Q3 2020 Targa Resources Corp Earnings Call
[music], ladies and gentlemen, thank you for standing by and welcome to the Targa resources Corp. third quarter 2020 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone please.
Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Mr. Sanjay Lad. Thank you. Please go ahead.
Thank you Michelle good morning, and welcome to the third quarter of 2020 <unk> earnings call for Targa Resources Corp, third quarter earnings release for Targa resources, along with a third quarter earnings supplement presentation are available on the investors section of our website our partner resources Dot Com. In addition, an updated and.
Lesser presentation has also been posted to our website.
Statements made during this call that might include Targa resources expectations or predictions should be considered forward looking statements within the meaning of section 21 E of.
Of the Securities Exchange Act of 1934.
Actual results could differ materially from those projected in forward looking statements.
For a discussion of factors that could cause actual results to differ please refer to our latest SEC filings.
Our speakers for the call today, we'll be Mcevoy, Chief Executive Officer and.
In Gen, Neil Chief Financial Officer.
Additionally, the following senior management team members will also be available for Q and a.
Pat Mcdonie, president gathering and processing.
Prior President logistics, and transportation and Bobby Merle Chief Commercial officer.
And with that I'll now turn the call over to Matt.
Thanks Sanjay.
Before we get into quarterly results I would like to say how proud we are of our employees to safely navigated through an active Gulf coast Hurricane season during the third quarter.
<unk> overall financial impact the Targa was minimal we have many employees impacted personally and our heartfelt thoughts go out to them and their families.
I am also proud of our collective efforts and continuing to respond to the challenges associated with COVID-19, and we'd like to thank all of our employees for their continued focus and diligence in managing our operations very successfully through an incredibly difficult year.
Turning to our business results, we had a strong third quarter as we continue to benefit from the strength of our Permian footprint and our integrated asset position.
Our strong operational performance combined with reduced capital spending and the significant progress on reducing costs.
Driving increasing free cash flow, which positions us to continue to execute on our long term strategy of reducing leverage over time.
2020 has undoubtedly been a challenging year, but we believe that our key strategic efforts around our re contracting and gathering and processing.
Reducing growth capital spending identifying opportunities to reduce operating and Gina expenses and focusing on integrated opportunities position us for a successful 2020 and beyond.
Based on our strong performance with EBITDA is projected to be at the high end and capital spending at the low end of our range. We saw an opportunity to put in place a 500 million share repurchase program and still continue to reduce leverage over time.
We are always looking for opportunities around market dislocations, and we believe we have the financial strength and business profile to execute on both.
Let's now discuss the business environment and our operational performance starting in the Permian.
As a result of the quicker than anticipated rebounded prices and related producer activity across our Permian systems. Our inlet volumes are on track to grow close to our initial 2020 plan pointing to a strong 2020 exit and positioning us well going into next year.
Our overall Permian volumes increased 9% compared to the second quarter and our third quarter volumes grew 8% when compared to the first quarter average, while the overall base and experienced a 2% decline and associated gas production over this period. This.
This points to the strength of our overall footprint in the Permian continuing to outperform basin wide results.
Our new Gateway plant commenced operations in early August and the addition of this incremental processing capacity has allowed for improved NGL recoveries across our system.
With gateway already highly utilized we are in need of additional capacity in the Midland Basin.
With our continued focus on managing capital spending and our need for incremental capacity in Permian Midland to accommodate increasing production.
We are moving our longhorn plant from North Texas.
We are also renaming the plant to the high end plant after targets founding Chief operating officer, Mike time. This.
This 200 million cubic feet per day plan is expected to begin operations during the fourth quarter of 2021 and is expected to cost approximately 90 million.
The Han plant will drive attractive returns for Targa as a result of the significant capital savings combined with the incremental fee based margin earned through our logistics and transportation assets.
This type of spending is in line with our strategy going forward to focus our capital allocation on high returning projects that leverage our integrated midstream platform.
Moving on to the Badlands, our gas volumes rebounded during the third quarter and were up 23% over the second quarter across our badlands crude system volumes were down 7% sequentially of certain volumes remain temporarily shut in during the third quarter. However, we are seeing some incremental production volumes return in the fourth quarter.
Turning to our central region, which continues to largely be in decline gas inlet volumes in the third quarter declined 9% over the second quarter we.
We continue to have some shut in volumes in south of which we expect to come back online in 2021.
Despite declines across our central regions, our third quarter total field GMP volumes increased 4% sequentially led by our Permian region.
The durability of our gathering and processing segment margin has strengthened as we have reduced our commodity exposure by adding fees and fee floors to our GMP contracts, our Permian GMP business is now approximately 60% fee based which is a significant improvement from around 35% fee based in 2018.
Team and overall, we're about 80% fee based across all of target.
The financial performance of our GMP segment is now more driven by volume throughput and fees as opposed to direct commodity prices, which is evidenced in our year to date results and will serve us well going forward as we are more insulated from lower commodity price environment, but would still continue to benefit when prices.
Right.
Shifting to our logistics and transportation segment, our Grand Prix pipeline continues to perform very well third quarter throughput volumes on Grand Prix increased 18% driven by increasing NGL production from Targa Permian plans, including our new Gateway plant and from our third party customers.
We completed the first phase the first phase of pump station additions on Grand Prix, increasing our transport capacity to approximately 400000 barrels per day from the Permian Basin.
At our fractionation complex and Mont Belvieu third quarter fractionation volumes were impacted by scheduled maintenance and upgrades at our facilities.
As a result of the scheduled maintenance, we expect higher volumes during the fourth quarter as we work off the associated inventory.
Frac train eight commenced operations and Mont Belvieu in September providing us with increased operational flexibility.
Our Grand Prix extension into Central Oklahoma is on track to be operational by the end of the fourth quarter.
Where it will connect with Williams, new Bluestone pipeline.
Our LPG export business at Galena Park continue to perform well as we moved a target record 9.5 million barrels per month during the third quarter we.
We expect our LPG export volumes to be higher in the fourth quarter as will benefit from a full quarter contribution of our recently completed phase expansion.
As we look forward, we are in a position where we expect to have the ability to capture growth volumes from the Permian without having to spend much incremental capex on Grand Prix fractionation or LPG export facilities.
This puts target in a position to generate strong returns going forward as increasing free cash flow after dividends available to reduce debt and further strengthen our financial position.
In September we released our second annual sustainability report, which highlights targas advancements in the areas of ESG and safety.
With our premier integrated asset position and our talented employees targa is well positioned for the longer term.
With that I will now turn the call over to Jim.
Thanks, Matt Targas reported quarterly adjusted EBITDA for the third quarter was $419 million, increasing 19% over the second quarter. During the third quarter target generated free cash flow of $189 million or $143 million of free cash flow after dividends to our preferred and common shareholders.
The million dollars.
Pro forma for the five and a quarter notes redemption and the sale of the channel view assets, we have about $2.1 billion of available liquidity.
As Matt discussed in early October, we announced a $500 million share repurchase program as of November 2nd we have repurchased four 5 million common shares representing about 2% of common shares outstanding for a total net cost of $74 million.
Our long term strategy to reduce leverage and simplify our capital structure is unchanged by our share repurchase program.
Over the long term, we are targeting leverage of three to four times on a consolidated basis.
Over the last several months, we have received questions around our desk co joint ventures, and our strategy for repurchasing our interests and those assets.
This morning, we publish a slide and are earning supplement an investor presentation that we hope is helpful and provides incremental clarity around the structure in the performance of the assets.
If we assume that we repurchased of depth co jv's and a single tranche in the first quarter of 2022, which is the representatives scenario presented on five five of the earnings supplement the repurchase price is between $900 million to $950 million does that as an estimated five to six times multiple an asset EBITDA.
And the repurchase would be close to leverage neutral.
We purchasing the entirety of the desk goes in the first quarter of 2022 is our current base case assumption and we expect to have plenty of available liquidity to fund the full repurchase.
We retain the flexibility to take out the desk codes and tranches and order to change the timing of takeout with the base case assumption running through our plan is a full take out at the low double digit fixed IRR in Q1, 2022, which again would be close to leverage neutral.
Finally, I would like to Echo Max comments that our business is performing very well across a difficult year and we are so proud of the exceptional performance of our entire target team given our performance in the actions that we've taken this year, we expect to exit 2022, and a strong position with a very bright outlook.
And with that I'll turn the call back to Sanjay Springs.
Currently ask that you limit the two questions and re enter the Q&A lineup. If you have additional questions. Michelle would you. Please open the lines for Q&A.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.
Please stand by about we compiled the Q&A roster.
[laughter].
Your first question comes from the line of Jeremy tone, It with J P. Morgan. Please go ahead.
Hey, Good morning, guys. This is James offer Jeremy Hope you guys are doing well.
Just wanted to start with the 2021 outlook and as it relates to <unk>, obviously with all your gross projects mostly in service now.
It seems in the gathering business volumes are kind of normalizing.
Four Q kind of a good run right.
Four 2021.
It seems you know there's there's some growth maybe I'm Grand Prix, but largely speaking do you think for to kind of be a good benchmark going forward.
Yeah, Hey, good morning, Yeah. So you don't look as we look at 2021 I think we're encouraged by the strong performance that we've seen in the back half of this year, especially across our Permian footprint. So those volumes continue to be resilient showing good growth this quarter and I think that sets us up well going into 2021.
So we anticipate giving 2021 capex, an EBITDA guidance and in February.
I think when you look across some of the pluses and minuses I think in this price environment, we still see some growth in the in the Permiam, you've got still strong producer activity on our system with higher <unk>, just going to set us up well, but we do have declines that are happening in the in the central area as well. So there are some.
We need to get through the planning process and see how those kind of shakeout as we get into 2021, but those are some of the pluses and minuses.
You got it that's helpful. And then maybe just shifting over to the region upstream M&A.
Just wanted to get your blood thoughts there.
Terms of implications targa.
And also.
It's hard to would be interested in anything on the market at this point.
Obviously have a lot going on with the with the buyback some deleveraging, but if there's anything that you guys would consider going out for Ya.
Sure.
Well I guess, we'll handle that in two parts first on the consolidation on the upstream we have seen a lot of that I'm going to hand, it over to Robert <unk>, Our chief commercial officer will kind of give some perspective about how that may impact may in fact of his body. So when we look at all the transactions that.
And recently and thinking about the parties that are doing it is obviously.
Party by party, but when you look at most of the transaction transactions that have occurred we have great relationships on both sides of those tables and the consolidators. The buyers are people that we work with everyday all day so.
It's one of those things, where we hate to the management teams go that we love, but but the wires are ones. We do a lot of work with that we have great relationships with as well. So we don't see a big detriment there and then as you start to think about those companies getting bigger.
General rule or tendency they tend to go with the guys on midstream side that have more integrated platforms in a bigger balance sheet to work through the top times and so we think that being directionally positive for us as as the big guys start to roll on some of the smaller guys again, we have great relationships with almost all of them that we've seen acquire and so we're excited.
Kind of what those integrations come what proved comes from those integrations.
Yeah, well well fed Bobby and then on the consolidation and what it looks like on the midstream side I'd say for US, we're really focused on our integrated platform focusing our investment on organic growth, we're not lacking a key piece of the puzzle that we're really looking to bolt.
Honor that would make target complete we have an integrated platform. We have a really good Permian position and so we are in a strong position as we look forward multiple years really just servicing the existing assets and customers that we have so we're going to be focused on an organic growth, there's a pretty high hurdle for us to go.
Look at something that would be a full time.
Okay, great. Thanks for the color and interest the time or the parents. Thank you.
Okay. Thank you.
Your next question is from the line at Christine Cho with Barclays. Please go ahead.
Good morning, maybe if I can follow up on that emanate question.
Some of the combination.
You know where they're getting a couple of combinations were both the acquire and target and notable customers in your system.
You know how do you think about what the impact of that would be you know is the initial thought that the cost savings is going to the evil more production with 15 and understanding or does the pro forma entity just pocket the savings and could there'd be other commercial opportunity as it relates in either new contractor.
<unk> 951.
Yeah, I'd say as it relates to where they're both large customers of ours to about his point, we've had good relationships with.
Really all parties involved there I think it's going to have to play out over time for is there a change in how they're looking at what they're reinvestment is how many rigs are going to have on the acreage.
And how they're going to allocate allocate capital, but I think the body's point is over the longer term as these companies get larger flow assurance being connected to.
Scale system like we have we think over the longer term is going to be beneficial.
I don't see any real big impacts near term is going to be over the longer term how it plays out I think.
I see okay.
And then just moving on to the death call Aulbach Uhm I understand this slide you.
You have very illustrative, but I do think that in your prepared remarks, you mentioned that your base Casey Goodbye at all in one time can you 22.
Can you just talk about like your thinking behind that.
Buying in England transparency buying it in P C and a desire to buy and white trash.
Cause like the acquisition multiple as.
As a function of EBITDAX better the longer you wait or wanting it to be at least luggage neutral and you think that is best in 2022 or are there.
Other factors that we should be thinking about.
Sure Christine This is Jen I think there are a lot of factors that will go into our decision ultimately on how we take it out.
Simplifying assumption aware, making which is that we take it out and a full single tranche in Q1 of 2022, which given our expectations for the performance of the assets is one that structure crosses over from where we would be repaying stone pizza multiple uninvested capital versus an IRR. So we.
Said in our prepared remarks that with that Q1 2022 take out assumption be paying the fixed IRR on that take out.
So one that's a benefit to US right. If we take it out earlier, we will be paying multiple if we wait longer until lower cost to us ultimately as we take it out with that that fixed IRR. So I think that that's an important element of our decision making.
I think ultimately we will see how the business performs through next year and if it makes sense for us to use some of our available free cash flow after dividends to take out a tranche or tranches. Early then that's certainly an option, but I think the point that we were trying to make with that slide in with our additional disclosures in our scripted remarks was.
That we could take it out in a single tranche in the first quarter of 2022 and given the strong EBITDA performance of those assets, it's essentially a leverage neutral transaction. So it becomes much more of liquidity decision really than a leverage decision and for asthma expect to have significant leverage significant liquidity over that hurt.
<unk>, which is also what gives us that flexibility to be able to take out the full desk L. As in a single tranche. If we wanted to but again, we do have the flexibility to do it in pieces, we have the flexibility to wait longer we have a lot of flexibility and that is one of the reasons that we liked the structure. So much when we entered into the transaction, let's dumpy.
Got it that was helpful. Thank you.
Your next question is from the line as Michael Bloom with Wells Fargo. Please go ahead.
Great. Good morning, everyone I wanted to go back to your comments your updated.
Contractor G&P.
The base cash flows just wanted to clarify did you add fee a fee floor to your existing kielty contracts are these actual conversions from tier paid a fee and then.
Part of that question is kind of way or is this all in the premium or is it somewhere else.
Sure a good good morning, Michael.
So for the GMP contract I'd say, it's a combination.
It's largely in the Permian.
It was where we're having a I'd say the most successful we're continuing to invest for our customers and needing to protect the underlying investment. So in some cases of adding a fee, Florida contract and others. It as we look forward and get extensions and renewals and others were.
Changing <unk> and making it fee base with dopey, you're putting in Florida.
It's a combo of all of those things and it depends on the.
Customer relationship and what they prefer we can be flexible on it what we're really just trying to do was making sure. We can protect so the underlying investment. So we can continue to service our customers and hookup wells on the line.
Okay, Great and then.
Second question I wanted to ask resist around asset sales. So obviously here you've got you've got another one done.
The question is are there any other meaningful potential asset divestitures that.
Look at or do you think you've kind of adjuster that at this point.
There's nothing Michael that we're actively considering selling at this point in time, the one asset that you had visibility to previously because we spoke about it publicly with the potential divestiture of our Midland crude business.
After we announced that we had successfully sold the Delaware crude business. So again, there is an active process underway, but that's still eastern asset you've had visibility to us considering selling before other than that as we look across asset portfolio I wouldn't say that there are any significant assets in particular to your specific question.
That we would consider selling at this point in time, but of course everything has to be on the table at all at all times. So to the extent that we get any reverse inquiry around different assets or different positions. We would certainly consider it is.
Great. Thank you very much.
Thanks, Michael Okay. Thanks, Michael.
Your next question is for an online at Tristan Richardson with trees Securities. Please go ahead.
Hi, Good morning, really appreciate the comments on on how the joint ventures could play out and that's helpful for for all of Us.
Just a quick question thoughts on on the Midland.
Just thinking about some of your customers talking about seeing some slight incremental growth next year.
Curious your thoughts on the ramp of the relocated plant and to the extent.
If you remain highly utilized in the Midland you could see Capex next year.
Succeed. Some maybe you are just general comments that you guys have made in the past about future Capex.
Sure.
I would say in terms of the ramp and the volumes.
In the past when we brought on clients out in the Permian Midland really starting back with Joyce Johnson Pembroke.
Now gateway is when we bring an incremental plant on it's typically pretty highly utilized fairly quickly I think that would be our expectation with this high implant is when we bring it on it's going to be.
To be highly utilized.
And we pointed to about $90 million of Capex for this is going to for the most part almost all of it is going to be next year, you know in 2021 with a little bit of spending this year.
Yeah as you look forward to Capex next year.
We pointed this year to the low end around $700 million for this year I would expect 2021 to be meaningfully last even with the addition of that I'm plant meaningfully less than 2021 and 2020, we're still working through the budgeting working through what our producer to sigh on what the compression and pipeline needs and that's going to be but I would expect.
Even with the high point would be meaningful less than this year's capex.
Appreciate it and then just thinking about the longer term leverage target and just balancing that between targets having been very active on the repurchase lately could could we see repurchase become a regular fixture of the capital allocation, whether that be targeted or programmatic over time or.
Or is the priority in the medium term to really pre fund any depth co scenario.
With free cash flow net of distributions.
Good morning, Tryst and this is Jan I.
I think for US, we really tried to be very deliberate with the words that we use when we announced the share repurchase program and really tried to lighten it to the opportunity that we saw earlier this year around being able to repurchase some of our debt at what we thought were very attractive prices for us to share repurchase.
Graham is an opportunity and arvida benefit from what we perceive as a market dislocation and so as we look forward beyond the $500 million program that we announce.
We'll be continuing to look at the best ways to return capital to our shareholders. We clearly are very much focused on the deleveraging plan and we don't view their share repurchase program is a departure from that in any way shape or form.
So we will continue on that path to deleveraging I think an important part of trying to articulate that deleveraging story was around the desk catalysts because it sounded like there were some broad market concerns that that was going to add significant incremental leverage to the target system. So we tried to provide clarity around that today that we don't.
Be that as a departure either from that long term deleveraging plan I think ultimately we've made a lot of progress on a lot of strategic initiatives in terms of adding fee based margin in the G&P business in terms of rationalizing our capital spending rationalizing costs et cetera, and I think all of that plus the.
Strong.
<unk> performance of our assets. This year has just provided us with a lot of flexibility and hopefully we'll be able to continue to utilize that flexibility as we look forward, while continuing on that deleveraging path.
I appreciate it thank you guys very much.
Thank you.
Your next question is from the lineup each wall pronoun with Bank of America. Please go ahead.
Good morning, everyone. Thanks for taking my question just wanted to begin with the later part of your M&A commentary specific to midstream sector.
Uhm. That's all this year you have made good progress and reducing costs.
<unk> mentioning your significant operating leverage an opinion.
One could argue that you could achieve more of the same potentially to synergies from.
Measure if you call transactions, maybe in your <unk> in further extend that integrated profile.
Have you or would you consider such opportunities.
I'd say, we'll always consider and look at other opportunities that could make sense for us over the long term and.
Could there be something with significant synergy potential which looks attractive to us I guess theoretically.
But when I think we feel pretty proud of our Permian physicians in our asset position and so if there was anything like that.
<unk> or others it would have to be.
It would have to be very attractive for us to be issuing tier GP here for someone given are strong permiam position and our outlook. So I guess, if any of those or not off the table, we try and be smart about all of those things look at all of those things. We just feel like we're in a really good position without doing that any kind of transaction like that and just execute.
On our business plan focus on what we have in front of us and it's going to deliver very good returns to our shareholders overtime and.
Announcing the share repurchase here recently I think it was evidence of how strongly we feel about.
<unk> and our business outlook.
Thanks for that Mat very helpful and my <unk> My second follow up is.
To your comes around Prudential asset sales in the future I. Appreciate all the comments you made earlier question.
But as we think about your non protean GNP systems, which are in <unk> with the mature or declining profile.
Could you maybe talk about into cash flow profile soldo systems in middle of the market up market for such assets at the moment. Thank you.
I think just start where one very pleased that we were able to sell a 45% interest in our Balkan assets for $1.6 billion. When we did and I think that that transaction highlighted at least at that point in time.
Our willingness to really core up around what we consider sort of our bread and butter, which is Permian through all of our downstream assets.
But we do have other assets that I think also importantly, bring a lot of additional benefits to us in terms of also bringing volumes further through our downstream assets as well so.
What you've seen as liquidate at this point or asset just haven't in our view made sense for us to own over the longer term and have made sense for somebody else down.
As we look across the cash flow profile of the assets that we have again I think we're very comfortable with the Balkan exposure that we have right now those assets are continuing to perform well better in the third quarter in the second quarter and better expectations. As we look forward to those assets I think on the Nick Con side, our teams have done a wonderful job of trying to.
Extract savings from those assets and really optimize the positions that we have and trying to get more volume further through our downstream assets et cetera to make that more of an attractive cash flow profile than it would otherwise be I think the moving of the high implant highlights our engineering teams creativity to look around our asset.
<unk>, where we may have declining volumes and say is there a better higher used for certain assets and that's a high visibility version of an asset moving but we're looking all the time is there compression in one area that is less utilized and it can be moved to the Permian for example to be more highly utilize that had software engineering and operations teams that are.
Focused on that as well I think ultimately we're very comfortable with the asset portfolio that we have and ultimately we will continue to look at whether where the right long term owner of assets. That's part of our job, but again, we're very comfortable with assets that we have in the cash flow profile of those assets.
Got it very helpful. Thank you Jim.
Your next question is friend of mine <unk> Krishna with EPS. Please go ahead.
Hi, Good morning, everyone. It's hard to go back to the Deco, but just kind of wanted to understand a couple of things first really appreciate the transparency in the slides that you put out today.
I'm trying to understand is there a benefit and timing from acquiring the deco.
Okay. So you started to think about the IRR calculation and so forth and the fact that the distributions that get paid out does reduce the amount you need to purchase if I understand that correctly like.
Does the timing of ramping let's say a grand Prix sort of changed your IRR thought process as to how the time he should be <unk>. I was wondering if you can sort of walk through how the access ramp does that change your timing on when you want to acquire the accident.
Okay. This is Jan I think that the EBITDA generation of assets is clearly a very important variable that we're considering and when it makes sense to take out the structure and repurchases interests.
So I think you're exactly right to the extent that those assets are performing very well, which they are and it's got good visibility I think to continued excellent performance from the assets that are included in the desk.
Then we get to that sort of multiple to IRR kalthoff change more quickly and it makes more sense for us to potentially take it out earlier as a result of that.
Everything that we put out. This morning was just trying to provide a lot more clarity one that stone peak is benefiting from good quarter over quarter distributions as a result of the performance of those assets until ultimately that reduces the overall and payment that we need to make to the important point that from our point of view, it's not as significantly leveraging transat.
Action in any way shape or form, it's again really more about liquidity than anything else.
And ultimately I think that our continued strong performance across Targa is helping us to feel like we've got more flexibility to potentially move more quickly on taking out those desk how interests, but a key element of the structure is definitely when it flips from that multiple too IRR and that's the key variable that we are can.
Sidra, when we thought about the base case that we were going to present today for when we are thinking about taking it out.
That makes perfect sense, so I guess.
Does that sort of drive also into your thought process around when you buy back your stock as well all show as it kind of like stuck at a certain price new survey measured against versus buying chunks of the deco is that kind of the way to be thinking about that as well so.
I think for US right now clearly the share repurchase program is again, a view on a market dislocation and so that's why we named quickly to put a program in early October and that's why you have seen SB active under that program already.
So as we look forward I think it's really the performance of our assets the reduced capital spending that has given us the flexibility to put in that share repurchase program and to already be successful repurchasing shares undergrad and so we will be continuing to look each quarter out what's the best use of our free cash flow, what's the best use of our liquidity.
Conditions as fast for creating long term shareholder value and we will be making the decisions on what and when to repurchase.
<unk> to pay down on the that side as a result of all of those variables.
And just.
Add that to adjourn said earlier or repurchasing of the desk. So it was more about liquidity. So it's not we need to do wanted to expenses of the other we have enough liquidity to repurchase shares we have enough liquidity to go out and repurchase deaf coast. So when we rehearse of the desk cause it's gonna be leveraged neutral maybe slightly leveraging but.
Much leverage neutral so one doesn't.
Go at the expense of the other necessarily.
That makes perfect sense, and I think <unk>.
Given that you're you're obviously focused on on getting leverage down and you see this kind of a leverage neutral transaction I mean, do you see an opportunity to discuss finance more than 50% of it actually using that just sort of given the trajectory. That's wrong is that an option that you would consider at the time.
We've got a profile significantly increasing free cash flow as we look out over the horizon. We also have a lot of liquidity.
Ultimately it will depend on that quarter, how exactly we execute on whether it's drawn all under the revolver or were using available free cash flow I would expect it to be a combination chair.
Alright, perfect really appreciate the color today and have yourself a great day.
Okay. Thank you.
Your next question is from the lineup Colton been with <unk> Pickering Holt. Please go ahead.
Mornings man I just wanted to quickly clarify some of the comments there on 2021, I think you'll I'd previously steered towards arrange for about $200 million on capital spend can you just clarify whether there was any consideration of processing capex in that number or a time would be fully incremental to that.
Sure.
Yeah, good morning Colton.
Four 2021, we gave the $200 million number that was in the kind.
Kind of downturn in the second quarter and it it assumed a very kind of base level modest level of of spending kind of very.
Downside tastes are low side case for that and it did not have any incremental processing. So the 90 would be incremental to that we're going through the budgeting and looking through what we expect for 2021 I would expect there to be more kind of base level of spending relative to that 200, and then you'd have a 90 million.
Processing on top of that so it's going to be right now can be somewhere in between the 200 700, we do think it's going to be significantly less than the 700. So.
Trying to imply we think it's going to be approaching that number at all it's going to be significantly less than the 700, but I would expect it to be more than than the 200.
Understood and that's helpful.
And then maybe a question for Scott It looks like the TNF unit margins actually rebounded pretty strongly here uhm backup close to Q1 levels, despite lower volumes coming out of the midcon, which I think is a little bit higher margin.
Business, so any specific drivers to 0.2 on the margin improvement.
I think really for us when you look at the volumes across our system. We have done a good job of contracting TNF across our entire system, obviously led.
By production coming from our Permian basin from our own GNP assets.
I think that that that was that's going to continue you can see the ramp up that we've had.
Fractionation side. The advent of are trained seven earlier this year and now the additive of train eight and the latter part of the third quarter.
So we'll continue to see that we do believe that our volumes are going to be up in the fourth quarter as we work off the inventory so I think overall marr.
Margins are still it's highly competitive out there, but we've done a good job of really marketing our assets.
Showing that we've got flexibility on our system that we can perform very well and reliable for our customers. So I think that is going to continue to drive margins to our business not only on our on our on our Frack business, but our transportation on Grand Prix as well as it leads to the export business.
Got it I appreciate your time.
Okay. Thank you.
Your next question is from the line of TJ shows with RBC capital markets. Please go ahead.
Oh, Hey, Snares question hit most of my follow up on the on the depth goes but maybe just one clarification is that.
Five to six times multiple reflective of.
Run right EBITDA at the beginning of 2022 or what period does that reflect it. It does that may give a sense of the ramp in those assets you are expecting in your best case assumption on timing. Thanks, It's reflective of run right EBITDA at that repurchase timing assumption TJ. So Q1 2022.
Okay, great. Thanks Man.
Your next question his friend online and.
Keith Stanley with Wolf Research. Please go ahead.
Hi, Thanks.
First question on the LPGA exports in the volumes as you saw in the quarter.
I think you said you expect it to be even higher in queue for should we think of that is mostly tied to to greater long term contracts with the facility expansion.
Or is it partially speaking in some good short term opportunities just curious if Q3 Q4 is a good run rate for for LPG exports.
So when we look at the export business certainly we had a very strong quarter, averaging the 95 million barrels per month, we do expect the fourth quarter to be even stronger we had a partial quarter on our phased an expansion, which was inclusive of our new refrigeration unit at Galena.
At our export facility, so getting the full benefit of a fourth quarter, we expect the volumes to be up as a result of that.
With that said also the additive that phased an expansion we brought on new contracts. So we are highly contracted.
We expect the volumes to be stronger in the fourth quarter. The market is still has a strong demand for products across the globe.
Continued focused on the on the east.
And so we look at that and say well were highly contracted but we will continue to look for every opportunity to squeeze cargoes in between the contracted cargoes that we have.
And being very reliable to those term contracts and lifting that we have but we'll look for every opportunity to optimize in in between those.
Thanks, and second question just to clarify would you look to repay debt with free cash flow over the next couple of years I don't think the company has any debt maturities for several years. So is it an option or is it more likely you could be building up cash for.
The eventual death Cobain thanks.
Now give to the extent that we've got in the charities that are callable. For example, we kept is available free cash flow to reduce the overall quantum of that that we have by using that free cash flow to potentially call different periods of now. We also do you expect some continuing spending and to the extent that we've got any.
Any liquidity drawn on the revolver, which we currently do have small borrowings at both TRP and Trc, then we'll be using available free cash flow to reduce debt at both revolvers as well, which would just reduce again the overall amount of that that we have in our system.
Thank you.
Okay and your.
Your final question is for in the line of <unk>.
Neither with city. Please go ahead.
Hey, Thanks for all the color guys just a real quick one follow up on the L. P. G. Exports side you mentioned the east has been pretty strong just wondering what is driving that who who is your customer on the other side. Here is is trading houses is this end users and also curious.
So what you're seeing in Europe, and South America or your views as we kind of get into 2021.
Sure.
When you look at the growth to the east a lot of that growth is still driven.
Driven by China and by India.
Certainly when you look at China, the continued growth and expected growth over the next several years is going to continue to be focused on PVH plants broken dehydrogenation plants in India, It's really more of a domestic fuel and as the state of India continues to really.
Improve its infrastructure, there's still several billion people, obviously in India and many of those are without.
Appropriate energy source and so the ability to to put the infrastructure in place by by other parties.
To get this clean burning source of fuel into India is really where we see a lot of growth So India and China are going to continue to be the primary.
Source of growth that we see in the east. We've also seen good demand in Europe, you mentioned that some of that comes more on the backs of refinery.
Cut downs, and the need and petrochemical plants, where we've seen some movements of butane and other products. So again global demand continues to grow.
There is a need for a clean burning energy source, which is propane butane.
Much better than the use of cold or other solid waste materials.
So we think the horizon looks very good for continued growth and and a lot of that incremental demand is going to come from the U S. With the production continues decline.
Got it thank you.
Okay. Thank you.
And will turn the call back over to Mister Sanjay Lad.
Great. Thanks to everyone that was on the call. This morning, and we appreciate your interest in Targa resources, we will be available for any follow up questions over the course of the day. Thank you and have a great day.
And that concludes today's conference call. Thank you for your participation you may now disconnect.
Mhm.
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