Q4 2020 Targa Resources Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Targa Resources Corp for its 190.
'twenty earnings Conference call at this time, all participants are you noticing.
<unk> the only mode. After the speaker's presentation, there will be a question and answer session.
Ask the question during the session you will need the press star one on your telephone keypad. Please be advised.
Debt if you need for your assistance you May Press Star Zero I would now like to hand, the conference over to your speaker of today, Sanjay Lad, Vice President of Finance and Investor Relations. Thank you. Please go ahead.
Thanks, Gary Good morning, and welcome to the fourth quarter 2020 earnings call for Targa Resources Corp. The fourth quarter earnings release, along with the fourth quarter earnings supplement presentation for Targa resources that accompany our call are available on our website at Targa resources Dot com in the investors section.
In addition, an updated investor 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 20 <unk> of the Securities Exchange Act of $19 30 for 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 will be <unk>.
Malloy, Chief Executive Officer, and Jen Kneale, Chief Financial Officer. Additionally, the following senior management team members will be available for the Q&A session.
Pat Mcdonald, President gathering and processing, Scott Pryor, President logistics, and transportation and Bob MRO, Chief commercial office and with that I'll now turn the call over to Matt.
Thanks, Sanjay and good morning two.
<unk> 2020 had its ups and downs, but it ended up being a really good year for Targa record EBITDA record volumes for the thing I'm. Most proud of is how our targa team responded to the numerous challenges throughout the year, including COVID-19.
And now with the recent cold weather that affected Texas and many other states 2021 has arrived with its own challenges.
Our employees have done a tremendous job working in very difficult conditions, many without power heat and water in their home.
So I'd like to thank Targa employees for all of their hard work and dedication. We are exceptionally proud of our targa team, who manage through these extreme conditions and continue to operate our facilities safely.
The most recent.
The most recent winter storm impacted both our gathering and processing and downstream operations over the trailing 10 days, we experienced an average of 50% reduction across our G&P and downstream system volumes.
Volumes are continuing to ramp and current rates have since returned to around 90% of pre severe weather levels.
This overall event is still relatively short term in nature and we are comfortable with the full year 2021 guidance that we published last week, our long term business outlook continues to be strong.
Let's now turn to 2020 highlights.
Our overall business performed very well led by our position in the Permian Basin, and our integrated NGL platform.
Full year 2020, adjusted EBITDA of 164 billion exceeded the top end of our guidance range and was within our initial range presented in early 2020.
We believe that our key strategic efforts around re contracting the AD fees in gathering and processing, reducing growth capital spending identifying opportunities to reduce operating and G&A expenses, reducing our dividend and focusing on integrated opportunities position us for a successful.
<unk> 2021 and beyond.
In 2020, we completed several major projects on time and on budget, including two processing plants in the Permian two fractionation trains in Mont Belvieu the for.
Phased expansion of our LPG export capabilities and the extension of our Grand Prix pipeline in the central Oklahoma the.
These expansions position targeted the benefit from increasing operating leverage moving forward.
Our total net growth capital spending for 2020 was about $600 million, which was about $100 million below the bottom end of our range driven by the high grading of growth opportunities and a huge effort by our engineers and operators to be creative and capital efficient.
In 2020, increasing EBITDA and reduced growth capital spending resulted in improving leverage metrics and we exited 2020 with reported leverage of four seven times a meaningful reduction from the five five times leverage to end 2019.
Higher EBITDA and lower growth Capex also provided additional flexibility to be opportunistic throughout the year, which resulted in us buying back publicly traded notes and common equity and a small piece of the Trc preferred shares all at very attractive prices.
Looking ahead, we estimate full year 2021, adjusted EBITDA to be between 165, $1 $6 75 billion and $1 $775 billion net.
Net growth capital spending in 2021 will be significantly lower which we estimate to be between $350 million and $450 million positioning us to generate increasing free cash flow after dividend to continue to reduce leverage.
We expect to end 2021 with reported leverage of around four to five times.
This guidance is inclusive of our limited exposure from some of the recent government actions around activity on federal lands with less than 5% of targets Permian volumes currently from affected areas.
Let's now turn to our operational performance and business outlook, starting in the Permian during 2020, our systems across the Midland and Delaware Basin demonstrated significant resiliency, despite reduced activity levels and temporary shut ins, which impacted the industry.
Targa is 2020 Permian inlet volumes increased 19% over 2019, and we expect the benefit from this positive momentum as we move through 2021.
During the fourth quarter, we took a number of our plants in the Permian Midland down for maintenance and this has allowed for improved NGL recoveries across our system.
We are seeing increasing activity levels across both our Midland and Delaware footprints for 2021, we expect our average total Permian inlet volumes to increase between five and 10% over 2020.
With our Permian Midland system running close to capacity, our new 200 million cubic feet per day, <unk> plant will be much needed and remains on track to begin operations during the fourth quarter of 2021.
And we currently have adequate processing capacity in Permian, Delaware to accommodate our anticipated growth in 2021.
The supply growth from our Permian G&P systems will continue to drive increasing volumes through our Grand Prix pipeline and our fractionation complex in Mont Belvieu. In addition, the incremental supply available to move across our LPG export facility.
Moving on to the Badlands, our gas volumes during the fourth quarter sequentially increased 4% and our crude volumes were flat relative to the third quarter.
We are seeing activity level, the incompletions increase across our system, which is a positive sign.
Turning to our central region, which continues to largely be in decline gas inlet volumes in the fourth quarter declined 5% over the third quarter.
We continue to have some shut in volumes in South book, which we expect to come back online in the first half of 2021.
Overall, we expect volumes across our central systems to be lower in 2021 relative to 2020.
For 2021, we estimate the volume growth in our Permian region to offset anticipated declines across our central regions and estimate our total field G&P inlet volumes in 2021 to be flat year over year.
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 are.
Our Permian G&P business is now approximately 65% fee based and overall, we estimate about 85% fee based margin across all of Targa for 2021.
The financial performance of our GMP segment is now more driven by volume throughput and fees as opposed to direct commodity prices, which was evidenced in our 2020 results.
With the fee floor arrangements, we have in place we will continue to benefit as prices rise.
Shifting to our logistics and transportation segment, our Grand Prix pipeline continues to perform very well.
The fourth quarter throughput volumes on Grand Prix sequentially increased 18% driven by increasing NGL production from targets Permian plants, including our new gateway plant or.
Of our Grand Prix extension in the Central Oklahoma began operations at the end of the fourth quarter.
We expect strong performance on Grand Prix to continue throughout 2021 and estimate deliveries into Mont Belvieu to increased 25% or more over 2020 average throughput.
At our fractionation complex in Mont Belvieu fourth quarter of fractionation volumes remained strong and also benefited from working down inventory. We built as a result of our scheduled maintenance and upgrades performed during the third quarter at our facilities.
Our LPG export services business Galena Park continued to perform well as we move the Targa record of 11 3 million barrels per month during the fourth quarter benefiting from a full quarter of our recently completed phase of expansion. In addition to capturing some short term volume during the fourth quarter driven by strong fundamentals.
And the outlook for full 2021 remains strong.
In the past, we have talked about capacity at our export facility to be about 15 million barrels per month.
Now that we've gone through a full quarter of operations following our expansion and to appropriately manage expectations going forward, we think that our effective working capacity at Galena Park is about 12 5 million barrels per month.
There is potential to exceed debt for a given month, if we load more butane.
But we think that up to $12 5 million barrels per month is a better representation of our overall working capacity.
As we look forward, we are in a position where we expect to have the ability to capture growth opportunities from the Permian without having to spend much incremental capex on Grand Prix fractionation or LPG export facilities. This puts targa and are positioned to generate strong returns going forward and increasing free cash flow after debt.
Dividends available to reduce debt and further strengthen our financial position.
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 Targa has reported quarterly adjusted EBITDA for the fourth quarter was $438 million.
Increasing 5% over the third quarter during the fourth quarter Targa generated free cash flow of $215 million higher sequential operating expenses were primarily attributable to certain onetime hurricane repairs and the integrity spending during the fourth quarter and additional assets being fully online.
Higher G&A expenses were attributable to higher compensation and legal costs.
Our full year 2020 reported adjusted EBITDA was $1 64 billion ex.
<unk> the high end of our financial guidance range, and we generated $575 million of free cash flow in the year.
Through extensive cost reduction efforts in 2020, we achieved significant aggregate expense savings versus our plan and we expect many of these savings to carry forward into 2021 and beyond particularly related to labor.
Looking to 2021, we do expect operating and G&A expenses to be modestly higher than 2020, largely from additional assets in service that will drive both additional opex in AD valorem costs and also higher insurance costs.
Greater volume throughput across our system will also result in higher costs.
We remain significantly hedged for 2021 and continue to add hedges for 2021 and beyond relative to when we last reported in November we added incremental hedges beyond our programmatic levels across most commodities as we benefited from higher prices, particularly in the prompt year you can find our usual hedge disclosures in our earnings.
Supplement presentation.
During the fourth quarter and through the start of this year. We have continued to make progress on another one of our priorities capital structure simplification.
In the fourth quarter, we redeemed our $125 million of 9% preferred units of TRP and will benefit from interest and administrative cost savings. We also purchased at par approximately $46 million of our nine 5% preferred shares at Trc, which become callable at 110% of par in March of <unk>.
'twenty, one so benefited from a discounted price and interest savings in.
In both the fourth quarter and thus far in 2021, we are continuing to manage our liquidity position, we issued $1 billion of new senior notes due in 2032 at an attractive 4% coupon. This allows us to push our maturity stack and generate interest savings and we currently have about $2 7 billion of available liquidity.
Providing significant flexibility looking forward.
Our consolidated reported debt to EBITDA ratio was approximately four seven times.
As Matt mentioned, our progress on improving our leverage ratio is well underway improving from five five times at the end of 2019 to four seven times at the end of 2020 to an expectation of around four and a quarter times at the end of 2021 as we move towards our long term consolidated leverage ratio target of 300.
The for time.
Since our November earnings call disclosure, we repurchased an additional approximately 980000 shares of common stock under our $500 million share repurchase program.
In total we have repurchased approximately $92 million of common shares at an average price of $16 68 per share.
We received a lot of positive feedback from our additional debt co disclosures in November and have no changes to the underlying assumptions that we've presented than our base case continues to be of full repurchase of the debt co joint ventures in the first quarter of 2022, which would create attractive EBITDA growth in 2022 over 2020 line and being approximately.
Leverage neutral transaction.
Building off of our strong performance in 2020 and that detail on our operating performance expectations for 2021, we estimate full year 2021, adjusted EBITDA increased 5% over 2020 based on the midpoint of our range of our growth capital spending for 2021 will be meaningfully lower as the completed.
<unk> all of our remaining major projects in 2020.
We estimate 2021 net growth capex to be between $350 million of $450 million and net maintenance capex for 2021 of approximately $130 million.
As mentioned, we expect to end 2021 with reported leverage of around four to five times based on the midpoint of our 2021, EBITDA and Capex estimates our consolidated leverage ratio ratio will improve both from an expectation of higher EBITDA plus lower debt as we expect the prioritize available free cash flow.
For debt repayment.
We do not expect to be of significant cash taxpayer through at least 2020 for based on current rules and our expectations for earnings and growth capital spending.
There are no changes to our approach to capital allocation in 2021, our priorities continue to be one improving our leverage ratios and to simplifying our corporate structure.
<unk>, we were able to allocate capital of the different opportunities that were presented to us repurchasing debt common shares and Trc preferred shares plus redeeming the TRP preferred and looking forward. We will continue to be opportunistic as our expectation of strong performance, we will provide us with flexibility.
For additional details related to our estimated 2021 outlook. Please review of our earnings supplement slides that accompany our webcast. This morning, which are also posted to the investors page of our website.
Finally, I would like to Echo matts comments that our business is performing very well across difficult periods. In my thank you to every target of employee as we are so extremely proud of the continued exceptional performance of our entire targa team.
And with that I will turn the call back to Sanjay.
Thanks Jen.
We kindly ask that you limit to one question and one follow up and re enter the Q&A line up if you have additional questions Cherie would you. Please open the lines for Q&A.
Ladies and gentlemen, if you have questions at this time. Please press Star then the number one on your telephone keypad again, if you have of questions. Please press star one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue.
The spread the pounds.
Well pause for just a moment to compile the Q&A roster.
Yes.
Your first question comes from the line of Jeremy Tonet from Jpmorgan. Your line is now open.
Hi, Good morning, Hope everyones Jeremy.
Thanks.
Just wanted to touch based on the guidance as you laid out here I was just trying to get a feel for the shape of the guidance over the year. If the second half kind of steps up over the first half here and just wanted to think about it it looks like the guidance might of been formed kind of at the end of last year and you provided the commodity price sensitivities. So we can bridge that to the strip and we can walk it up for.
For the current commodity prices, but was just curious I guess, if it was setback than commodity prices have moved up have conversations with producers changed over that time period do you see the potential for maybe more activity than when you formulated the guidance at that point.
Yeah, Hey, Jeremy.
Yes, when we pulled together the guidance, what's driving the growth as larger projects coming online throughout 2020 of getting full year credit for that and then we're also anticipating 5% to 10% growth in the Permian as volumes grow in the Permian will be able to capture.
For gathering and processing, but then also capturing the majority of those liquids down Grand Prix Frac, and then driving more exports. So I think as volume kind of trend higher across the Permian thats going to move.
Move growth generally.
In that direction throughout the year, you've seen in the past we have had some seasonal.
<unk>.
The impacts from our wholesale propane business and others, which do come into.
And margin in Q4, and Q1 relative to Q2 and Q3, but generally speaking we're going to see of growth trajectory.
For Targa.
Great. Thanks, and just wanted to kind of jump.
Jump jump on to the comments as far as our long term leverage being three to four times and if you're exiting this year for the quarter, presumably you kind of get to that three to four range at some point next year.
And I was just wondering how you think about the.
The company at that point with regards to potentially reaching an investment grade rating or increasing dividend or pressing down leverage lower just wanted to see once you get into that range. How you think about moving forward at that point.
Good morning, Jeremy This is Jen I think from our perspective, we've been very transparent that becoming investment grade is also a priority of ours. One that we think will occur naturally just given the projection of our business. So I think youre exactly right. We feel like we will exit 2021 in very good shape and that means that.
Leverage should move into that long range target when we get into 2022.
Given all of the uncertainty that we've all lived through over the last year, plus and commodity market, Matt and I have a preference for leverage to be lower than sort of getting to four times and staying around for time, but ultimately we'll have to see does that mean, we're comfortable between three five to four times or would we like to move leverage low.
And that'll awfully also partially be dependent on opportunities, we're seeing to continue to invest growth capital to engage in share repurchase et cetera. So we will continue to evaluate as we move through time, but I think that we feel like we're exceptionally well positioned as we look at the guidance and what it will mean for where we exit this year.
What that will translate into going forward for the long term.
That's very helpful. Thank you.
Okay.
Your next question comes from the line of.
Tristan Richardson from true with Securities. Your line is now open.
Hey, good morning, guys.
Just to maybe follow up on the previous question.
The kind of consistently hearing for midstream players that.
The outlook today will encourage producer activity throughout the year.
The suggests upside from.
Budgets that may have been prepared previously.
Does the high end of the guide incorporate that.
That assumption for interest improved activity beyond what we're seeing today.
Or is the high end of the guide just really kind of.
On the commodity price assumptions youre seeing today in on sort of current customer behavior, you are seeing today.
Yeah, Hey, good morning interest in yes.
Yes, I would say when we put this together it had kind of up $50 crude oil.
The environment in it.
Yes, I think as we look at producer expectations, we are hearing from especially our larger producer customers more discipline around.
Maintaining their plans and drilling plans for the year, even in the face of increasing commodity prices that said, we have seen the rig count move up we have seen frac crews increased steadily.
So to the extent, we're meaningfully above that there could be some upside if prices hold here and say stay like this throughout the year I think the incremental volumes of these on our system.
It would come likely more from the small mid cap producers, who decide to add a rig or increase their activity.
It will generate more cash flow and then we could also see some additional upside up into the badlands up in the Bakken area. If price is more price sensitive up there. So we could see some more potential upside if prices are well in excess of our planning.
Assumption.
That's helpful. Matt and then just.
Really briefly the follow up I guess would be is it too early to generally quantify.
The magnitude of of the disruption we've seen over the past couple of weeks.
There's just the general.
Framework are the way to think about.
The magnitude of what occurred and how that May.
Sort of translate to the guidance.
Sure.
I'd say, we are continuing to assess that we're still ramping up as I said in the script, we're about 90% of pre storm levels. So we're not back to where we were before yet.
And part of the quantification of that as we look through our assets.
Over the last 10 days, we were about at an average of 50% rates across most of our businesses, which is <unk>.
Really significant compared to.
Winter storms, we've experienced in the past, but when we look across our businesses across our systems. We're comfortable that that was of short term event and we're still comfortable with our annual guidance that we provided.
It makes sense. Thank you guys very much.
Okay. Thank you.
Your next question comes from the line of Shneur <unk>.
Your line from UBS. Your line is now open.
Hey, good morning, guys before I get to my two questions. Just wanted to confirm something you said two <unk> first question did you say there was upside to the range or upside within the range for the outcomes that you talked about.
Hey, Shneur good morning.
Yes, I think as I talked about it.
We did prepare that late last year and other kind of $50 crude world 55, net NGL world to the extent where meaningful above that for an extended period of time.
There could be more volumes than our range that we gave.
It's still we're here in February and what we've experienced so far this year has some negative to that right with the freeze offs and things that we saw early this year. So I think we're still comfortable with the 5% to 10% range. We gave in the Permian.
But it's still early early in the year.
Okay I appreciate that.
Just wanted to focus on the recent debt raise debt you'd said at the beginning of February originally came to market for 500 million of debit was upside to affiliate in the 4% rates on it which seems very attractive.
I want to be careful not to use the word pre funding the cashes ultimately fungible.
Okay.
Create added financial flexibility.
When thinking about Targa in terms of what you have in the upcoming year.
Does it allow you to more easily financed the debt tow when the bulk of the IRR Cross at some point late this year early next year. Just wondering if you can give us some thoughts around that.
Good morning scenario. This is Jen I mean, absolutely it provides us with additional flexibility and so by being able to term out additional debt free app, our revolvers as well as clean at some other series of notes that were callable just increases the flexibility that we have we've got $2 $7 million.
Available liquidity.
I'd say that this is us trying to do something in advance of taking out the debt codes in Q1 of 2022, it's us being opportunistic and we thankfully and benefited from a very robust high yield market. So the opportunity to be able to issue of $1 billion at 4% in RVO was something that we wanted the unit.
Lives and deal sell our prior assumptions may have been that we accessed the debt markets later in the year now we've been able to do that at again, a very attractive rate earlier than we may have been assuming under at prior scenarios.
Thank you for that and for my official follow up question.
Just one sort of thinking about the drivers within your guidance for this year.
Is it possible the rank order in terms of of impact.
But what would drive you to the upper end is it specifically volumes through GMP is at volumes on Grand Prix or should we be thinking downstream, which which one would give you the biggest impact in terms of moving towards the upper end.
Yeah, Shneur as we think about variability within our range I think for us impact of really starts for volumes out of the Permian because we're going to capture of GNP fee and then that does translate into the Grand Prix volumes fractionation volumes and ultimately export volume so.
For on the strong side of that or if things ramp a little higher out there that would be.
Additional margin for us our additional EBITDA for us.
Also say there is we.
We have seen variability in what producers have told us and they've actually come back maybe even stronger than our initial expectations up in the up in the badlands. So to the extent there is more activity up there that could be could be some upside for us as well and then on price is shneur certainly to the extent that we continue to see price.
Is at these levels or higher we would benefit as Matt said in his scripted comments, we day last piece for us and the number of our G&P contracts that reset prices are higher than that may create some margin uplift beyond what was assumed in the various scenarios underpinning our guidance range.
Perfect. Thank you very much for that appreciated and please stay safe and stay warm.
Thank you okay. Thank you.
Your next question comes from the line of Edgewater for the time from Bank of America. Your line is now open.
Good afternoon, everyone. Thanks for taking my question wanted to touch on your 2021 Capex budget.
The.
$250 for $50 million and the competence of debt.
Other than well connect and the high implant.
Yes.
Spending.
Is there anything else baked into the budget and maybe if you can speak to the range as well.
Sure.
Yes, the major project and there is the high implant, which was of about $90 million most of that $90 million in 2021, and the rest would relate to field.
Growth that's compression pipelines bring in additional volume to our processing facilities and so I'd say the range would also correlates to the range of our expected growth out in the Permian, if we get a little bit more growth out there and we're at the high side.
It's likely going to come with more additional field level of Capex.
Out there as well so that's why we gave a range we have some additional growth spending for additional connectivity around Bellevue as were growing volumes, we have additional capital in there for that as well it's not of the does arent, we don't usually call those out but there are some smaller items that aggregate of.
Some amount of capital there in the downstream as well. So if there is more activity more volume that could have more connections downstream and also more capital spending on the non the G&P side.
Thanks, Matt and the.
As a follow up wanted to get your latest thoughts on midstream M&A sort.
We have seen some activity of materialized recently.
<unk>.
And the transaction in the mid Con what is Targa is latest thoughts on potentially being.
Buyer or seller of assets.
More of Nike.
How you think about putting through the divesting.
Some of the decline in G&P.
Assets.
Yes, I'd say, our view on that really Hasnt hasnt changed we have seen some activity from others. We have a really good position stand alone being able to invest organically in our Permian footprint, we have millions of acres dedicated dedicated to us really good producer customers and relationship Thats going.
To provide us with growth for years to come. So we don't feel like we have a need where we have to go out and fill the hole or acquire something.
We have a really good position on the GMP side in our NGL side of the business. So we'll be opportunistic we continue to look.
If there are some opportunities that line up with.
Overall targets and metrics that we've talked about earlier, we want to continue to deleverage generate free cash flow.
And the likes of if we can find some acquisitions that fit into that and compete with our organic growth spending I think we continue to take a hard look at those but it's a pretty high hurdle for that to actually occur. So I think most of what youre going to see here at least in the short medium term is going to be focused on organic growth.
I appreciate your comments thanks, Matt.
Okay. Thank you.
Your next question comes from the line of Christian Schwab from Barclays. Your line is now open.
Thank you.
So if I could follow up to <unk> question about the weather impact and recognizing that youre still comfortable with the guidance range, but I just wanted to.
Maybe understand how things in the operations actually work.
All of your highly hedged for natural gas this year and as we think about the letter of thanks last week is.
Is there a scenario in which you still had to deliver of the gas and with your plants offline.
Actually short gas and you actually have to buy at any open market or do you guys gasoline storage that would make that scenario unlikely or of the price upside for volume coming out of the plants that were still on line more than offsetting that like how should I think about that.
Sure Yeah as it relates to the weather impact on our on our corporate hedges.
So two things one we have cushion to the volumes that we hedged so when we hedge.
It would be of monthly volume amount so as we were down.
As we were down it would eat into that cushion that we have so we've talked about hedging 90% of our volumes for 2021. So we have some cushion for instances like the also when we hedge where hedging versus first of month. So the huge price Spike that you saw was it was cash or spot market our hedges.
Not settled against the cash or spot market their hedge against first of month and those were relatively normal prices. So relative to our hedging program, we don't see a big.
A big minus or plus there okay thats helpful.
And then in the fourth quarter I believe some of the Ngls that were moving on third party pipes in the stock share pipes could you get a full quarter impact from that or is there. Some spillover into <unk> and then I think there is still some more of volumes that will migrate onto your system over the next several years, but would you be able to quantify.
Hi.
How much.
We should expect in future years, or just any of the colors that would help us frame how should we how we should think about it yes.
So we've.
Since Grand Prix has been in operation, we've continued as contracts roll move volumes from other pipelines onto ours. We did we did have some of that here in the back half of last year.
And we're going to over the next several years kind of have some more right. So we're not giving specific clarity on the amount of our size or when those happen, but just kind of talk generally and so we did have some of that in the back half of 2021.
Yes, I think as we go forward here for the short medium term most of what we have in terms of Grand Prix growth is going to be from organic growth across our footprint and from third party customers, where we have commitments and acreage dedications and part of why we gave guidance Kristine on Grand Prix is just because its ramp so rapidly since the <unk>.
Payment of services generally not our practice to give the single asset guidance, but for this one we thought it was important when you looked at 2021 relative to 2020, just because we did have a rapid ramp as we moved through really the pipe coming in service in the in late 2019.
It sounds like the fourth quarter number is a good starting point and we just layer on whatever growth. We see we expect some of the Permian for you guys is that kind of the.
Accurate.
I'd say, that's a reasonable assumption.
Sure.
There is always some amount of transportation volumes that we have that are on shorter term.
But those come and go.
And so we think starting with Q4 and then building on some growth is a reasonable expectation, we could have some pluses or minuses from shorter term volume.
Okay.
Got it thank you.
Okay. Thank you.
Your next question comes from the line of.
Dan is from credit Suisse. Your line is now open.
Matt Hey, Dan.
Just wanted to follow up on ethane recovery.
And sort of how much that could be a tailwind into 2021.
So last year for a good portion of it I think you were fully recovering the Permian not sure. What the case was in other basins, but just curious how youre thinking about the potential tailwind in 2021, how much of that is incorporated into guidance.
Sure Yeah in terms of ethane recovery we.
I've done a lot of work on our processing plants out in West, Texas too.
Basically be able to recover more ethane so as that work was kind of getting done in wrapping up last year, we still have some more to do.
That could increase recoveries on our G&P system and bring incremental volume down Grand Prix.
Frac.
So I'd say there is some potential for upside, but we have been for the most part in recovery on most of our processing within GNP not all of it but within most.
So there'll be some upside from just better mechanical recoveries from us doing maintenance work on our processing plants.
Okay understood.
And Jen second one is for you just with respect to the debt co interest I know youre not changing any of your base case assumptions, but I think one of the data points. You provided last quarter's call was an implied acquisition multiple and the five to six times range.
Things like market has tightened considerably since then has improved since then thank you for.
Seem to be going well, so just curious splitting.
Splitting hairs, a little bit, but just curious of that multiple is trending closer to the five times as opposed to the six times at this point.
I think when you think about the three assets that are in the desk of he's had gtx switches essentially take or pay residue pipeline <unk> got our frac train that essentially has been running well utilized since it came in service.
We're really pointing at Graham Creek to potentially say is the performing better this quarter versus our expectations. When we put that out in November.
I'd say that its not a material change we have had very robust expectations for Grand Prix and it's absolutely continuing to deliver as a game changer for our company, but I wouldn't say that there is a material change there such that you should be thinking that it's altering our base case assumption spirit.
Understood helpful color, thanks, everybody the well.
Thank you.
Our next question comes from the line of Keith Stanley from Wolfe Research. Your line is now open.
Hi, Thanks.
First question just curious the the outlook you guys see for LPG exports, we saw really good growth in the second half of the year with the expansion.
Curious how much of the of the volumes, we saw especially in Q4 has to do with favorable winter kind of of favorable winter season globally versus how much you expect that that level of the exports could could really be sustained through the year with new contracts and I guess the market staying strong.
Yes sure.
On the export side, we really did have a favorable export market in Q4, and you saw us kind of have record results over 11 million barrels I think longer term of lot of the fundamentals that set up a strong Q4 are going to be there over the longer term, but here in the first quarter, you've seen some some headwinds related to.
Weather impacts propane.
Bob.
The ship availability.
<unk> had some issues here in the first quarter I think those are going to work themselves out over time as supply kind of comes back on the Y grade NGL side of it would make it more propane is going to have to hit the water and clear. So I think going forward longer term expectations are very good for exports there'll be some weakness or softness in the first quarter.
Great.
Second question just on a follow up on what happened last weekend in Texas.
First just how do you buy electricity in Texas as it is it mainly through sort of market prices or do you have fixed rate contracts or hedges for most of your needs.
And then just clarifying all of the comments on the call. So far it sounds like the impacts of the events of last week, It's primarily just short term volume impacts on your assets.
<unk> down for this period and that's really primarily what we're what we're looking at.
Yes, sure I mean as it relates to the weather impacts really don't want to get into specifics on how it's different for different assets.
And downstream that it has on G&P, we of a number of arrangements on elect on electricity.
But when we look at the total of how we buy electricity how volumes have moved across all of our footprint, we're comfortable with our guidance range. So.
I think that's where we where we stand on the kind of in aggregate impacts on the on the weather.
Thanks.
Okay. Thank you.
Your next question comes from the line of Pearce Hammond from Simmons Energy. Your line is now open.
Good morning, just one question for me I'm, just curious do you see any new business opportunities for Targa related to the energy transition to capitalize on target's core competencies, whether that be in carbon capture storage of hydrogen.
Whatever the have related to the energy transition. Thank you.
Sure absolutely, yes, as it relates to new business opportunities I think the first week.
I just want to reiterate that natural gas Ngls LPG. We think this business is going to be around for a long time for decades to come but with that said we are continuing to look at other opportunities. We think we have time to evaluate those to see if any of those make sense for targa, but we are right now actively looking at.
Whether we want to participate in renewable projects wind and solar so we're evaluating those they don't necessarily have to be from a capital position. We can participate in those as an offtake because we are of large purchaser of electricity. So.
So we can support those projects without necessarily putting capital into those projects. So we're looking to see how we can be a part of that kind of renewable.
The solution there and then as it relates to the carbon capture.
I would say there are some opportunities for us in that area that would fit our core competences laying pipeline gathering and aggregating <unk>. So we are looking at some of those projects as well I'd say stay tuned theres more to come there.
There is more to come on that and we do have some time to kind of continue to evaluate about what is our role going to be and that it doesn't necessarily have to be from a capital position. If we're going to spend capital we need to earn a good return.
And a good return on that but there are other ways to participate in those projects as well.
Okay. Thank you very much Matt for the helpful answer.
Sure. Thank you.
Our next question comes from the line of Michael Blum from Wells Fargo. Your line is now open.
Thanks, Good morning, everybody.
Just wanted to follow up on.
Of the LPG export question in particular, just wanted to better understand.
The impact for the last couple of weeks with the with the freezing weather.
Just is that is it.
I wanted to understand I guess, the better the really the operational impact.
Impacts and is it really very short term and now the things are back up for any I guess I'm looking for more of like of real time look into how that business is recovering.
This week.
Hey, Michael This is Scott let me, let me just I guess complement some of the things that Matt was saying earlier when you look at the fourth quarter for instance, the $11 3 million barrels that we had across the dock during that quarter certainly benefited some of our phased in expansion.
It was inclusive of all of our third refrigeration unit at Galena Park.
But it also benefited from.
The cold weather really across the globe, especially in the far East and then of course, we were able to squeeze in a number of spot cargoes during that fourth quarter. So in aggregate, we had a lot of benefit in the quarter put us over that of 11 million barrels when we look at the first quarter.
As Matt alluded to we've had some fog delays during the first half of this quarter certainly the weather event last week had an impact to our operations, but we've made we've made great progress in putting the putting the facility back online. So we are back to loading cargoes at this point.
This obviously, though the advent of tightens up of our schedule for our term lifters. So the opportunity for spot cargoes that we saw similar in the fourth quarter is tougher, but we still when we look at the long term view.
A few of the facilities, both for 2021 and beyond the fundamental stack up very positively in our favor.
Great and then just one follow up to that.
In terms of the.
What's gone on the congestion at the Panama Canal do you see that there is just a short term issue that gets resolved or do you think that's a.
A longer term issue and maybe changing some of the routes permanently.
For LPG cargos.
We've seen a number of delays throughout the second half of last year as things started tightening up of the Panama Canal the expansion obviously.
Of that took a number of years to put in place that has been in place for a few years now certainly help transit times.
Both for LPG as well as larger cargoes transiting the the.
The canal with that said LPG has had some difficulties.
<unk> has had a number of delays during that second half of the year, we have seen improvement.
The back half of the fourth quarter.
<unk> seen.
Charter rates that have come down significantly over the course of the last four weeks. So things are improving but I think theres always a decision to make for for the vessel owners do they do they take the transit through the Panama Canal or do they go ahead and move around the Cape of good hope. So those were always decisions that can be made and it depends upon where the book.
The delays look like what the transit times look like relative to the markets are going to so.
Those are decisions that are made periodically throughout the various quarters and months.
Great. Thank you very much.
Thank you Michael Okay. Thank you Michael.
Your next question comes from the line of James Carreker from U S Capital Advisors. Your line is now open.
Hi, guys. Thanks for the questions.
I was just wondering if you guys might talk about.
Just the Permian outlook and the potential for new plants, there you've obviously got the.
<unk> plant coming in.
Later this year.
What could the timeline be for the next plant there and can you can kind of compare that to how much.
The remaining capacity is out in the Delaware.
And what would be the timelines of potentially needing something on the Delaware side.
Yeah sure. Thanks for the question James.
As we look for out of the Permian. It every time, we brought our plan on its been.
Fully utilized relatively quickly we would expect the same to occur when we have the high plant later this year. So I think as we see volumes.
They respond coming back to these recent weather events, but also.
What the volumes look like relative to the commodity price environment. We're in.
Kind of in the first part of this year I think we'll be likely making the decision of do we need another plant maybe that flips of the back half of this year, but I think some point in this year, we will have enough visibility to say, what we think not only haim is going to be for but we need to add.
Another plant and we've already been evaluating options to add another one another plant out there whether it's moving another one of our plants from another area, we have or putting in a new plant were evaluating that to see what the best option is for Targa. This would be a really good add for us adding additional processing in the <unk>.
Permian Midland when you get the GMP fee and then the transport Frac and more volume for export of really good economics for US now that we've got the capital.
In place on the downstream side of things so really good returns for us as volumes continue to grow out in the Midland none of the Delaware side with bringing on Falcon and Paragon.
It feels like we have more time more runway out there.
So what are the kind of continue to evaluate those volumes. There is also some excess capacity out of there from other processors as well so even if volumes ramp and we needed more capacity, we could even look at potential.
Offloads if it needed to bridge the gap for US. There is we are building a new plant. So we have more flexibility out there the <unk>.
Capacity on the Midland side, just all the round is tighter.
Got you I appreciate the color.
And then I guess switching topics a bit just on ESG.
A lot of producers are now committing to reducing.
GHT emissions and intensity just any thoughts for you guys about putting some.
Emissions reductions targets out there this year or sometime in the near future.
Yes, I mean that is something we know it's been talked about quite a bit of number of producers and other midstream guys have put targets out there I'd say, that's something that we are taking a hard look at.
Internally.
Amongst the management team and with our board about what if any targets and goals, we want internally and externally. So I'd say, we're in the evaluation process of that.
Kind of what the goals would be and how we would articulate those but we are working to.
Reduce our overall emissions and continuing to kind of improve our metrics.
Flaring and emissions across the board, while we are evaluating.
What the best goals would be.
Thanks.
Yes. Thank you.
Our last question comes from the line of Shneur <unk> from UBS. Your line is now open.
Hi, guys sorry for the follow up question here I just wanted to go back to the response on asset sales and divestments. So for its just sort of seems like the market is starting to heat up again.
Any specific thoughts around the badlands asset maybe sell it.
The balance of it or gcs for the Louisiana, Frac, just sort of like.
To a point, where you are completely focused.
The Permian system that you've described earlier about the integrated benefits of it.
Sure. This is Jen I think that we're very pleased that we sold the 45% interest in the badlands, the GSO and we did and they've been a great partner of ours. So we like the Bakken exposure that we have at this point in time and day, saying, particularly when you look at what crude prices of forgetting it looked like for the next several years hopefully theres even more.
For upside there than we're currently forecasting.
We don't have any active processes underway related to asset sales, we have been very open the upon acquiring the desk COVID-19 one of the assets that may make sense for us to consider selling would be something like our interest in Gulf Coast Express, where we are not the operator and we are not the majority owner.
So I think something like that is more consistent with how we've talked publicly about potential divestitures, but clearly part of our job is to look at any opportunities.
Liquidate any assets, but again, we don't have any active processes underway right now.
Alright, perfect. Thank you very much appreciate the clarification and have a great day.
Thanks for Egypt.
I am showing no further questions at this time I would now like to turn the conference back the Sanjay of wrong.
We thank everyone that was on the call. This morning, and we appreciate your interest in Targa resources. The IR team will be available for any follow up questions. You may have thank you and have a great day.
Okay.
Ladies and gentlemen. This concludes today's conference call. Thank you all for your participation and have a wonderful day you may all disconnect.
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