Q3 2021 Targa Resources Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Targa Resources Corporation third quarter 2021 earnings Conference call.
At this time all F N b cell in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero.
And please be advised that todays call is being recorded.
Now I would like to welcome Mr. Sanjay Lad.
Vice President Finance and Investor Relations Sir Please go ahead.
Thanks, Ralph Good morning, and welcome to the third quarter 2021 earnings call for Targa Resources Corp, third quarter earnings release, along with our third 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.
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 21 E of the Securities Exchange Act of 1934 actual results could differ materially from those projected in forward looking statements for a discussion.
The factors that could cause actual results to differ please refer to our latest SEC filings.
Our speakers for the call today will be Matt Meloy, Chief Executive Officer, and Jen Kneale Chief Financial Officer.
Additionally, the following senior management team members, who will be available for Q&A, Pat Mcdonald, President gathering and processing, Scott Pryor, President logistics, and transportation and Bobby Mara Chief Commercial officer.
And with that I will now turn the call over to Matt.
Thanks, Sanjay and good morning to everyone.
This is a very exciting time at Targa as highlighted by our earnings release. This morning all.
Operationally, we continue to perform well and now expect to exceed all our volume guidance expectations for the year.
Financially our balance sheet is as strong as it's ever been with our leverage in the midpoint of our target range and expectations for it to continue to trend lower.
Strategically.
All of our key areas of focus over the last several years are driving the strength of our results and our positioning looking forward.
Fully integrating our NGL business from wellhead to water moving to a GMP contract structure that allows us to protect downside, while continuing to participate from strong commodity prices and managing capital spending to focus on projects that leverage our integrated NGL platform and drive higher returns.
The culmination of our successful execution of the Targa strategy gives me confidence to say that we are now where we want to be from a strategic and financial standpoint.
Over the years, we invested outsized capital relative to the size of our company to fully integrate our business and create a best in class midstream footprint for our customers.
These capital investments stretched our balance sheet more than we would've liked but we believe that those decisions would position us to generate significant long term shareholder value and we are now in a position where we are seeing the benefits of those previous strategic investments.
We are also now in a position to unwind some of the structured financings that we utilized to finance our growth and we will be able to do so while maintaining our leverage comfortably in our target range.
Our EBITDA free cash flow and balance sheet are as strong as they've ever been and we now expect to exceed the top end of our adjusted EBITDA guidance for 2021.
And see continued growth thereafter, underpinned by attractive organic growth opportunities that are integrated high return projects.
All of this puts us in position to return additional capital to our shareholders.
We plan to recommend to our board a $1 40 per common share annual dividend or <unk> 35 per quarter effective for the fourth quarter of this year and payable in February 2022.
This equates to approximately 30% of our 2021 free cash flow and provides a yield competitive to members in the S&P 400, and S&P 500.
We would expect to be able to increase the dividend a modest amount going forward on an annual basis.
This level of common dividend returned additional capital to shareholders, while providing us significant financial flexibility across cycles.
For 2022, our current expectation is to direct free cash flow after dividends towards the repurchase of our Dev co joint venture interests.
While continuing to closely manage our balance sheet. We believe we will have the flexibility to redeem preferred stock and opportunistically repurchase common shares under the $500 million share repurchase program.
Before I move to discuss our operational performance I want to acknowledge the continued outstanding efforts of our target employees through a pandemic hurricane storms and other issues our employees have performed exceptionally well and we're so proud of their efforts.
Let us now turn to our operational performance and business outlook, starting in the Permian third quarter system Inlet volumes increased 7% sequentially and we now expect our average 2021 Permian inlet to exceed the top end of our previously disclosed 5% to 10% growth range over 2020 and.
In Permian Midland, our new 200 million cubic feet per day, <unk> plant, which began full operations. In early September is currently running near full and our next 250 million cubic feet per day legacy plant remains on track to begin operations during the fourth quarter of 2022.
With robust activity levels expected to continue into next year and beyond we are evaluating the timing of our next Midland plant after legacy and are now ordering long lead items.
In Permian, Delaware completions and activity levels continue to ramp and we currently have adequate processing capacity to accommodate our anticipated near to medium term growth.
The stronger outlook across our Permian basin footprint will continue to drive incremental volumes through our NGL downstream business.
And then our central region, we are seeing an uptick in activity levels, given the higher commodity price environment and remain optimistic around higher production offsetting legacy decline on many of our systems.
Shifting to our logistics and transportation segment Grand Prix volumes continue to increase and we transported a record 417000 barrels per day to Mont Belvieu during the third quarter.
Throughput volumes on Grand Prix sequentially increased 6% driven by increasing NGL production from Targa Permian plants, including our new high plant and third parties.
We also achieved record fractionation volumes at our Mont Belvieu complex, averaging about 662000 barrels per day during the third quarter, representing a 3% sequential increase our.
LPG export services business.
Third quarter volumes averaged 9 million barrels per month, lower sequential volumes were attributable to general maintenance, we chose to complete at our Galena Park export facility during the quarter, while it was an overall weaker global LPG market.
The last couple of years have presented a number of challenges and we think that we have demonstrated the ability for target to perform exceptionally well across volatile markets with record 2020, adjusted EBITDA and expectation for record 2021, adjusted EBITDA and current expectations for <unk>.
<unk> 2022 adjusted EBITDA.
So I will finish with another thank you to all of our employees and with that I'll now turn the call over to Jim. Thanks.
Thanks, Matt I would also like to give a big thank you Oliver.
Targets reported quarterly adjusted EBITDA for the third quarter was $506 million, increasing 10% sequentially as we benefited from higher commodity prices, including upside from fee for volume and higher volumes across our integrated Permian gathering and processing and logistics and transportation system.
Year to date 2021 target has generated adjusted free cash flow of $893 million.
Which has allowed us to reduce our leverage significantly across the year.
We are highly hedged for 2021 and continue to add hedges for 2022 and beyond while still benefiting from higher prices across our unhedged equity volume exposure and prices above the floor for.
For 2022, we have now hedged about 85% of natural gas, 75% of Ngls and 75% of condensate.
We're continuing to hedge into price strength and have added 2022 hedges and higher weighted average hedge prices for 2023, we are around 50% hedged across all commodities.
You can find our usual hedge disclosures in our quarterly earnings supplement presentation.
As Matt mentioned, we now expect to be above the top end of our full year estimated 2021, adjusted EBITDA range of $1 9 billion to $2 billion.
With increasing activity levels across our Permian systems, and additional visibility to 2022, we now estimate our 2021 net growth capex to be towards the high end of our $350 million to $450 million range. As we are ordering long lead items for our next Midland Basin plant.
As we think about 2022 gross capital our expectation is that it will be higher than 2021 with continued spending largely around additional plant well connect and compression capital on the G&P side, plus additional pump station capital for Graham Creek.
Our full year net maintenance Capex estimate remains unchanged at approximately $120 million our balance sheet is strong with a consolidated leverage ratio of about three five times and we have significant liquidity with no near term debt maturities.
We now expect to end 2021 with consolidated leverage around three five times and pro forma for our $925 million desktop repurchased in January 2022, we expect to comfortably comfortably be within our target range of four times.
Our outperformance year to date and balance sheet flexibility position us to begin returning incremental capital to our shareholders. In 2021, we focused on reducing leverage in 2022 with the strength of our balance sheet, our focus shifts to simplifying our capital structure and returning more capital to shareholders comp.
Lamented by our plans to recommend a meaningful increase to our common dividend in early 2022, we will continue to remain opportunistic around common and preferred share repurchases and we'll continue to invest in attractive high returning growth opportunities that leverage our integrated system or.
Our recommendation to increase the common that common dividend to $1 40 per share annualized with the culmination of a lot of comparable company and industry analysis as well as scenario analysis we.
We believe that at a $1 40 target offers an attractive common dividend per share that will provide for a stable return of cash flow to our shareholders across cycles.
Our initial increase of the common dividend would be effective for the fourth quarter of 2021, and we expect to maintain that dividend level through the fourth quarter of 2022 beyond.
Beyond 2022, we expect a very modest increases to our annual common dividend per share and currently expect to articulate the next change to our dividend concurrent that providing our annual guidance in February 2023.
We have worked very hard to improve our balance sheet and we remain focused on preserving our strong balance sheet and maintaining consolidated leverage of three to four times over the longer term.
We are continuing our dialog with the rating agencies with a focus towards achieving investment grade rating, which is a priority for targa.
This week Moodys upgraded us to be a one two we are now one notch from investment grade at all three agencies.
Shifting to sustainability and ESG, we recently published our third annual sustainability report and we continue to advance target sustainability disclosures with the report providing a review of our performance against various environmental social and governance topics that are important to our industry.
Also as announced a couple of days ago, we entered a new agreement to source renewable electricity from Concho Valley solar to provide power to our G&P infrastructure in the Permian Basin.
We continue to review and pursue other economic opportunities to advance our sustainability objectives that complement our core competencies and infrastructure footprint.
In closing we are so very proud of our target team. Our employees have continued to perform exceptionally well for our customers and have done so with a continued focus on safety and we are very thankful for their efforts.
And with that I will turn the call back over to Sanjay.
Thanks, Ken for the Q&A session, we kindly ask that you limit to one question and one follow up and reenter. The lineup. If you have additional questions would you. Please open the lines for Q&A.
Okay.
Sure.
Well.
Would you please I'm sorry.
Im sorry.
We will now begin the question and answer session.
As a reminder, if you wish to ask a question simply press Star then the number one on your telephone keypad once again that a star one on your telephone keypad. Your first question is from the line of Jeremy Tonet from Jpmorgan. Your line is now open.
Hi, good morning.
Hey, good morning, gentlemen, can you hear me.
Great to see the rating agency is starting to pay attention to the improving metrics here, but I wanted to focus more on the 2022 outlook here and just wondering if you could provide us more color on what youre seeing as far as producer activity in your footprint is concerned this year, we've seen kind of a bifurcation of private versus public so the privates being more aggressive.
Do you see similar trends like that continuing into 'twenty, two or is there anything different there and I think you've talked about processing plant every 18 months or so is that still kind of the current expectation.
Yeah, Hey, Jeremy.
I'd say it really is probably more of the same from us for our larger e&ps and larger publics and integrated.
They are really sticking more or less with what they have told us. They have some ranges in their forecast they give us but more or less are kind of sticking to the plan that they have and we are still seeing a lot of the uptick in activity from the smaller and private guys really across our across our system. So I don't see a big change happening there.
Yes, and then in terms of adding processing plants.
Last call, we talked about adding the legacy plant. We just had haim plant come online and we're ordering long lead times now for the next plant in the Permian Midland So.
We're really working through our <unk>.
Capital budgeting and planning for 2022.
We're ordering long lead time, so we can be ready we're not sure exactly when we think we'll need the next plant after legacy or still kind of in that evaluation phase, but we want to be ready.
And their customers when it comes in so I guess stay tuned on when we think that next plant will come in we would likely announce more specifics around timing on the next next earnings call.
Got it that's helpful. Thanks, and maybe just touching on capital allocation and great to see the dividend show up a little bit early.
And ahead of what we were looking for but just wondering if you could just walk us through maybe the priorities of the waterfall here. It seems like Youre able to do multiple things at once but just kind of curious if thats, how you think about it or how you prioritize.
Just when it comes to buybacks is it just going to be solely opportunistic or could there be some programmatic side to it.
Sure I'll start and then I'll hand, it over to agenda.
Provide some more details there.
Yes.
We look through the strength of this year, we saw our volumes and just overall business performance going very well with some commodity price tailwind.
As we kind of look through even our outlook continuing to be very strong I think we've found ourselves in a position in the midpoint of our leverage range, where we said we're here, we don't necessarily need to wait till next quarter to be more specific around returning capital to shareholders and so that really is kind of signaling a bit of a shift from debt repayment.
Which is what we've been focused on we're now in the middle of our leverage range and forecasting to get towards the lower end of it.
By year end to now wanting to return capital to shareholders. So the first step in that was moving the dividend to a more reasonable level. We looked at our S&P 400, 500, we looked at our peers across the space and felt that that was.
An appropriate amount, which allowed us to grow while providing financial flexibility and that financial flexibility does give us the opportunity to continue to return capital to shareholders through.
Simplifying repurchasing the preferred and opportunistic share repurchases. So we felt like that was.
Have a good start along along the way John any other color just how you think about <unk>.
<unk>.
I'd say, Jeremy clearly the near term priority is now we are in excellent position to take out of the desk codes in January and leverage will move a little bit higher when we do that but then we expect the leverage to come down thereafter, as we benefit from increasing EBITDA and I don't want those assets, but from the rest of the business and.
And that's what's really going to drive a lot of the flexibility that we see us having in 2022 that will allow us to return capital to our shareholders in a variety of ways that simplification is still an important part of this for us sell and that starts with the desktop and then also taking out the preferred and that split.
It would be focused on in 2022, but again I think now has the flexibility to think about it go forward, where we've got increasing EBITDA, which allows us to return more capital through both increasing dividend and potentially a decreasing share count and that's what we'll be focused on as we go forward through time, assuming a continued strong.
Balance sheet.
Got it that's helpful. Thank you.
Thanks Sharon.
Your next question is from the line ups.
<unk>.
Richard <unk> from UBS. Your line is now open.
Good morning, everyone.
Yes.
From my perspective.
Not a lot of big picture questions. I think you guys really answered the questions on return of capital dividend increases today timing of simplification.
Congratulations on that.
Very much appreciated.
Maybe just some smaller type questions.
First of all just with respect to with respect to the ramp in the Permian and so forth I. Appreciate the color that you gave private versus public.
Wondering if you can talk about it more geographically.
Any sense on handle the ramp is going to work in the Delaware.
Are you seeing any increased activity there are some shifts and so forth just kind of wondering if anything has kind of changed in terms of age producer conversations or activity level.
Yeah sure so Pat Mcdonagh, our president of GMP.
Collaborate there I think it's pretty consistent across both the Midland side of the basin, the Delaware side of the base and we're seeing.
The steady growth from the large publics as Matt alluded to we're seeing more activity levels in both the Delaware and the Midland side of the basin from.
The smaller guys.
Certainly when you look at rig count adds et cetera.
It kind of indicates that theres, probably a little more lag in the Delaware than there is in the Midland side of the basin, but certainly in our conversations with them.
Parties were contracted with its.
They are definitely.
Wrapping up in some former fashion not crazy ramp up with good.
Full.
Investment of capital So that's what we're seeing right now.
Great. Thank you for that and then.
Follow up question.
Obviously, theres a lot going on.
Placement perspective right now.
Many of your peers have talked about the fact that they have PPI or CPI style in players.
In the vast majority of their contracts.
It's G&P, whether it's long haul pipes and so forth kind of curious if you could update us on where.
This sits in that respect it's Greg.
Other than plate or adjusted margin given your contracts.
In the Permian in general have those types of players as well too.
Shneur. This is Jen I think similar to a lot of our peers, we have escalators across our contracts both in GNP and also in logistics and transportation. So we would expect going forward that we're a net beneficiary of.
Of inflation.
And so that's part of what would be a potential tailwind for US next year and then the go forward after that.
Taking a talk today.
Thank you okay. Thanks.
Your next question is from the line of Christine Cho from Barclays. Your line is now open.
This is mark on for Christine.
I was wondering if you could give us an update on your discussions with the rating agencies obviously.
<unk> strong results it seems like Youre well on your way to AG, but just curious how youre thinking about the path forward.
And then as a second part to that it would seem like you're trending below your long term leverage target for next year. So could that open up capacity for share repurchase repurchases or how should we think about that.
Mark This is Jim I think that we are in an excellent dialogue with the rating agencies I think from our perspective, we already have strong investment grade metrics and so had spent a lot of time with the agencies to make sure that they understand what our short medium and long term strategies are and.
Get comfortable with the direction that we're headed in and I think with recent upgrades from S&P and now Moody's they're recognizing the progress that we've continued to make and then fits with their initial rating I think spent a lot of time with us to understand where we are and what the vision whats going forward. So I think we're in a good position.
With all three.
What has been articulated to us is that the debt repurchase in their minds is an important step for us in our simplification. So we'll do that in January of 2022 leverage will move a little bit higher just as a result of where leverage is now and where we expect it to be at year end and then we'd expect it to come down thereafter.
So I think we're really well positioned and our hope is that it will be at 2022 events that we become investment grade and then obviously, we don't control the timing of that but we will continue to be in dialogue with the agencies.
Figure out what the appropriate timing and stress.
And then related to the second part of your question can you just remind me what that was.
Just that you're trending below your long term leverage target for next year. So does that open up any capacity for share repurchase repurchases or how should we just think about that.
I think hopefully what you've heard from US. This morning is that we're really excited about where we're positioned today and the flexibility that that affords us going forward.
We focused on reducing leverage this year and you've heard already that in our minds Theres a shift in 2022, where we're able to return more capital to our shareholders and to the extent we are able to continue to manage leverage where it is and where we expect it together I think that increases our flexibility to do a lot of different things that will incur.
<unk> the return of capital to our shareholders and increase the value of Targa as we move through time.
Great I appreciate that and then.
Looks like your implied GMP fees came in pretty strong again this quarter, how should we think about that going forward into 'twenty two and it looks like you are above the sea floor levels at this point.
And should we think there is a cap to how much upside the volumes under these contracts can participate in.
Yes. So you are correct in that our fee floors were put in place to protect the downside and with and right now our average ngls around $1 six and gas prices are.
Are much higher than they were last year. So we are above the fee floors on our PLP contracts. So the way those generally working.
<unk>.
Contracts percentage of proceeds just has a floor in them.
Prices will continue to move up it will look like a regular contract.
Great. Thanks for the time.
Okay. Thank you.
Your next question is from the line of Colton Bean from Tudor Pickering. Your line is now open.
So I'll stick with the deleverage steam there soon Ginny mentioned exiting 2021 near the low end it seems likely that youll be able to fund the debt combined with free cash sale.
Even if theres a little bit of a tick higher in early parts of the year as you move through the balance of 'twenty, two and certainly into 'twenty three it seems likely that youll be below that three to four times range. So just conceptually can you update us how you think about the appropriate level of debt on the business.
Should we expect an updated leverage target over time.
Just interested in kind of broader thoughts there.
Our long term target is three to four times Goldman and Thats not something that I would expect that we'll be updating we're very comfortable within that three to four times range that doesn't mean that we couldnt have quarters are quarters, where were lower or even higher than that I think we're very comfortable existing anywhere around that zip code to the extent we are in the lower end or even below that gives.
US more flexibility.
So it will just be continuing to manage our balance sheet as we go through time, but again very comfortable within the three to four times range and Thats really over the long term, where we expect to manage the business.
Got it and then just on the series a any thoughts as to the cadence we should expect over the course of 2022 there.
The base plan that we have right now is that we will ratably take it out beginning really in the second quarter after it steps down to 105.
And that will continue until call. It the end of 2023, when it will be fully redeemed at that point in time, but to the extent that we want to take some out sooner. We obviously have that flexibility. So that's a lever that we'll be able to pull as we move through 2022, just depending on the performance of the business and the outlook for the business.
Okay I appreciate that.
Thank you okay. Thank you.
Your next question is from the line of John Mccain from Goldman Sachs. Your line is now open.
Hey, good morning, Congrats from me as well on the dividend and the capital allocation that has been one of the touch on the 2022 Capex comment.
Taking all of that little higher year over year, just curious if you could kind of talk about how much of that is.
Increasing activity you mentioned, the Midland plant and Grand Prix pumps, but is any of that also coming from any inflation on the.
On the sourcing side.
Yes, no really I think as we look for 2022 Capex is really more related to our increase in activity out in the Permian.
We're looking to exceed our guidance on volumes for this year ordering long lead times. It looks like we're going to have more plant capital as you get into 2022, and then also just more volumes more gathering compression pipelines.
And the like so I'd say, it's more related to that we are seeing some higher costs.
Steel and other things the team has done a really good job.
For whether it's legacy or even this year.
Net <unk>, we're kind of getting into getting into Q4, I'm trying to manage that as best we can there will be some pressures on that but I'd say its primarily related to more activity than just inflation.
Alright Thats helpful. Thank you and then maybe just.
Following up on your comments around the export downtime. This quarter just curious if one you could kind of frame up how much of the lower margin lower volumes quarter over quarter was the downtime berkeley's out about shifts in kind of the overall macro and then maybe if you can kind of just give us a snapshot maybe on exports that right now.
Sure Scott Pryor can handle that one John.
As it relates to the third quarter first of all we performed on our term related contracts.
As it relates to that working with all of our term customers.
We opted to do the maintenance at our facility during the quarter and.
And really doing that against the backdrop of the fact that there was a softer market globally.
And the result of really less arb opportunities. So we forego if you will the opportunity to sell some additional spot cargoes across our dock.
That Tees us up very well as we look as we move into the fourth quarter domestically.
Rice's have kind of stabilized here, we've seen increases in the or and the opportunities across the.
The market too.
To the far east and other areas. So I think it puts us in good position, obviously to perform very well in the fourth quarter not only for our term related contracts, but taking advantage of the opportunity to move additional spots.
Across the dock so I think we're in good position now.
I appreciate that thank you.
Okay. Thanks, John.
Your next question is from the lineup Spiro <unk> from Credit Suisse. Your line is now open.
Hey, good morning, everyone. This is Doug on for Spiro.
Maybe just to start on one on margins.
A few peers just talked this quarter about frac TNF, becoming more competitive in the Permian.
Im wondering if youre seeing similar pressure pressure on margins.
So kind of what it takes to scale back towards catering.
Operator.
Yeah sure right now I would agree with that assessment that the TNF market is very competitive there is excess capacity.
And so new deals that are coming very competitive and theres a lot of competition to get the marginal barrel there.
The good thing for Targa as we have we are underpinned by either long term contracts. If it's a TNF agreement. We have long terms a lot of them are 10, plus years for our longer term TNF contracts and then in our gathering and processing business. We have long term contracts on the GMP side. So most of the volumes that are coming in most of the volumes that are.
Underpinning our growth are already contracted for multiple years years to come so I would say.
While we are in that same market.
We're still very well positioned for the next several years because of our contract structure.
Okay got it.
Helpful. Thank you and then maybe just a follow up on the dividend.
Realize the next decision is a little ways away, but this quarter, you kind of referenced that 30% of free cash flow around the dividend increase as we look towards what the next increase could look like.
Good reference point to think about.
There are other metrics youre looking at in terms of determining how big of an increase you could see next time.
Yes. This is Jim when we think about 2022, there is still a little bit for us to continue to work through related to the corporate simplification right. So primary use of free cash flow in 2022 will be the <unk> repurchase.
As we think about beyond that I think we'll wait to articulate more about our plans I think we tried to give a reference point that said that setting the dividend at a $1 40 for the fourth quarter. We were looking at how much of 2021 free cash flow that represented and are very comfortable with the dividend that approximates to call. It 30.
Percent of this year's free cash flow as we move through time that could change and so I'd say that that's something that we will continue to evaluate.
We have said that we think that we will be in position to return more capital to shareholders as we move through time and so how much free cash flow that means we're comfortable.
Paying out on any given year will be dependent on our performance for that year and then our expectations for the go forward as well.
Alright, great.
Thank you.
Thank you Ed Thanks.
Your next question is from the line of Michael Blum from Wells Fargo.
Your line is now open.
Thanks, Good morning, everyone.
I think I know the answer to this but just wanted to confirm.
The transaction that was just announced for the pioneer acreage.
That concludes.
Acreage tied to your assets I assume the contracts will just move in there would be no really change from your perspective, just wanted to confirm that.
Yes that is correct.
The continental acquisition that pioneer acreage or.
A lot of it is dedicated to us and it will just move over with.
With the existing dedication.
Great perfect. Thanks.
And then I know, it's early but I wanted to kind of get your read on the Epa's proposal to regulate methane emissions do you see this as a potential costs for your business or is it potentially a positive upside.
For example, what producers are no.
Longer permitted to flare natural gas just want to get your thoughts there. Thanks.
Sure.
Yes.
Propose additional regulations from the EPA.
We look through those.
We're an overall agreement with what Theyre trying to do and that's trying to keep methane.
The facilities, which makes sense, we're already operating with best practices and a lot of these areas. So the recommendations are putting forth, we're already doing and a lot of the areas and we've been retrofitting and making changes for years doing. This so this may perhaps speed that along some work that we're already doing.
We're already looking and trying to find leaks, along our pipelines and facilities outlined.
Outlined in our ESG report, we are hiring third parties to fly kind of going above and beyond in flying our facilities looking for leaks.
Fixing them.
So.
Overall this is things we've already done it puts some more parameters in place, which will have to follow but I don't see that as being an issue for us if things. We were we were already doing and then an opportunity.
I would say as we provide really good service to our customers and can have good metrics. There, yes, I think there is some potential opportunity as we.
No.
Kind of become leading in this and continue to perform very well that could be beneficial for some of the larger e&ps, who are who are focused on our overall performance there.
Thank you.
Okay. Thanks, Mike.
Your next question is from the line of Keith Stanley from Wolfe Research. Your line is now open.
Thanks, Good morning.
So.
<unk>, there's rounding involved in your disclosures, but I was looking at the year end leverage expectation of three in a quarter versus three and a half last time.
If I kind of look at debt outstanding.
It plays a pretty big increase in EBITDA for the year it would be like $2 1 billion for 2021.
Is that a possibility based on the math or am I overthinking that.
Rounding involved.
I mean, clearly we're not giving specific numbers on exactly what our expectation is right now for full year adjusted EBITDA.
I think we do have a pretty good outlook for the fourth quarter and now that we're a month into the end of the fourth quarter feel good about it.
But ultimately we will have to see how the next couple of months to shake out and how we finish up the year.
But yes, I mean prices are strong fundamentals are strong we do expect to increasing volumes really across the business. This quarter. So to the extent that those materialize I think it should end up being a pretty good quarter for Targa and that will drive a very nice 2021 overall adjusted EBITDA year for the company.
Great. Thanks, and second question.
Midland plants, just in Q3, I mean, they looked like they are already running above nameplate, even with time.
Should we assume you're somewhat limited on Midland growth until legacy starts up or can you still kind of flex those facilities higher end and meet demand.
Yes, we have the ability to.
Get some incremental capacity out of the played above.
Our plants above nameplate.
When you think about the size of our Midland system and the number of plants that we have.
And let's just say we've got.
10% at least capability above nameplate.
It's a pretty substantial amount of incremental capacity that allows us to go ahead and continue to handle.
Our producers' volumes, while we are building the next plan.
Putting that incremental capacity in place.
Does that answer your question.
So 10% above nameplate, you think you can get to if needed.
I think that's very comfortable I'll put it that way.
Some of our facilities have capabilities beyond.
At 10%.
Okay, great that does answer it thank you.
Okay. Thank you.
Your next question is from the line of Chase Mulvehill from Bank of America. Your line is now open.
Thanks, everyone and thanks for squeezing me in here I.
I guess, one quick follow up to Keith's question.
If you if you were to run out of capacity in Midland before kind of legacy comes on and I know you said you could squeeze more out above nameplate.
Is it possible for you to move into a kind of a wet gas over to the Delaware and process the gas there.
Yes, we do have some capability of moving gas.
From the Midland side to the Delaware side, and frankly looking at ways to improve our capability of doing so so some looking to grow that.
And certainly we have the ability to offload too.
Peers in the marketplace that have incremental capacity.
So.
We feel pretty good about our ability to handle the growth in volumes before our next plant comes up.
Just based on the fleet of plants that we currently have but we certainly have some other flexibility.
Okay great.
Unrelated follow up.
<unk> talked about this a lot on the call so far about capital allocation.
It sounds like excess free cash is going to go to Dev co by retiring some of the preferreds.
And at some point Youre going to look at buybacks. So can I can I ask a question on buybacks like how are you approaching buybacks is it kind of more of a planned and measured program each quarter or will it be more opportunistic and price sensitive.
We've characterized it as opportunistic chase, that's really going to depend on what's happening in a given quarter and what's our outlook for the year, which our outlook beyond that.
And so we will look we will look at that decision under a number of different frameworks, but I think hopefully what you're hearing from us is that with the balance sheet flexibility. We now feel that we have it certainly can be part of how we're going to return capital to shareholders, but we're not going to provide clarity and of the framework under which.
We will or will not participate in the market.
Okay and noticeably absent was any.
Mentioned of a special a potential special dividend.
Is that off the table.
I think from our perspective, everything always has to be on the table. We've clearly articulated that as we think about our priorities for 2021. It was managing our leverage lower and then through 2022, it's really continuing corporate simplification with the desktop and the preferred while also being able to return more capital to shareholders.
They initially were talking about in terms of paying a higher base common dividend and then also potentially being able to engage in some opportunistic repurchases but.
Everything is always on the table and Thats, what we worked through with our board each each and every quarter to make decisions.
From our perspective, that's not something that makes sense for us today, but that doesn't mean that that couldn't change in the future.
Alright, perfect I'll turn it back over to Christian.
Thank you.
Once again, if you wish to ask a question simply press Star then the number one on your telephone keypad. Your next question is from the lineup Sunil Sibal from Seaport Global Securities. Your line is now open.
Yes, hi, good morning, everybody and thanks for all the color.
So my first question is related to the M&A.
B, we continue to see if you had brought up M&A in the upstream space and.
And some has also started in the midstream side.
Also not too far away from you.
Footprint so.
Question was now that you've kind of got the company too.
Yes.
I wanted to be over the longer term, how do you look at it.
In the midstream space.
Going forward.
Yeah sure good morning.
I think for US, it's really been it's really going to be more of the same I think we're going to continue to have a high hurdle for us we have a really good organic growth project.
Outlook to continue to grow that so we're not in a position of need where we feel like we have to go get something to complete our integrated story or that we are really falling short in any area. So we'll continue to look at assets. We have looked over the last several years. If there is something that's complementary to our existing assets and it fit.
Well on the GMP side and it has liquid synergies so it's.
Good G&P business with some liquids, we will look at that as we've continued to look at it.
But we also want to make sure if we do anything there we're staying within our three to four times target leverage.
So it's kind of got to be just right.
For us so we haven't really found anything thats fit that but we'll continue to look but it continues to be a high bar because we have we think we're going be able to grow our EBITDA just through organic growth.
Got it thanks for that.
My second question is related to the ESG initiatives.
So obviously you've signed up so far.
So Paul look EPA is I was just curious.
Should we kind of think about that as a line you intend to peak as you look at your ESG initiatives that could be more.
Meaningful.
Our participation there.
Yes.
We don't know we have talked quite a bit about the opportunities in terms of investments and how we're thinking about.
<unk> power so.
I'm excited to be able to announce some.
<unk> that power project, Robert Marrero has been working with our team to try and evaluate other opportunities whether it be additional renewables or carbon capture.
Bob I, just want to talk a little bit about some opportunities I think the way we think about it.
As we look at all the projects that either fit our capital profile or third party capital profile. So to the extent, we can go to low carbon projects that supply power of our assets or carbon capture or something else that we're willing to fund on our balance sheet or someone else's. One upon on the balance sheet. We will look to do those projects I think this is the first example of it.
One where.
There was someone that was one of the bullets solar project that fit within the parameters, we want to do from a low carbon standpoint, and it fit their return parameters. It probably didn't hit our return parameters, which is why you won't see us put money and projects like that but to the extent we start to find ones that do that will be part of the evaluation going forward.
I wouldn't set of standards of what we would or wouldn't do but thats kind of how the analysis goes internally.
Got it thanks for all the color and congratulations on the good update.
Thank you Neil.
There are no further questions presenters. Please continue.
Well, thanks to everyone that was on the call. This morning, and we appreciate your interest in Targa resources. Thank you and have a great day.
And with that this concludes today's conference call. Thank you for attending you may now disconnect presenters. Please standby.
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