Q1 2020 Earnings Call
[music].
Welcome to the Targa resources first quarter 2020 earnings conference call.
At this time, all participants are in listen only mode.
After the speakers presentation, there would be a question and answer session.
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I would now like to 10 conference over to Sanjay Lad Director Senior Director of Finance a director relations. Thank you. Please go ahead.
Thank you very good good morning, and welcome to the first quarter 2020 earnings call for Targa Resources Corp. The first quarter earnings release for Targa resources, along with the first quarter earnings supplemental presentation are available on the Investor section of our web site at Targa resources Dot Com. In addition in updated investor.
Presentation has also been posted to our website.
A reminder, that statements made during this call that might include Targa resources expectations or predictions to be considered forward looking statements within the meaning of section 21.
At the Securities Exchange Act of 1934 actual results could differ materially from those projected in forward looking statement.
For a discussion the factors that could cause actual results to differ please refer to our latest SEC filings.
Our speakers for the call today will be Matt Malloy, Chief Executive Officer, and Gen, Neil Chief Financial Officer.
We will also have the following senior management team members available for Q1 day.
Mcdonie president gathering and processing.
Scott prior President logistics and transportation.
And Bobby Moreau, Chief commercial officer.
And with that I will now turn the call over to Matt.
Thanks, Sandra good morning, and thank you to everyone for joining.
On behalf of the target team, we hope that you and your families are doing well and staying safe.
The first quarter results show that our assets continued to perform well with solid operational and financial performance in the first quarter.
We had 428 million of adjusted EBITDA, 32% growth and Permian volumes, 37% growth and fractionation volumes and 26% growth and export volumes versus last year, despite significantly lower commodity prices.
Our continued efforts to reduce commodity exposure across our GMP business by adding fees and fee floors allowed us to generate higher operating margin even as prices fell significantly.
The financial performance of our GMP segment is now more driven by volume throughput and fees as opposed to direct commodity prices, which will serve us well going forward.
With some of our fee based contracts through our fee floor structure. We will also benefit of prices begin to rise.
Now moving on to the impacts of coated 19.
When it became clear of the pandemic was a significant risk to our employees and their families. We moved quickly to make sure that we took care of our employees our facilities and our customers.
We swiftly implemented important safety measures, including providing our employees with protective equipment and we are currently pleased with a minimal direct impact at the virus has had on our employees.
I'd now like to thank all of our employees, we're especially proud of our front line employees in the field, who continue to safely and effectively operate our facilities everyday.
And thanks to our other employees, who are operating at a high level of effectiveness working remotely to ensure continued first class service to our customers.
Our industry continues to navigate through an unprecedented period as a result of covert 19, the low demand and low crude oil price environment driving producers to meaningfully reduce their activity levels and even curtail current production.
Given this lower volume outlook and increased uncertainty about business fundamentals, we moved quickly and decisively as an organization to take some key actions to protect our balance sheet and positioned target to be successful over the long term.
On March 18th we announced the market, a 90% reduction and targets common dividend payout.
This reduction provides approximately $755 million of additional annual direct cash flow, resulting in significant free cash flow available to reduce debt.
Additionally, we also announced meaningful reductions to our 2020 and 2021 net growth capital spending estimates. Since then we have further reduced our 2020 net growth Capex estimate to a range that is now between 700 800 million.
Which now represents a 40% reduction at the midpoint relative to our initial 2020 guidance.
We continue to identify and execute other measured other measures to best position Targa over the long term given lower expected growth and related business activity.
In aggregate, we now expect our estimated 2020 operating and general and administrative expenses to be lower by at least 100 million versus prior expectations.
Some of the additional measures that we have taken include reductions of compensation benefits and our workforce across the target organization, including Tara Executive management reduced their 20 to 20 salaries by 10% to 15%.
Resulting in a reduction to their expected total cash compensation of approximately 40% compared to last year and based on our current forecast.
Targas board of directors reduce their 2020 cash compensation by 10%.
We reduced our workforce by 8% in late April.
And we further eliminated new positions new open positions expected in the growth environment of our initial 2020 budget.
We're also highly focused on tightly managing every line item in our operating and Gina expense budgets and are currently estimating significantly lower utilities chemicals, lube oil and AD valorem taxes among others.
We will continue to be focused on capital and operating cost discipline as we work through the current environment.
Turning to our business segments, let's talk about the production that we're currently seeing across our gathering and processing systems.
We continue to have a lot of discussions with our producers regarding their plans for near term production and those discussions remained very fluid.
We have seen shut ins of older wells and shut ins of newer wells.
Each producer is driven by different factors unique to their economic interests and their outlook.
We have experienced shut ins across each of our gathering and processing regions for the month of April but only to a small degree so far.
For example, our volumes in the Permian and April were approximately flat to the first quarter. So we have not seen a material impact from shut ins yet.
We do however expect more volumes to be shut in for Matt.
And while there's still significant uncertainty given our latest producer discussions and given what we're seeing on our systems today beginning in May we are estimating shut in volumes of approximately 10% across our aggregate Permian region.
And our Central region. We are also estimating shut in volumes of approximately 10%.
And then the Badlands, we estimate about 30% to 40% of gas and approximately 20% of crude oil to be shut ins.
These shut ins will result in lower NGL supply through Grand Prix and through our fractionation trains in Mont Belvieu.
However, as of potential economic Mitigant Targa has one of the leading NGL storage positions in Mont Belvieu.
This storage position is highly valuable in this environment and allows us an opportunity to benefit from the dynamics in the NGL market.
And our LPG export business at Galena Park continues to perform well and we remain on track to complete the expansion of our export facility at Galena Park in the third quarter, we remain highly contracted for the rest of the year.
It was only a few months ago that we were forwarded a record fourth quarter and full year 2019 earnings and discussed our strong business outlook.
And as we've already discussed since then business fundamentals have changed drastically we believe that targa is well positioned to navigate through this period of weak market fundamentals, even in an environment with protracted producer shut ins.
We have a strong liquidity position and have taken actions to protect our balance sheet and preserve our financial flexibility generating free cash flow after dividends to reduce debt looking forward.
The work continues to work through the impacts of this coded 19, creating significant variability around expectations for demand for commodities.
As you may have read in our press release. This morning, given the uncertainties in this environment. We are updating our full year 2020, adjusted EBITDA estimate to 1.4 billion to 1.6 to 5 billion and withdrawing our previously disclosed full year 2020 operational expectations.
We would like to share what we see as a reasonable range of expected outcomes and some color around detailed downside cases that we ran internally. For example, we ran a downside case, which assumes 30% production shut ins for the remainder of the year in the Permian Basin.
And in that scenario, we believe we would generate somewhere around 1.4 billion a full year 2020 adjusted EBITDA.
Based on recent producer dialogue. We currently don't expect that negative production case to occur, but rather some lesser amount of volume shut ins for a duration of a couple to several months.
So we believe in expectation of full year 2020, adjusted EBITDA of around 1.4 to 1.6 to 5 billion depending on production levels covers a reasonable range of potential outcomes, but remember our results are driven by our producer customers across our GMP operating regions and there remains significant and.
Certainty around the potential extent and duration of estimated shutdowns.
Lastly, despite the uncertainty uncertainty of the current environment based on the strength of our premier integrated asset position than our employees Targa is poised to benefit when business fundamentals improve positioning us exceptionally well for the longer term.
With that ill now turn the call over to Gen discuss targas results for the first quarter and other finance related matters.
Thanks, Matt from targets reported quarterly adjusted EBITDA for the first quarter with $428 million.
Performance during the first quarter was driven by strong volumes across our Permian and Badlands GNP system combined with strong asset performance to our integrated downstream value chain of NGL transportation fractionation and LPG export services.
We recently commenced operations on our new Frac train seven in Mont Belvieu and completed our new Peregrine gas plant in Permian, Delaware, We remain on track to complete our remaining major growth capital projects underway. This year, which means we will be well positioned to benefit when activity levels increase.
Considering current market conditions in the low commodity price environment. During the first quarter, we recognized an approximate $2.4 billion noncash impairment charge. The impairment is primarily associated with the partial impairment of gas processing facilities and gathering systems associated with our mid continent, GNP operation and full.
Impairment of our coastal GMP operations.
Turning to hedging based kind of range of current estimates at producer customer activity levels, we remain substantially hedged for 2020.
We have hedged approximately 85% to 100% of natural gas approximately 75% to 100% of condensate and approximately 65% 80% of Ngls.
Supplemental hedge disclosures, including 2021 hedge percentages by commodity can be found in our earnings supplement presentation on our website.
We continue to closely monitor and manage our credit exposure, we have a large diversified customer base across our operating businesses, which include large integrated customers and other investment grade counterparties.
Currently 75% if the revenue from our top 25 customers is from investment grade counterparties or from customers, which provide credit protection.
We currently do not anticipate any material credit losses, as we are largely in a net payable position in our GNP contract and in our downstream businesses. Our counterparties are largely either investment grade or otherwise are required to provide credit protection to secure their commercial arrangements.
As Matt described our 2020 net growth Capex estimate has been further reduced net to now be between $700 million to $800 million. Additionally, we have reduced our 2020 net maintenance capex estimate to approximately $130 million.
April we extended our accounts receivable facility April 2021, and reduced our facility commitment size from 400 million pick 250 million.
And minimize commitment fees, given our expectations for lower activity levels and commodity prices.
During the first quarter and through early April we repurchased a portion is outstanding senior TRP notes on the open market paying approximately $240 million plus accrued interest to repurchase approximately $300 million of notes, which provides approximately $12 million in annual interest savings.
We had approximately $2.4 billion of available liquidity as of March 31st and have no near term maturities at senior notes, where credit facilities with the earliest maturity occurring in 2023.
On a debt compliance basis TRP is leverage ratio at the end of the first quarter was approximately 4.1 time versus a compliance covenant of 5.5 times.
Our consolidated reported debt to EBITDA ratio was approximately 5.1 time.
To Echo Matts earlier statement, we believe that with the collective actions, we have proactively taken to protect our balance sheet and strengthen our financial flexibility Targa is well positioned for the long term.
And with that operator, please open the lineup for questions.
We currently asset analysts limit themselves to two questions and reenter the queue in a lineup. If you have additional questions project can you. Please open the line the Kunaev. Please.
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Our first question comes from the line of Christine Cho with Barclays. Your line is open.
Good morning.
Thank you for all the color.
I just wanted to maybe touch upon that.
Conversations you're having with producers.
You just give us some more color on what those conversations are like and also recognized some large customers that are public would also be curious as to how the conversations with a smaller and patent guys you're buying.
Sure.
Yes, I'd characterize our producer conversations as I kind of said in his script very fluid.
I'd say you know, even just a few weeks or even a month ago.
Some producers were giving us estimates for what they believe they were going to shut in this ranges across our systems really large and small.
And we've seen them.
Shut some in only maybe even a few days or weeks later to come back up and then shut in a different amount so.
We've seen variability even among some producers about what they're going to do and how they're going to execute their shut in plan.
And we've seen others say, we're getting ready to here's what we're going to do and we've even seen those plans changed so I'd say producers right now are trying to work through what best what best makes sense for them and oil prices are moving around very quickly as well. So they are trying to best balance their downstream needs and obligations.
First current prices and were were there and kind of constant dialogue with them trying to figure out how best to make sure that we can handle the bond.
Would you say the conversations are gift strain for that had the side because they're downstream constraints.
Downstream commitments. Thank you Frank.
I'd say really adjusted when the management team years talking to each one of our different.
Leaders of the business segment. It really just more varies producer by producer I don't know if I could aggregate that the public's are doing one thing versus the privates I mean, there's significant variability across system across regions.
Some producers have.
Acreage positions in multiple basins and how they are acting in one basin burst and other versus a producer who might be asking one way because their production is all in one basin can be very different even amongst the same basin.
So I think it varies more unique to their acreage position in their economic situation as opposed to whether they're the public's or the private or smaller large.
Okay very helpful and then.
You brought on a frac.
The one that's come later this year.
Some of your peers have deferred the timing of their frac. So wondering if you're expecting Morris.
Offloading tier plan now next year next year alternately where their volumes that you were back let's move over to third party plans that are meeting not happening under the schedule timeframe.
Yes, so when it comes to.
Sorry, when it comes our Fracs, we are planning on completing were significant progress on training. So we do plan to complete that and I think youre right. There are some others, who have either slow down or canceled soma some of their frac. So when volumes begin to grow up there in a position where they would need some frac capacity there is that potential.
We would welcome that opportunity what we're looking at for 2020, I don't know that we would see a lot of that opportunity.
But as we go out certainly that that opportunity could could present itself.
Thank you.
Okay. Thank you.
Our next question comes from the line.
Hi, Chris you need with FBR. Please open.
Hi, good good morning, everyone.
Just wanted to start off by following up on the on the Frac conversation.
What I think about front gate coming on line if it's the volumes that come into your system end up being below the capacity up your entire frac flipped rate are there opportunities to optimize by shutting down an older inefficient track temporarily.
Moving to volumes to the to the newer fracs orders kind of the partial ownership sort of limit that opportunity from a margin perspective.
Scenario. This is Scott prior we definitely look at our entire fractionation facility as a whole, but we will operate those based upon what is most efficient what is based upon the economics of the inflow volumes as well as the outflow volumes needed to fulfill customer contracts again, both on the.
Downside as well as the outbound side as we supply customers downstream of that as we supply export volumes on both propane and butane. We certainly look at it from an optimization perspective, and there's a variety of factors that flow through those analysis, but we're certainly looking at it to optimized.
What is most efficient and as what what benefits us from an economic perspective.
Okay that makes great sense, and maybe to follow up on the on the GMP sites.
Yes definitely appreciate it all the color that you gave about shut ins and so forth I was wondering if you can just give a little bit of color about what your underlying decline rate is for your Permian footprint and how easy is it to bringing shut in wells back is it cost for the years, its something thats pretty straightforward across your footprint.
Yes good.
Good question there on the on the shut ins we've had a I'd say extensive conversations with our producers about that so as we're trying to forecast when when there is going to be shut ins what should we expect when it comes back. So again, we can be ready I'd say for the most part and those producer discussions I feel like most of that production when they shut in will be able to bring it back.
Without without damaging the reservoir.
Could there be some older really low rate vertical wells and some things, which they shut in and just don't bring back there I think there could be some amount of those as well, but I think for the most part we'd expect the shut in volumes too.
Come back and perform well when those volumes when those volume do do come back.
As far as the decline rates.
Yes, that's that's tough I don't have a crisp answer for you on that I mean, it would be by system. Obviously, there's been a lot of growth in the Permian. So we have newer vintage on average production there versus some of our older systems, who havent been growing as much so it would be steeper there.
Okay.
That makes sense and just one final question.
We surprised to see how much you've been able to repurchase debt in the open market.
Do you expect to continue to do show if the opportunities present itself are you that Doug trades below par or.
We've seen this year.
Sure. This is Jen I think ultimately it depends on opportunities at the market presents to us and so we saw the opportunity and when our debt started trading at a discount in early March to repurchase notes at a very attractive rate and all the sense in the world in terms of interest savings, while also reducing our overall lab.
Bridge, if we get that opportunity in the future, we'll certainly look to utilize some of our available liquidity to continue to execute on that but ultimately it just depends on the market opportunity.
Perfect. Thank you very much for the color today and please stay safe.
Okay. Thank you.
Our next question comes online Michael Blum Wells Fargo.
Thanks.
Thanks, Good morning, everyone says hey, good morning.
I apologize for harping on the Fracs and all that but I guess I guess, maybe the questions everyone's trying to get out and I'll try to ask it maybe a little differently.
Is so as you stated you you're expecting to see NGL volumes.
Down, but you also said at the sort of calendar that that your contracted on your pipeline in LPG exports from your Frac. So can you just address the contracted position because I think whatever I'm trying to figure out is why are you, adding frac capacity and LPG export capacity.
When it seems like production's going down so how protected are you.
Contracts.
Sure.
Yes. Thanks, Thanks, Michael Yeah, I'll start on the Frac and then hit on the exports as well then Scott you can you can fill into.
On the fractionation side, we have significant.
A significant number of third party customers, we have long term fractionation contracts with a lot of those are transportation and fractionation and a lot are simple just fractionation agreements and then we have additional volumes moving through our system through our gathering and processing business, which are underpinned by acreage dedications and Bob.
It is coming from our from our processing plants.
So.
When you look at our fractionation position.
We will obviously anticipating there'd be significant growth from underlying acreage dedications. What we also have a ramp up in our commitments and our nbcs, so whether they're TNF or fractionation, they're going to be ramping a new commitments ramp over time, and so thats what gave us the.
Gave us a competence to underwrite two trains train seven and eight so over time, we'll have our own volumes plus ramping nbcs and commitments.
For.
Highly.
A substantial majority of very large portion of our fractionation.
Position, there, but it's going to take its going to take a little bit longer the ramp is going to take a little bit longer than we estimated when we underwrote those facilities and we are so far along on train a that theres not much cost savings to be had by by delaying that we can do better on on optimizing as Scott talked about earlier optimizing our fracs.
Trying to lower cost by running things a little bit better.
So we think it makes sense pressed to go ahead and continue with with training.
And then move into the export side, we have we're significantly contracted were highly contracted last year were highly contracted right now and we do have forward contracts that.
Ramp up as we bring on LLP three so as we increase our capacity on the on the export side, we have more contracts that start as well so were highly contracted this year, even when taking into account the increased capacity.
Great. Thanks.
Sorry.
Michael I'm sorry. This is Scott just to add to that a little bit when you look at the volumes that.
We did across the fractionator in first quarter, obviously, they were very strong we we appreciated the added.
Capacity that came online during March with Frac train seven.
But as Matt alluded to is we may see the ramp a little bit longer as we as we fill into the rest of fractionation capacity that we're adding later this year.
With that said it also allows us the opportunity to reduce our capital exposure for 2020, as well as 2021, which we alluded to clearly in our in our script.
As we talked about our capital spend so we are positioned well as volume growth.
Starts.
Coming back to the marketplace over time.
From the export perspective, we had a nice strong quarter you can see if you look at the materials that we put out there on our on our pages, we've had strong quarters.
Really good dating back to early 2019 every quarter was stronger with the export volumes going across or dock.
We continue to see good exports in the month of April and things are shaping up while there is still strong demand for exports across the world and as markets recover in the east that just has actually provides more benefit to us over the long haul.
And you've also seen just from a market perspective, some of the pull down in production with the OPUC plus nations.
That adds some benefit to us Gulf coast volumes going out. So we feel very fortunate to be in addition, we are with at a very diverse downstream market that supports our upstream production growth.
Great. Thank you for all that I really appreciate it wasn't just one clarification question on some of you said earlier the shut in.
Numbers, you put out there the different percentages for the different patients is that just for may or is that what time period is that specific.
Yes.
The numbers I gave the 10% for Permian and the like was our estimate for what's going to be shut in and may kind of relative to current so if you take kind of April or just kind of where we are kind of entering may we would estimate 10% of those volumes to be shut in in the Permian, 10% in central and then 30% to 40%.
For the balance.
Great. Thank you very much forever.
Okay. Thanks, Michael.
Our next question comes from the line of Colton Bean with Tudor Pickering Holt Your line is though.
Good morning appreciate the comments on the NGL storage I think you guys have something around.
50 million, sorry in Bellevue and another $20 million, Louisiana can you just frame for us to what degree that's available to you versus leased out third parties.
Yeah, I'd say we have.
Yes, It was 50 million in barrels and Bellevue, we have a lot of flexibility and capabilities to optimize our storage position and you're right. The good portion of that is leased to third parties a lot of it is for our own.
Managing the engine out the Y grade coming into purity products, but we have a significant amount to move wells in from one purity product into another and have some flexibility and pungent fungibility there as well so.
I'd say, we are positioned it just provides us a lot of ability to to optimize.
Optimize that that position and so we feel good about that in this.
And this contango market.
Got it and then I think even prior to the volume reduction you are already hedged around 80% or so on natural gas, but still some some spot and.
Correct me here, but at least while how was assumed 50 cents or so.
So with the forward curve now looking like $2 plus or what can you just update us on what's assumed in the new guidance range.
No. We don't have what I characterized as a single price assumption Weve got a wide guidance range quotas and thats reflective of the uncertainty in the current market prices are moving around on a daily basis as they do but it's difficult to say that there's a certain commodity price that's running through.
Our new updated guidance range, it's based on a range of estimates for prices shut ins activity levels et cetera.
And it just directionally is it fair to say that the loss assumption made new tire or is that also so I guess included in that range.
I'd say, given our hedge position for gas the amount, but it's moved around is not large variable in the guidance range. We have significant amount of hedged for 2020. So theres, it's not a large driver for us in that guidance range, but gen. Dry we looked at this around we looked at strip pricing as we're going through the volume.
Yes, and updating it.
But we look at many different cases in many different pricing assumptions, but the gas price variability was not one of the larger drivers in that in that range.
Got it thank you.
Your next question comes from the line of Janney, Tony with Jpmorgan. Your line is open.
Good morning. This is Charlie on for Chairman I, just wanted to follow up on the LPG export said it sounded like volumes are still pretty strong through April and.
2020 is pretty well contract it but I was curious about how you think that trends kind of the balance of this year as we think about lower costs not.
Just competing products and then maybe how that leaks into 2021 and beyond I Didnt know how low contracted you are there how you feel about that and if your strategy.
Habits evolve.
Yes, Charlie I would say this is Scott again first off when you look back at the fact that we're adding.
Adding additional export expansion in the third quarter. This year, when we talked about that in our script as well and that.
Is supported by contracts it will be coming online that tied to that expansion projects. So that that's the pieces that make us feel very good about the second half of 2020 those contracts, obviously flow into 2021, which are both supportive of propane exports as well as butane exports and so from a from that perspective, we feel good about.
Growth and again like the fact that we're moving forward with that project coming online in the third quarter as it relates to the naphtha based products. There's been some refinery runs that created some tightness in the marketplace.
And some of the heavy in derivatives that are impacted by that.
So we continue to believe that we'll see strong exports for propane and butane and she'll be limited.
I guess competition for that.
Leading into 20 as the balance of 20 as well as 2021.
All right that's helpful.
Just one other from May 100 million cost reductions and a lot of that's tied to compensation head count.
Yes, if there's anything operationally, who joined the kind of slimmed down costs or anything that you can't Yeah. I think you noted that.
Is that this hundred million was at least seven up there's more to come there.
Yes, I'd say that a significant portion of the $100 million of expected savings is opex and so that does include some reduction in headcount both in existing positions and then also in lower expectation for hiring throughout the year out in the field.
But our supply chain group our operations groups are incredibly focused and have been very successful and identifying opportunities to rationalize costs on basically every line item you heard Matt mentioned some of them like chemicals and lubricants, but it's really every single.
Item that we're purchasing we are trying to purchase better at a lower cost to target. So that will continue to be a focus and has been a very big focus of our operations in supply chain group really over the last year, but certainly that focus has heightened here recently.
Great. Thank you.
Okay. Thank you thanks Charlie.
Our next question comes from the line of Tristan Richardson with Suntrust. Your line is open.
Really appreciate all the commentary around shut ins and just what you're seeing on the supply side.
Just with respect to.
On the base case, where do you guys see a general resumption.
That shut in production occurring either a timeframe or a price signal.
Yeah if.
Yes, I'd say in that downside scenario, which kind of got us to that low end 1.4 number taking costs out 30% shut ins in the Permian for the rest of the year.
That's not our base case, just don't think it's going to be that severe for for that long.
In the scrap is probably more likely going to be a couple to a few months would be if you had to say, what's a reasonable gas maybe coupled to a few months seems like a reasonable gas, but we also.
Qualify I want to qualify that with we really theres a lot of uncertainty and could it carry on much longer than a coupled to a few months. That's certainly a possibility you know when there's worldwide demand come back when people start driving again, it's really hard to say when that demand comes back. So that's why we we did want to kind of present a wider array.
Range and have a downside scenarios that if this last longer and the cuts or even deeper than we're we're likely going to see in may.
How does how does targa look and.
Thats why we kind of went but that wider range and did that but our ours would be our best gas would be something less than that downside case in terms of shut in percentage.
No I appreciate it May Allpoint and then Jim you mentioned working with customers to reduce commodity exposure I think we generally think of additive long term initiatives, but does the the current market advanced those discussions I mean understanding it's difficult to open up an existing contract or the customer in.
But just any thoughts there.
We continue to be focused on trying to enter into and then have the best possible contract.
So thats all his focus for our commercial teams and then for others across organization that are interest involved in purchasing and other things like that.
On the gathering processing side, we talk fairly consistently over the last several quarters about our efforts to enter into more fee based arrangements have more fee based for us I think a lower commodity price environment highlights why that's important to us, particularly if we are going to spend capital now clearly we're rationalizing capital so thats.
A little less applicable right now, but that continues to be a big focus of ours really across the organization is trying to improve contracts. When we are given the opportunity.
Okay. Thank you guys very much.
Okay. Thank you thanks Kristen.
Thank you and your last question comes from the line acute Stanley with Wolfe Research. Your line is open.
Hi, good morning, Thank you.
Just a follow up on the volume assumptions and the guidance so.
So the bottom end ties to 30% shut ins through the rest of the or in the Permian sounds pretty conservative.
What does it assume for other basins and then what is the top end of the guidance range assume for volumes just at a high level.
Yes in terms of the production we wanted to give you some clarity around that downside scenario related to our.
Most impactful base on which to US is the Permian because then it moves through Grand Prairie and fractionation and export.
The other basins are to some extent tight end, but but not as much so.
We did pull the operational guidance for this year and don't want to get to specific on kind of each system what we.
I assume for those I'd say, the most impactful wanted Permian we want to give you a sense that it's a concerted conservative range. There I'd just say directionally. It was a higher percentage in the badlands and it was a lower percentage and our other regions and as the others are more gassy weighted so.
Just kind of directionally for those other areas.
Okay and that the top end can you comment at all just Permian what you guys were planning.
Yes, so I mean, we looked at.
Shut in cases, we looked at others, where there was there was less.
I think on the top end, we said at the low end of our previous guidance range and said, let's look at a number of different volume cases price cases, when things come back.
So.
So it's not a one discrete case, which was the low side the mid to high it was a range of cases, and we feel like in a number of those scenarios.
They're going to shake out on that one four to 1.6 to five so to get up to mid or higher it would be less shut ins percentage for less duration and doing well on optimization and cost savings and other items, so but it but it's not a discrete case tied to the high end.
Yes.
Okay.
A follow up question just.
Any revised thoughts on what the Companys leverage target would be and how much of a priority is to to get there I guess quickly I mean, it doesn't seem like the rating agencies are reacting very much to the sector as a whole with the downturn. So just how much were priority is it if the rating agencies aren't really pressuring you.
And just on capital allocation would you expect looking forward beyond this year to be allocating.
Most of the free cash flow to paying down debt on the balance sheet.
This is Jen I think that for the last year, plus we've talked very consistently about.
While reducing our overall leverage was the priority for the Paramount problem.
And as we look forward and look at our profile of generating growing free cash flow as we move through time that would be available for the repayment of debt just as a result.
The dividend reduction plus lower capital spending that means that we'll have a lot more flexibility than we would have previously prior to the dividend reduction to reduce our leverage more quickly. So I think that we feel very well possession from that perspective, I think for anybody that slipped through the last couple of months.
Having lower leverage clearly would feel better than being in a position of higher leverage and so we've talked about four times on a consolidated debt to EBITDA basis being sort of a target for ours, but that it was going to take us some time to get there and that we're willing to be patient to get there I think we have that same patience.
Get there, but again the dividend reduction potentially allows us to get there more quickly now this four times consolidated end up being.
The right leverage ratio to target or is it lower than that I think that remains to be seen a little bit, but potentially could be lower than four times as.
As you can imagine accurately reduce the dividend we had calls with the rating agencies and I think those were very constructive conversations.
I think that they are appreciative of the steps that we've taken to shore up our balance sheet and to make sure that we have financial flexibility and so certainly it doesn't feel like thats at a catalyst that's pushing us to make different decisions.
Then, we otherwise might warranted, but again as we've consistently said for the last year ideally, we would like for our business to grow into being an investment grade business because that again enhances flexibility that we would have been difficult mark to market and so that remains a priority Tim.
Thank you.
Hi, Thank you.
Thank you not showing any further questions on now turn the call back over to Sanjay for closing remarks.
Great. Thank you we thank everyone for being on the call. This morning, and appreciate your interest in Targa resources, we will be available for any follow up questions over the course there today. Thank you and have a great games.
Ladies and gentlemen, this does conclude the program you may now disconnect.
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