Shares of NextDecade (NEXT -1.92%) fell a touch over 15% at one point in morning trading on March 30. The decline was likely driven by the after-the-market news release on March 29 explaining that the would-be liquified natural gas (LNG) exporter and carbon capture company was raising some additional cash.
NextDecade doesn't actually have any operations at the moment. But, as noted, it is looking to build an LNG export facility and a carbon capture project. It is in the very early stages of its development efforts. That's important because it costs a lot of money to build projects like these, and the company has no revenue coming in the door. In order to sustain its business, it has been raising capital by selling convertible preferred stock.
On March 18 it announced plans to sell $24.5 million worth of convertible preferreds. And yesterday it announced it intended to sell $10 million more of the same preferreds. This is good in that it provides the energy company with the funds it needs to keep advancing the projects it is working on. However, selling convertible preferred stock brings with it the very real risk of shareholder dilution, assuming those convertible preferred shares eventually get converted. Dilution is not a good thing for current shareholders, so it makes sense that investors weren't so pleased with a second round of capital raising in less than a month's time.
Most long-term investors will probably want to tread carefully here. While the prospects of an LNG export facility and a carbon capture project are exciting, there is a long way to go before NextDecade has these projects up and operating. That means that the red ink is going to keep flowing and, likely, a lot more capital will be needed over the near term.