What happened?
Shares of liquid natural gas (LNG) export start-up NextDecade (NEXT 0.86%) rocketed higher on June 14, up nearly 50% by 4 p.m. in what was otherwise a pretty calm day for most of the market. It's certainly a different direction than many oil and gas stocks, with the Energy Select Sector SPDR ETF (XLE 1.01%) down about 1% for the day.
Today's sharp move higher comes on the news that two giants in the energy industry, privately held Global Infrastructure Partners, and French multinational super-major TotalEnergies (TTE 1.51%) entered into framework agreements that would enable NextDecade to move forward with building its Rio Grand LNG export facility.
So what?
NextDecade has worked for years to secure partnerships and the funding to move forward with the Rio Grande LNG facility. The facility promises its customers access to both lower-cost natural gas from Texas' massive Permian Basin and Eagle Ford shale, which hold an estimated 700 trillion cubic feet of economically accessible gas. Additionally, NextDecade's plan to reduce carbon emissions by up to 90% via carbon capture and storage, should make it one of the lowest-carbon sources of LNG in the world.
According to the release, the deals with GIS and Total Energies would make GIS a majority investor in "Phase 1" of Rio Grande LNG, which would include the first three trains (essentially the LNG production lines), while TotalEnergies would hold a 16.7% stake. While not definitive quite yet, these agreements put NextDecade on the final lap toward issuing a final investment decision (FID) to move forward with the construction of Phase 1.
In a separate but very related agreement, TotalEnergies signed on to buy 5.4 million tonnes per year of LND from Phase 1 for 20 years, purchased $40 million of NextDecade stock at $4.9837 per share today, and agreed to a second and third tranche of future stock purchases, after the FID is issued and other conditions.
Now what?
These agreements are truly momentous for NextDecade. Securing two major partners for Phase 1 of Rio Grande LNG -- one of which will be a majority investor -- nearly guarantees that it will actually happen. This is great news for investors who've spent the past four-plus years waiting for this to happen. Of course, it's not a completely sure thing yet -- we saw Tellurian (TELL) secure partners in the past who ended up walking away before an FID happened -- so investors must be conscious of that potential, though it seems far less likely to happen.
In addition to securing its long-term future, NextDecade also secured some much-needed capital from TotalEnergies to fund its operations in the near term.
Looking at the big picture, this is a great day for NextDecade investors. There's still risk -- they need to get this across the finish line and still execute on the very complex, multi-billion-dollar construction of the facility, and revenue is still years away. But today gives investors reason to think that the future cash flows are going to happen. If things continue to progress, NextDecade still has significant multi-bagger potential over the next decade.