Q1 2022 Targa Resources Corp Earnings Call

May 5, 2022

Ladies and gentlemen, thank you for standing by and welcome to Targa Resources Corp, fourth quarter 2022 earnings webcast and presentation at.

At this time all participants lines are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

I 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 I would now like to had a conference over to your first speaker today, Sanjay Lad, Vice President of Finance and Investor Relations. Sir. Please go ahead.

Thanks, RJ good morning, and welcome to the first quarter 2022 earnings call for Targa Resources Corp, first quarter earnings release, along with the first 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 $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, who will be available for Q&A Pat.

Mcdonald, President gathering and processing, Scott Pryor, 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, we are continuing to perform well and are off to a good start to the year on a number of fronts record high quarterly EBITDA of $626 million record volumes in the Permian and record NGL transportation and fractionation volumes.

We also achieved investment grade ratings from all three agencies during the quarter.

We completed our corporate simplification with the Dev co repurchased in January and with the redemption of our preferred stock earlier this week.

We continue to invest across our businesses with ongoing construction of the legacy <unk> legacy <unk> and midway plants in the Permian.

Plus the acquisition of bolt on assets in South Texas.

We repurchased additional common shares as part of our increasing return of capital to investors and our reported leverage ratio at three four times as in the bottom half of our long term target range of three to four times.

Pro forma for the repurchase of our Dev co interests, our preferred stock redemption, our south Texas acquisition, and our Gcs sale our leverage is three three times.

While we had a strong first quarter with EBITDA up $55 million versus Q4 commodity prices really began to move higher late in the quarter. So we did not see a lot of first quarter price benefit of our realized prices were relatively flat compared to the fourth quarter, but since then prices are providing.

Some nice tailwind for the balance of the year.

Given the strong underlying fundamentals of targets businesses. We continue to expect that if prices average around current levels for 2022, we would exceed the top end of our previously disclosed full year financial guidance range.

Let's now turn the call.

Let's now discuss operational.

In more detail.

Starting in the Permian our systems across the Midland and Delaware basins continued to perform well averaging over 3 billion cubic feet per day inlet volume during the first quarter volumes.

Volumes across our Permian systems increased quarter over quarter, despite being impacted by winter weather conditions, particularly in January and February .

Volume quickly rebounded with March and April volumes up nicely over the first quarter average.

We continue 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.

In Permian Midland our systems continued to run near full and our engineering and operations teams are working diligently to bring our next 275 million cubic feet per day at legacy plant online safely later this year.

Our legacy to plan, another new 275 million cubic feet per day plant in Permian Midland is expected to begin operations during the second quarter of 2023.

In Permian, Delaware volumes across our system are also continuing to ramp our new 275 million cubic feet per day Midway plant is expected to begin operations during the third quarter of 2023.

Midway will provide us with additional flexibility to flow volumes between our Midland and Delaware system. In addition to improving our overall operational performance in the region.

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

In our central and Badlands regions first quarter volumes were impacted by winter weather conditions, most notably in the Badlands, we are seeing stronger activity levels across several regions given the higher commodity price environment.

In April we completed the acquisition of assets in South, Texas and are quickly integrating the assets and related contracts acquired in our South, Texas gathering and processing operations and expect the acquisition to be immediately accretive.

We would like to thank everyone involved in helping make the integration goes smoothly.

Shifting to our logistics and transportation segment NGL transportation volumes continue to increase and we transported a record 460000 barrels per day.

Belvieu during the first quarter.

Throughput volumes sequentially increased 6% driven by increasing NGL production from targeted Permian plants and third parties.

Fractionation volumes at our Mont Belvieu complex during the first quarter rebound in <unk>.

<unk> barrels per day, following fourth quarter's unplanned outage.

Looking ahead, we expect NGL transportation and fractionation volumes to continue to benefit from increasing supply from our growing Permian G&P position.

In our LPG LPG export services business at Galena Park, we loaded an average of $10 2 million barrels per month during the first quarter the outlook for our LPG export business remains strong we are advancing our previously announced low cost expansion project to increase our propane loading capabilities, which will add.

Add an incremental 1 million barrels per month of capacity by mid 2023.

The longer term outlook for Targa remains strong.

Our premier integrated Permian NGL business complemented by our talented employees and strong balance sheet position targa to deliver safe reliable energy domestically and globally.

And before I turn the call over to Jim I would like to thank our employees for their continued focus on safety, while executing on our strategic priorities and continuing to provide best in class services to our customers with that I will turn the call over to Jim.

Thanks, Matt targets reported quarterly adjusted EBITDA for the first quarter was $626 million.

Increasing 10% sequentially as we benefited from the repurchase of our desktop joint ventures and higher volumes across most of our assets offset by the sale of our equity interest in Gulf Coast Express pipeline and lower marketing margins.

We generated adjusted free cash flow of $373 million in the first quarter.

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 above the floors.

Looking ahead as a reminder, the integration of the recently acquired bolt on midstream assets and associated contracts, South, Texas G&P operations will be reflected in consolidated G&P segment earnings for the second quarter.

Our consolidated leverage ratio was three four times at the end of the first quarter, we had about $2 billion of available liquidity.

In April we successfully completed our inaugural CRE notes offering in the investment grade market issuing $750 million or four 2% senior notes due 2033 and $750 million at 495% senior notes due 2052.

We really appreciate the support of our new and existing fixed income investors and our initial offering and are pleased to have been able to access the 30 year market for the first time.

Earlier this week, we completed the redemption of all of our outstanding series, a preferred stock for approximately $973 million. The redemption of the preferred completes an important strategic goal to simplify our capital structure and we were able to do so sooner than previous expectations as a result of our strong company.

Performance.

With respect to the sale of our interest in Gtx to calibrate process has concluded and we expect to receive final payment on or around may 20th.

As Matt mentioned, our pro forma leverage ratio is three three times and trending lower which puts us in excellent financial position with a lot of flexibility.

We continue to expect to spend $700 million to $800 million on attractive organic growth capital opportunities in 2022 with approximately $121 million spent through the first quarter to support continued volume growth across our system.

We are paying an attractive $1 40 annualized dividend per common share for 2022 and have been able to return additional capital to our common shareholders through opportunistic repurchases with $50 million of shares repurchased in the first quarter.

Our continued investment in growing targets underlying businesses supported by an attractive macro backdrop and the strength of our balance sheet.

We're in excellent position looking forward to continue to return increasing amounts of capital to our shareholders.

Lastly, I'd like to Echo, Matt and thank our employees for their dedication and for continuing to prioritize.

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 RJ would you. Please open the line for Q&A.

Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad again that is star one can we draw.

Your question. Please press the pound or hash key please standby, while we compile the Q&A roster.

Your first question comes from the line of Theresa Chen with Barclays. Your line is open.

Good morning, Thank you for taking my questions.

First I just wanted to ask about your capital allocation priorities from here given that you've streamlined cost structure and fundamentals seem to be trending well can you talk about common share repurchases increasing.

Dividend and so on.

Good morning, Theresa. This is Jen I think from our perspective, Youll see us execute going forward sort of as we are today increased our common share dividend in 2022 versus 2021, and that's the dividend that we will have for this year and then we'll revisit next February youre seeing us continue to invest.

<unk> in our business.

And also you are seeing us to execute on opportunistic share repurchases. So I think thats going to be the formula for us going forward and then it's just going to be a matter of the opportunities in front of us to figure out where we think our capital investment.

Got it.

Ben so much momentum in your story and the macro tailwind I think all of that is pretty clear in your mind. What do you think the key risks are from here.

Teresa I think we feel really good about our business. We've made a lot of improvement to the balance sheet over the years, we've simplified our structure.

So the risks that are out there inherent in our business business, our commodity prices and volumes.

But even from both of those I feel like we're better insulated than better protected to the downside today than we were a year or two ago.

So I think it's the same risk.

We look at we've made a lot of progress on re contracting and putting in fee floors in our G&P business. We also have significant amount of hedges, which reduces our commodity price exposure and just as we continue to grow across our footprint we have.

Really strong diverse customers across our GMP in multiple basins and a good diverse customer set out in the Permian. So.

The risks.

Remain in our business, but I think we've done a good job at trying to protect ourselves from the downside.

I think the starting point if any risks do present themselves. It's just so different press today than it ever has been around for we've just never been stronger Theresa.

I think we'll be able to withstand and perform exceptionally well even if those risks do present themselves going forward.

Thank you.

Okay. Thanks for your question.

Your next question comes from the line of charity me ton at <unk>.

J P. Morgan your line is open.

Hi, good morning.

Hey, good morning, good morning.

Just wanted to start off with the guidance here, if I could the EBIT guidance recognize its early in the year, but just doing some simple math here. It seems like if you annualize first quarter you'd be at the top end of the guide in the first quarter. It didn't seem to benefit from commodity prices I think as you said there and then also January had a freeze off weather impact weighing on the quarter.

And it doesn't seem like the guide includes the South cross benefit if I overlay spot commodity prices that something like a 250 million add.

So just reconciling these different things I know the commodity price isn't baked into the guide where it is right now, but south cross Annualizing first quarter all points to above the high end is there any offsets over the balance of the year that we should be thinking about.

The only offset that I just start with and then I'll turn it over to Matt is just the sale of Gtx was not part of our guidance.

No I'm, sorry that was contemplated in our guidance.

Yes, I think that you've got the pieces Directionally correct.

Current spot prices, just given the backwardation that still exists as we look out for the balance of 2022 as part of the unknown for US right now, but we are very well hedged and are continuing to add hedges. So I think we are in just an excellent position.

Yes.

Yes, Jeremy I think you laid it out pretty well it felt like Q1 was a really good quarter for us.

Had.

Increasing volumes in the Permian, but if you look at the Permian Midland It was up a little bit almost flat Q1 to Q4, we had some winter weather and operational issues in January and February , but we've seen volumes rebound nicely in March and April so it sets us up for good volume growth from now through year end and if you look at prices Ngls were up a little bit but gas was actually quarter.

The quarter for us realized down.

And as you know well how prices now are much much higher than our average in Q1, so between gas and Ngls.

If prices hang around here, we're going to have a lot of uplift as we go throughout the year. We also had lower volumes.

Due to some weather impact up in the badlands and across our central regions too so a.

A little bit warmer weather higher prices I think it sets up really nicely for the balance of the year.

Got it so I didn't hear anything to walk away from kind of $2 seven to eight or more if commodity.

We have not been that specific.

Just.

I think we're in good shape as we kind of move throughout the rest of this year if prices hang around here, even if prices don't hang around here I think we're in really good shape.

Got it yes, it looks like that way to us as well in.

And maybe just pivoting more towards Permian logistics here the numbers, we've run on the basin. It seems like processing capacity is pretty tight egress for natural gas.

<unk> is well, there's a number of solutions I guess out there on that.

Egress side, just wondering your appetite to participate in Nat gas takeaway kind of to match I guess your yours your equity and your customers.

Gas production needs and then on the G&P side, you have several plants in the hopper, but just wondering I guess overall growth expectations.

Moving moving forward in the Permian on those two fronts sure we've seen pretty good growth here in the Permian just in the aggregate and on our system over the last 12 months and we think there's going to be continued growth as we look forward.

Ill turn it over to Bobby you can talk a little bit just about how we're thinking about residue takeaway opportunities.

Bob.

On the revenue side.

We're excited to see the most recent expansions at the end of the day, we look like a producer relative to our exposure. So what we want to know is that the gas flows and then ultimately obviously one basis point as possible. So.

We've known about it for a long time, we've known about the expectations of where our.

Our expectations of where supply was going so we're fully prep work on the target side.

Even before any of the new pipes come online, but but.

But yes, we expect and hope for more pipes to get announced and.

And whether we participate in them or not really.

Youll see us and then at times when they need us to go and if they don't need us to go we won't be in them right. So I think as we think through those things. We just wanted to see the pipes get built and the takeaway.

<unk>.

Get there in time for us to not see big basis blowouts.

Got it.

Very helpful I'll leave it there thanks, okay. Thanks Jeremy.

Our next question comes from the line of Colton Bean with Tudor Pickering Holt Your line is open.

Good morning, So you mentioned the weather impacts in the Badlands in Q1, and I think we've seen kind of a continuation of that severe weather here quarter to date can you just update us what you've seen as we moved through April and then are there any longer term infrastructure damage considerations that you have as you think about the balance of the year.

Yes, sure I'm going to turn it over to Pat.

To answer that one.

Yes, Youre right I mean, obviously theres been a couple of pretty significant weather events in April in the Badlands and about the time to get back up from the first one the second one follows up behind.

And they were pretty severe.

They took production across almost nothing across everybody's systems certainly we're in the rebound mode. We're coming back up we are not fully up so will it impact our second quarter sure April it was impacted we are still not fully up in may, but we're getting closer.

Hopefully mid May.

Chris really be fully back up to where we were before the weather impact, but on our side at least we do have some things that are positive throughout the remainder of the year that will help offset.

Some of the.

Okay occurrences relative to the weather here in April .

Got it and maybe just to clarify that on the offsets that engine for our G&P and aggregate are battling specific.

Specific okay.

Great and then Jen last quarter I think you mentioned that M&A was a consideration for the first time in a while can you just update us on what you all are seeing in the market.

It may still be a use of cash going forward.

I think for US you saw us execute on the South Cross acquisition, Great acquisition for US. We're excited to have those employees joined the Targa team integration is going well and that's an example of a transaction where we think we were able to buy at really attractive prices and then benefit from synergies both near term and over the medium.

And longer term.

There are more assets and company is available on the market today than there certainly have been over the last couple of years, which is understandable given the strength in commodity prices and so for us. The buyer continues to be very very high and that means that there are a number of unique characteristics that any transaction would have to meet in order for us to even consider looking at it.

So I think you'll see us continue to be very selective about anything that we spend our time on.

Great I appreciate it.

Okay. Thank you.

Your next question comes from the line of Brian Reynolds with UBS. Your line is open.

Hi, good morning, everyone maybe.

Maybe just start off a little bit on future growth projects no capex changed with the earnings release, but kind of looking ahead towards 2023.

We started hearing from many of your peers are adding additional frac capacity and just kind of curious around targets thought process around pursuing a new newbuild versus securing.

Securing 100% of the economics versus potentially on the idling via JV Frac that's in Mont Belvieu currently thanks.

Hey, Brian This is Scott Pryor, just to touch base, we do feel like.

The fractionation market is starting to tighten up.

The number of inquiries that are coming to us both for short term as well as long term frac needs has increased and some of those are actually folks that I think are trying to get a little bit ahead of that.

Tightening of the market by trying to <unk>.

Secure fractionation that may start more data into the future.

We've got a permit in hand for train nine we continuously are evaluating when we need to formally start that the construction of that and we will stay well ahead of that relative to what our needs are recognized.

Got good transparency back to our producers behind our gas processing plants and as a result of the timing of that will be well ahead of that so.

I feel like the market is starting to tighten up the number of inquiries coming in and.

The view that we have back to our producers.

We feel like there'll be a time here in the near future that we will look at starting train nine and the infrastructure to them.

Great I appreciate that color and then maybe just as a quick follow up on guidance and specifically the Permian inlet volumes.

So far this year, we've seen a major customer in the Delaware increase their production guidance expectations for the year and the Midland seems to be a little bit flattish for the last two quarters and ultimately wondering if this is related to one is there any change to that any change in cadence that Permian outlook or maybe said differently does the guidance effectively implies just a really strong back half of the year as it relates to just volume.

Going through your system downstream. Thanks.

Yes, I think we can continue to see really strong activity across our overall Permian footprint.

Part of what <unk> seen in the Permian Midland as we've seen in previous years, we tend to get more of our growth in that system over the summer when it warms up spring summer timeframe. So.

Yes.

So it has some seasonality.

And again, we had January and February which was kind of impacted more by cold weather and some operational issues and we are seeing some of that increase already.

March and April so we continue to expect growth across both.

Permian Midland and Delaware, but we also have seen some of our larger producers stick with there.

<unk>.

Kind of stick with our previous guidance on what they are telling us in terms of volume growth or just because they are getting higher prices doesn't necessarily mean, they're going to ramp up production, but it is a mixed bag. There we have seen some of our larger customers point to.

Increasing the growth rate. So I think that may have some impact on 2022, but perhaps that's more 2023 and as we as we go forward. We are still seeing good activity across our smaller.

Private E&P customers, who are continuing to drill so.

No I think we are pretty optimistic about our Permian growth from here going forward.

Makes sense, thanks for the time today.

Okay. Thank you.

Your next question comes from the line of Keith Stanley with Wolfe Research. Your line is open.

Hi, Thank you.

First question, just with Gulf Coast Express the sale proceeds coming in should we assume you use that to repay any short term borrowings you might've done to take out the prefs or should we think of <unk> cash is available for allocation with free cash flow over the rest of the year.

The expectation would be that when we receive those proceeds will use it to reduce borrowings under our revolver right now.

<unk>.

Okay got it.

Second question.

Can you just give an update on where you are at for 2023 hedging, particularly for Permian gas basis, just percent equity volumes or however, you want to frame it.

Yeah sure so.

We're significantly hedged on the gas side and when we do hedge most of our volumes are Permian related. So we do hedge wahhab basis. So we try and cover as best we can kind.

Kind of a base of basis risk associated with our hedges and where we have gas in Oklahoma, we will hedge it.

At those physical points as.

As well, we were significantly hedged kind of earlier in the year and we've added as we've seen strength in gas prices and Ngls. We've continued to layer on additional hedges not only for this year, but for the next several years.

So I would say with prices hanging around here, we will continue with our programmatic approach to continue to add more hedges and Keith our 10-Q will be published later today, so you'll be able to see in there. The volumes that are now hedged across both gas Ngls and condensate.

Great. Thank you.

Okay. Thank you.

Your next question comes from the line of Spiro <unk> with Credit Suisse. Your line is open.

Thank you operator.

I just want to talk about the quarter over quarter variance on slide seven two things that stuck out to me there.

Just on Opex it looks like I guess, there is a little pricy costs actually come down for GMP for labor and chemicals, just given the inflationary environment that we're in so I'm. Just curious is that sustainable is that part of our broader cost control initiative and the other item. There was just on the GMP margin.

Matt I know you mentioned that commodity really to pick up until the end of the quarter, but just was surprised that that was a negative contributing factor. So curious if there was a mix shift in the quarter any hedging impact there to be aware of.

Good morning, Sarah This is John I'll take the first part of the question.

Some of what we did in our G&P business was in the fourth quarter. We actually went ahead and bought.

<unk> significant amount of chemicals ahead of time, so our chemical cost for the first quarter went down as a result of that I would expect our Q2 through really Q4 opex to step up.

As we move through time here as we are seeing higher costs as a result of inflation and just difficulty getting certain things.

So Q1, I think a little bit of an anomaly and then also on the compensation side.

Had a higher bonus that we ended up paying for the fourth quarter and so that.

It was reflected in the fourth quarter and then we tend to accrue at a lower number as we begin here and so that's what we're doing in the first quarter.

So that's part of what Youre seeing as well that I think again, creating a little bit of an anomaly Q1 relative to Q4.

Yes, and then on the on the mix shift when you look at first quarter versus fourth quarter really the big increase in commodity price was relative to crude oil prices. We don't have that much exposure directly to crude oil prices, we have some but not that much its really on the gas side and the NGL side and gas was down.

<unk>.

Ngls were up almost offsetting so a lot of the run that we saw was in March So we had some benefit.

Late in the quarter, but it's really kind of through April and then.

We're kind of where we are now.

Not a mix shift, it's just kind of the way all three of those different commodity prices relative to Q4.

Got it okay, that's really helpful.

Second one just going back to some comments from last quarter around energy transition I think you all had mentioned evaluating if your renewable or carbon capture opportunities I'm. Just curious if theres been any update on that front.

I'd say, we are continuing to work on a potential carbon capture solution.

So I would say that is ongoing.

It's going to take a while for us to develop that I think we're in good position to develop that and so we are working with others I'm trying to put something together there to see if we can't capture.

Two out in the Permian.

Move it downhaul there are discussions at other parts of in and around our business as well I think it's going to continue to make progress, but I think it's going to be a while before we can move anything I'll finish line too.

Got it great we'll stay tuned thanks for the time guys. Okay. Thank you.

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

Thanks, Good morning, everyone.

I wanted to ask about LPG export markets. I know you are more heavily weighted to South America, but wondering if youre seeing any drop in demand in China, given the COVID-19 related Lockdowns, there and then I guess just more broadly any impact to volumes from some of the global supply constraints from the shipping bottlenecks, we have been read.

About.

Hey, Mike This is Scott.

First of all I would say that when we initially started our export business. We were yes, we were heavily weighted toward.

South America. Since then much like the rest of the players in the marketplace. We have diversified heavily more heavily if you will to the far east and that growing demand is there.

Places like China for PVH plans for chemical plants in the Eagle Ford.

I would say when you look at our performance on a quarter by quarter basis, we continue to be very consistent at times. There are some weather issue that may impact that there.

There might be some logistical challenges as it relates to the shipping market from time to time, and we have seen some of that and did see some of that in the first quarter of this year.

But all in all the market is still very solid.

Over time, we will continue to grow we feel very good about.

The expansion that we're doing it's very small, but yet very complementary to our business, which will allow us some incremental.

Incremental capacity and provides additional reliability to our customers that our historical lifters. So again, we've got a good portfolio of customers.

They are strong they stick with us they appreciate it.

Liability to provide and I think as we continue to see Lpg's production increase here in the U S.

We will look for incremental ways to continue to Debottleneck, where it makes sense.

And push those across the water.

Great. Thanks for that I. Appreciate it other question I wanted to ask was just about ethane rejection and what youre seeing across your system.

Right now and then how you see that trending for the balance of year and is there any upside to volumes related to that.

<unk>.

Yes, Michael.

We are in recovery across.

Cross our systems and we have been for some time, so I don't really see a big a big change for us there.

Our exposure to ethane is really more on the price side and the volume side. So as ethane moves up we have some hedge but we do have some.

On that so we benefit from higher prices on ethane, but I wouldn't expect to see.

And with ethane prices moving up.

Much of a volume impact really.

Great. Thank you so much okay. Thank you Michael.

Your next question comes from the line of Sunil Sibal Seaport Global Securities. Your line is open.

Yes, hi, good morning folks and thanks for all the clarity on the call.

Just had.

One follow up from previous discussion on Opex. So it seems like.

Over the last couple of quarters is kind of.

Swung around a bit I was wondering you said a good very good think about your opex.

Fixed versus variable buckets.

Especially when you think about exposure to commodity chemicals and all of that.

I don't think that there is a easy framework that I can give you. So neal related to that I think that as we think about opex Q2 going forward, it's likely to begin to look more like the fourth quarter than the first quarter. So that's probably the best visibility that I can give you right now, but we're also seeing pricing.

Is increase real time, so it's a little bit tough to predict as well I think our operations teams and engineering teams are doing an excellent job of trying to stay in front of.

Inflation and rising costs as much as they possibly can and are doing an excellent job working with our suppliers, but it's just a little bit difficult to predict right now, but I think the best visibility I can give you is that second quarter and go forward, we will look more like the fourth quarter than the first quarter.

Oh, Okay got it thanks for that and then on <unk>.

NGL marketing side I think you mentioned in the press results, so that less optimization opportunities.

Some of that is seen as noted too but I was curious is that a good way to think about that part of your business.

And what are the drivers.

This optimization.

Revenues for.

Sorry.

Yes sure.

I'd say, it's really probably more in the comparison, whether you look at if you look at last quarter. We had some contango trades that were still unwinding. When we had contango that we put on some dated data trades. So it's really just less of that in the first quarter relative to previous periods.

So.

I think that is the primary driver of that.

So then going forward.

Yes.

Yes, Q2, Q3 are normally seasonally weak.

Maybe weaker than you would expect that to kind of pick up obviously overlaying, some contango opportunities, which may show up.

Well the seasonality.

We do have some where we get some benefit in both Q4 and Q1 from our seasonal wholesale propane business and so that will come off in Q2, and Q3 as far as the contango or backwardation or those kind of opportunities that present, our marketing team.

That it really just depends on market conditions. So I'd say in Q1, there was just relatively less of those compared to prior periods and it will we will see what Q2 in the Gulf and the go forward quarters presented.

Yes, Matt this.

This is Scott real quick on the wholesale side of our business. We did see a strong fourth quarter in certain areas of our business, especially those areas, where we have not.

Pockets of field inventory so more of those volumes moved out during the fourth quarter.

First quarter, so as a result of them, yes, we had some uplift.

Probably.

Winter season than we did in the latter part of the lenders just where our position is on inventories.

Okay got it thanks for all the clarity.

Okay. Thank you.

<unk>.

Your next question comes from the line of Harry <unk> with Barclays. Your line is open.

Hi, good morning.

First question. It seems like you guys made it up to investment grade just in time for the rates market to get turnarounds had a bit but I am curious, whether you see more opportunities to optimize the capital structure and your interest expense in the second half now that you've done your inaugural IGT deal.

Good morning, Harry This is Jen I think we'll have continued opportunity is just moving forward. We do have some higher coupon notes so depending on the call ability and coal prices of those notes, we'll be continuing to try to figure out how to best manage our liquidity and our notes positions going forward I do think there is continued opportunities to benefit from savings but.

The cadence of that is largely going to be dependent on the prices that we can call in those notes and then where can we issued notes in the market going forward. So we'll just have to see how that plays out but I think we are in an excellent position anyway.

Okay. Thanks, and then.

I know earlier on the call you you answered that.

The call and the <unk> proceeds is going to be towards paying down the revolver, just would love to get a sense for how you structurally like to plan out liquidity.

So it's a cash balance you'd like to have or what are some guardrails. We can think about on a quarter to quarter basis that you'd like to keep in terms of available liquidity.

I think a lot of the cash that you see on our balance sheet quarter to quarter really has more to do with the <unk> and the terms of the JV and when cash is distributed out of those joint ventures than anything else yes.

We're generally trying to manage our liquidity position.

As we can so that means utilizing the available tools that we have whether that be our revolver or our accounts receivable facility.

Or just maintaining cash on the balance sheet. So there isn't a hard and fast rule that we're following that I can give you. It's really just us trying to manage as best as possible.

Minimize interest expense and maximize liquidity that we have at all times.

Okay. Thanks, Dan.

Thank you.

Your next question comes from the line of John Okay with Goldman Sachs. Your line is open.

Hey, good morning, Thanks for the time I wanted to go back to some of the questions on some of the comments on capital returns. We've seen some of your peers that sought distribution or dividend cuts in the past kind of aiming to get back to where they used to be.

They have kind of started that process now just just curious if thats on the table for you guys or maybe just a little more detail on how youre thinking about that and whether or not it can be a payout that's more in line with.

S&P 500 type framework. Thanks.

Yeah sure John Yeah.

Yes. Good good question I think as we.

Really review our dividend.

Payout as Jen mentioned, we will plan to provide an update for you early part of.

Next year.

Not our goal to get back to where we used to be I think we're looking at.

Market indicators, we are looking at S&P 400, S&P 500 in terms of we'll look at yield that moves around with the share price. So we will look at percent return based on free cash flow and other cash flow metrics as well. So I think we're going to be in really good position.

To continue to move our dividend higher given all the free cash flow that we have so we'll just evaluate it I would say it's similar to we evaluated last year will look and say where do we want to be well, we will look at our peers and see what they are paying out.

But we'll also look at I'd say, a broader peer group of the S&P 400, S&P 500, and I think both of those will inform our decision as we think about what we want to do for 'twenty three but then also as we think about kind of a multi year, how do we want to be kind of layering in to increase payout over time.

That's great I appreciate that definitely.

Definitely the buyback camp over here for what it's worth maybe just.

One one more from my side some of the weather issues kind of masked some of the basic trends. So just wondering if you could give us an update on kind of what youre seeing in terms of green shoots or not in some of your other basins kind of outside of the Permian.

Sure.

Pat do you want to give a bit of an update there.

Sure.

We have seen increased activity level across all of our basins.

Not a huge uptick, but a pretty steady nice uptick in our Oklahoma regions.

More so.

South east side of the state versus Western Oklahoma.

Certainly we've seen people that havent drilled the two to three years.

Employing rigs and drilling wells, we've seen a lot of re completions.

So.

I'd say were stemming the tide, there relative to past steady declines over the last three or four years.

We're seeing enough activity to offset.

Decline in frankly in some areas to actually grow.

In the Barnett.

Seeing activity that we haven't seen in the past and frankly, that's a little more lumpy. So youll see that showing up in our volumes as we go throughout the year.

Have some positive tailwind there.

South Texas is such a competitive environment. It kind of gets lost in the sauce with certainly with our new.

<unk> there is different opportunities relative to SAR gas capture et cetera. So.

We see opportunity in our South Texas region.

And the battle is steady.

Is the best way to put it the activity level is.

Certainly we've had weather events.

We haven't seen a huge uptick but we've seen goods.

Good steady activity levels.

All right appreciate that thank you.

Okay. Thank you.

Your next question comes from the line of Neel Mitra with Bank of America. Your line is open.

Hi, good morning, Thanks for taking my questions.

I just wanted to follow up on the ethane recovery, specifically, how it relates to Grand Prix.

In 2023, the basin should probably move to full ethane recovery and.

And I'm wondering how your third party shippers.

Well fair on this whether youre incentive rates will go up or your volumes, how do you see the outlook for Grand Prix with ethane recovery for the base and just trending up.

Hey, Neil This is Scott as Matt said earlier.

Pipeline.

Two fractionation facility.

Okay.

Both of the plants that are operating on our systems.

We do have a few.

Third party plants that will evaluate ethane recovery based upon.

There are situations, where they're located.

The contracts are around their system, but all in all for the most part we don't see a lot of swing on mode.

Pipelines as well as third party pipelines that are coming into our system.

So I would say that it's not a big needle mover, Matt kind of indicated that earlier.

But I think that when you look at where the pricing is today, most plants should be and recovery.

And that's what we're seeing on our system and given the price advantage that we see on the petrochemical side I think that will continue for a while but theres going to be some noise from time to time, but all in all for the most part in our system.

We assume that.

Yes.

Okay.

Okay. Thank you and then second question I know you market a lot of your producer volumes.

In gas volumes at the tailgate and you've been planning for a while for the.

Gas egress issues, but can you kind of just walk me through.

How you plan for that when you have such massive growth on your systems 10, plus percent every year, how far in advance you do that and and weather.

You see any potential issues running into 2023.

Even though.

You'd started to plan for early.

This is Bob.

What I would tell you is it's important to us.

Both have your own transport out of the basin, but that a vast majority of what we do is we came up with with I'll call. It partners in the basin that have their own transport out of the basin. So as you think about us being loss, both when we look to sell gas at wharf.

We will sell it to people that we know for lots of different reasons.

Have that physical transport to get it out of the basin. They are very large counterparties that everyone. On this call would know and that's how we focus on when you think about how long. We go forward. We honestly, we look at when we think.

Pipes will be coming online when we expect our.

Third of the capacity issues out of the basin and we make sure we're processing across that and we don't try to get cute within months, we make sure we're well beyond when those expansion the puzzle come online. So we've been doing that we're still doing that we've got everything that we think we need to cover.

And we even take out dimension to beyond that over time.

So yes, so it's one where we're able to plan as far out as we want because people want to buy the gas for as long as we want to sell it and then we tried to we tried to do is match it up with when we think there'll be in.

There could be issues.

Got it that's really helpful. Thank you.

Okay. Thank you.

Your next.

<unk> comes from the line of Robert Moskow with Mizuho Securities. Your line is open.

Hi, Good morning, everyone. Just one question from me Grand Prix volumes have grown pretty strongly over the last few quarters, just hoping to get your latest thoughts on how that pipeline could be expanded to the medium term and how early you think an expansion on the Permian segment would be required just assuming that.

Bret do constraint gets addressed.

Hey, Robert This is Scott we have been very pleased with the continuation of increased volumes.

Detection side of our business quarter ending quarter.

Quarter, averaging 460000 barrels a day into our Mt Belvieu complex so.

And again, we had good transparency back to our customers and our producers behind our plan and the additive of gas processing plant in the Permian. So we will continue to add pumps, along the pipeline sector. We've got good operating leverage today and remember when we throw out those stats around 460000 barrels.

Again for the first quarter of that part of that contribution is coming from north, Texas and into Oklahoma.

From our applications in that area. So we.

We will evaluate the need for additional pipe in pipe expansions, we will be well ahead of that relative to what our needs are the producers behind our system.

It's something that we're going to be well ahead of when it's necessary.

Great. Thank you.

And there are no further questions at this time I would now like to turn the call back to Sanjay.

Thanks to everyone that was on the call. This morning, and we appreciate your interest in Targa resources.

Investor Relations team will be available for any follow up questions. You may have thanks and have a great day.

Ladies and gentlemen, this concludes today's conference call. We thank you all for participating you may now disconnect.

[music].

Sure.

[music].

Ladies and gentlemen, thank you for standing by and welcome to Targa Resources Corp, fourth quarter 2022 earnings webcast and presentation.

At this time all participants lines are in 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 I would know like to had a conference over to your first speaker.

Hey, Sanjay Lad, Vice President of Finance and Investor Relations. Sir. Please go ahead.

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 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.

Mcdonald, President gathering and processing and Scott Pryor, President logistics, and transportation and Bobby morale, Chief commercial officer, and with that I'll now turn the call over to Matt.

We also achieved investment grade ratings from all three agencies during the quarter.

We completed our corporate simplification with the depth co repurchased in January and with the redemption of our preferred stock earlier this week.

We continue to invest across our businesses with the ongoing construction of the legacy <unk> legacy too and midway plants in the Permian.

The acquisition of bolt on assets in South Texas.

Pro forma for the repurchase of our Dev co interests, our preferred stock redemption, our south Texas acquisition, and our <unk> sale.

Our leverage is three three times.

While we had a strong first quarter with EBITDA up $55 million versus Q4 commodity prices really began to move higher late in the quarter. So we did not see a lot of first quarter price benefit as our realized prices were relatively flat compared to the fourth quarter, but since then prices are providing.

Some nice tailwind for the balance of the year.

Let's now turn the call.

Let's now discuss operational.

In more detail.

Starting in the Permian our systems across the Midland and Delaware basins continued to perform well averaging over 3 billion cubic feet per day inlet volume during the first quarter volumes.

Volumes across our Permian systems increased quarter over quarter, despite being impacted by winter weather conditions, particularly in January and February .

Volumes quickly rebounded with March and April volumes up nicely over the first quarter average.

We continue 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.

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

In Permian, Delaware volumes across our system are also continuing to ramp our new 275 million cubic feet per day Midway plant is expected to begin operations during the third quarter of 2023.

Midway will provide us with additional flexibility to flow volumes between our Midland and Delaware system. In addition to improving our overall operational performance in the region.

For full year 2022, we continue to expect our average Permian inlet volumes to increase by 12% to 15% over 2021 volumes in.

We would like to thank everyone involved in helping make the integration goes smoothly.

Shifting to our logistics and transportation segment NGL transportation volumes continue to increase and we transported a record 460000 barrels per day to Mont Belvieu during the first quarter.

Throughput volumes sequentially increased 6% driven by increasing NGL production from targets Permian plants and third parties.

Fractionation volumes at our Mont Belvieu complex during the first quarter rebounded to 73000 barrels per day following fourth quarter's unplanned outage.

Looking ahead, we expect NGL transportation and fractionation volumes to continue to benefit from increasing supply from our growing Permian G&P position.

Add an incremental 1 million barrels per month of capacity by mid 2023.

The longer term outlook for Targa remains strong.

Our premier integrated Permian NGL business complemented by our talented employees and strong balance sheet position targa to deliver safe reliable energy domestically and globally.

And before I turn the call over to Jan I would like to thank our employees for their continued focus on safety, while executing on our strategic priorities and continuing to provide best in class services to our customers with that I will turn the call over to Jim.

Thanks, Matt targets reported quarterly adjusted EBITDA for the first quarter was $626 million.

We generated adjusted free cash flow of $373 million in the first quarter.

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 above the floors.

Looking ahead as a reminder, the integration of the recently acquired bolt on midstream assets and associated contracts, sorry, South, Texas G&P operations will be reflected in consolidated G&P segment earnings for the second quarter.

Our consolidated leverage ratio was three four times at the end of the first quarter and we had about $2 billion of available liquidity.

In April we successfully completed our inaugural CRD B notes offering in the investment grade market issuing $750 million or four 2% senior notes due 2033 and $750 million at 495% senior notes due 2032.

We really appreciate the support of our new and existing fixed income investors and our initial offering and are pleased to have been able to access the 30 year market for the first time.

Earlier this week, we completed the redemption of all of our outstanding series, a preferred stock for approximately $973 million. The redemption of the preferreds completes an important strategic goal to simplify our capital structure and we were able to do so sooner than previous expectations as a result of our strong company.

Performance.

With respect to the sale of our interest in Gtx. The call rate process has concluded and we expect to receive final payment on or around may 20th.

As Matt mentioned, our pro forma leverage ratio is three three times and trending lower which puts us in excellent financial position with a lot of flexibility.

Our continued investment in growing targeted underlying businesses supported by an attractive macro backdrop and the strength of our balance sheet. Since we are in excellent position looking forward to continue to return an increasing amount of capital to our shareholders.

Lastly, I'd like to Echo, Matt and thank our employees for their dedication and for continuing to prioritize safety.

And with that I will turn the call back over to Sanjay.

Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad again that is star one to withdraw your question. Please press the pound or hash key please standby, while we compile the Q&A roster.

Your first question comes from the line of Theresa Chen with Barclays. Your line is open.

Good morning, Thank you for taking my questions.

First I just wanted to ask about your capital allocation priorities from here against that extreme linker structure and fundamental seem to be trending well can you talk about common share repurchases increasing.

Dividend and so on.

Good morning, Theresa. This is Jen I think from our perspective, Youll see us execute going forward sort of as we are today increased our common share dividend 2022 versus 2021 and that the dividend that we will have for this year and then we will revisit next February youre seeing us continue to invest.

<unk> in our business.

Got it and Theres been so much momentum in your story and the macro tailwind I think all of that is pretty clear in your mind. What do you think the key risks are from here.

Teresa I think we feel really good about our business. We've made a lot of improvement to the balance sheet over the years, we've simplified our structure.

So the risks that are out there inherent in our business business, our commodity prices and volumes.

But even from both of those I feel like we're better insulated than better protected to the downside today than we were a year or two ago.

So I think it's the same risk.

Really strong diverse customers across our GMP in multiple basins and a good diverse customer set out in the Permian. So.

The risks remain in our business, but I think we've done a good job at trying to protect ourselves from the downside.

I think the starting point if any risks do present themselves. It's just so different press today than it ever has been at work. We've just never been stronger Teresa I think we'll be able to withstand and perform exceptionally low even if those risks do present themselves going forward.

Thank you.

Okay. Thanks next question.

Your next question comes from the line of Jeremy Tonet with J P. Morgan Your line is open.

Hi, good morning.

Hey, good morning, good morning.

Just wanted to start off with the guidance here, if I could the EBIT guidance recognize its early in the year, but just doing some simple math here. It seems like if you annualize first quarter you'd be at the top end of the guide and first quarter didn't seem to benefit from commodity prices I think as you said there and then also January had a freeze off weather impact weighing on the quarter.

And it doesn't seem like the guide includes the South cross benefit if I overlay spot commodity prices at something like a $250 million add two.

The offset that I would just start with and then I'll turn it over to Matt is just the sale of <unk> was not part of our guidance.

<unk>.

No. It was I'm sorry, it was contemplated in our guidance.

Yes, I think that you've got the pieces Directionally correct.

Yes.

Yes, Jeremy I think you laid it out pretty well it feels like Q1 was a really good quarter for us.

Had any.

Quarter for us realize down.

And as you know while prices now are much much higher than our average in Q1, so between gas and NGL that if price is hanging around here, we're going to have a lot of uplift as we go throughout the year. We also had lower volumes.

Due to some weather impact up in the badlands and across our central regions too so.

A little bit warmer weather higher prices I think it sets up really nicely for the balance of the year.

Got it so I didn't hear anything to walk away from kind of $2 seven to eight or more if commodity price.

We have not been that specific.

We just said.

I think we're in good shape as we kind of move throughout the rest of this year if prices hang around here, even if prices don't hang around here I think we're in really good shape.

Got it yes, it looks like that way to us as well.

And maybe just pivoting more towards Permian logistics here the numbers, we've run on the basin. It seems like processing capacity is pretty tight egress for natural gas.

<unk> is well, there's a number of solutions I guess out there on that.

Egress side, just wondering your appetite to participate in Nat gas takeaway kind of to match I guess your yours your equity and your customers.

Gas production needs and then on the GMP side, you have several plants in the hopper, but just wondering I guess overall growth expectations.

Moving moving forward in the Permian on those two fronts sure we've seen pretty good growth here in the Permian just in the aggregate and in our system over the last 12 months and we think there's going to be continued growth as we look forward.

Going to turn it over to Bobby who can talk a little bit just about how we're thinking about residue takeaway opportunities.

It's Bob.

On the revenue side.

We were excited to see the most recent ophthalmic expansion at the end of the day, we look like a producer relative to our exposure. So what we want to know is that the gas flows and then ultimately obviously one basis point as possible. So.

We've known about it for a long time, we've known about the expectations of where our.

Our expectations of where supply was going so we're fully report on the target side.

Even before any of the new pipes come online, but but.

But yes, we expect and hope for more pipes to get announced and.

And whether we participate in that or not really.

Youll see us and them at times, when they need us to go and if they don't need us to go we won't be in them right. So I think as we think through those things. We just wanted to see the pipes get built and the takeaway.

<unk>.

Get there in time for us to not see big basis blowouts.

Got it.

Very helpful I'll leave it there thanks, okay. Thanks Jeremy.

Our next question comes from the line of Colton Bean with Tudor Pickering Holt Your line is open.

Good morning, So you mentioned the weather impacts in the Badlands in Q1, and I think we've seen kind of a continuation of that severe weather here quarter to date can.

Can you just update us what you've seen as we moved through April and then are there any longer term infrastructure damage and considerations that you have as you think about the balance of the year.

Yes, sure Im going to turn it over to Pat.

So that one.

Yes, Youre right I mean, obviously theres been a couple of pretty significant weather events in April and the bad ones.

By the time, we get back up from the first one the second one follows up behind.

And they were pretty severe.

Took production across bottoms almost to nothing across everybody's systems certainly we're in the rebound mode. We're coming back up we are not fully.

So will it impact our second quarter sure.

If royal's impacted we're still not fully up in may, but we're getting closer.

Hopefully mid late May will personally be fully back up to where we were before the weather impact but on our side at least we do have some things that are positive throughout the remainder of the year that will help us help offset.

Some of the.

The occurrence is relative to the weather here in April .

Got it and maybe just to clarify that on the offsets that engine for our G&P and aggregate are battling specific.

Specific okay.

Great and then Jen last quarter I think you mentioned that M&A was a consideration for the first time in a while and can you just update us on what you all are seeing in the market.

It may still be a use of cash going forward.

I think for US you saw us execute on the <unk> acquisition, Great acquisition for US. We're excited to have those employees joined the target team integration is going well and that's an example of a transaction where we think we are able to buy at really attractive prices and then benefit from synergies both near term and over the medium.

And longer term.

I think you'll see us continue to be very selective about anything that we spend our time on.

Great I appreciate it.

Okay. Thank you.

Your next question comes from the line of Brian Reynolds with UBS. Your line is open.

Hi, good morning, everyone.

Maybe just start off a little bit on future growth projects no capex changed with the earnings release, but kind of looking ahead towards 2023.

We started hearing from many of your peers are adding additional frac capacity and just kind of curious around targets thought process around pursuing a newbuild versus.

Securing 100% of the economics versus potentially on the idling via JV Frac that's in Mont Belvieu currently thanks.

Sure.

Hey, Brian This is Scott Pryor, just to touch base, we do feel like.

The fractionation market is starting to tighten up.

Tightening of the market by trying to sue.

Secure fractionation that may start more data into the future.

Got good transparency back to our producers behind our gas processing plants and as a result of the timing of that will be well ahead of that so.

Again, I feel like the market is starting to tighten up the number of inquiries coming in and.

The view that we have back to our producers.

We feel like there'll be a time here in the near future that will look at starting train nine and the construction of that.

Great I appreciate that color and then maybe just as a quick follow up on guidance and specifically the Permian inlet volumes.

Slowing through your system downstream thanks.

Yes, I think we can continue to see really strong activity across our overall Permian footprint.

Part of what you've seen in the Permian Midland as we've seen in previous years, we tend to get more of our growth in that system over the summer when it warms up spring summer timeframe. So.

Yes.

So it has some seasonality.

And again, we had January and February which was kind of impacted more by cold weather and some operational issues and we are seeing some of that increase already.

In March and April so we continue to expect growth across both.

Permian Midland and Delaware, but we also have seen some of our larger producers stick with there.

<unk>.

Kind of stick with our previous guidance on what they are telling us in terms of volume growth or just because youre getting higher prices doesn't necessarily mean, they're going to ramp up production, but it is a mixed bag. There we have seen some of our larger customers point to.

Increasing the growth rate. So I think that may have some impact on 2022, but perhaps that's more 2023 and as we as we go forward. We are still seeing good activity across our smaller.

E&P customers, who are continuing to drill so.

I think we are pretty optimistic about our Permian growth from here going forward.

Makes sense, thanks for the time today.

Okay. Thank you.

Your next question comes from the line of Keith Stanley with Wolfe Research. Your line is open.

Hi, Thank you.

First question, just with Gulf Coast Express the sale proceeds coming in should we assume you use that to repay any short term borrowings you might have done to take out the prefs or should we think of gtx cash is available for allocation with free cash flow over the rest of the year.

The expectation would be that when we receive those proceeds were used to reduce borrowings under our revolver right now.

Yes.

Okay got it.

Second question.

Can you just give an update on where you are at for 2023 hedging, particularly for Permian gas basis, just percent equity volumes or however, you want to frame it.

Yes sure so.

We're significantly hedged on the gas side and when we do hedge most of our volumes are Permian related. So we do hedge wahhab basis. So we try and cover as best we can kind.

Kind of a base of basis risk associated with our hedges and where we have gaps in Oklahoma oil hedges.

At those physical points as.

As well we were significantly hedged.

Earlier in the year and we've added as we've seen strength in gas prices and Ngls, we've continued to layer on additional hedges not only for this year, but for the next several years.

So I'd say with prices hanging around here, we will continue with our programmatic approach to continue to add more hedges and Keith our 10-Q will be published later today, so you'll be able to see in there. The volumes that are now hedged across both gas Ngls and condensate.

Great. Thank you.

Okay. Thank you.

Your next question comes from the line of Spiro <unk> with Credit Suisse. Your line is open.

Thanks, operator.

Just wanted to talk about the quarter over quarter variance on slide seven two things that stuck out to me there.

Just on Opex it looks like I guess I was a little spicy costs actually come down for GMP for labor and chemicals, just given the inflationary environment that we're in so I'm. Just curious is that sustainable is that part of our broader cost control initiatives and the other item. There was just on the GMP margin.

Matt I know you mentioned that commodity really to pick up until the end of the quarter.

I was surprised that that was a negative contributing factor. So curious if there was a mix shift in the quarter any hedging impact there to be aware of.

Good morning, Sarah This is John I'll take the first part of the question.

Some of what we did in our G&P business was in the fourth quarter. We actually went ahead and bought.

Fairly significant amount of chemicals ahead of time, so our chemical cost for the first quarter went down as a result of that I would expect our Q2 through really Q4 opex to step up.

As we move through time here as we are seeing higher costs as a result of inflation and just difficulty getting certain things.

So Q1, I think a little bit of an anomaly and then also on the compensation side.

We had a higher bonus that we ended up paying for the fourth quarter and so that was reflected in the fourth quarter and then we tend to accrue at a lower number as we begin here and so that's what we're doing in the first quarter.

So that's part of what Youre seeing as well that I think again, creating a little bit of an anomaly Q1 relative to Q4.

<unk>.

Ngls were up almost offsetting so a lot of the run that we saw was in March So we had some benefit.

Late in the quarter, but it's really kind of through April .

And then.

We're kind of where we are now.

Not a mix shift, it's just kind of the way all three of those different commodity prices relative to Q4.

Got it okay.

Really helpful.

Second one just going back to some comments from last quarter around energy transition I think you all had mentioned evaluating if your renewable or carbon capture opportunities just curious if theres been any update on that front.

I'd say, we are continuing to work on a potential carbon capture solution.

So I would say that is ongoing.

It's going to take a while for us to develop that I think we're in good position to develop that and so we are working with others and trying to put something together there to see if we can capture cotwo in the Permian.

Got it great.

Hey tuned thanks for thanks, guys. Okay. Thank you.

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

Thanks, Good morning, everyone.

I wanted to ask about LPG export markets. I know you are more heavily weighted to South America, but wondering if you're seeing any drop in demand in China, given the COVID-19 related Lockdowns, there and then I guess just more broadly any impact to volumes from some of the global supply constraints in some of the shipping bottlenecks we have been.

Reading about.

Hey, Mike This is Scott.

First of all I would say that when we initially started our export business. We were yes, we were heavily weighted toward.

South America since then.

Like the rest of the players in the marketplace. We have diversified heavily more heavily you will tune to the far east and that growing demand is there.

Places like China for PVH plans for chemical plants and even for the vessel.

I would say when you look at our performance on a quarter by quarter basis, we continue to be very consistent at times. There are some weather issue that may impact that.

There might be some logistical challenges as it relates to the shipping market from time to time, and we have seen some of that and did see some of that in the first quarter of this year.

But all in all the market is still very solid.

Over time, we will continue to grow and feel very good about.

The expansion that we're doing it's very small, but yet very complementary to our business, which will allow us some incremental capacity and provides additional reliability to our customers that our historical lifters. So again, we've got a good portfolio of customers.

They are strong they stick.

With us they appreciate the reliability that we provide and I think as we continue to see Lpg's production increase here in the U S.

We will look for incremental ways to continue to Debottleneck, where it makes sense.

Yes.

And pushed those across the water.

Great. Thanks for that appreciate it other question I wanted to ask was just about ethane rejection and what youre seeing across your system.

Right now and then how you see that trending for the balance of year and is there any upside to volumes related to that.

Sure.

Yes, Michael.

We are in recovery across.

Across our systems and we have been for some time, so I don't really see a big a big change for us there.

Our exposure to ethane is really more on the price side and the volume side. So as ethane moves up we have some hedge but we do have some.

<unk> on that so we benefit from higher prices on ethane, but I wouldn't expect to see.

With ethane prices moving up.

Much of a volume impact really.

Great. Thank you so much okay. Thank you Michael.

Your next question comes from the line of Sunil Sibal Seaport Global Securities. Your line is open.

Yes, hi, good morning folks and thanks for all the clarity on the call.

I just had one.

One follow up from previous discussion on Opex. So it seems like.

Over the last couple of quarters is kind of.

Swung around a bit I was wondering you said a good way to think about your opex.

Fixed versus variable buckets.

Especially when you think about exposure to commodity chemicals and all of that.

I don't think that there is a easy framework that I can give you sunil related to that I think that as we think about opex Q2 going forward, it's likely to begin to look more like the fourth quarter than the first quarter. So thats, probably the best visibility that I can give you right now, but we're also seeing prices.

This increase real time so.

Little bit tough to predict as well I think our operations teams and engineering teams are doing an excellent job of trying to stay in front of us.

Oh, Okay got it thanks for that and then on <unk>.

NGL marketing side, you mentioned in the press results so.

Less optimization opportunities.

Obviously some of that is seasonal too, but I was curious is that a good way to think about that part of your business and what are the drivers.

This optimization.

The new spot.

Yes.

Yes, yes sure.

Data trades, so it's really just less of that in the first quarter relative to previous periods.

So.

I think that is the primary driver of that.

So then going forward.

I guess Q2 Q3 are normally seasonally weak.

Seasonally weaker than you would expect that to kind of pick up obviously overlaying, some contango opportunities, which may show up.

Well the seasonality.

Part of it we do have some where we get some benefit in both Q4 and Q1 from our seasonal wholesale propane business and so that will come off in Q2, and Q3 as far as the contango or backwardation or those kind of opportunities that present, our marketing team.

Sent us.

Yes, Matt This is Scott real quick on the wholesale side of our business. We did see a strong fourth quarter in certain areas of our business, especially those areas, where we have a nice pockets of field inventory. So.

More of those volumes moved out during the fourth quarter than they did in the first quarter. So as a result of that we had some uplift.

Probably earlier in the winter season than we did in the latter part of the winter just where our position is on inventories.

Okay got it thanks for all the clarity.

Okay. Thank you.

Your next.

Question comes from the line of Harry Mateer with Barclays. Your line is open.

Hi, good morning.

First question. It seems like you guys made it up to investment grade just in time for the rates market ticket turnarounds had a bit but I'm curious, whether you see more opportunities to optimize the capital structure and your interest expense in the second half now you've done your inaugural IGT deal.

Good morning, Harry This is Jen I think we'll have continued opportunity is just moving forward. We do have some higher coupon notes so depending on the tolerability and coal prices of those notes, we'll be continuing to try to figure out how to best manage our liquidity and our notes positions going forward I do think there is continued opportunities to benefit from savings but.

Okay. Thanks, and then.

I know earlier on the call you answered that.

The call and the <unk> proceeds is going to be towards paying down the revolver, just would love to get a sense for how you structurally like to plan out liquidity.

So it's a cash balance you'd like to have or what are some guardrails. We can think about on a quarter to quarter basis that you'd like to keep in terms of available liquidity.

I think a lot of the cash that you see on our balance sheet quarter to quarter really has more to do JV and the terms of the JV and when cash is distributed out of those joint ventures than anything else. So we're generally trying to manage our liquidity position as often as we can so that means utilizing the available tool.

Whether that be our revolver or our accounts receivable facility.

Or just maintaining cash on the balance sheet. So there isn't a hard and fast rule that we're following that I can give you and it's really just us trying to manage as best as possible to minimize interest expense and maximize liquidity that we have at all times.

Okay. Thanks, Tim.

Thank you.

Your next question comes from the line of John Okay with Goldman Sachs. Your line is open.

S&P 500 type framework.

Yeah sure John Yeah. Good good question I think as we.

It really review our dividend.

Payout as Jen mentioned, we will plan to provide an update for you early part of <unk>.

Next year.

Not our goal to get back to where we used to be I think we're looking at.

Market indicators, we are looking at S&P 400, S&P 500 in terms of we'll look at yield that moves around with the share price. So we'll look at percent return based on free cash flow and other cash flow metrics as well. So I think we're going to be in really good position.

To continue to move our dividend higher given all the free cash flow that we have so we'll just evaluate it I'd say, it's similar to we evaluated that last year will look and say where do we want to be well, we will look at our peers and see what they are paying out.

Kind of a multi year, how do we want to be kind of layering in to increase payout over time.

That's great I appreciate that definitely.

The buyback camp over here for what it's worth maybe just just.

One one more from my side some of the weather issues kind of masked some of the basic trends. So just wondering if you can give us an update on kind of what youre seeing in terms of green shoots or not in some of your other basins kind of outside of the Permian.

Sure.

Pat do you want to give a bit of an update there.

Sure.

We have seen increased activity level across all of our basins.

Not a huge uptick, but a pretty steady nice uptick in our Oklahoma regions.

More so.

The southeast side of the state versus Western Oklahoma.

Certainly we've seen people that havent drilled the two to three years.

<unk> rigs and drilling wells, we've seen a lot of re completions.

No.

I'd say, we're stemming the tide there relative to past steady declines over the last three or four years.

We're seeing enough activity to offset decline and frankly in some areas to actually grow.

The Barnett, we're seeing activity that we haven't seen in the past and frankly, that's a little more lumpy. So youll see that showing up in our volumes as we go throughout the year, but we have some positive tailwind is there.

South Texas is such a competitive environment. It kind of gets lost in the sauce with certainly with our new acquisition there is different opportunities relative to SAR gas capture et cetera. So we.

We see opportunity in our South Texas region.

The bad news is steady.

Is the best way to put it the activity level is.

Certainly we've had weather.

But we.

We haven't seen a huge uptick, but we've seen goods goods.

Good steady activity levels.

All right appreciate that thank you.

Alright, thank you.

Your next question comes from the line of Neel Mitra with Bank of America. Your line is open.

Hi, good morning, Thanks for taking my questions.

Yes.

Wanted to follow up on the ethane recovery, specifically, how it relates to Grand Prix.

In 2000 2030, the basin should probably move to full ethane recovery.

And I'm wondering how your third party shippers.

Well fair on this whether youre incentive rates will go up or your volumes, how do you see the outlook for Grand Prix with ethane recovery for the base and just trending up.

Hey, Neil This is Scott as Matt said earlier.

Pipeline.

Two fractionation facility.

Yes.

Both of the plants that are operating on our systems.

We do have a few.

Third party plants that will evaluate ethane recovery based upon.

There are situations, where they're located in.

The contracts are around their system, but all in all for the most part we don't see a lot of swing on both our pipelines as well as the third party pipeline that are coming into our system.

So I would say that it's not a big needle mover.

Indicated that earlier.

But I think that when you look at where the pricing is today, most plants should be and recovery and Thats what were seeing on our system.

Given the price advantage that we see on the petrochemical side I think that that will continue for a while but theres going to be some noise from time to time, but all in all for the most part in our system.

I assume.

So our freshness.

Okay. Thank you and then second question I know you market a lot of your producer volumes.

<unk> gas volumes at the tailgate and you've been planning for a while for the.

Gas egress issues, but can you kind of just walk me through.

How you plan for that when you have such massive growth on your systems, 10% every year, how far in advance you do that and and weather.

Any potential issue just wondering into 2023.

Even though.

You'd started to plan for it early.

This is Bob.

What I would tell you is it's important to us.

We will sell it to people that we know for lots of different reasons.

That physical transport to get it out of the basin, they're very large counterparties that everyone. On this call would know and that's how we focus on it and then when you think about how long. We go forward. We obviously, we look at when we think.

<unk> will be coming online when we expect our.

Third of the capacity issues out of the basin and we make sure we're crossing across that and we don't try to get acute within months, we make sure we're well beyond when those expansions will come online. So we've been doing that we're still doing that we've got everything that we think we need to cover.

And we even take out potentially beyond that over time so.

Yes.

That's one where we're able to plan as far out as we want because people want to buy the gas for as long as we want to sell it and then we try to we try to do is match it up with when we think there'll be in.

There could be issues.

Got it that's really helpful. Thank you.

Okay. Thank you.

Your next question comes from the line of Robert Moskow with Mizuho Securities. Your line is open.

Hi, Good morning, everyone. Just one question from me Grand Prix volumes have grown pretty strongly over the last few quarters, just hoping to get your latest thoughts on how that pipeline can be expanded in the medium term and how early you think an expansion on the Permian segment would be required just assuming that.

Bret do constraint gets addressed.

Hey, Robert This is Scott we have been very pleased with the continuation of increased volumes.

Detection side of our business quarter ending quarter, our first quarter.

Averaging 460000 barrels a day into our Mt Belvieu complex so.

The first quarter of that part of that.

Contribution is coming from north, Texas and into Oklahoma.

From our applications in that area. So.

We will evaluate the need for additional pipe in pipe expansions, we will be well ahead of that relative to what our needs are producers behind our system.

So it's something that we are going to be well ahead of when it's necessary.

Great. Thank you.

And there are no further questions at this time I would now like to turn the call back to Sanjay.

Thanks to everyone that was on the call. This morning, and we appreciate your interest in Targa resources.

Investor Relations team will be available for any follow up questions. You may have thanks and have a great day.

Ladies and gentlemen, this concludes today's conference call. We thank you all for participating you may now disconnect.

Q1 2022 Targa Resources Corp Earnings Call

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