities during 2021, which we funded through our cash on hand and proceeds from the issuances of equity and equity-based securities. Our capital raising activities sinceJanuary 1, 2022 have included the following: InMarch 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
During the six months endedJune 30, 2022 we spent approximately$26 million on development activities and we expect this level of spend on development activities to continue to increase during the six months endingDecember 31, 2022 as we increase headcount and engage consultants in preparation for a positive FID of the initial phase of the Terminal. Because our businesses and assets are in development, we have not historically generated cash flow from operations, nor do we expect to do so during 2022. We intend to fund the remaining portion of 2022 development activities 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 such 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 endedJune 30, 2022 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$40.5 million atJune 30, 2022 , 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.
Long Term Liquidity and Capital Resources
The Terminal will not begin to operate and generate significant cash flows
unless and until the Terminal is operational, which is expected to be at least
four years away, and the construction of the Terminal will require a significant
amount of capital expenditure. CCS projects will similarly take an extended
period of time to develop, construct and become operational and will require
significant capital deployment. We currently expect that the long-term capital
requirements for the Terminal and any CCS projects will be financed
predominately through project financing and proceeds from future debt,
equity-based, and equity offerings by us. Construction of the Terminal and CCS
projects would not begin until such financing has been obtained. As a result,
our business success will depend, to a significant extent, upon our ability to
obtain the funding necessary to construct the Terminal and any CCS projects, to
bring them into operation on a commercially viable basis and to finance our
staffing, operating and expansion costs during that process. There can be no
assurance that we will succeed in securing additional debt and/or equity
financing in the future to complete the Terminal or any CCS projects or, if
successful, that the capital we raise will not be expensive or dilutive to
stockholders. Additionally, if these types of financing are not available, we
will be required to seek alternative sources of financing, which may not be
available on terms acceptable to us, if at all.
Sources and Uses of Cash
The following table summarizes the sources and uses of our cash for the periods
presented (in thousands):
Six Months Ended
June 30,
2022 2021
Operating cash flows $ (17,475 ) $ (7,700 )
Investing cash flows (6,210 ) (8,585 )
Financing cash flows 38,633 34,272
Net increase in cash and cash equivalents 14,948 17,987
Cash and cash equivalents - beginning of period 25,552 22,608
Cash and cash equivalents - end of period
Operating Cash Flows Operating cash outflows during the six months endedJune 30, 2022 and 2021 were$17.5 million and$7.7 million , respectively. The increase in operating cash outflows during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 was primarily due to an increase in employee costs and professional fees paid to consultants as we prepare for a positive FID in the initial phase of the Terminal. Investing Cash Flows Investing cash outflows during the six months endedJune 30, 2022 and 2021 were$6.2 million and$8.6 million , respectively. Investing cash outflows primarily consist of cash used in the development of the Terminal and CCS project. The decrease in investing cash outflows during the six months endedJune 30, 2022 compared to the same period in 2021 was primarily due to lower spend with our engineering, procurement and construction contractor. Financing Cash Flows
Financing cash inflows during the six months ended
Contractual Obligations There have been no material changes to our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . 16
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
The following table summarizes costs, expenses and other income for the periods
indicated (in thousands):
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2022 2021 Change 2022 2021 Change
Revenues $ - $ - $ - $ - $ - $ -
General and
administrative
expense 11,293 6,533 4,760 14,616 7,903 6,713
Development expense 1,193 - 1,193 2,738 - 2,738
Lease expense 290 234 56 509 438 71
Depreciation expense 42 45 (3 ) 89 93 (4 )
Total operating loss (12,818 ) (6,812 ) (6,006 ) (17,952 ) (8,434 ) (9,518 )
Gain (loss) on common
stock warrant
liabilities 1,886 (4,768 ) 6,654 (4,418 ) (6,806 ) 2,388
Other, net 20 - 20 21 2 19
Net loss attributable
to NextDecade
Corporation (10,912 ) (11,580 ) 668 (22,349 ) (15,238 ) (7,111 )
Preferred stock
dividends (5,774 ) (3,876 ) (1,898 ) (11,529 ) (7,751 ) (3,778 )Deemed dividends on Series A Convertible Preferred Stock - (15 ) 15 - (31 ) 31 Net loss attributable to common stockholders$ (16,686 ) $ (15,471 ) $ (1,215 ) $ (33,878
)$ (23,020 ) $ (10,858 ) Our consolidated net loss was$16.7 million , or$0.13 per common share (basic and diluted), for the three months endedJune 30, 2022 compared to a net loss of$15.5 million , or$0.13 per common share (basic and diluted), for the three months endedJune 30, 2021 . The$1.2 million increase in net loss was primarily a result of increases in general and administrative expense, development expense and preferred stock dividends, partially offset by a decrease in loss on common stock warrant liabilities. Our consolidated net loss was$33.9 million , or$0.27 per common share (basic and diluted), for the six months endedJune 30, 2022 compared to a net loss of$23.0 million , or$0.19 per common share (basic and diluted), for the six months endedJune 30, 2021 . The$10.9 million increase in net loss was primarily a result of increases in general and administrative expense, development expense and preferred stock dividends, partially offset by a decrease in loss on common stock warrant liabilities. General and administrative expense during the three months endedJune 30, 2022 increased approximately$4.8 million compared to the same period in 2021 primarily due to an increase in share-based compensation expense of$2.0 million and increases in salaries and wages, professional fees, travel expenses, and IT and communications. The increase in salaries and wages, professional fees, travel expense, and IT and communications is primarily due to fewer pandemic restrictions in 2022 and a 25% increase in the average number of employees during the three months endedJune 30, 2022 compared to the same period of the prior year. General and administrative expense during the six months endedJune 30, 2022 increased approximately$6.7 million compared to the same period in 2021 primarily due to an increase in share-based compensation expense of$3.4 million and increases in salaries and wages, professional fees, travel expenses, and IT and communications. The increase in salaries and wages, professional fees, travel expense, and IT and communications is primarily due to fewer pandemic restrictions in 2022 and a 24% increase in the average number of employees during the six months endedJune 30, 2022 compared to the same period of the prior year. Development expense during the three and six months endedJune 30, 2022 were$1.2 million and$2.7 million , respectively, due to NEXT Carbon Solutions' preliminary FEED assessments performed on third-party industrial facilities. Similar preliminary FEED assessments were not performed during either of the three or six months endedJune 30, 2021 . Gain (loss) on common stock warrant liabilities for the three and six months endedJune 30, 2022 and 2021 is primarily due to changes in the share price of Company common stock. Preferred stock dividends for the three months endedJune 30, 2022 of$5.8 million consisted of dividends paid-in kind with the issuance of 2,243 additional shares of Series A Convertible Preferred Stock, par value$0.0001 per share (the "Series A Preferred Stock"), 2,138 additional shares of Series B Convertible Preferred Stock, par value$0.0001 per share (the "Series B Preferred Stock"), and 1,374 additional shares of Series C Preferred Stock, compared to preferred stock dividends of$3.9 million for the three months endedJune 30, 2021 that consisted of dividends paid-in kind with the issuance of 1,978 and 1,884 additional shares of Series A Preferred Stock and Series B Preferred Stock, respectively. Preferred stock dividends for the six months endedJune 30, 2022 of$11.5 million consisted of dividends paid-in kind with the issuance of 4,468 additional shares of Series A Preferred Stock, 4,261 additional shares of Series B Preferred Stock, and 2,761 additional shares of Series C Preferred Stock, compared to preferred stock dividends of$7.8 million for the six months endedJune 30, 2021 that consisted of dividends paid-in kind with the issuance of 3,956 and 3,768 additional shares of Series A Preferred Stock and Series B Preferred Stock, respectively. 17
--------------------------------------------------------------------------------
Table of Contents
Summary of Critical Accounting Estimates
The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted inthe United States of America ("GAAP") requires management to make certain estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. There have been no significant changes to our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
© Edgar Online, source
