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Why 2019's Losses Don't Mean Much for Tellurian and NextDecade

By John Bromels - Mar 9, 2020 at 8:02AM

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These two companies aspire to be top LNG exporters. Today's results don't shed much light on their odds.

Up-and-coming energy companies Tellurian (TELL -3.34%) and NextDecade (NEXT 4.53%) have a lot of similarities. Both hope to grow into major exporters of U.S. liquefied natural gas (LNG). Both have scored some wins and experienced some setbacks in their quests to do so. And both reported big net losses for 2019 in their most recent annual SEC reports. 

Tellurian filed its 2019 10-K on Feb. 24, and issued a brief press release as it did so. Meanwhile, NextDecade quietly made its filing on March 3. Neither company held an earnings call, not that investors would have learned much of importance from the results.

Here's why these underwhelming numbers from both companies shouldn't matter much to investors.

A marine terminal for exporting oil and gas

Image source: Getty Images.

By the numbers

Here are the marquee numbers from the companies' 10-K filings:

Metric Tellurian 2019 Tellurian 2018 NextDecade 2019 NextDecade 2018
Revenue $28.8 million $10.3 million $0 $0
Net Income (Loss) ($151.8 million) ($125.7 million) ($35.9 million) ($42.0 million)
Earnings (Loss) Per Share ($0.69) ($0.59) ($0.45) ($0.41)
Operating Cash Flow ($113.0 million) ($103.8 million) ($40.7 million) ($23.3 million)

Data source: Company 10-Ks. Chart by author.

Both companies posted greater net losses than in the prior year, and burned through more cash. Tellurian's revenue more than doubled year over year, while NextDecade reported no revenue at all. 

If these were ordinary, established energy companies, those numbers would be pretty terrible. But because the thesis for investing in Tellurian or NextDecade is a long-term thesis, full year 2019 numbers tell us next to nothing about whether that thesis is likely to play out. Here's why.

According to plan

Each company is in the middle of a multi-year plan to become a major exporter of LNG. Tellurian already has some natural gas production assets in the Haynesville Shale in Louisiana (that's where its current revenue comes from).

It has received regulatory approval for its Driftwood LNG project, which will consist of a 96-mile natural gas pipeline and a liquefaction and export terminal near Lake Charles, Louisiana. The company is now working on securing financing partners for the project.

Eventually, Tellurian plans to construct two additional pipelines: one connecting its Haynesville production assets to the Driftwood project, and another that will link Driftwood to the Waha Hub, which will give it access to gas from Texas' natural gas-rich Permian Basin. 

NextDecade isn't producing its own gas, nor does it have plans to do so. Otherwise, though, its plan is similar to Tellurian's. It's received the necessary permits to begin work on the Rio Grande LNG terminal outside of Brownsville, at the southern tip of Texas. Together with Enbridge, the company also developed an associated pipeline from Agua Dulce, outside of Corpus Christi. It recently sold the entire pipeline to Enbridge in a $25 million deal. NextDecade has announced that its next project will be a second LNG export terminal in Galveston Bay, near Houston. 

Officially, neither Tellurian nor NextDecade have made "final investment decisions" (FIDs) on the Driftwood or the Rio Grande projects. Both companies claim they will do so in 2020.

However, even if they make those decisions tomorrow and the projects move forward, the first LNG won't be heading overseas from those terminals until 2023 at the earliest. Both projects should be seen as speculative, at least for the moment, and the companies' finances will look completely different when and if they come to fruition.

However, there's one area in which the companies' 2019 finances might come into play: buying time.

The long haul

It took a longer-than-expected amount of time for NextDecade's plans to receive final approval from the U.S. Federal Energy Regulatory Commission, which finally gave the green light to the project in late November.

NextDecade has already announced a commitment from a subsidiary of Royal Dutch Shell to purchase 2 million metric tons per annum (mtpa) of Rio Grande LNG, out of a projected 27 mtpa capacity. Now the company is waiting on "the achievement of further commercial milestones" before making its FID. 

Tellurian is also behind schedule in making an FID, and it recently experienced another setback. It extended the deadline of a memorandum of understanding with India's Petronet for 5 mtpa of Driftwood LNG from March 2020 to May 2020, raising concerns that Petronet was getting cold feet about the project. Tellurian has secured a firm commitment from French oil major Total for 1.5 mtpa of Driftwood LNG. Like NextDecade, the company needs to secure its remaining financial commitments before it can make an FID.

Because both companies are posting net losses and negative cash flow, they can't wait forever to make these decisions. Indeed, on March 2, Tellurian announced it would be reducing overhead and seeking to extend the maturity of a loan that currently comes due in May 2020. Unfortunately, there's no way to tell how close either company might be to securing the necessary funding and finally putting this uncertainty to rest once and for all.

Investor takeaway

It's tempting to suggest that investors should wait until each company reaches an FID before buying in. Of course, once FIDs are reached, a lot of investors will feel more comfortable buying in, and you'll probably miss out on some gains. However, unless you have a high tolerance for risk, that's the best play here. 

Both stocks have seen big drops this year, so the potential upside for investors who buy in now is huge, but the risks are similarly large: remember that even after a positive FID, there are plenty of things that could delay or derail giant energy industry construction projects like these. However, risk-tolerant investors may want to roll the dice.

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Stocks Mentioned

Tellurian Inc. Stock Quote
Tellurian Inc.
TELL
$2.89 (-3.34%) $0.10
NextDecade Corporation Stock Quote
NextDecade Corporation
NEXT
$4.62 (4.53%) $0.20
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
RDS.A
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
RDS.B
Enbridge Inc. Stock Quote
Enbridge Inc.
ENB
$41.44 (-2.86%) $-1.22
TotalEnergies Stock Quote
TotalEnergies
TTE
$51.15 (-3.18%) $-1.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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