Introduction
The following discussion and analysis presents management's view of our
business, financial condition and overall performance and should be read in
conjunction with our Consolidated Financial Statements and the accompanying
notes in "Financial Statements and Supplementary Data." This information is
intended to provide investors with an understanding of our past performance,
current financial condition and outlook for the future. Our discussion and
analysis include the following subjects:
• Overview of Business
• Overview of Significant Events
• Liquidity and Capital Resources
• Contractual Obligations
• Results of Operations
• Summary of Critical Accounting Estimates
• Recent Accounting Standards
Overview of Business
NextDecade 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.
Overview of Significant Events
LNG Sale and Purchase Agreements
In April 2022, we entered into a 20-year sale and purchase agreement with ENN
for the supply of 1.5 mtpa of LNG indexed to Henry 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. In December 2022, we executed an
Amended and Restated ENN LNG SPA to increase the volume to 2.0 mtpa.
In April 2022, we entered into a 15-year SPA with ENGIE for the supply of 1.75
mtpa of LNG indexed to Henry Hub on a free-on-board basis from the Terminal. The
LNG supplied to ENGIE will be from the first two trains at the Terminal.
In July 2022, we entered into a 20-year SPA with China Gas for the supply of 1.0
mtpa of LNG indexed to Henry Hub on a free-on-board basis from the Terminal.
The LNG supplied to China Gas will be from the second train at the Terminal.
In July 2022, we entered into a 20-year SPA with Guangdong Energy for the supply
of 1.0 mtpa of LNG indexed to Henry Hub delivered on an ex-ship basis from the
Terminal. The LNG supplied to Guangdong Energy will be from the first train at
the Terminal.
In July 2022, we entered into a 20-year SPA with EMLAP, an affiliate of
ExxonMobil, for the supply of 1.0 mtpa of LNG indexed to Henry Hub delivered on
a free-on-board basis from the Terminal. The LNG supplied to EMLAP will be from
the first two trains at the Terminal.
In December 2022, we entered into a 20-year SPA with Galp for the supply of 1.0
mtpa of LNG indexed to Henry Hub on a free-on-board basis from the Terminal.
In January 2022, we entered into a 15-year SPA with Itochu Corporation for the
supply of 1.0 mtpa of LNG indexed to Henry Hub on a free-on-board basis from the
Terminal.
Each of the above SPAs becomes effective upon the satisfaction of certain
conditions precedent, which include a positive final investment decision on the
initial phase of the Terminal.
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 to
extend the effective date for commencing the Rio Grande Site Lease to May 6,
2023.
Engineering, Procurement and Construction ("EPC") Agreements
In April 2022, Rio Grande and Bechtel Energy Inc. (formerly known as Bechtel
Oil, Gas and Chemicals, Inc., "Bechtel") amended each of the Trains 1 and 2 EPC
Agreement and the Train 3 EPC Agreement to extend the respective contract
validity to July 31, 2023.
In September 2022, Rio Grande and Bechtel amended each of the Trains 1 and 2 EPC
Agreement and the Train 3 EPC Agreement. The amendments to the EPC Agreements
primarily give effect to certain updated lump-sum, separated contract pricing
components. As of the date of filing this Annual Report on Form 10-K, we
estimate the lump-sum EPC cost to construct Trains 1-3 of the Terminal at
approximately $11.5 billion. The final EPC lump-sum contract pricing for Trains
1-3 of the Terminal will be determined prior to an FID on Trains 1-3 and is
subject to change, including if we do not issue a full notice to proceed to
Bechtel on or before March 15, 2023, unless extended by mutual agreement of the
parties thereto.
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NEXT Carbon Solutions
On March 18, 2021, we announced the formation of NEXT Carbon Solutions. NEXT
Carbon Solutions offers end-to-end CCS solutions for industrial facilities.
Leveraging our team's years of engineering and project management experience, we
have developed proprietary processes that lower the capital and operating costs
of deploying CCS on industrial facilities. We expect to partner with customers
to invest in the deployment of CCS to reduce and permanently store CO2
emissions. We believe that integrating CCS with an industrial facility's
operations has the potential to increase the value of the industrial facility.
Through commercial agreements and by investment, NEXT Carbon Solutions looks to
share in the value created from this integration.
In May 2022, we entered into an agreement with California Resources Corporation,
whereby NEXT Carbon Solutions was engaged to perform a Front-end Engineering and
Design ("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 was successfully
completed in the first quarter of 2023. California Resources Corporation and
NEXT Carbon Solutions are continuing review of the FEED results and commercial
discussions.
In June 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 have generated cash proceeds of
$1.0 million.
Private Placements of Company Common Stock
In April 2022, we sold 4,618,226 shares of Company common stock for gross
proceeds of approximately $30 million to HGC NEXT INV LLC, as described
in Note 9 - Stockholders' Equity in the Notes to Consolidated Financial
Statements.
In September 2022, we sold 15,454,160 shares of Company common stock for gross
proceeds of approximately $85 million. The Private Placement closed on September
19, 2022, as described in Note 9 - Stockholders' Equity in the Notes to
Consolidated Financial Statements.
Private Placement of Series C Convertible Preferred Stock
In March 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 associated
warrants, see Note 9 - Preferred Stock and Common Stock Warrants in the
Notes to Consolidated Financial Statements.
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Liquidity and Capital Resources
Near Term Liquidity and Capital Resources
Our consolidated financial statements as of and for the year ended December 31,
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 $62.8 million at December 31, 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 generate positive cash flows 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.
We expect to spend approximately $15 million per month on development activities
during 2023 and until a positive FID is made on the initial phase of the
Terminal. 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 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 $81.0
million on such development activities during 2022, which we funded through our
cash on hand and proceeds from the issuances of equity and equity-based
securities. 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 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
approximately $35 million.
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. Based on our EPC Agreements with Bechtel, we
currently estimate the aggregate lump-sum EPC cost to construct Trains 1-3 of
the Terminal at approximately $11.5 billion. The final EPC lump-sum contract
pricing for Trains 1-3 of the Terminal will be determined prior to an FID on
Trains 1-3 and is subject to change, including if we do not issue a full notice
to proceed to Bechtel on or before March 15, 2023, unless extended by mutual
agreement of the parties thereto. We currently expect that the EPC costs and
other 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):
Year Ended
December 31,
2022 2021
Operating cash flows $ (40,076 ) $ (17,960 )
Investing cash flows (40,888 ) (18,534 )
Financing cash flows 118,201 39,438
Net increase in cash and cash equivalents 37,237 2,944
Cash and cash equivalents - beginning of period 25,552 22,608
Cash and cash equivalents - end of period $ 62,789 $ 25,552
Operating Cash Flows
Operating cash outflows during the years ended December 31, 2022 and 2021 were
$40.1 million and $18.0 million, respectively. The increase in operating cash
outflows in 2022 compared to 2021 was primarily due to an increase in
employee costs and professional fees paid to consultants as we prepare for a
positive FID on the initial phase of the Terminal.
Investing Cash Flows
Investing cash outflows during the years ended December 31, 2022 and 2021
were $40.9 million and $18.5 million, respectively. The investing cash
outflows in 2022 were primarily the result cash used in the development of the
Terminal of $33.8 million and cash used in the acquisition of other assets
of $7.1 million. During the third quarter of 2022, we issued a limited notice to
proceed to Bechtel to begin ramping up its personnel and initiate site
preparation work; as a result, investing cash outflows increased in 2022
relative to 2021. The investing cash inflows in 2021 were primarily the result
cash used in the development of the Terminal of $12.1 million and cash used in
the acquisition of other assets of $6.4 million.
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Financing Cash Flows
Financing cash inflows during the years ended December 31, 2022 and 2021 were
$118.2 million and $39.4 million, respectively. Financing cash inflows in 2022
were primarily the result of proceeds from the sale of common stock of $115
million and sale of Series C Preferred Stock of $10.5 million, partially offset
by equity issuance costs of $3.9 million and shares repurchased related to
share-based compensation of $3.3 million. Financing cash inflows in 2021 were
primarily the result of proceeds from the sale of Series C Preferred Stock
of $39.5 million.
Contractual Obligations
We are committed to make cash payments in the future pursuant to certain of our
contracts. The following table summarizes certain contractual obligations (in
thousands) in place as of December 31, 2022:
Total 2023 2024-2025 2026-2027 Thereafter
Operating lease obligations $ 2,701 $ 2,039 $ 662 $ - $ -
Rio Grande site lease 8,619 6,384 2,235 - -
Other 305 84 141 80 -
Total $ 11,625 $ 8,507 $ 3,038 $ 80 $ -
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Operating lease obligations relate to our office space in Houston, Texas and
Singapore.
Rio Grande site lease represents amounts due until the lease term commences.
A discussion of these obligations can be found at Note 6 - Leases and Note
14 - Commitments and Contingencies of our Notes to Consolidated Financial
Statements.
Results of Operations
The following table summarizes costs, expenses and other income for the years
ended December 31, 2022 and 2021 (in thousands):
Year Ended
December 31,
2022 2021 Change
Revenues $ - $ - $ -
General and administrative expenses 49,093 16,803 32,290
Development expense, net 4,101 1,615 2,486
Lease expense 1,119 905 214
Depreciation expense 162 184 (22 )
Operating loss (54,475 ) (19,507 ) (34,968 )
Loss on Common Stock Warrant Liabilities (5,747 ) (2,533 ) (3,214 )
Other 151 1 150
Net loss attributable to NextDecade
Corporation (60,071 ) (22,039 ) (38,032 )
Preferred stock dividends (24,282 ) (18,294 ) (5,988 )
Deemed dividends on Series A Convertible
Preferred Stock - (63 ) 63
Net loss attributable to common stockholders $ (84,353 ) $ (40,396 ) $ (43,957 )
Our consolidated net loss was $60.1 million, or $0.65 per common share (basic
and diluted), for the year ended December 31, 2022 compared to a net loss
of $22.0 million, or $0.34 per common share (basic and diluted), for the year
ended December 31, 2021. The $38.0 million increase in net loss was primarily a
result of increases in general and administrative expense, development expense,
net, and loss on common stock warrant liabilities, discussed separately below.
General and administrative expenses during the year ended December 31, 2022
increased $32.3 million compared to the year ended December 31, 2021, primarily
due to an increase in share-based compensation expense of $11.8 million and
increases in salaries and wages, professional fees, travel expenses, and
marketing costs. The increase in share-based compensation expense for the year
ended December 31, 2022 was primarily due to forfeitures of awards upon the
departure of certain employees during 2021 and the grant of additional
restricted stock unit awards in 2022. The increase in salaries and wages,
professional fees, travel expense, and marketing is primarily due to fewer
pandemic restrictions in 2022 and an increase in the average number of employees
during the year ended December 31, 2022 compared to the year ended December 31,
2021.
The increase in development expense, net of $2.5 million during the year ended
December 31, 2022 compared to the year ended December 31, 2021, is primarily due
to NEXT Carbon Solutions' FEED study for California Resources Corporation that
commenced in May 2022.
The loss on common stock warrant liabilities of approximately $5.7 million in
2022 was primarily due to an increase in the share price of Company common stock
from December 31, 2021 to December 31, 2022.
Preferred stock dividends of $24.3 million in 2022 consisted of dividends
paid-in-kind with the issuance of an additional 9,235 shares of Series A
Preferred Stock, 8,806 additional shares of Series B Preferred Stock and 6,166
additional shares of Series C Preferred Stock.
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Summary of Critical Accounting Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity
with accounting principles generally accepted in the 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. Management evaluates its estimates and related assumptions
regularly, including those related to the value of properties, plant, and
equipment, share-based compensation, common stock warrant liabilities, and
income taxes. Changes in facts and circumstances or additional information may
result in revised estimates, and actual results may differ from these estimates.
Management considers the following to be its most critical accounting estimates
that involve significant judgment.
Impairment of Long-Lived Assets
A long-lived asset, including an intangible asset, is evaluated for potential
impairment whenever events or changes in circumstances indicate that its
carrying value may not be recoverable. Recoverability generally is determined by
comparing the carrying value of the asset to the expected undiscounted future
cash flows of the asset. If the carrying value of the asset is not recoverable,
the amount of impairment loss is measured as the excess, if any, of the carrying
value of the asset over its estimated fair value. We use a variety of fair value
measurement techniques when market information for the same or similar assets
does not exist. Projections of future operating results and cash flows may vary
significantly from results. Management reviews its estimates of cash flows on an
ongoing basis using historical experience and other factors, including the
current economic and commodity price environment.
Share-based Compensation
The assumptions used in calculating the fair value of share-based payment awards
represent our best estimates, but these estimates involve inherent uncertainties
and the application of management's judgment. As a result, if factors change and
we use different assumptions, our share-based compensation expense could be
materially different in the future.
For additional information regarding our share-based compensation, see Note
12 - Share-based Compensation of our Notes to Consolidated Financial
Statements.
Valuation of Common Stock Warrant Liabilities
The fair value of Common Stock Warrant liabilities is determined using a Monte
Carlo valuation model. Determining the appropriate fair value model and
calculating the fair value of Common Stock Warrant requires considerable
judgment. Any change in the estimates used may cause the value to be higher or
lower than that reported. The estimated volatility of our Common Stock Warrants
at the date of issuance, and at each subsequent reporting period, is based on
our historical volatility. The risk-free interest rate is based on rates
published by the government for bonds with maturity similar to the expected
remaining life of the Common Stock Warrants at the valuation date. The expected
life of the Common Stock Warrants is assumed to be equivalent to their remaining
contractual term.
The Common Stock Warrants are not traded in an active market and the fair value
is determined using valuation techniques. The estimates may be significantly
different from those recorded in the consolidated financial statements because
of the use of judgment and the inherent uncertainty in estimating the fair value
of these instruments that are not quoted in an active market. All changes in the
fair value are recorded in the consolidated statement of operations each
reporting period.
For additional information regarding the valuation of Common Stock Warrant
liabilities, see Note 9 - Preferred Stock and Common Stock Warrants of our
Notes to Consolidated Financial Statements.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the tax basis
of assets and liabilities and their reported amounts in the Consolidated
Financial Statements. Deferred tax assets and liabilities are included in the
Consolidated Financial Statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the current period's
provision for income taxes. We routinely assess our deferred tax assets and
reduce such assets by a valuation allowance if we deem it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
This assessment requires significant judgment and is based upon our assessment
of our ability to generate future taxable income among other factors.
For additional information regarding the valuation of deferred tax assets, see
Note 13 - Income Taxes of our Notes to Consolidated Financial Statements.
Recent Accounting Standards
For descriptions of recently issued accounting standards, see Note 15 - Recent
Accounting Pronouncements of our Notes to Consolidated Financial Statements.
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