Q4 2021 Targa Resources Corp Earnings Call

February 24, 2022

Good day and thank you for standing by welcome to the Targa Resources Corp, fourth quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation question and answer session to ask a question during that session you will need to press star one.

<unk>.

Today's conference is being recorded and if you require any assistance on the call. Please press star zero.

I'd now like to hand, the conference over to your speak today, Mr. Sanjay Lad, Vice President of Finance and Investor Relations. Mr. <unk> the floor is yours.

Thanks, Chris Good morning, everyone and welcome to the fourth quarter of 2021 earnings call for Targa Resources Corp, fourth quarter earnings release, along with our 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 21 E.

Of the Securities Exchange Act of 1934 actual results could differ materially from those projected in forward looking statements.

For a discussion of factors that could cause actual results to differ please refer to our latest SEC filings.

Our speakers for the call today will be Matt Meloy, Chief Executive Officer, and Jen Kneale Chief Financial Officer.

Additionally, the following senior management team members will be available for Q&A.

Pat Mcdonald, President gathering and processing, Scott Pryor, President logistics, and transportation and Bobby <unk>, Chief commercial officer, and with that I'll now turn the call over to Matt. Thanks, Sanjay and good morning.

This is an exciting time at Targa, where our operational and financial execution in 2021 provided a lot of momentum for 2022, I would first like to recognize and thank targeted employees that worked tirelessly across another year of challenges in 2021 to help drive record financial and operational performance.

Laurence.

Let's quickly mentioned some of the highlights from 2021.

Record gathering and processing volumes in the Permian safely, bringing behind plant online on time and under budget.

Record volumes across our logistics and transportation assets record adjusted EBITDA of $2 5 billion, a 25% increase over 2020.

About $1 2 billion of year over year debt reduction and a year end leverage ratio of three two times and increasing return of capital to our shareholders through a higher fourth quarter dividend.

Fourth quarter common share repurchases.

Turning to 2022, we already have a number of highlights to mention repurchased our Dev co joint venture interest in January .

Executed agreements to sell our 25% equity interest in Gulf Coast Express pipeline or Gtx for approximately 11 times EBITDA.

Graded to investment grade by Fitch and moved a positive watch by S&P, and Moody's and refinanced our revolving credit facility to a five year 275 billion facility at Trc.

We continue to execute on our strategic priorities and have visibility to volume growth across our assets, which is driving increasing EBITDA as we look forward for 2022, we estimate full year adjusted EBITDA to be between two three and $2 5 billion, which is a significant increase over 2021.

This guidance is based on forward prices, where there continues to be backwardation.

Prices averaged around today's levels for 2022, we would expect to exceed the top end of our full year financial guidance.

With the repurchase of our Dev co interests and our flexibility to accelerate redemption of our preferred stock given the sale of <unk>, we have already simplified and we will continue to simplify our capital structure. We are also demonstrating our increasing ability to return capital to our shareholders with the execution of common share repurchases.

In the fourth quarter. In addition to the fourth quarter common share dividend increase.

As previously discussed we expect to pay a common dividend of <unk> 35 per quarter or $1 40 annualized to our shareholders for 2022.

The strength of our balance sheet provides significant flexibility to redeem our preferred shares faster than we previously anticipated and to continue to assess opportunistic repurchases of common shares.

Let's now turn to our operations starting in the Permian our systems across the Midland and Delaware basins continued to perform well averaging a record 3 billion cubic feet per day reported during the fourth quarter.

Our average 2021, Permian inlet volumes increased 12% over 2020 exceeding the top end of our 2021 guidance growth range.

We continued to see strong activity levels across both our Midland and Delaware footprint and expect to benefit from this positive momentum as we move through 2022 for.

For full year 2022, we expect our average Permian inlet to increase between 12% to 15% over average 2021.

In Permian Midland our system continues to run near full with our next 275 million cubic feet per day legacy plant on track to begin operations. During the fourth quarter of this year with robust activity levels expected to continue into next year and beyond we are moving forward with the construction of our legacy to plant another.

New 275 million cubic feet per day plant in the Permian Midland legacy II is expected to begin operations during the second quarter of 2023.

In Permian, Delaware volumes across our system also continue to ramp today, we announced the construction of a new 275 million cubic feet per day plant the midway plant.

The new Midway plant is expected to begin operations during the third quarter of 2023.

<unk> will provide us with additional flexibility to flow volumes between our Midland and Delaware systems.

We are idling an older plant, which is more prone to operational upset has higher operating costs higher maintenance call lower recoveries and is limited in capacity the.

The midway plant.

Improved performance on all of those items and will give us the ability to flow current volumes being processed at sand hills, and an additional 110 million cubic feet per day of capacity that can be filled from the Delaware central or Midland Basin.

This project is a good example of how to improve overall environmental performance, while also providing attractive returns.

The strong outlook across our Permian basin footprint will continue to drive incremental volumes through our NGL downstream businesses and our recently announced expansions in both the Midland and Delaware position target to realize very attractive integrated returns and continue to benefit from our embedded operating leverage with modest capital spending.

In our central and Badlands regions, we are seeing stronger activity levels, given the higher commodity price environment, and expect 2022 average central and badlands volumes in aggregate to be flat relative to 2021 as higher production is expected to largely offset legacy declines on our systems.

Shifting to our logistics and transportation segment NGL transportation volumes continue to increase and we transported a record 433000 barrels per day to Mont Belvieu during the fourth quarter throughput volumes sequentially increased 4% driven by increasing NGL production from Targa Permian plants.

Including our new unplanned and third parties.

Fourth quarter fractionation volumes at our Mont Belvieu complex averaged 612000 barrels per day and were lower sequentially due to an unplanned outage and associated repairs and maintenance, which impacted volumes by about 50000 barrels per day.

The unplanned outage was associated with cooling water exchangers that support a portion of our CBF fracs, which resulted in reduced operating rates for the quarter.

We have excess fractionation capacity. So we are handling all incoming NGL volumes as well as some volumes that normally would've been fractionated in Q4. So our Q1 average volumes are expected to be higher.

We expect to be operating back to normal by the end of the quarter. This outage resulted in higher Capex, sorry, and higher Opex in Q4 and is also expected to impact Opex in Q1 of this year.

Looking ahead to 2020 to expect higher year over year Grand Prix and fractionation volumes as our downstream systems continue to benefit from increasing supply from our growing Permian G&P position.

In our LPG export services business at Galena Park fourth quarter volumes rebounded following maintenance completed during the third quarter and increased 19% sequentially as we loaded an average $10 7 million barrels per month during the fourth quarter.

The outlook for our LPG export business in 2022 remains robust complemented by our contracted portfolio and supply position in Mont Belvieu.

In response to growing international demand for cleaner feedstocks in the U S. LPG <unk>, we are undertaking an additional low cost expansion project to increase our loading rates at our Galena Park facility.

This refrigeration expansion will increase our propane loading capabilities more than an incremental 1 million barrels per month by mid 2023.

The longer term outlook for Targa is strong.

Our premier integrated Permian NGL business, our talented employees complemented by our strong balance sheet and financial flexibility, we remain in position to grow our footprint and return increasing capital to our shareholders over time with that I will now turn the call over to Jim.

Thanks, Matt targets reported quarterly adjusted EBITDA for the fourth quarter was $571 million.

Increasing 13% sequentially as we benefited from higher volumes across most of our assets and higher commodity prices. Our full year 2021, adjusted EBITDA was $2 <unk> 5 billion and exceeded the high end of our full year financial guidance range.

<unk> generated adjusted free cash flow of approximately $1 3 billion in 2021, which allowed us to reduce our leverage significantly across the year at year end, our consolidated leverage ratio was three two times.

We spent $408 million and net growth capital during 2021 spending largely focused on our gathering and processing business as we continue to benefit from operating leverage downstream.

We also had some spending shift from the fourth quarter to 2022, which is included in our 2022 growth capital estimate.

Our net maintenance Capex was about $130 million in 2021 during.

During the fourth quarter, we recognized an approximate $452 million noncash pre tax impairment charge of our south Texas assets attributable to a lower outlook on future volumes.

We are significantly hedged for 2022 and continue to add hedges for 2023 and beyond while still benefiting from higher prices across our unhedged equity volume exposure and prices now well above the floors.

We repurchased approximately $40 million of common shares in the fourth quarter and as of December 31, <unk> had approximately $369 million remaining under our $500 million share repurchase program.

At year end, we had over $3 2 billion of available liquidity, which put us in excellent position to close on the repurchase of our debt co joint venture interests for $925 million in January .

As Matt mentioned, we executed agreements to sell our 25% equity interest in gtx for $857 million.

We expect to receive the full proceeds from the sale of Gcs in the second quarter of 2022, and our current expectation is that we will utilize the <unk> proceeds to redeem our outstanding Trc preferred shares.

Last week, we closed on a $2 75 billion credit facility at Targa Resources Corp, eliminating the dual credit facilities at Trc and TRP as we continue to simplify our corporate structure.

Turning to our 2022 financial expectations, we estimate estimate that pro forma for the sale of <unk> full year 2022, adjusted EBITDA to be between $2 3 billion and $2 5 billion of.

A 17% increase over 2021 based on the midpoint of our range comparing 2022 versus 2021 key drivers for EBITDA growth year over year include a full year benefit from the repurchase of our debt <unk> interest.

Commodity prices and continued volume growth across our operations led by higher G&P volumes, primarily from our Permian assets driving higher volumes across our transport frac and export assets and.

And also higher fees across our contracts from inflation.

Offsets included the sale of <unk> and higher estimated operating and G&A expenses from inflation and increasing volumes.

As Matt described earlier, we are continuing to invest in attractive organic growth opportunities, including spending related to additional Permian plant well connects and compression capital on the G&P side additional pump station capital for Grand Prix and the expansion of our propane loading capabilities actively in the park.

We estimate 2022 net growth capex to be between $700 million and $800 million and.

And net maintenance Capex for 2022 of approximately $150 million.

We currently expect year end 2022 leverage to be well within the bottom half of our long term target range of 3% to four times, providing us with significant flexibility.

For additional details related to our estimated 2022 outlook. Please review our earnings supplement slides accompanying our webcast. This morning, which are also posted to the investors page of our website.

Supported by our excellent operational and commercial performance through some very difficult environment over the last couple of years, we have been able to execute on our key strategies and as Matt described that means we are in an excellent position going forward.

Lastly, I would like to Echo Matt. Thank you to our employees that have continued to perform exceptionally well for our customers and have done so with a continued focus on safety.

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 re enter the Q&A lineup. If you have additional questions. Chris would you. Please open the line for Q&A.

Yes, Sir and as the test you'll need to press star one on your telephone to withdraw your question. Please press the pound key.

And again, yes, just one question and one follow up.

And standby as we compile the Q&A roster.

Okay.

Our first question comes from John <unk> of Goldman Sachs. Your line is open.

Hey, everyone. Thanks for the time I wanted to start on capital allocation I think you mentioned the gcs proceeds but kind of go first towards the perhaps you can talk.

About kind of buying those back over kind of.

Slightly longer period of time before should we think about that as you guys are trying to get them done.

Sooner now and then maybe the second half of the year. The common buyback can pick up just how do you think about the balance of those two.

I think our current assumption right now John is that with the proceeds received from GC actually will be able to accelerate and potentially repurchase all of the preferred interest in the second quarter. That's the base case assumption that we're currently running of course, we'll maintain the flexibility to change course, if we want but thats the current assumption.

Related to common share repurchases you saw us active in the fourth quarter based on our outperformance for 2021 and certainly our expectation is that we'll be able to return an increasing amount of capital to our shareholders. As we move through 2022 and beyond is that the common dividend set for this year and so that means that our assumption.

We will continue to be opportunistic around common share repurchases. So it isn't necessarily that because we're accelerating the trc, perhaps take out to the second quarter that changes our assumptions around common share repurchases would think we've got a lot of flexibility to execute across all parameters.

Alright, Thanks for that my follow up is kind of on the Capex side that feeds in there can you just kind of frame up how much of the gross Capex guide is going to the two new processing plants and also to the <unk>.

New export expansion, just trying to think of those contributions above maybe a run rate level.

Yes sure.

Yes.

We announced the legacy two plant and the Midway plant. This morning, we had highlighted we are already ordering long lead time for legacy to on our prior call.

For this year the midway plant really was kind of an incremental for maybe what we had signaled previously there was about $150 million of capital for that Midway plant almost all of that spending is in this year and then theres a little bit of capital, which would move in to 2023, we will still have significant spending on legacy and legacy too.

This year.

And then we'll also have pumped capital for Grand Prix. The export project that export project is really more kind of a debottlenecking or a bolt on it's relatively small capex, which is why we really like that project gives us an incremental million barrels a month of ability to load increase our capacity on the propane loading side.

For relatively modest capital, but the large movers are midway and then the spending on legacy you wanted to.

That's great appreciate the time thank you.

Okay. Thanks.

Thank you.

Our next question comes from the line of Michael Blum of Wells Fargo. Your line is open.

Thanks, Good morning, everyone.

I wanted to stay on Grand Prix can you just give us a sense of.

Utilization fits on kind of the mid con and the Permian pieces of that type and then how much are you planning to expand it and what's the timing.

Hey, Michael This is Scott Pryor.

I'll first as stated we've got tremendous operating leverage.

When it comes to our downstream assets and Thats inclusive of pipeline capacity relating to Grand Prix. When you look at the 433000 barrels a day that we did in the fourth quarter, which was a record for US. We do have contributions that are coming from the north.

We don't we don't describe what those volumes are but I would say that we still have a lot of leverage on our west leg.

South Lake as well, we'll add pumps to the west leg in the south leg dependent upon the production growth that we see in the Permian and from the North.

We're going to stay well ahead of that to make sure that we can move all the volumes that are necessary.

You can look at possibilities of loops in the future based upon the cadence of that as we hedge gas.

Gas processing plants on our upstream side again with.

A lot of focus on the Permian basin, but we will also look for commercial opportunities that may present themselves with with other existing pipes it might be in the basin.

Adding pumps looking at opportunities future puts us in a great position to leverage into what we have today and future growth.

Okay, Great I appreciate that and then maybe a question on the LPG export expansion you are announcing.

Can you just remind us roughly kind of where you are on a contracted basis and kind of what's leading your decision too.

Expand here and do you have will you continue to add contracts in other words will the contracted level as a percentage kind of stay the same as you increase the total capacity.

Yes, Michael this is Scott.

Ill restate kind of what Matt said when you look at this project. It is a low capital type projects.

I would describe it less than $50 million.

Barrel per barrel basis, it's our cheapest expansion that we can put in our system to debottleneck around Galena Park.

When we look at the facilities that we're adding we've got tremendous contract structure today, we continue to have success.

Contracts, and adding contracts where necessary.

The market growth potential continues to be strong when you look at the.

Domestic use of LPG products, where people developing countries are looking for clean burning fuels.

This certainly supports that opportunity and then you obviously youre going to see continued growth on the PD AG side in the east.

With more focus on China.

When you think about that and the continued success that we've had really this is a complementary type of addition for us it puts us in a position to be more flexible.

More reliable for our customers and our lifters that we have out of our facility. It gives us the ability to rebound from times of weather delays or fall delays or shipping delays that may happen.

But it also provides us early prior to increase production that we would see coming from the Permian and into our assets. It provides us the ability to participate more heavily in the spot market when the market dictates and presents itself.

So again, a nice bolt on project for barrel, it's the cheapest AD that we can do at this time and we like how it complements provides reliability too to us and our customers in this premise.

Thank you very much.

Okay. Thanks, Michael.

Thank you.

Our next question comes from the line of <unk> done it.

Credit Suisse. Your line is open.

Thanks, operator, good morning, guys.

First question, maybe just sticking with with downstream capex, focusing a little bit more on fractionation. I believe you all have Frac mine is permitted and so I'm just curious given the rate of growth. We're seeing here is that something that's become a little bit more front of mind right now and maybe just general thoughts on how you're thinking about the lead times for when that could come online and when you need to.

Acting on it.

Again this is Scott I'll, just start with and again, the fact that we've got leverage on the downstream side as it relates to fractionation as well. So we've got current capacity today.

We do have a permit in hand for fracturing nine so we will pay particularly close attention to the cadence of the.

The processing plants that we add in the Permian basin as well as third party production that will be steered toward our downstream assets. So with that permit in hand, we can trigger startup on that frac when necessary. We also have the ability to look at the restart of our Gulf coast or excuse me.

Gulf Coast Fractionator as it relates to <unk>.

Our needs or demands that we have with our partners at that facility.

So again, we'll stay well ahead of the need having a permanent hamper train nine certainly helps us and the ability to restart the idled frac with our partners is also a possibility, yes, and just to add to that to Scott I would say we would also continue to look across Bellevue. So if there is some excess capacity from some of our competitors.

That could give us some more time to evaluate when we need to do train nine we can look at those solutions as well. So we're kind of looking at the volume growth in China, and I really have all options on the table for us.

Great.

Helpful.

Here's a bit.

Can't let you all go without asking you about natural gas egress out of the Permian going forward.

I think there's obviously a lot of projects potentially.

Pending to be that next natural gas pipeline, whether it be expansion Greenfield.

Just curious is that a concern of yours that somehow some of that growth gets stunted in any way do you think the industry will resolve the issue and how and then you have obviously participated in some of these projects in the past recognizing you just sold gcs, but its target interested maybe in participating in the future as well.

Yes sure.

To start I would say, yes, we do see one.

Certainly being needed and it looks like it's come in sooner than maybe previous expectation. So we are looking to be part of the solution. We have a lot of gas we want additional infrastructure to get built so we're talking to a number of the pipes that are.

I'm trying to basically get geared up to get to.

We want to get something done so we want to be supportive to be able to get something done so.

I guess just stay tuned on that we think the industry will solve it added pipe before.

And just stay tuned on how and when targets going to participate in that.

Got it helpful. As always thanks, guys okay.

Okay. Thanks.

Thank you.

We have the line of Jeremy Tonet of Jpmorgan. Your line is open.

Pardon me Sir.

Sorry. This is this is Steve jumping in for Jeremy sorry about that.

Really just kind of one question for US most of them are kind of already been hit so just looking at the 2022 EBIT guide.

Commodity prices.

Your guide to above the high end and we just kind of want to know what other main moving pieces of the high end versus the low end of the guide are there.

Yes.

As we gave a range.

Commodity prices as I've said, the largest variable and then we also had a range in our Permian volumes, 12% to 15%, so depending on where volumes from the Permian shakeout.

We are seeing some drilling across the central.

And in Badlands, So if prices stay here, we could see some additional upside upside to our central as well I'd say those are the main drivers on the GMP side I'd say on the downstream side. The export we see is continued strong export market, but.

I think theres still some upside to our assumption in our guidance number to exports and if there is a real weak market. There is some potential its not all contracted so theres some variability in exports as well.

We're doing a really good job of managing costs. So hopefully there is upside to some of the conservative assumptions that we've made around costs, but we'll have to see how those play out through the year.

Alright really appreciate it guys. Thank you.

Okay. Thank you thanks, Steve.

Thank you.

Yes.

And next we have a question from the line of Tristan Richardson of choice Securities. Your line is open.

Hi, Good morning, guys, just curious on the contracting environment.

What we're seeing in the strong commodity today and as you bring on additional plants.

Are you seeing from producers a desire to retain more of the economics pushing more towards fee.

So you guys have done a lot over the past couple of years.

Incorporating some changes in the contracting styles, but maybe just the landscape today in this current environment.

What type of type of structures or are your customers looking for.

Yes.

We have a lot of acreage dedicated to us under long term contracts and so a lot of the growth that we're seeing is under already existing longer term contracts and.

In and around that area on the Delaware side, we do have more fee based components on the on the Delaware side, but I'd say a lot of the volumes there for the growth is under long term contracts. So it is really keeping the mix kind of similar to what we've had.

Had there.

Pat I don't know, if theres anything you'd want to add to that.

I think the only.

The thing I would add Matt is.

There are so many variables that affect how you contract right is it's our guess is as sweet gas is at high pressures at low pressure and certainly the Midland and Delaware Basin have some nuances related to.

Some of those variables, but generally the contracting hasnt materially changed and as Matt described it it was kind of spot on relative to the basins and how they break down and we haven't seen a material change in the way we are contracting.

Okay. Thanks Pat.

That's helpful and then just a follow up.

I may have missed this but I. Appreciate you guys offered the sensitivities for the 22 budget, but can you talk maybe about the hedge position where you sit today for 'twenty two and then and then maybe also just.

What 2023, it looks like just from where you stand today.

Sure, Jason we changed our disclosures around hedging just because we found that we are creating potentially more confusion than we were hoping.

Folks are at three of our numbers, so really from our perspective, the sensitivity is most meaningfully meaningful to you.

And Thats a result, we do have our equity volumes from our percent of proceeds contracts. But then we also have RFP for contracts NP. Four is are set at different levels.

Theres just a lot that goes into now I think figuring out what our position is but I think we have excellent cash flow stability, because we are very well hedged. The last disclosures that we gave showed that we were north of 75% hedged across all commodities for 2022, and then at already put significant hedges on in 2023.

So I think importantly, we arent changing our hedge program at all so the expectation is we will continue to look to hedge our equity volume exposure is 75% next 12 months out 50% 12 months out after that and then 25% to 12 months out after that so none of that has changed but we really thought that just.

Adding a simple sensitivity provided you with the most clarity relative to all the moving pieces around our gas.

<unk> and processing contracts and position.

I appreciate it thank you guys very much.

Okay. Thanks for thank you.

Thank you.

Next we have question from the line of OMB.

Your line is open.

Hey, good morning.

Alright, sorry about that.

Good morning, So just on the balance sheet would love to understand any shifts in how youre thinking about optimal leverage I think <unk> said previously you wouldn't want to drop below three times debt to EBITDA, but it looks like you closed out 2021 at 302, and then just the year on year EBITDA increase alone it looks like it will drive leverage below that threshold before considering retained free.

Cash flow.

Are you thinking about a lower target at this point or are considering an alternative cash outlay that might offset that.

I think we're really comfortable within the target range of three to four times and I've said that our strong preference is to exist towards the bottom ends of that range that doesn't mean that we have to stop at an exact number but our goal is to really operate within the lower end of that range. So are.

Are we comfortable going sub three times for a quarter or a couple of quarters potentially but I think we'll also be able to identify attractive.

Attractive uses of that leverage capacity to be able to return incremental capital to shareholders will continue to invest in the business. It's.

It's been a while since we've looked at M&A opportunities, but certainly I think with our balance sheet, where we are are continuing to look at attractive bolt on opportunities too. So there isn't a change to how we're thinking about capital allocation and I think just the outperformance that we had in 2021 and now the expected performance in 2022 just.

<unk> us with even more flexibility than we thought we would have even a quarter or a couple of quarters ago. So the outperformance in 2021, that's part of what drove us repurchasing $40 million worth of shares in the fourth quarter, maybe a little bit earlier than estimates, but we.

We felt like we had the capacity to sell and Opportunistically executed on that so I think again flexibility just means that we've got more places that we can identify the best use of that available cash flow or leverage capacity and then go execute on that strategy.

Yes, so looking out over the next couple of years is it reasonable to assume that the incremental leverage capacity from that organic growth and in the amount of free cash that the business is throwing off.

First call might be capital returns in the second opportunistic M&A.

I don't think that we exist with if you do a then you can <unk> then you can go to see rate I think you've seen us over the last couple of years really just execute across opportunities and so that's going to be the strategy going forward. So to the extent that we've got more organic growth or M&A opportunities that are attractive.

Definitely planning on continuing to invest in this business, we think that's what sets target up.

<unk> for the short medium and long term for our investors and then we also believe that we will be able to return increasing capital to our shareholders year over year 2022, common dividend versus 21 dividend. We're doing that we've talked about the fact that we expect that we'll be able to increase the dividend going forward as well.

In 2023, so that's definitely part of how we'll return on incremental capital to our investors and then also we will continue to be opportunistic around our common share repurchase program, but it is going to be a combination of everything thats available to us.

Got it I appreciate the time.

Thank you. Thank you.

Thank you.

And then we have.

The line of Keith Stanley of Wolfe Research Your line is open.

Hi, good morning.

Two follow up questions first one just to clarify on hedging and appreciate the policy is the same and the percentage targets for each year can you just remind us how you typically hedge gas basis is it at the same time you are hedging your broader gas price exposure or are you more open on gas basis.

Yes sure.

When we hedge our equity volumes, we hedge really is close to where we sell the physical as we can so for example, we'll sell wallboard and other indices out of the Permian and we will sell other mid continent indices, where we have length on gas. So we cover off the basis as best we can for the volumes that we are trying to hedge.

Great and second follow up was on the commentary about.

Not really being in the market for acquisitions as much in the past few years, and maybe being more open to that.

Can you give a little more color on things you would look at I assume tuck in type Permian G&P opportunities would you look at anything outside the Permian and I guess, one thought I had too is there any potential with the Dev co now done to buying the rest of the Grand Prix stake or is that unlikely.

Sure I'll give you some color there.

I'll tell you kind of been actively looking at bolt on tuck in acquisitions across our footprint.

I'd say, we just continue to have a high hurdle, it's not that nothing can cross over that hurdle, but as we look at acquisitions, we want to make sure. We're staying within our leverage range, we want to make sure that we have good synergies on the GMP side and on the NGL side.

We're in a good position, where we don't need to acquire anything so it's really got to be additive. It's got to be at a good value for us with synergies that drive that value down even more.

So I'd say there are opportunities and things we're looking at.

But that really hasn't changed we've been looking at things for the last several years.

Yes, there is opportunities in the Permian. There is also opportunities in other in other basins as well and if it checks all those boxes of keeping our leverage where it needs to be good upfront value.

With GMP synergies and downstream synergies a lot of those bolt on or tuck ins could look a lot like organic growth projects by the time, you're done with them. So those are the that's.

And kind of how we're thinking about it how we're looking at it.

So I think stay tuned we'll see if.

If anything meets all of those it's a pretty high bar, we'll see if anything meet that but if it does.

Yes.

There.

It could be something there.

Thank you.

Okay. Thank you.

Thank you.

Next on the line, we have Theresa Chen of Barclays. Your line is open.

Hi, I just wanted to follow up on the M&A line of commentary if you don't mind.

In terms of Italian nation, and the things that you have been looking at for years, Matt How's that trended recently.

Given the commodity price outlook and just more specifically are there areas of the value chain or region specific.

Aspects that you're considering that would be most complementary to your existing footprint.

Yes, I will.

Say on the valuation trends it really depends on what you are looking at so I consider us to be opportunistic on the buy side, but we're also opportunistic on the sell side right. So we sold <unk> at 11 times multiple I thought that was a strong market there for that.

But I would say for other assets that don't have that cash flow kind of take or pay cash flow feature.

Over time, I think those multiples have trended down, but we haven't transacted on anything so I can't really say, how they've moved over over the years.

But for non highly contracted.

Assets, where it makes sense for a financial buyer I would expect the multiple to be significantly less than where we transacted transacted gcs.

Just to repeat there really isn't a difference in the strategy here is Matt I think importantly articulated we've been looking at M&A opportunities all along and the hurdle has continued to be very very high and that Hasnt really changed all that changed as our balance sheet as a whole lot stronger now than it was a year ago or two years ago and that just provides us with more flexibility as we can.

Consider opportunities, but the strategy really hasn't changed.

Thank you.

Yeah.

Okay. Thank you.

Thank you.

Next we have the line of Chase Mulvehill of Bank of America. Your line is open.

Yes.

Thanks for squeezing me in here.

A few questions I guess the first one is really just a follow up to Keith's question is about the question around wahhab basis spread.

How much.

Do you actually have hedged.

In 2023 four basis risk.

So when we have our equity hedges were call it 75% and 50% hedged.

For our position on our equity position.

We have some transport that also provides us ability to move our gas out.

In various directions, we have our gas marketing team that manages that portfolio very actively to make sure we have contracted takeaway.

Okay, Alright, so it sounds like you got some FTE on some pipes and maybe you could actually benefit from that.

Would you say that there is the benefit is greater than the risk when you think about wahhab basis.

For you.

Yes.

Our primary focus for our gas is it make sure volumes are moving out of the basin for us and for our producers that is our focus to make sure. We have market that we can get to.

That is our focus and that is kind of how we manage that overall gas position, we want gas to move and we try and do it as best we can for us.

And for our producers.

Okay Alright.

Follow up question.

I apologize if this was asked but I don't think it was but.

<unk> Midland volumes were down a smidge in the fourth quarter.

And Delaware volumes were actually up pretty strongly up 12% quarter over quarter.

Yes.

Two questions number one.

You drop below nameplate capacity, so should we think about in the Midland. So we think that kind of running above nameplate capacity.

It's tough to do.

Consecutive quarters, and then number two is were you able to move some midland volumes over to Delaware.

That's why Delaware really saw a nice uptick in the fourth quarter.

Yes, sure so I'll start on that and then.

<unk>.

Four.

For Q4, so if you are comparing to a reported in Q3 it would look like it's down.

If you look at what we reported it in the supplement it's actually we see an increase of about 2% on our Midland volumes. There was a kind of production month accounting change from some volumes that were in October .

From September into October , which changes so we actually saw when it was corrected volume growth in Q4 on the Midland side.

As far as nameplate, we have the ability to run over nameplate.

You've seen us do that.

Provides us good flexibility, we actually updated what we estimate our nameplate really to be for our plants. We used to call. These two <unk>, we've been running them for over that and haven't seen a degradation in NGL recoveries or operational performance. So we're calling them $2 75 now.

So we still have good flexibility across our system to continue to operate so we so to be clear we saw growth in the Midland in Q4, and we expect to see growth in Midland kind of throughout the balance of the year.

Okay perfect. Thanks, Matt.

Thanks, guys.

Thank you.

And next we have the line of Sunil Sibal Seaport Securities. Your line is open.

Yes, hi, good morning.

So my first question was a little bit of a follow up on Caribbean sailing.

When we think about that fell to 15% volume growth in 2022.

Could you give us a sense just kind of skewed more towards Delaware versus.

Especially in light of some of the commentary you had.

From some of your producers in the Midland.

Sure we did not provide a detailed breakout of that I'd say, we see growth on both on both Delaware and the Midland So we see pretty strong activity across both areas of our system.

And so yes, we see growth in both areas.

So you would intend to cap, the 12% to 15% to be weighted towards any specific part of Permian.

We haven't given that color I think youll see it as we report going going forward, but no. We haven't provided that kind of a basin level detail breakout, but we do see meaningful growth in both.

We see strong growth continuing the Midland, which is why we're adding adding those plants, but we also see growth in the Delaware.

Got it thanks for that and then one.

The broader question I think in the past you have talked about some of those.

GE transition investment opportunities.

Obviously, I think the solar generation.

But we're looking at Youre doing it provides just balance sheet I was just curious you know.

Has that kind of opportunity set expanded for you guys is on the screen.

<unk>.

Yeah, I'd say, we are continuing to look at opportunities in and around energy transition. We're continuing to look at renewable deals whether it's additional solar additional wind deals we're continuing to be active to see if we can be part of the of the solution that way like I said before I think for those projects, it's unlikely we put our.

Capital on those projects, but we could provide some offtake to help get those underwritten. So we're currently evaluating additional.

Renewable projects on that front, we're also continuing to develop.

Our carbon capture.

In and around our assets. So we're continuing to make progress on that that is going to take a while so we are making making progress.

There are some hurdles there are some there's permitting there's just things that need to get done, but we are working through those and I think we still are optimistic that we can get something done there and carbon capture part of it.

Hand on where is the 45 Q going to settle out and there was talk for a while but going up to 80.

So is it going to be eight years are going to be 50, those kind of things matter as well so.

We're going to continue to work to try and develop the operational hurdles and get through that and then we will have to make the call on whether it makes financial sense for us or we need to go source third party capital.

Got it thanks for that.

Okay. Thank you.

Thank you.

And I see no further questions in the queue I will turn it back over to Mr. Sanjay Lad for closing remarks.

Thanks to 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 thanks and have a great day.

This concludes today's conference call. Thank you all for participating now disconnect and have a pleasant day.

[music].

<unk>.

Okay.

Yeah.

Yes.

Okay.

[music].

Good day, and thank you for standing by and welcome to the Targa Resources Corp, fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation question and answer session to ask a question. During this session you will need to press star one.

My phone CBA.

<unk> survived that today's conference is being recorded and if you.

Require any assistance on the call. Please press star zero.

I would now like to hand, the conference over to your speaker today <unk>.

Sanjay Lad, Vice President of Finance and Investor Relations.

<unk> the floor is yours.

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.

And the Securities Exchange Act of $19 34, 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 Matt Meloy, Chief Executive Officer, and Jen Kneale Chief Financial Officer. Additionally, the following senior management team members will be available for Q&A.

Pat Mcdonald, President gathering and processing stopped buyer, president logistics, and transportation and Bobby Morrow Chief Commercial officer.

And with that I'll now turn the call over to Matt Thanks, Sanjay and good morning.

Formats.

You mentioned some of the highlights from 2021.

Record gathering and processing volumes in the Permian safely, bringing behind plant online on time and under budget.

Record volumes across our logistics and transportation assets record adjusted EBITDA of $2 5 billion, a 25% increase over 2020.

About $1 2 billion of year over year debt reduction and a year end leverage ratio of three two times and increasing return of capital to our shareholders through a higher fourth quarter dividend.

And fourth quarter common share repurchases.

Turning to 2022, we already have a number of highlights to mention repurchased our Dev co joint venture interest in January .

Executed agreements to sell our 25% equity interest in Gulf Coast Express pipeline or <unk> for approximately 11 times EBITDA.

Graded to investment grade by Fitch and moved a positive watch by S&P, and Moody's and refinanced our revolving credit facility to a five year 275 billion facility at Trc.

This guidance is based on forward prices, where there continues to be backwardation.

Prices averaged around today's levels for 2022, we would expect to exceed the top end of our full year financial guidance.

With the repurchase of our Dev co interest and our flexibility to accelerate redemption of our preferred stock given the sale of <unk>, we have already simplified and will continue to simplify our capital structure. We are also demonstrating our increasing ability to return capital to our shareholders with the execution of common share repurchases.

In the fourth quarter. In addition to the fourth quarter common share dividend increase.

As previously discussed we expect to pay a common dividend of <unk> 35 per quarter or $1 40 annualized to our shareholders for 2022.

Let's now turn to our operations starting in the Permian our systems across the Midland and Delaware basins continue to perform well averaging a record 3 billion cubic feet per day reported during the fourth quarter.