NextDecade Corp. - Quarter Report: 2023 June (Form 10-Q)

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.  

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)

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)

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)

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

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

NextDecade Corporation.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

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 16 – Subsequent Events. These consolidated financial statements and the notes thereto should be read in conjunction with Note 16 – Subsequent 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):

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.

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):

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):

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.

Note 6 — Leases

Our leased assets consist of office space. 

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

Operating lease liabilities are as follows (in thousands):

Operating lease expense is as follows (in thousands):

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

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

Note 7 — Other Non-Current Assets

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

Note 8 — Accrued Liabilities and Other Current Liabilities

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

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.

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:

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.

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:

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):

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):

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.

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:

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:

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):

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.

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:

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:

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.

We currently expect that the long-term capital requirements for future phases of development at the Terminal and any CCS projects will be financed predominately through the proceeds from future debt, equity-based, and equity offerings by us or our subsidiaries. As a result, our business success will depend, to a significant extent, upon our ability to fund our commitments to the joint venture constructing Phase 1 of the Terminal and to obtain financing required to fund future phases of development and construction at the Terminal and any CCS projects, to bring them into operation on a commercially viable basis and to finance any required increases in 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 fund future phases of development and construction at the Terminal or complete 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):

Operating Cash Flows

Operating cash outflows during the six months ended June 30, 2023 and 2022 were $41.2 million and $17.5 million, respectively.  The increase in operating cash outflows during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to an increase in employee costs and professional fees paid to consultants as we prepared for a positive FID in Phase 1 of the Terminal.

Investing Cash Flows

Investing cash outflows during the six months ended June 30, 2023 and 2022 were $56.5 million and $6.2 million, respectively. Investing cash outflows primarily consist of cash used in the development of the Terminal. The increase in investing cash outflows during the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to increased spend with Bechtel.  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 relative to the quarterly investing cash outflows during the six months ended June 30, 2022.

Financing Cash Flows

Financing cash inflows during the six months ended June 30, 2023 and 2022 were $74.9 million and $38.6 million, respectively, primarily representing proceeds from the sale of common stock in 2023 and primarily representing proceeds from the sale of Series C Preferred Stock in 2022.

Contractual Obligations

As of June 30, 2023, 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 ended December 31, 2022.  As disclosed in Note 16 - Subsequent Events, subsequent to June 30, 2023, in connection with FID, the Company and its subsidiaries entered into several agreements related to the financing for the development and construction of Phase 1 of the Terminal.

Results of Operations

The following table summarizes costs, expenses and other income for the periods indicated (in thousands):

Net loss attributable to common stockholders was $127.0 million, or $(0.84) per common share (basic and diluted), for the three months ended June 30, 2023 compared to a net loss of $16.7 million, or $(0.13) per common share (basic and diluted), for the three months ended June 30, 2022. The $110.4 million increase in net loss was primarily a result of the derivative loss on Contingent Interest Rate Swaps, an increase in general and administrative expense and an increase in loss on common stock warrant liabilities.

Net loss attributable to common stockholders was $161.1 million, or $(1.08) per common share (basic and diluted), for the six months ended June 30, 2023 compared to a net loss of $33.9 million, or $(0.27) per common share (basic and diluted), for the six months ended June 30, 2022. The $127.2 million increase in net loss was primarily a result of the derivative loss on Contingent Interest Rate Swaps, an increase in general and administrative expense and an increase in loss on common stock warrant liabilities, partially offset by a decrease in development expense, net.

Derivative loss during the three and six months ended June 30, 2023 of $87.5 million is due to lower forward SOFR rates relative to the fixed interest rate we would have paid.  As disclosed in Note 16 - Subsequent Events, the Contingent Interest Rate Swaps were amended at FID and the derivative loss associated with the Contingent Interest Rate Swaps was reversed in July 2023.

General and administrative expense during the three months ended June 30, 2023 increased approximately $15.5 million compared to the same period in 2022 primarily due to an increase in professional fees, employee costs and share-based compensation expense. The primary driver of the increase in share-based compensation expense between periods of $7.9 million was the recognition of compensation cost on restricted stock awards and units that vest at FID.  The increase in professional fees and employee costs is due to an increase in the average number of employees, compared to the same period of the prior year, as we prepared for a positive FID in Phase 1 of the Terminal.

General and administrative expense during the six months ended June 30, 2023 increased approximately $38.5 million compared to the same period in 2022 primarily due to an increase in professional fees, employee costs and share-based compensation expense. The primary driver of the increase in share-based compensation expense between periods of $11.8 million was the recognition of compensation cost on restricted stock awards and units that vest at FID and the forfeitures of awards previously granted to certain employees who departed the Company during the prior year period.  The increase in professional fees and employee costs is due to an increase in the average number of employees during the six months ended June 30, 2023, compared to the same period of the prior year, as we prepared for a positive FID in Phase 1 of the Terminal.

Development expense, net during the three and six months ended June 30, 2023 decreased $0.8 million and $1.9 million, respectively, compared to the same periods in 2022. NEXT Carbon Solutions’ preliminary FEED and FEED studies performed on third-party industrial facilities were primarily completed in 2022 and 2021. 

Loss on common stock warrant liabilities for the three and six months ended June 30, 2023 is primarily due to a decrease in the conversion price of Convertible Preferred Stock and an increase in the share price of Company common stock.

Preferred stock dividends for the three months ended June 30, 2023 of $6.8 million consisted of dividends paid-in kind with the issuance of 2,524 additional shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), 2,408 additional shares of Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), and 1,803 additional shares of Series C Preferred Stock, compared to preferred stock dividends of $5.8 million for the three months ended June 30, 2022 that consisted of dividends paid-in kind with the issuance of 2,243, 2,138 and 1,374 additional shares of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, respectively.

Preferred stock dividends for the six months ended June 30, 2023 of $13.5 million consisted of dividends paid-in kind with the issuance of 5,030 additional shares of Series A Preferred Stock, 4,798 additional shares of Series B Preferred Stock, and 3,593 additional shares of Series C Preferred Stock, compared to preferred stock dividends of $11.5 million for the six months ended June 30, 2022 that consisted of dividends paid-in kind with the issuance of 4,468, 4,261 and 2,761 additional shares of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, respectively.

Summary of Critical Accounting Estimates

The preparation of our 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. Except as disclosed below, 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 ended December 31, 2022.

Derivative Instruments

All derivative instruments, other than those that satisfy specific exceptions, are recorded at fair value.  We record changes in the fair value of our derivative positions based on the value for which the derivative instrument could be exchanged between willing parties.  If market quotes are not available to estimate fair value, management's best estimate of fair value is based on the quoted market price of derivatives with similar characteristics or determined through industry-standard valuation approaches.  Such evaluation may involve significant judgment and the results are based on expected future events or conditions, particularly for those valuations using inputs unobservable in the market.

Our derivative instruments consist of interest rate swaps.  We value our interest rate swaps using observable inputs including interest rate curves, risk adjusted discount rates, credit spreads and other relevant data.

Gains and losses on derivative instruments are recognized in earnings.  The ultimate fair value of our derivative instruments is uncertain, and we believe that it is reasonably possible that a change in the estimated fair value could occur in the near future as interest rates change.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of the end of the period covered by this report, we evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective.

During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.   Legal Proceedings

None.

Item 1A. Risk Factors

Except as disclosed below, there were no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The substantial amount of indebtedness incurred to finance construction of Phase 1 of the Terminal may adversely affect Rio Grande’s cash flow and its ability to operate its business, remain in compliance with debt covenants and make payments on its indebtedness.

Rio Grande has incurred a substantial amount of indebtedness. This substantial level of indebtedness increases the possibility that Rio Grande may be unable to generate cash sufficient to pay, when due, the principal or interest on such indebtedness or to refinance such indebtedness ahead of its scheduled maturity. This indebtedness and obligations thereunder could have other important consequences to you as a stockholder. For example:

Restrictions in agreements governing Rio Grande’s indebtedness may prevent it from engaging in certain beneficial transactions.

In addition to restrictions on the ability of Rio Grande to make distributions or incur additional indebtedness, the agreements governing Rio Grande’s indebtedness also contain various other covenants that may prevent it from engaging in beneficial transactions, including limitations on the ability of Rio Grande or certain of its subsidiaries to: