Q2 2022 Targa Resources Corp Earnings Call

August 4, 2022

Good day and welcome to the Targa resources second quarter 2022 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by Europe .

After todays presentation, there will be an opportunity to ask question to ask a question you May Press Star then one.

Please note. This event is being recorded I would now.

I'd like to turn the conference over to Sanjay Lad, Vice President Finance and Investor Relations. Please go ahead Sir.

Thanks, Paul Good morning, and welcome to the second quarter 2022 earnings call for Targa Resources Corp.

Second quarter earnings release, along with our second 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.

<unk> officer.

Now turn the call over to Matt, Thanks, Sanjay and good morning.

This is an exciting time for our company and given the recent close of our Delaware Basin acquisition I want to take this opportunity to publicly welcome our new colleagues to the target team I would also like to thank all of our employees for their collective efforts as it has been a very busy first seven months of 2022 and the team has already occurred.

<unk> a lot and our strong execution continued across the second quarter, including record high quarterly EBITDA record volumes in the Permian record NGL transportation and fractionation volumes redemption of series a preferred stock completing the successful sale of our interest in Gulf Coast.

Express pipeline.

Integration of our acquired South, Texas assets successful negotiation of our Delaware Basin acquisition, and subsequent financing and $74 million of common share repurchases.

Looking ahead, continuing to execute on our strategic priorities will drive increasing EBITDA reduced common share count a higher common dividend, while maintaining leverage within our target range. Our performance. This year has been strong and we expect that to continue.

We are updating our financial guidance for the year to account for the completion of the Delaware Basin acquisition and effective August one.

We now estimate full year 2022, adjusted EBITDA to be between $2 85, and $2 95 billion.

We continue to expect volumes to grow across both our Permian Midland and Delaware positions for the remainder of the year and well beyond.

We have several gas plants under construction legacy one in legacy too in the Permian, Midland and Midway and Redhill six and the Permian Delaware.

And given our line of sight to increasing GMP volume growth, we are continuing to invest across our NGL business.

We are announcing two new projects, a new 275 million cubic feet per day processing plant in the Permian Midland, which we're calling the Greenwood plant and a new 120000 barrel per day train nine fractionator in Mont Belvieu <unk>.

Investing in organic growth projects across our integrated footprint footprint provides targa with attractive returns and puts us in a strong position to continue to return capital to our shareholders.

Turning to our Delaware Basin acquisition, and our combined Permian basin footprint.

On a combined basis, we now have about $2 8 billion cubic feet per day of processing capacity in the Permian, Delaware complementing our three six Bcf per day processing position in the Permian Midland for a combined total of six four bcf per day of processing capacity.

Our assets in the Delaware Basin overlay some of the most economic acreage in North America with the acquisition, increasing our size and scale by extending our reach into the highly active and productive Eddy and Lea counties New Mexico.

We now have several million acres dedicated to us across the Permian basin, providing decades of future activity that will result in increasing volumes moving across our integrated assets.

We acquired the Delaware basin assets at an attractive seven five times multiple of estimated 2023, EBITDA and expect volume growth as well as near and long term synergies to reduce the acquisition multiple.

We expect to capture downstream synergies over time as existing contracts come up for renewal and from new Targa processing expansions.

We funded the acquisition with cash on hand, and debt and expect to end the year with leverage around three five times comfortably around the midpoint of our three to four times long term leverage target ratio.

Let's now discuss our operations in more detail.

Starting in the Permian our systems across the Midland and Delaware basins continued to perform well averaging a record three one bcf per day reported inlet volume during the second quarter.

In Permian Midland our systems continue to run fall and we expect to bring online. Our next 275 MN CF per day legacy one plant later this month, which is expected to come online highly utilized a special thanks to our engineering and operations teams for working diligently and safely to bring legacy online.

<unk> ahead of schedule.

Our legacy to plant in Permian Midland remains on track to begin operations during the second quarter of 2023, and we similarly expect it to be highly utilized when it comes online.

In Permian, Delaware volumes across our system are also continuing to ramp our new 230 million a day Redhill six plant is expected online in September and our new 275 million a day Midway plant is expected to begin operations during the third quarter of 2023.

We expect Red Hills, six to essentially before when it comes online and we have flexibility across our Permian Delaware system to handle additional near term production growth from Eddy and Lea counties with connections to Targa plants.

Shifting to the Badlands.

Late winter storms impacted our natural gas and crude gathering volumes for the second quarter, but volumes have since rebounded.

In our central region, the acquired assets in South, Texas, and an uptick in activity levels in Oklahoma and North, Texas drove a sequential increase in volumes during the second quarter.

Shifting to our logistics and transportation segment NGL transportation volumes were a record 492000 barrels per day to Mont Belvieu during the second quarter.

Throughput volumes sequentially increased 7% driven by increasing NGL production from targets Permian plants, and third party fractionation volumes at our Mont Belvieu complex during the second quarter were a record 737000 barrels per day.

And the fractionation market in Mont Belvieu continues to tighten we.

We are moving forward with train nine given our outlook for continued supply growth from our Permian G&P systems and third parties.

<unk> is fully permitted and is expected to begin operations during the second quarter of 2024 with an estimated cost of around $450 million.

In our LPG export services business at Galena Park, we loaded an average of $10 4 million barrels per month during the second quarter, providing a consistent outlet for our customers. Despite continued volatility in global commodity markets. We continue to expect to complete our previously announced low cost expansion project to increase our propane.

Loading capabilities with an incremental 1 million barrels per month of capacity by mid 2023.

Lastly year to date, we have purchased almost $2 4 million common shares at a cost of around $154 million.

Our balance sheet is strong we're continuing to invest in our business both organically and through acquisitions. We are returning an increasing amount of capital to our shareholders and we are excited about targets outlook.

Before I turn the call over to Jen I would like to extend a final. Thank you to 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 Ken.

Thanks, Matt <unk> reported quarterly adjusted EBITDA for the second quarter was $666 4 million, increasing 6% sequentially as we benefited from higher commodity prices and higher volumes across our gathering and processing and logistics and transportation systems, partially offset by lower marketing margins and higher operating.

Targa generated adjusted free cash flow of $334 million in the second quarter.

Solidago net leverage ratio was three one times at the end of the second quarter, and we had about $2 3 billion of available liquidity.

We repurchased about $74 million of common shares in the second quarter and repurchased an additional $30 million. During July we have approximately $215 million remaining under our 500 million dollar repurchase.

Since the inception of our common share repurchase program in the fourth quarter of 2020, we have opportunistically repurchased $285 million of common shares or about $8 6 million shares at an average price of $33 and 12.

We continue to expect to pay a common dividend per share of $1 40 for 2022 with our next dividend increase likely to be announced in early 2023 concurrent with when we expect to provide 2023 operational and financial guidance.

Throughout the year, we have added hedges and we are significantly hedged for the balance of 2022.

We have also continued to add 2023 hedges at higher weighted average hedge prices in 2022.

It's been a very active couple of months for the finance team as we are able to attractively finance, our Delaware Basin acquisition through a combination of five year and 30 year senior notes issued in the investment grade market, a three year term loan and availability under our revolver.

So pharma for the acquisition, we have about $1 1 billion of liquidity available on our revolver.

Benefiting from now being an investment grade issuer. We also recently entered into a commercial paper program.

As Matt mentioned, we are updating our financial estimates to account for a partial year contribution from the Delaware Basin acquisition and now estimate full year 2022, adjusted EBIT to be between $2, eight 5 billion and $2 95 billion.

And continue to estimate our year end leverage ratio of around three five times.

With the addition of spending in 2022 for the Greenwood plant and train nine announced today plus spending to support the newly acquired Delaware Basin assets. We now estimate 2022 net growth capex to be between 1 billion and $1 1 billion.

Yes.

Capex remains unchanged at approximately $150 million.

Our continued investment in growing targets underlying businesses supported by solid business fundamentals and the strength of our balance sheet means we are in excellent position looking forward to continuing 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.

Thanks, Ken for the Q&A session. We kindly ask that you limit to one question and one follow up and re enter the lineup. If you have additional questions call would you. Please open the line for Q&A.

Thank you and we will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

First question today will come from Jeremy Tonet with Jpmorgan. Please go ahead.

Hi, good morning.

Hey, good morning, Jeremy.

Just wanted to.

Dive into capital allocation thoughts a bit more.

Big Big spend this year with with the acquisition and all but as you start to look into 'twenty three it seems like Theres a lot of them.

Available cash flow and just wanted to kind of get your thoughts with.

Where do you see that landing it seems like the opportunity for buybacks would only increase and when you think about buybacks.

Is it more price sensitive to the stock or is it more balance sheet capacity that drive timing of buybacks.

Hey, Jeremy.

We really are in a good position, where we're going to have a lot of flexibility.

As we move through this year with strong EBITDA growth and then as we get into 2023 expecting continued growth.

And our business.

I think we'll continue to focus on investing organically, which is driving some of the really good returns for Targa, and then really increasing our ability to return more capital to shareholders over time.

But we'll have a lot of flexibility in 2023 to increase that return of capital to shareholders. So yes. This fall will discuss with our board with the right dividend level is.

What kind of look at our peers, we will look at broader industry peers S&P for a 500.

And then come up with a recommendation for a dividend.

And that'll be one piece of the equation and then we'll also look at.

Continuing our share buybacks, you've seen us actually ramp that up here even in light of the lucid acquisition, we've been increasing our share buybacks.

Would still like to say that it is an opportunistic program I don't see us just setting a level and say it's going to be this we're going to look at the macro environment will look at our organic growth projects, where we set our dividend and then come up with.

That makes sense, but have flexibility in that such that if we see some good opportunities to increase that then we can do so.

Got it that's helpful and just wanted to kind of clarify two points there as my follow up when you think about the dividend is it relative to midstream peers or more kind of like S&P 500, and I guess.

Churn in the marketplace with regards to this much free cash flow coming out next year, and whether that would be returned to shareholders or put to M&A and just wondering any thoughts you can provide on that.

Yes, I think as we look to the dividend, we will look towards broader industry peers, we will be informed by what our midstream peers do we'll take a look at that but I think.

We talked about when we moved our dividend to $1 40, having modest growth. We certainly have the ability to do that in a lot of flexibility and the ability to do more if we so desire to do more than modest growth that will be a discussion with our with our board either way, we're going to prioritize financial flexibility as we go forward to continue to invest in our business.

<unk> and then I view M&A kind of similar to how we've talked about it I think we continue to have a high bar for.

For M&A.

We need something thats going to put us in really strong position coming out of the other side of the M&A, which both the south crossing and the lucid acquisitions.

Our balance sheet is strong we reported three one times.

The leverage ratio, we're estimating three five by year end. So we want to make sure we have a strong balance sheet, if we do any.

Any M&A I'd say right now is as active as we've been this year, our focus is going to be on integrating those acquisitions and making sure. We do those well and extract the synergies that we think we can get from those acquisitions. So I think our focus is going to be an integration here for a little while even while we have significant cash flow to invest in our business organically and then increase return on it.

Capital to shareholders.

Got it that's helpful. Thank you.

Okay. Thanks, Jeremy.

And our next question will come from Brian Reynolds with UBS. Please go ahead.

Hi, good morning.

Was curious if you could just a little bit on commodity exposure close to recently lucid acquisition and how we should think about the evolving kind of 60, 40, G&P logistics and transportation earnings mix over time.

It kind of fair to assume that we should see growth in fee based in the LNG business going forward relative to GOP G&P and pockets closure.

Yes, sure our commodity exposure.

With lucid really being I'd say entirely fee based contract.

There is still is some embedded commodity exposure in there with just the way those contracts are settled but it's primarily fee based so all things equal that's going to marginally increase our fee based margin over time.

We look at about mix, what's GMP and what's downstream, we kind of think of it more as we're going to continue to invest in both of those businesses is an integrated business, we're going to invest in GMP and we're going to invest like we are with train train nine and the export dock as needed to handle those volumes and then so the mix is going to kind of be a result of investing in our integrated platform.

To the extent, we get higher commodity prices and we move above our fleet fee floors. Then it ends up shifting a little bit more margin and our G&P business. That's really a result of just excess earnings and having a higher commodity price environment. So.

So we don't have a target we're going forward, we're just going to continue to invest in.

Both businesses that said, we see increasing fee based margin is on an absolute basis continuing to grow we're going to continue to have growth in our G&P business from.

Fees were going to continue to have fee based margin increase in our downstream business from phase and we will also continue to look to add fee based elements, our florists to any existing contracts, where we don't already have those particularly as contracts come up for exploration or are there some catalyst to be able to renegotiate those contracts. So that will also.

Help provide additional cash flow stability and downside going forward.

Great I appreciate all that incremental color, maybe as my one follow up the lucid acquisition appear to include some carbon and <unk> capabilities just given the recent 45 Q&A queue credit increase included an inflation reduction Act proposal, how should we think about the potential opportunity set for targa as the largest processor.

Thanks.

Yes. Thank you.

We have been working prior to looser just on.

Working on carbon capture to see if there is something we can commercialize across our Permian footprint lucid has made really good progress on that as well.

So I'd say that yet.

<unk>.

I am excited about the opportunity to be able to develop that both in the Delaware and on the Midland side. They have some really good people over there who are really smart and knowledgeable about how to do this and yes. You are right with a 45 Q if that gets pass increasing yet it makes those projects easier to get over the finish line. So I think with their expertise plus a work that we have.

Don it kind of increases our ability to commercialize that opportunity.

Great I appreciate the color and have a great rest of your morning.

Okay. Thank you.

And our next question will come from Keith Stanley with Wolfe Research. Please go ahead.

Hi, good morning.

I guess to start just on lucid synergies can you talk a little more about near term long term opportunities and how impactful it might be I guess near term you referenced.

Essentially shifting some lucid volumes if it's above your capacity onto other target assets, just any color along those lines and how you're thinking about that.

Hi.

Yes sure.

Near term there'll be some synergies on the NGL side, but just moving some volumes over to excess capacity, we have out in our far west Delaware processing plants, we have excess capacity loosens running overcapacity.

And so when we tie theyre already tied together, we're actually working on putting in some more pipes to expand the capability to move more gas to and from.

So some near term just from what we call offload onto our existing Targa system that then pushes those liquids down.

Grand Prix and we expect over time as we add processing plants those processing plants will be on dedicated will be able to capture some of those volumes and move those into our downstream business. That's another opportunity and then as existing NGL dedications roll off over time, we'll be able to move those onto ours as well so I would say.

Short term some medium term and then some longer term, where it's contracted or tied up.

I think it will be similar to how we think about that from our previous acquisitions, we have done.

It's going to be kind of a gradual increase in the ability for us to capture those liquids versus.

Probably a cliff or just a really large amount coming all at one day, it's going to be a gradual move of ngls onto our system over time.

Great. Thanks, and second question, just with the installation reduction Act.

John can you just give an update on when you expect the company to be a material cash taxpayer.

That Bill is currently written could impact the company.

So currently key it depends on ultimately what our earnings and profits are in the amount of growth capital spending that we undertake but our current assumption is that we wouldn't really pay any cash taxes of any material amount until 2024, and then it would ramp from there so it's probably call it <unk>.

2020, before we've worked our way through our existing NOL and then again that could be shifting depending on growth capital spending et cetera, with the inflation reduction act, we could potentially be paying minimum tax in 2024, but that would really be available of those taxes would then be available to reduce.

Regular income taxes in the future. So it would really create more of a timing shift of when we take cash taxes versus anything else.

Thank you.

Thank you okay. Thank you.

And our next question will come from Colton Bean with Tudor Pickering Holt. Please go ahead.

Good morning.

Apologize in advance for a few final questions here, but it looks like Grand Prix reached nearly 500000 barrels a day during Q2 so.

One can you frame that makes between Permian and mid con.

To the extent that Permian utilization continues to climb as new plants come online is there any ability to push beyond that 550000 barrel a day upside capacity.

If not what sort of lead time would you need to look to align to the 30 <unk> interconnect in North Texas.

Hi, Colton. This is Scott I'll start it off and see if Matt has some other comments that he would want to add but I would just say that we've not described exactly what the mix is from the west leg of our Grand Prix pipeline versus the northern leg coming from Conway and in through the Kingfisher connection that we've got with the Williams pipeline.

With Blue stone.

It is a contributor to that and that is one contributor that will grow over time as existing contracts with some of our customers roll off with competitors and those volumes roll on to us.

We're certainly aware of.

The need of the west leg that we have today and we are continuing to add pumps, where it's necessary to pump up that pipeline.

We're always evaluating what the needs are relative to increasing over and above maybe the 550000 barrel limit that we have to kind of stated publicly and then we are obviously evaluating what the needs are to add additional transportation needs out of the Permian. It is our goal as we add gas processing plants in the Permian both weather whether its worth.

The Delaware acquisition that we recently did or new plants on the Midland side.

Goal is to make sure that those volumes run along our transportation legs, whether its current Grand Prix pipeline or <unk>.

Future expansions that we may do.

Great and maybe just on the on that last piece any early expectations around what sort of lead time, you would need to be able to leap to align to that larger interconnect.

Yes.

We're working through that we've got a number of processing plants underway now that are going to add significant liquids to us we still have a fair amount of capacity that gives us a lot of lead time to be able to capture those so I'd say right now we're kind of working through looking at the timing of our transportation volume and the build.

And kind of evaluating when the right time to add additional transportation capacity is so that's kind of something we are actively.

Actively working on.

And so just kind of walk through just kind of look at that as we as we go forward.

Got it and then just switching over to the G&P segment fairly material step up in Opex Q on Q any detail on the trajectory you're expecting here through the balance of the year.

Hello. This is Jen I think you should expect an increase Q3 relative to Q2, just as a result of the <unk> acquisition.

We are seeing inflation across our businesses on the cost side in terms of chemical costs and things like that I think our teams are doing a really good job of trying to manage through that but costs are higher and then just as activity levels increase that also results in higher costs as well and we certainly have an expectation of activity levels on the G&P side.

Continuing to increase rest of this year, both Delaware Basin, plus Standalone targa.

Great I appreciate the detail.

And our next question will come from Neal Dingmann with true Securities. Please go ahead.

Hi, Good morning, this is Danny <unk> filling in for Neal today.

My first question.

Really bal.

On expansion you guys have some attractive plants and construction is coming online.

You guys see any.

Demand for additional products.

And if so which region would you say is the strongest.

Okay.

Sorry, just to clarify you say regional demand for products or are you kind of just referring to.

Correct.

Yes, that's correct yes.

Okay.

As I kind of said in the scripted comments, we do see a tight frac market.

<unk>.

Our volumes have ramped a lot of the competitors volumes third party volumes have ramps, we're seeing a lot of Y grade head Bellevue and so that market is tightening up a lot of that is coming from from the Permian from growth lot of it is also coming with some operational upsets we've had the industry coming from other areas as well so thats, causing.

To kind of tighten up a bit we still have some flexibility with our fractionation complex with.

With train seven and eight coming on and giving us some excess capacity, we have flexibility to lake Charles and we also are looking at what the right timing for gcs potential restart is so we're kind of sorting through that so I think we will be able to provide some outlets for that increase.

Y grade, but it is tightening up and we do expect it to be tight tight for a while.

Okay, great. Thank you for the color and my last question is on capital allocation.

Specifically is there a leverage level.

It would become more aggressive with buybacks stock buybacks.

I know you guys aren't your midpoint.

Or is it will be at your midpoint by year end, but when you've given color on that that'll be it for me. Thank you.

This is Jim I think it's easier to be more aggressive if your leverage ratio is trending towards the lower end of the year long term leverage target range, but that may not be when the best opportunity presents itself in the market. So if you rewind back to October of 2020, when we put the repurchase program in place.

We had our leverage where we wanted it to be but we saw a unique opportunity in the market to go and repurchase shares and so we stepped into that I would expect that it's an important part of how we'll return capital going forward. The most important element of how we want to manage the profile of the company is with maintaining a very strong balance sheet. So if our balance sheet.

Is strong, which we really believe is within that long term leverage target range of three to four times with a preference for that leverage ratio to be towards the bottom end of that range I think youll see us continue to have the flexibility to be active and then it'll just be a matter of what opportunity do you see presented in the market.

That makes sense. Thank you very much.

And our next question will come from Chase Mulvehill with Bank of America. Please go ahead.

Hey, Thanks for getting me in.

I guess first question is really just coming back to pardon me and processing capacity.

We've seen a lot of announcements recently.

A lot of your peers, adding processing capacity in the Permian.

So if we kind of think about that.

Relative to yours, I think you've got about one two bcf a day of incremental capacity that you plan to bring online by the end of next year.

Could you talk about the confidence you have of filling that.

Which you bring those plants online.

Sure.

Yes, no we've got a lot I mean, we're adding five plants right now.

Across the Permian.

I'd say, we feel kind of starting with the nearest term loans, we feel really good about those being full I think legacy one in Red Hills are both going to be highly utilized really the day. They turn on we are running.

Absolutely fall in the Midland and it was actually overhaul in the Delaware on the lucid asset. So I think those are going to be full kind of day, one and then when you go to the <unk>.

Mid way plant that is a partial.

Matt we're going to be idling, the sand hills plant. So we will move those volumes over and then have available for growth. There. So most of that is going to be utilized just from the sand Hills volumes day, one and so then that leads to more processing plants in the Midland Basin.

We've added a number of plants in the Permian Midland and it's really been the same story for us as soon as we bring it on with the flush production coming from kind of lowering overall field pressures plus the growth.

Feel very optimistic we're going to be able to have those highly utilized when they come on and then fill up area.

Quickly. So I think really the next question becomes when do we need more what's the cadence beyond that we feel like hopefully with on the Midland side with adding legacy.

Legacy two and adding Greenwood, maybe that gives us a little bit of time, but I think we'll be quickly looking at the Delaware for when we're going to need.

Another plant out there. So I think we're more thinking about when we're going to need another one as opposed to or we're going be able to fill the ones we've announced.

Well good to hear.

And then can I ask why.

Ill hub basis real quick.

Obviously, there is some risk of widening out kind of <unk> or maybe even before next year.

I just kind of curious on kind of your thoughts on the risk.

It's more just the basis risk and the volume risk but.

The basis risk that you have out there and maybe how much you've kind of hedged of that risk.

Sure.

Yes, I'd say, our risk out there we want to make sure that we can flow the volume so an <unk> tightens out if it gets difficult moving it out we want to make sure that we can move it. So we've been active in taking out transportation and making sure we can get the volumes away from our plant.

And to market as.

As far as the overall wahhab basis risk.

Our length in natural gas when we hedge we hedge it at wall. So.

Really what we want is kind of an absolute higher wahhab price versus a whole lot of.

Exposure to the spread so we want.

While oil prices to be high we want to make sure we can get volumes out.

Okay. It makes sense I'll respect the two questions and hopefully somebody who asked about metrics.

Yeah.

Thanks.

Yes.

And our next question will come from Sunil Sibal with Seaport Global Securities. Please go ahead.

Yes, hi, good morning folks and thanks for taking my question.

I wanted to start off on the on the capital side of things. So obviously you raised 2022 budget.

Kind of curious you know how.

How should we be thinking about.

Puts and takes for the 2023 capital spend you obviously outlined a few expansion projects.

So from that perspective.

What kind of cost inflation youre seeing and then how should we be thinking about the 22.

This is Jen for 2022, we've really accelerated projects that were in our five year plan, but just we need them sooner given the visibility that we have the volume growth. When you think about train nine ship spending shifting into 2020 to think about Greenwood spending shifting into 2020.

And then the adder would be at the Delaware Basin acquisition and the continued build out of those asset as we look into 2023, I think that part of what will impact our growth capital budget for next year will be potential spending on next plants, whether that be on the Delaware side or the next plant needed on the Greenwood side, but I would.

<unk> that we will be spending capital at levels very much commensurate with the size of the company and so as we've gotten bigger we just have more flexibility capacity to spend more but we also don't have a lot of visibility to what I call additional large projects beyond those that we've already announced other than incremental processing expansions a loop.

Paying or other project associated with Grand Prix and NGL transportation down the road that would be the one that just depending on what we're seeing on volume growth. The next large project that we have on the radar screen and the timing of that again will be dependent on the continued growth of NGL transport volumes.

So just just to clarify so what you're seeing is that unless you announced more projects you should see a.

Step down in <unk> and.

In 'twenty three Capex based on all that you announced.

I don't know if I'd say that we will see a step down we will provide formal guidance in February typical with our timeframe of when we provide capex guidance for the following year, but we do have some spending that shifting into this year and that spending on frac train nine that otherwise may have occurred next year, we've got spending on Greenwood shifting in it this year that otherwise may have occurred next year.

But I think we're very comfortable spending around these levels and then ultimately it's our visibility to increasing volume growth and where the next pinch point is within our asset footprint that will result in us needing to move forward with the next project, but I would say that there is something looming out there that would have a material impact on growth cap.

Spending at this point in time.

Got it thanks for that and then my second question was related to.

IRT.

I understand that there are some <unk>.

With regard to limiting methane emissions from processing facilities.

So I was curious if you had a chance to look through that and how do you think that impacts your footprint you've obviously.

Highlighted plants with the deals.

Emissions, but.

Does your plans kind of tie in with new.

The Quad mentioned.

Should we think about that.

Yeah sure so yeah, our ESN age group.

Ben.

Really active there kind of evaluating what that methane.

Dax or what.

<unk> got a tail, we actually were looking at quite a bit in the last round. This came about we took a look at it we are focused on reducing our emissions improving our intensity.

We have a lot of projects that were moving forward with it to try and try and reduce that so well.

We're very good compliance very good at meeting rules and.

<unk>.

<unk> group is up to the task on that and then we'll see what the ultimate what the fee or what the.

All of the operating parameters are for setting those limits.

Yeah. So.

Well have to see what ultimately gets passed but I'd say, we are actively focused on it working on it.

Roll off.

Yes.

Per performed very well.

Thank you.

Got it thanks for that.

And our next question will come from John <unk> with Goldman Sachs. Please go ahead.

Hey, Thanks for the time I wanted to start on Alan.

You guys touched a little bit on marketing being weak, but just given how strong volumes were could you just talk a little bit about what's going on this quarter.

One off on <unk>.

Margin dipping or is this kind of the run rate.

Unit margins, we should think about going forward.

First off I would say John that we had a we had a very strong first quarter as it relates to some of our marketing optimization around that.

Not quite as active in the second quarter, and Thats that would be somewhat seasonal and typical for us when we roll into the second quarter with that said when we look at the growth that we've had on the fractionation volume side, obviously record volumes there.

We've had increased volumes slowing down our transportation assets and through Mount Belvieu. So we've seen some nice.

Increases on that and then our export business continues to be very consistent quarter in and quarter out.

Obviously with pricing the way that it is today with the backwardation that we're seeing across really.

The U S pricing as well as international pricing that presents itself some challenges, but all in all with what the volume growth that we're seeing on our G&P side of the ledger those volumes are going to be steered towards our transportation assets to our fractionation footprint.

We're going continue to see volumes increase over time.

No.

We feel very comfortable where we sit obviously, we've got a lot of work to do as it relates to our announcement around train nine and bringing those bringing that fractionation train back on and we see opportunities there to continue to grow with the volumes.

Alright, thanks for that maybe just unpack it a little bit what you said there just in terms of the export business, we've seen some softness and pet Chem demand overall, maybe you could share kind of where you see that sitting right now and how that should trend through the rest of the year.

From an international perspective is that what you're referring to for that business. Thanks.

Well again from our volumes, we've seen consistency quarter ending quarter out there has probably been more of a challenge on the butane export side of the business. Some of Thats related for backwardation again that we're seeing on propane as well as butane, but internationally, yes, it's been it's been a little bit more a little tougher on the butane side.

Spreads have been compressed.

We are also seeing that internationally butane prices are actually trailing behind propane prices and so when you look at the risk of waterborne traders. When you look at the consumption overseas, obviously dealing with potential.

Issues, just with the economies there.

We will be facing some challenge, we feel very comfortable though with our term contracts, we've not had any cancellations across our dock. So we again believe that we will see consistency with that we feel very comfortable also with our expansion that will come online mid next year, adding some additional flexibility. So all in all I think.

The cadence of our export business looks very smooth.

Relative to overall expansions that we're doing across our entire downstream business that complements our upstream side.

Alright, that's fair I appreciate it.

Okay. Thank you.

And our next question will come from Michael Cusimano, with Pickering Energy partners.

Go ahead.

Hey, good morning, everyone.

Good morning.

On my numbers for.

22, you have realized almost $300 million of hedge losses year to date on the GMP system and.

Disclosures are kind of sale, but my math shows a couple of hundred remaining for the rest of the year. So I was hoping you could talk about 2003 hedges.

We're not sure.

Or are there prices necessarily but.

Given the recent commodity weakness there.

Those looking like potentially even a net benefit next year even if.

Spot prices stay high just seems like there is almost a $500 million tailwind going into next year, just from hedge realizations rolling off.

I was hoping you can give some more clarity there.

We have hedged at higher prices in 2023 relative to 2022, so that will provide a nice tailwind for us. If you look across all commodities I would say that our hedge prices right now are call it 25% plus higher than where they are for 2022.

So I think you're right in saying that that will be a nice tailwind for us as well as just continued volume growth as well. So if we have continued higher prices like we're seeing more prompt given the backwardation in markets and as we realize higher prices on additional volumes that will be a nice tailwind as well.

Okay.

Got it that's very helpful and then.

You kind of take the bait and asking about just Medford <unk> seen on your system.

As part of the strength in the Frac volumes are a direct result of that.

Yeah. So.

I really kind of answer the overall frac market question previously the Frac market is tied it's a combination of increased volumes from Y grade and you had some operational upsets from the industry that is moving more volumes to Bellevue. So yes that is yes.

Lightning up.

To some extent.

And this will conclude our question and answer session I would like to turn the conference back over to Sanjay Lad for any closing remarks.

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

IR team will be available for any follow up questions. You may have have a great day.

Yes.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Okay.

[music].

Yes.

Okay.

Yes.

Sure.

Okay.

Yeah.

[music].

Yeah.

[music].

Good day and welcome to the Targa resources second quarter 2022 earnings Conference call all participants will be in a listen only mode.

Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one. Please note. This event is being recorded.

I'd now like to turn the conference every Sanjay Lad, Vice President Finance and Investor Relations.

Sorry.

Thanks, Paul Good morning, and welcome to the second quarter 2022 earnings call for Targa Resources Corp, second quarter earnings release, along with our second 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.

It could cause actual results to differ please refer to our latest SEC filings.

<unk> I will now turn the call over to Matt Thanks, Sanjay and good morning.

Express pipeline.

Integration of our acquired South, Texas assets successful negotiation of our Delaware Basin acquisition, and subsequent financing and $74 million of common share repurchases.

We are updating our financial guidance for the year to account for the completion of the Delaware Basin acquisition and effective August one.

We now estimate full year 2022, adjusted EBITDA to be between $2 85, and $2 95 billion.

We continue to expect volumes to grow across both our Permian Midland and Delaware positions for the remainder of the year and well beyond.

We have several gas plants under construction legacy one in legacy too in the Permian Midland and Midway in Red Hills, six and the Permian Delaware.

And given our line of sight to increasing G&P volume growth, we are continuing to invest across our NGL business.

We are announcing two new projects, our new 275 million cubic feet per day processing plant in the Permian Midland, which we are calling the Greenwood plant and a new 120000 barrel per day train nine fractionator in Mont Belvieu.

Turning to our Delaware Basin acquisition, and our combined Permian basin footprint.

We now have several million acres dedicated to us across the Permian basin, providing decades of future activity that will result in increasing volumes moving across our integrated assets.

We expect to capture downstream synergies over time as existing contracts come up for renewal and from new Targa processing expansions.

Let's now discuss our operations in more detail.

Starting in the Permian our systems across the Midland and Delaware basins continued to perform well averaging a record three one bcf per day reported inlet volume during the second quarter.

In Permian Midland our systems continue to run fall and we expect to bring online. Our next 275, and then CF per day legacy one plant later this month, which is expected to come online highly utilized a special thanks to our engineering and operations teams for working diligently and safely to bring legacy online.

Ahead of schedule.

Our legacy to plant in Permian Midland remains on track to begin operations during the second quarter of 2023, and we similarly expect it to be highly utilized when it comes online in.

Shifting to the Badlands late winter storms impacted our natural gas and crude gathering volumes for the second quarter, but volumes have since rebounded.

In our central region, the acquired assets in South, Texas, and an uptick in activity levels in Oklahoma and North, Texas drove a sequential increase in volumes during the second quarter.

Shifting to our logistics and transportation segment NGL transportation volumes were a record 492000 barrels per day to Mont Belvieu during the second quarter.

Throughput volumes sequentially increased 7% driven by increasing NGL production from targets Permian plants and third party frac.

Fractionation volumes at our Mont Belvieu complex during the second quarter were a record 737000 barrels per day.

And the fractionation market in Mont Belvieu continues to tighten.

We are moving forward with train nine given our outlook for continued supply growth from our Permian G&P systems and third parties.

<unk> is fully permitted and is expected to begin operations during the second quarter of 2024 with an estimated cost of around $450 million.

Loading capabilities with an incremental 1 million barrels per month of capacity by mid 2023.

Lastly year to date, we have purchased almost $2 4 million common shares at a cost of around $154 million are.

Before I turn the call over to Jan I would like to extend a final. Thank you to 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.

<unk>.

Expenses.

Higher operating expenses were primarily attributable to increasing activity levels across our G&P systems. Our recently acquired assets in South, Texas and inflation, while costs are higher inflation continues to be a net tailwind for us across our businesses as we benefit from inflation linked to see escalators across our commercial contracts.

Targa generated adjusted free cash flow of $334 million in the second quarter. During the second quarter. We completed the redemption of all of our outstanding series, a preferred stock for approximately $973 million and also received the proceeds associated with the sale of our interest in Gulf Coast Express pipeline of 800.

$57 million, our consolidated net leverage ratio was three one times at the end of the second quarter, and we had about $2 3 billion of available liquidity.

The repurchase program.

Throughout the year, we have added hedges and we are significantly hedged for the balance of 2022.

We have also continued to add 2023 hedges at higher weighted average hedge prices in 2022.

Pro forma for the acquisition, we have about $1 1 billion of liquidity available on our revolver.

Benefiting from now being an investment grade issuer. We also recently entered into a commercial paper program.

And continue to estimate our year end leverage ratio of around three five times.

With the addition of spending in 2022 for the Greenwood plant and trained nine announced today plus spending to support the newly acquired Delaware Basin assets. We now estimate 2022 net growth capex to be between 1 billion and $1 1 billion.

Estimate for 2020 net maintenance Capex remains unchanged at approximately $150 million.

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.

Thanks, Ken for the Q&A session. We kindly ask that you limit to one question and one follow up and re enter the lineup. If you have additional questions.

<unk> would you. Please open the line for Q&A.

Thank you and we will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

First question today will come from Jeremy Tonet with JP Morgan. Please go ahead.

Hi, good morning.

Hey, good morning, Jeremy.

Just wanted to.

Dive into capital allocation thoughts a bit more.

Big Big spend this year with with the acquisition all but as you start to look into 'twenty three it seems like Theres a lot of <unk>.

Available cash flow and just wanted to kind of get your thoughts with.

Where do you see that landing it seems like the opportunity for buybacks would only increase and when you think about buybacks.

Is it more price sensitive to the stock or is it more balance sheet capacity that drives timing of buyback.

Hey, Jeremy.

We really are in a good position, we're going to have a lot of flexibility.

As we move through this year with strong EBITDA growth and then as we get into 2023 expecting continued growth.

And our business.

But we will have a lot of flexibility in 2023 to increase that return of capital to shareholders. So yes. This fall will discuss with our board with the right dividend level is.

What kind of look at our peers, we will look at broader industry peers S&P 500.

And then come up with a recommendation for a dividend.

That'll be one piece of the equation and then we'll also look at.

Continuing our share buybacks, you've seen us actually ramp that up here even in light of the lucid acquisition, we've been increasing our share buybacks.

I would still like to say that it is an opportunistic program I don't see us just setting a level and say it's going to be this we're going to look at the macro environment will look at our organic growth projects, where we set our dividend and then come up with a plan that makes sense, but have flexibility in that such that if we see some good opportunities to increase that then we can do.

So.

Got it that's helpful and just wanted to kind of clarify two points there as my follow up.

When you think about the dividend is it relative to midstream peers or more kind of like S&P 500.

And I guess there is concern in the marketplace with regards to this much free cash flow coming out next year and whether that would be returned to shareholders or put to M&A and just wondering any thoughts you can provide on that.

Yes, I think as we look to the dividend, we will look towards broader industry peers, we will be informed by what our midstream peers do we'll take a look at that but I think we.

<unk> talked about.

Moved our dividend to $1 40, having modest growth, we certainly have the ability to do that in a lot of flexibility and the ability to do more if we so desire to do more than modest growth that will be a discussion with our with our board either way, we're going to prioritize financial flexibility as we go forward to continue to invest in our business organically and then our view M&A.

Kind of similar to how we've talked about it I think we continue to have a high bar.

For M&A.

We need something thats going to put us in really strong position coming out of the other side of the M&A, which both the south crossing the lucid acquisitions.

Our balance sheet is strong we reported three one times.

Leverage ratio, we're estimating three five by year end. So we want to make sure. We have a strong balance sheet. If we do any any any M&A I'd say right now is as active as we've been this year, our focus is going to be on integrating those acquisitions.

And then making sure we do those well and extract the synergies that we think we can get from those acquisitions. So I think our focus is going to be an integration here for a little while even while we have significant cash flow to invest in our business organically and then increase return of capital to shareholders.

Got it that's helpful. Thank you.

Okay. Thanks, Jeremy.

And our next question will come from Brian Reynolds with UBS. Please go ahead.

Hi, good morning.

I have to assume that we should see growth in fee based in the LNG business going forward relative to job.

A&P and pop exposure.

Yes, sure our commodity exposure.

With lucid really being I'd say entirely fee based contract.

There is still some embedded commodity exposure in there with just the way those contracts are settled but it's primarily fee based so all things equal that's going to marginally increase our fee based margin over time as.

As we look at about mix, what's GMP and what's downstream, we kind of think of it more as we're going to continue to invest in both of those businesses is an integrated business, we're going to invest in GMP and we're going to invest like we are with the train train nine and the export dock as needed to handle those volumes and then so the mix is going to kind of be a result of investing in our integrated platform.

Form.

So we don't have a target we're going forward, we're just going to continue to invest in both businesses that said, we see increasing fee based margin is on an absolute basis continuing to grow we're going to continue to have growth in our G&P business.

Fees were going to continue to have fee based margin increase in our downstream business for face and we will also continue to look to add fee based elements our floors to any existing contracts, where we don't already have those particularly as contracts come up for exploration or are there some catalyst to be able to renegotiate those contracts. So that will also help.

<unk> provide additional cash flow stability on the downside going forward.

Great I appreciate all of that incremental color, maybe as my one follow up the Lucent acquisition appear to include some carbon and <unk> capabilities just given the recent 45 Q&A queue credit increase included an inflation reduction Act proposal.

How should we think about the potential opportunity set for targa as the largest processor Permian. Thanks.

Yes. Thank you.

We have been working prior to looser just on.

Working on carbon capture to see if there's something we can commercialize across our Permian footprint lucid has made really good progress on that as well.

I would say get.

Get out.

With a 45 Q if that gets passed increasing yet it makes those projects easier to get over the finish line. So I think with their expertise plus the work that we've done it kind of increases our ability to commercialize that opportunity.

Great appreciate the color and have a great rest of your morning.

Okay. Thank you.

And our next question will come from Keith Stanley with Wolfe Research. Please go ahead.

Hi, good morning.

I guess to start just on lucid synergies can you talk a little more about near term long term opportunities and how impactful it might be I guess near term you referenced.

Potentially shifting some lucid volumes, it's above your capacity onto other target assets, just any color along those lines and how you are thinking about that.

<unk>.

Yes sure.

We think near term there will be some synergies on the NGL side, but just moving some volumes over to excess capacity, we have out in our far west Delaware processing plants, we have excess capacity loosens running overcapacity.

And so when we type theyre already tied together, we're actually working on putting into more pipes to expand the capability to move more gas to and from.

So some near term just from what we call offload onto our existing Targa system that then pushes those liquids down down Grand Prix and we expect over time as we add processing plants. Those processing plants will be on dedicated will be able to capture some of those volumes and move those into our downstream business. That's another opportunity and then as.

<unk> NGL dedications roll off over time, we'll be able to move those onto ours as well. So I'd say there are some short terms of medium term and then some longer term, where it's contracted or tied up. So I think it will be similar to how we think about that from our previous acquisitions, we have done.

It's going to be kind of a gradual increase in the ability for us to capture those liquids versus.

Probably a cliff or just a really large amount coming all at one day, it's going to be a gradual move of ngls onto our system over time.

Yes.

Great. Thanks, and second question just.

With the installation reduction act.

John can you just give an update on when you expect the company to be a material cash taxpayer.

How that Bill is currently written could impact the company.

At 2027 before we've worked our way through our existing NOL and then again that could be shifting depending on growth capital spending et cetera, with the inflation reduction act, we could potentially be paying minimum tax in 2024, but that would really be available. Those taxes will then be available to reduce.

Regular income taxes in the future. So it would really create more of a timing shift of when we take cash taxes versus anything else.

Thank you.

Thank you okay. Thank you.

And our next question will come from Colton Bean with Tudor Pickering Holt. Please go ahead.

Good morning Sal.

I apologize in advance for a few final questions here, but it looks like Grand Prix reached nearly 500000 barrels a day. During Q2. So one can you frame that makes between Permian and mid con and two to the extent that Permian utilization continues to decline as new plants come on line is there any ability to push beyond that 550000 barrel a day upside.

And if not what sort of lead time would you need to look to align to the 30 <unk> interconnect in North Texas.

<unk> with Blue.

Jim.

But it is a contributor to that and that is one contributor that will grow over time as existing contracts with some of our customers roll off with competitors and when those volumes roll onto us we're certainly aware of.

The need of the west leg that we have today and we are continuing to add pumps, where it's necessary to pump up that pipeline. We are always evaluating what the needs are relative to increasing over and above maybe the 550000 barrel limit that we have some kind of stated publicly and then we are obviously evaluating what the needs are to.

Add additional transportation needs out of the Permian. It is our goal as we add gas processing plants in the Permian, both whether whether it's with the Delaware acquisition that we recently did or new plants on the Midland side.

Our goal is to make sure that those volumes run along our transportation legs, whether its current Grand Prix pipeline or.

Future expansions that we may do.

Great and maybe just on the on that last piece any early expectations around what sort of lead time, you would need to be able to leap the line to that larger interconnect.

Yes. So we are working through that we've got a number of processing plants underway now that are going to add significant liquids to us we still have a fair amount of capacity that gives us a lot of lead time to be able to capture those so I'd say right now we're kind of working through and looking at the timing of our transportation volume and the build.

And kind of evaluating when the right time to add additional transportation capacity is so that's kind of something we are actively.

Actively working on.

And so just kind of.

But we'll have to just kind of look at that as we as we go forward.

Got it and then just switching over to the G&P segment fairly material step up in Opex Q on Q any detail on that trajectory you're expecting here through the balance of the year.

This is Jim I think you should expect an increase Q3 relative to Q2, just as a result of the Lucent acquisition.

We are seeing inflation across our businesses on the cost side in terms of.

Chemical costs and things like that I think our teams are doing a really good job of trying to manage through that but costs are higher and then just as activity levels increase that also results in higher costs as well and we certainly have an expectation of activity levels on the GMP side continuing to increase rest of this year, both Delaware Basin, plus Standalone targa.

Great I appreciate the detail.

And our next question will come from Neal Dingmann with true Securities. Please go ahead.

Hi, Good morning, this is Danny <unk> filling in for Neal today.

My first question.

Lilly on.

An expansion you guys have some attractive plants on Fox news coming online.

Do you guys see any material demand for additional products.

And if so which region would you say is the strongest.

Okay.

Sorry, just to clarify.

Regional demand for products or are you kind of just referring to it on a fraction demand that.

Yes, that's correct yes.

Okay.

Well as I said in the scripted comments, we do see a tight frac market.

<unk>.

Our volumes have ramped a lot of the competitors volumes third party volumes have ramps, we're seeing a lot of Y grade head Bellevue and so that market is tightening up a lot of that is coming from from the Permian for growth a lot of it is also coming with some operational upsets we've had in the industry coming from other areas as well.

So that's causing to kind of tighten up a bit we still have some flexibility with our fractionation complex.

Y grade, but it is tightening up and we do expect it to be tight tight for a while.

Okay, great. Thanks for the color and my last question is on capital allocation.

Specifically is there a leverage level where you.

Would become more aggressive with buybacks stock buybacks I know you guys aren't your midpoint.

Or is that it will be at your midpoint by year end, but we've given color on that that will be it for me. Thank you.

We had our leverage where we wanted it to be but we saw a unique opportunity in the market to go and repurchase shares and so we stepped into that I would expect that it's an important part of how we return capital going forward. The most important element of how we want to manage the profile of the company is with maintaining a very strong balance sheets of our balance sheet.

That makes sense. Thank you very much.

Okay. Thank you.

Yes.

And our next question will come from Chase Mulvehill with Bank of America. Please go ahead.

Hey, guys. Thanks for getting me in.

I guess first question is really just coming back to pardon me and processing capacity.

We've seen a lot of announcements recently.

Or a lot of your peers, adding processing capacity in the Permian.

So if we kind of think about that.

And relative to yours, I think you've got about one two bcf a day of incremental capacity that you plan to bring online by the end of next year.

Could you talk about the confidence you have of filling that.

Would you bring those plants online.

Sure.

Yeah, No we've got a lot I mean round five plants right now.

Across the Permian.

I'd say, we feel kind of starting with the nearest term loans, we feel really good about those big fall I think legacy one in Red Hills are both going to be highly utilized really the day. They turn on we are running.

We're absolutely fall in the Midland and it was actually overhaul in the Delaware on the lucid asset. So I think those are going to be full kind of day, one and then when you go to the <unk>.

Mid way plant that is a partial.

Feel very optimistic we're going to be able to have those highly utilized when they come on and then fill up there.

Very quickly so I think really the next question becomes when do we need more what's the cadence beyond that we feel like hopefully with the on the Midland side with adding legacy.

Legacy two and adding Greenwood, maybe that gives us a little bit of time, but I think we'll be quickly looking out in the Delaware for when we're going to need.

Another plant out there. So I think we're more thinking about when we're going to need another one as opposed to are we going to be able to fill the ones that we've announced.

Well good to hear.

And then can I ask why.

Ill hub basis real quick.

Obviously, there is some risk of widening out kind of <unk> or maybe even before next year.

I just kind of curious on kind of your thoughts on the risk.

It's more just the basis risk and volume risk but.

The basis risk that you have out there and maybe how much you kind of hedged that risk.

Sure.

Yes, I'd say, our risk out there we want to make sure that we can flow the volume so in wallboard tightens out if it gets difficult moving it out we want to make sure that we can move it. So we've been active in taking out transportation and making sure we can get the volumes away from our plant.

And to market as.

As far as the overall wahhab basis risk.

Our length in natural gas, we hedge we hedge it at wall. So.

Really what we want is kind of an absolute higher wahhab price versus a whole lot of.

Exposure to the spread so we want.

<unk> prices to be high we want to make sure we can get volumes out.

Okay makes sense I'll respect the two questions and hopefully somebody you asked about metrics.

Thanks.

Yeah.

Thanks.

Yes.

And our next question will come from Sunil Sibal with Seaport Global Securities. Please go ahead.

Yes, hi, good morning folks and thanks for taking my question.

Wanted to start off on the on the capital side of things.

<unk>.

2022 budget.

Kind of curious.

How should we be thinking about.

Puts and takes for the 2023 capital spend Youll obviously.

And if your expansion projects.

So from that perspective, what kind of cost inflation youre seeing and then how should we be thinking about the 22.

And then the adder would be at the Delaware Basin acquisition and the continued build out of those assets as we look into 2023, I think that part of what will impact our growth capital budget for next year will be potential spending on next plants, whether that be on the Delaware side or the next plant needed on the Greenwood side right.

Specs that we will be spending capital at levels very much commensurate with the size of the company and so as we've gotten bigger we just have more flexibility capacity to spend more but we also don't have a lot of visibility to what I call additional large projects beyond those that we've already announced other than incremental processing expansions.

<unk> or other project associated with Grand Prix and NGL transportation down the road that would be the one that just depending on what we're seeing on volume growth. The next large project that we have on the radar screen and the timing of that again will be dependent on the continued growth of NGL transport volumes.

So just just to clarify so what you're saying is.

Unless you announce more projects you should see bit of a.

A step down in 'twenty three capex based upon all that you announced.

I don't know if I'd say that we will see a step down we will provide formal guidance in February typical with our timeframe of when we provide capex guidance for the following year, but we do have some spending that shifting into this year and that spending on frac train nine that otherwise may have occurred next year, we've got spending on Greenland shifting in it this year that otherwise may have occurred next year.

Pending at this point in time.

Got it thanks for that and then my second question was related to.

Iot.

Understand that there is some <unk>.

With regard to limiting methane emissions from processing facilities.

I was curious if you had a chance to look through that and how do you think that impacts your footprint you have obviously you highlighted.

Highlighted plants with the deals.

Emissions, but.

Is your plan to kind of tie in with new.

<unk> mentioned.

How should we think about that.

Yeah sure so our <unk> group.

Yes I.

Really actually they are kind of evaluating what that methane.

Dax.

<unk> could entail we actually were looking at it quite a bit in the last round. This came about we took a look at it we are focused on reducing our emissions improving our intensity.

We have a lot of projects that were moving forward with it to try and to try and reduce that so well.

We're very good at compliance very good at meeting rules and regulations.

<unk> group is up to the task on that and then we'll see what the ultimate what the fee or what.

All the operating parameters are for setting those limits.

Yeah. So it's early we'll have to see what ultimately gets passed but I'd say, we are actively focused on it working on it.

Roll off.

Yes.

Per performed very well.

Thank you.

Got it thanks for that.

And our next question will come from John <unk> with Goldman Sachs. Please go ahead.

Hey, al Thanks for the time I wanted to start on Alan you guys touched a little bit on marketing being weak, but just given how strong volumes were could you just talk a little bit about what's going on this quarter was it a kind of one off on.

On margin dipping or is this kind of the run rate.

Unit margins, we should think about going forward.

First off I would say John that we had a we had a very strong first quarter as it relates to some of our marketing and optimization around that.

Had increased volume flowing down our transportation assets and in through Mount Belvieu. So we've seen some nice.

Increases on that and then our export business continues to be very consistent quarter in quarter out.

Obviously with pricing the way that it is today with the backwardation that we're seeing across really.

The U S pricing as well as international pricing that presents itself some challenges, but all in all with what the volume growth that we're seeing on our G&P side of the ledger those volumes are going to be steered toward our transportation assets to our fractionation footprint.

We're going to continue to see volumes increase over time so.

We feel very comfortable where we said obviously, we've got a lot of work to do as it relates to our announcement around trade nine in bringing those bringing that fractionation train back on and we see opportunities there to continue to grow with the volumes.

Alright, thanks for that maybe just unpacking that a little bit what you said there just in terms of the export business.

Seen some softness and pet Chem demand overall, maybe you can just share kind of where you see that sitting right now and how that should trend for the rest of the year.

From an international perspective is that what you're referring to for that business. Thanks.

Well again from our volumes, we've seen consistency quarter ending quarter out there has probably been more of a challenge on the butane export side of the business some of Thats related.

For backwardation again that we're seeing on propane as well as butane, but internationally, yes, it's been it's been a little bit more a little tougher on the butane side spread.

Spreads have been compressed.

We are also seeing that.

Internationally butane prices are actually trailing behind propane prices.

And so when you look at the risk waterborne traders when you look at the consumption overseas, obviously dealing with potential.

Issues, just with the economies.

The cadence of our export business looks very smooth.

Relative to overall expansions that we're doing across our entire downstream business that complements our upstream side.

Alright, that's fair I appreciate it.

Okay. Thank you.

And our next question will come from Michael Cusimano with Pickering Energy Partners. Please go ahead.

Hey, good morning, everyone.

Good morning.

On my numbers for.

22, you have realized almost $300 million of hedge losses year to date on the G&P system and.

Disclosures are kind of sale, but my math shows a couple of hundred remaining for the rest of the year. So I was hoping you could talk about 23 hedges.

We're not sure.

Are there price necessarily but.

Given the recent commodity weakness there.

Are those looking like potentially even a net benefit next year, even this year.

Spot prices stay high just seems like there is almost a $500 million tailwind going into next year, just from hedge realizations rolling off.

I was hoping you can give some more clarity there.

So I think youre right in saying that that will be a nice tailwind for us as well as just continued volume growth as well. So if we have continued higher prices like we're seeing more prompt given the backwardation in markets than as we realize higher prices on additional volumes that will be a nice tailwind as well.

Okay got.

Got it Thats very helpful and then.

Kind of take the data and asking about just Medford impact <unk> seen on your system.

Part of the strength in the Frac volumes are a direct result of that.

Yes so.

Yes, I really kind of answered the overall frac market question previously a thing of the Frac market is tied it's a combination of increased volumes from Y grade and you had some operational upsets from the industry that is moving more volumes to Bellevue. So yes that is tightening up.

Belvieu to some extent.

And this will conclude our question and answer session I would like to turn the conference back over to Sanjay Lad for any closing remarks.

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

Our team will be available for any follow up questions. You may have have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Q2 2022 Targa Resources Corp Earnings Call

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