Q3 2022 Targa Resources Corp Earnings Call

November 3, 2022

Yeah.

Good day and thank you for standing by welcome to the Targa Resources Corp, third quarter 2022 earnings webcast and presentation. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question.

During this session you will need to press star one one on your telephone please be advised that today's conference is being recorded.

I'd now like to hand, the conference over to your speaker today, Sanjay Lad VP of finance and Investor Relations. Please go ahead.

Thanks, Gigi good morning, and welcome to the third quarter of 2022 earnings call for Targa Resources Corp, third quarter earnings release, along with the third quarter earnings supplement presentation for our cargo resources that accompany our call are gone.

On our website as part of the resource in the Dot com.

In addition, an updated investor presentation has also been.

Through our website.

Statements made during this call that might include Targa resources' expectations or predictions should be considered forward looking.

One <unk>.

Exchange at 1934.

Actual results could differ materially from those projected in forward looking statements.

A discussion of factors that.

Could cause actual results to differ please refer to our most recent annual report on Form 10-K.

<unk> SEC filings.

Our speakers for the call today will be Pat Malloy, Chief Executive Officer, Abu Dhabi, President gathering and processing Scott Pryor President.

Expectation, Robert Ferraro, Chief commercial officer, and Jen Kneale, Chief Financial Officer.

I will now turn the call over to Matt who is recovering from laryngitis comments and Q&A participation today.

Thanks, Sanjay and good morning.

And apologies for my Hoarse voice.

Our overall business is continuing to perform well and our strong execution continued across the third quarter, including record high quarterly EBITDA record volumes in the Permian record NGL transportation and fractionation volumes.

Gration of our Delaware Basin acquisition.

Successfully bringing on two plants in the Permian basin safely ahead of schedule and on budget.

$73 million of opportunistic common share repurchases and we were also recently added to the S&P 500.

Our record third quarter EBITDA was attributable to higher base business volumes, particularly in the Permian plus a partial quarter contribution from our Delaware Basin acquisition.

While commodity prices are significantly lower than the assumptions underlying the updated full year 2022 financial expectations that we provided in early August there is no change to our expectation to generate full year adjusted EBITDA between $2 85 billion and $2 95 billion.

Given the significant growth in volumes and we expect looking forward and to catch up on some of our Delaware Basin infrastructure. We announced this morning that we are moving forward with a new 275 million cubic feet per day gas processing plant in the Permian, Delaware, which we're calling.

The Wildcat to plant the.

The growth in volumes across our G&P business also necessitated the announcement. This morning that we're kicking off construction of the Daytona NGL pipeline, which would transport volumes from the Permian basin and connect to our existing segment of Grand Prix in North, Texas to move volumes down to Mont Belvieu.

The acceleration of these additional projects shift some spending into 2022, but there is no change to our year end 2022 leverage ratio expectation of about three five times.

Meaning we continue to have significant financial flexibility looking forward.

Before I turn the call over to Pat I would like to extend a 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.

I will now turn it over to Pat to discuss our GMP operations in more detail.

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Thanks, Matt and good morning, everyone.

Starting in the Permian our systems across the Midland and Delaware basins averaged a record $4 1 billion cubic feet per day.

Volumes during the third quarter, including two months of contribution from our recently completed Delaware Basin acquisition.

Given our performance year to date, we expect our full year average 2022 Permian volume not including our Delaware Basin acquisition.

To increase at the high end of our initial 12% to 15% year over year volume guidance.

In Permian Midland our inlet volumes increased 8% sequentially as our system essentially ran at capacity until our new legacy plant came online late in the third quarter.

We have an incremental 550 million cubic feet per day of processing expansions underway in Permian Midland.

Our legacy II plant remains on track to begin operations during the second quarter of 2023.

And our Greenwood plant remains on track to begin operations late in the fourth quarter of 2023.

Similarly, we expect both plants to be highly utilized when they come online next year.

In Permian, Delaware inlet volumes across our system, not including contribution from our Delaware Basin acquisition.

Increased 7% sequentially.

We have successfully integrated our Delaware basin assets and employees and appreciate the efforts of the collective target team that supported the integration.

We commenced operations on our new 230 million cubic feet per day Red Hills six plant in late September which was full at startup.

Our overall, Delaware system is also running highly very highly utilized and volumes continue to ramp.

And we remain on track to bring our new 275 million cubic feet per day Midway plant online during the second quarter of 2023.

In response to strong producer activity levels and to meet the infrastructure needs of our customers across the Delaware and as Matt previously mentioned, we are moving forward with the construction of a new 275 million per day plant in Permian, Delaware, which we're calling the wildcat to plan.

Wildcat two is expected to begin operations in the first quarter of 2024.

We are playing some catch up on our newly acquired Delaware basin assets as evidenced by Redhill six being full at startup.

Spectation that midway will be highly utilized on startup.

And now moving forward with construction of the Wildcat two facility.

A positive reflection of how quickly current volumes are increasing and future volumes are expected to increase.

We are also adding incremental trading infrastructure in the Delaware to increase our sour gas handling capabilities, which enhances our ability to capture and handle increasing sour gas production and drive attractive returns from treating fees.

This will also give us the ability to capture cotwo from the trading process and sequester the emissions in our acid gas injection storage wells.

We have already obtained class II permits and are working on MRV plans and additional class II and class six permits to further enhance our carbon capture abilities.

We expect to begin receiving 45 key tax credits as early as the fourth quarter of 2023.

Shifting to the Badlands.

Our natural gas and crude gathered volumes rebounded in the third quarter. Following the reduced reported volumes that were impacted by late winter storms in the prior quarter.

In our central region, a full quarter contribution from the acquired assets in South, Texas and solid activity levels in Oklahoma and North Texas.

Drove a sequential increase in aggregate volumes during the third quarter, partially offset by a contract exploration in south.

Scott will now discuss our logistics and transportation business in more detail Scott.

Thanks, Pat targets NGL transportation volumes were a record 500000 barrels per day fractionation volumes were a record 742000 barrels per day during the third quarter.

Our volumes would've been higher had it not been for some ethane rejection across our system and third party systems during the third quarter plus some maintenance at our Mount Belvieu facility.

Given the anticipated growth from our volume growth from our Permian G&P expansions growth of third party volumes and volumes, we can transport after the explorations of obligations on third party pipelines our outlook for continued NGL transportation volume growth is strong.

Today, we announced plans to construct the Daytona NGL pipeline transport Ngls from the Permian Basin and connect to the 30 inch diameter segment of the Grand Prix NGL pipeline in North, Texas Daytona.

Daytona is expected to be in service by the end of 'twenty 'twenty four.

Target will own 75% of Daytona and Blackstone energy partners will own 25% with each member funding their respective share of the pipelines costs based on their ownership percentage.

With an estimated project cost of about $650 million target net growth Capex share is estimated to be approximately $488 million.

In Mount Belvieu construction continues on our trained nine fractionator, which is expected to begin operations. During the second quarter of 2024 with an estimated cost of around $450 million.

Turning to our LPG exports, we loaded an average of $8 5 million barrels per month during the third quarter as we were impacted by reduced spot cargo opportunities and some cancellations due to weaker global market conditions.

We currently expect fourth quarter volumes to improve but will be impacted by similar global dynamics and some required maintenance at the terminal.

Our low cost to LPG export expansion project to increase our propane loading capabilities with an incremental 1 million barrels per month of capacity remains on track for mid 2023.

I'll now turn the call over to Jim.

Thanks, Scott Good morning, everyone, a record quarterly adjusted EBITDA and operational stats reflected our business is performing really well balanced.

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

Let's now go over some additional financial information Targa has reported quarterly adjusted EBITDA for the third quarter was $769 million, increasing 15% sequentially as we benefited from a partial quarter contribution from our Delaware basin acquisition higher volumes across our gathering and processing and logistics and transportation.

Systems, and higher fees, partially offset by lower NGL prices and higher operating expenses.

Higher operating expenses were primarily attributable attributable to our recent Delaware basin acquisition, increasing activity levels across our G&P systems, including two plant placed in service in the quarter and inflation.

While costs were higher just a reminder that for Targa inflation is a net tailwind across our businesses as we benefit from inflation linked fee escalators across our commercial contracts.

Target generated adjusted free cash flow of $291 million in the third quarter.

We repurchased about $73 million of common shares in the quarter and year to date through September 30 have repurchased about $197 million of common shares at a weighted average price of $65 and 23.

Since program inception, we have repurchased about $328 million of shares at a weighted average price of $35 45.

As of quarter end, we had approximately $172 million remaining under our $500 million equity repurchase program.

For the third quarter, we declared a cash dividend of 35 per common share or $1 40 per share on an annualized basis and consistent with previous messaging expect to maintain the same dividend for the fourth quarter.

Looking ahead, we currently plan to provide our full year 2023 operational and financial outlook in February in conjunction with our fourth quarter earnings call and we will also then provide color on our expected annualized dividend and share repurchase strategy for 2023.

We are well hedged for the fourth quarter looking forward. We are currently about 80% hedged in 2023 across all commodities related to our exposure from our percent of proceeds contracts and are hedged at higher prices in 2023, and 2022 hedged prices.

As Matt mentioned our performance. This year has been strong and we continue to estimate our leverage ratio will be around three five times at year end.

During the third quarter, we upsized, our accounts receivable securitization facility to $800 million and extended the facility to September one 2023.

We spent about $625 million of net growth capital through the first three quarters of 2022 with some additional spending accelerating into 2022 for the Wildcat two plant and the Daytona NGL pipeline announced today, we now estimate 2022 net growth capex to be between $1 1 billion and $1 2 billion.

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Our estimate for 2022 net maintenance Capex remains unchanged at approximately $150 million.

We have strong momentum heading into 2023 backed by continued volume growth across our integrated businesses and we expect to benefit from full year contributions from our Delaware Basin, and South, Texas acquisitions higher fees and higher hedge prices.

We are focused on continuing to manage our leverage ratio within our three to four times long term target range with a preference to be in the lower half of the range and believe that the strength of our underlying business puts us in excellent position over the long term to continue to invest in attractive organic growth opportunities and return an increasing amount of capital to our shareholders.

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We published our 2021 sustainability report in early October and kicked off an initiative that is very important to us where we engage with our largest shareholders. Each fall specifically around ESG to get feedback on our latest report an ESG related efforts.

We take our responsibility seriously and are committed to practices that create value for our shareholders and benefit the communities. We serve and our latest report is hopefully reflective of that commitment.

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

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of Colton Bean from Tudor, Pickering, Holt and company.

Good morning, So just starting off on Grand Prix is there a general capacity buffer that you all were targeting when deciding when to bring Daytona and new service I guess asked differently.

Is there any risk of constraint on targets NGL aggressive Daytona timing were to slip a quarter or two.

Hi, Colton this is Scott <unk>.

We've obviously been watching our volumes as it relates to Grand Prix both on the west leg in the north leg that feeds into Mt. Belvieu for some time now and clearly watching the cadence of the plants that we've been adding on the GMP side of our business and along with the Delaware acquisition that we made so we are keenly aware of the volumes that are moving and the timing of.

In announcing Daytona fits with our expectations.

We feel very comfortable with the fourth quarter.

Operating operating that startup in fourth quarter of 2024, and again with Daytona when you look at the volume growth that we've got from our G&P business third party volumes explorations of third party or third party pipe volumes over time.

It's a very good project for us and especially it leverages the capacity that we've got available on our 30 inch pipeline that feeds into Mt. Belvieu. So that it gives us plenty of room over a period of time.

I'd also like to state that when we when we startup Daytona and how it complements our Grand Prix Westlake will also get some efficiencies on the fuel side of things as we operate it allows us to better operate pumps that are allowing the existing west lag in.

In addition to how we would operate the pumps on the Daytona side.

Jim maybe pivoting over to hedges I think you mentioned being above the normal course, 75% for 2023 can you expand on where you sit for next year and just the broader thought process on doing about your programmatic level.

I think based on the view that we had that there was likely to be wildfire tightness and potential impacts on prices on the wall Hot side, we've added additional hedges, particularly around natural gas Colton. So are hedged above the 75% level on natural gas actually significantly higher hedged than that right now for 2020.

<unk> then on the NGL side, we're a little bit higher hedged in that 75% level.

Just continuing to watch backwardation of NGL price markets and to the extent that we get strength, we have tried to hedge into some of that strength and then we've got a little bit of condensate exposure and are well hedged there well north of that 75% level too and those hedges are all related to our percent of proceeds contracts. So we do have commodity exposure elsewhere in our.

Business, but have tried to do a very good job of hedging in advance of 2023 to help underpin continued cash flow stability and across our businesses.

Great and then it sounds like on natural gas hedges also include <unk>.

To reduce basis risks.

Yes, we hedged directly to our basis points and certainly have tried to be.

Far in advance of any price risk around Wahaha and 2023, our gas marketing team has done a really good job of trying to manage not only takeaway transport, but also our hedge exposure there.

Great I appreciate the time.

Thank you one moment for our next question.

Our next question comes from the line of Jeremy Tonet from Jpmorgan.

Hi, good morning.

Good morning, Jeremy.

Just wanted to kind of walk through I guess the results this quarter because if you look at the last guide, we overlay kind of the commodity prices, how they changed and what your sensitivities, where it seemed to put some pressure on EBIT expectations for the year, possibly below the bottom end, yet you were able to reaffirm the guidance range. So it seems like some positives.

Materialize versus prior expectations. There just wondering if you could provide a bit more detail on what those were and if you see them continuing into 'twenty three.

I think that we have a pretty good track record of forecasting.

Guidance conservatively, Jeremy which is part of it but also the underlying business is just performing really really well. So when you think about the volume increases that we're seeing across our systems. It feels like every quarter, we're reporting record Permian volumes, even ignoring the acquisition of the Delaware basin assets, which will bring significantly more volume source.

System, and then on the transportation and fractionation side as well so while prices were weaker in the quarter were comfortable with where our guidance is set right now for the rest of the year. We've got only two months to go and again think that the business is performing so well that we're really setting up nicely heading into 2023 as well.

Got it.

And then looking at 'twenty, three and recognizing the guide is not coming until February but just wondering if you could provide any high level thoughts as far as capital allocations concern, where capex could shake out and how you think about the most the best way to return capital.

I think 2022 provides a little bit of a roadmap for how we're thinking about returning capital to shareholders. We entered 2022 focused on managing our leverage to levels that we're comfortable with and then also simplifying and also continuing to invest in the business and returning capital to shareholders and I think that we have.

Been able to execute across all dimensions in 2022, so for 2023 Thankfully, we've got the simpler simplifications behind US no more desk I, there's no amount of press and so it really allows us to focus on maintaining that balance sheet strength that we've spent so much time over the last several years talking about and then.

<unk> to invest in our business additional organic growth capital opportunities that are very attractive for us.

Wildcat two unlike Daytona. Unlike all the other projects that we have in progress and then continuing to return an increasing amount of capital to our shareholders through our higher dividend and additional share repurchases. So I think it will be a similar roadmap in 2023, and we look forward to describing that in February .

On the growth capital side Theres, some lumpiness just related to the types of projects that we spend capital on so when you think about Daytona and Wildcat too a little bit of capital accelerating into this year, but a lot of capital on both of those projects will be spent in 2023, and then theres still lumpiness around trained <unk>.

Spending so theres significant train nine spending in 2023 as well along with just the natural cadence of plant as compression adds and gathering line adds so 2023 capital will be higher and will give more visibility to that in February as well, but certainly we're very comfortable and believe that similar to our spending this year underpinning.

EBITDA growth 23 over 2022, the spending that we'll be doing next year is what will set us up for continued EBITDA growth going forward as well.

That's that's very helpful I'll leave it there thanks.

Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Brian Reynolds from UBS.

Hi, good morning, everyone.

Maybe just to circle back on boosted could you just talk a little bit about the synergies changed so far to capture some of those offloaded volumes Curie.

Curious if you could just talk about how the transaction multiples being worked down perhaps before all of the lucid volumes.

Fully work its way through the targeting integrated system in a few years.

Yeah.

Red Hill <unk> came on in September its full frankly volumes were greater than the capacity of the system, including Red Hills six so immediately what we were able to do it.

As offload some of the gas on the lucid system into our western Delaware plants, which had spare capacity.

Pretty significant volumes frankly, lucid was in the process prior to us acquiring them.

Seeking out off loads, we had some in place with them already and certainly upon completion of the acquisition, we stepped that up considerably and our ability to additional infrastructure that allows better communication between the what we call target North Delaware system, the old lucid assets and our existing <unk>.

Delaware footprint.

So the integration has gone pretty seamlessly the.

Volume growth is substantial so.

You can get it done the better, but we're definitely seeing benefits of the integration and we will see additional benefits via some of the projects that we've announced this morning.

Great appreciate that.

As my one follow up.

Alright.

Just given some operational issues from from some peers there.

There's various projects that are coming online in 2023, but curious if you could talk about the GTS fracking on Io link or if theres any desire to simplify that JV over the next year or two.

Hey, Brian This is Scott again.

We are evaluating with our partners at Gcs recognizing that is in a partnership.

As to what the timing would be of moving that from an idled asset to an operating asset. So we don't have a definitive date at this point, but the discussions are happening and just trying to understand what the volumes look like for not only target about respectively also for our partners and that with that said, obviously we're move.

Going forward our train nine.

That would be operational in the second quarter of 2024.

And in addition to that we also have a permit in hand for our train 10. So as we continue to evaluate the build out of our GMP footprint, how that feeds into our Grand Prix system the expansion with Daytona.

Those deliveries into Mont Belvieu determination of when we would start a train 10 or restart at gcs asset will be certainly taken all those volumes into consideration.

Great Super helpful and just asked I'm wondering everyone.

Hey, Brian .

Thank you one moment for our next question.

Our next question comes from the line of Keith Stanley from Wolfe Research.

Yes.

Hi, good morning.

I wanted to start a couple of quick follow ups on Daytona.

Should we assume a pretty even split on the Capex between 2023, and 2024 and did you say the capacity of the expansion I think previously you talk to maybe 550000 a day.

Keith This is Jim in terms of spending we've got a little bit thats coming into 2022, and then well.

Have spending.

Spending of course in 'twenty, three and actually more than 24, then in 2023 is what we currently have forecasted, but we're trying to get.

Data online as quickly as possible so that may shift between 23, and 2024, but thats what the spending currently looks like right now.

And then as it relates to the volume expectations. When we startup date tone. It will have an initial capacity of about 4000 barrels a day and just as a reminder reminder, our current west Grand Prix leg has a capacity of roughly 550000 barrels a day. So they will complement each other very well and again as I stated earlier our comp.

<unk>.

We would operate those two lines together in order to get fuel efficiencies across both lines.

Thanks for that.

My second question's on Permian gas.

First I'm just curious how if you have a view on how much of the weakness. We've seen this fall has been due to maintenance versus tighter than expected market and.

Any updated thoughts on the potential to support a new takeaway project either through contracting.

Our ownership in.

When we might hear more on that.

Hi, This is Bob.

I would tell you I think it's a combination of a lot of things at the end of the day.

Better production and some people are forecasting and then more maintenance than everyone. In plan four along with some pipeline still being out relative to El Paso going west out of the basin.

From that perspective is all kind of.

Intersected at a point, where you saw some extreme weakness when multiple pipes went down.

At the end of the day I think a big half would be El Paso coming back online and then as the Phd in Matterhorn expansions come online or that BHP and Whistler expanse Commoditized alright, it doesn't matter where it comes online in 2024, I think we'll see that base and get a lot better.

We have spent a lot of time preparing for that.

Our group has been through this before and I think we.

We see.

Our line of sight to target being able to operate all our assets at the capacity we.

We will need through that period of time as for Targa.

And long haul gas pipelines, we want the same bill.

We'll keep saying that we will always say that if it takes us participating we're always wanted participate if other people get them done in gaskets out of the basin that basis, we're excited to see that too. So I think we always standby and stand ready for what's needed because what we wanted to use the gas flows within our landscape operating our Ngls go through our system.

Thank you.

One moment for our next question.

Our next question comes from the line of Theresa Chen from Barclays.

Hi, Dara I wanted to ask on your comments related to the carbon capture opportunities in anticipation of receiving 45 credit soon can you provide some more detail on the nature of the economics with these projects in general and your outlook from here.

Yes.

So I think this volume sorry.

We look at them like we do our kind of traditional economics around the rest of our systems.

It's not that we have specific hurdles, but we have thresholds at which.

The team here I want to invest capital in projects and what I would tell you we've been looking at.

Our carbon capture projects prior to the updated 45 Q they were economic and as we get to the new and better 45, new credits that we will get and make them that much better. So we don't comment on specific projects specific returns, but these projects went from economic in our view under traditional.

Ways, we run economics to just that much better when the new 45, <unk> came out and so it's got it I won't say it accelerated our thinking but it makes us.

More intention about making sure we get all these done.

And then related to timing of <unk>. So we said in our scripted comments that we thought that we could start getting credits as early as Q4 of 2023.

Got it and in relation to your LPG export just curious as to why you have confidence that that it will rebound didn't get better in the fourth quarter.

Just given.

Her basis downstream headwinds at your customers.

Asia and Europe I imagine.

And then also can you remind us round what percentage volumes do you have currently contracted at this point.

So this is Scott.

First off just to reiterate our volumes right at 5 million barrels per month during the quarter that was down obviously from from what we saw in the second quarter, but it was a comparative to what really the industry saw as a whole roughly down about 15% quarter over quarter. When you look at the exports out of the U S to various markets across the <unk>.

Globe.

Lot of that was driven by just as you stated weaker global markets some of that related to Asian.

Blaine producers, where they were faced with really some unattractive economics relative to the co products and products. They produce on that side of the business and thus they cut some of their LPG usage as a result of that we also saw some some slowdowns in China due to some areas that may have been impacted.

Acted by Covid shutdowns and things of that nature, which slowed up some of the PTH plant activity.

But in general I would say the reason why we feel as though the volumes would look better in the fourth quarters, because where we sit today what has been lifted thus far what is on our schedule for the balance of the fourth quarter. That's why we feel comfortable stating that our volumes will be up in the fourth quarter with that said, we're still going to be facing some global market.

The issues that are weaker at this point shipping issues and things of that nature as well as conducting some scheduled maintenance that we have that we need to do in the fourth quarter, but again overall, we believe at this point that our volumes will be up in the fourth quarter.

Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Sunil Sibal from Seaport Global.

Yes, hi, good morning, everybody and thanks for all the clarity.

So when I look at the base GNP business.

Obviously.

And it seems like you have some impact of the.

Inflation on your fees.

And some of that is on your Opex. So I was just curious from here on should be.

Should we consider that most of those inflation adjust.

Got kicked in and.

Okay.

Incorporating the securities also should we expect any significant movements in that.

Hey, Neil this is Jen I would say that across our entire portfolio of contracts. Most of the escalators have kicked in for this year. We've talked previously about the fact that we have a number of contracts that essentially kick in January one and then a number of contracts that kick in mid year and then there are some others that I would say.

It's more of the minority that kick in on the annual renewal date of the contract or based on some other date during the calendar year. So yes, I think it's fair to say that we have benefited from the escalators that we would expect to this year and then heading into 2023 of course will be a net beneficiary of escalators as we move forward through <unk>.

Into next year.

Got it.

And then could you give us a sense of.

At 10 production across Europe .

Permian footprint.

Things do you expect to play out in the near term on that.

Im not sure I fully heard the question ethane rejection in the Permian and.

And trends go implement of the natural gas takeaway situations going to.

I ended up pretty heavily right.

<unk>.

And if you can't move residue gas then probably more barrels are going to be pulled more is going to be recovered then rejected.

Adding <unk>.

Incremental <unk> into a tight gas markets can be problematic. So I think one first it's always an economic decision and it will continue to be an economic decision and then some of those other dynamics relative to the ability to move residue gas.

And obviously if that price gets really low, which we've seen recently relative to <unk>.

Clean price I think youll see rich.

Our recoveries and ethane being transported to Bellevue.

Okay got it thanks.

Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Neel Mitra from Bank of America.

Hi, good morning.

Just had a few.

A few follow ups on Daytona.

First is it going to.

Lynn.

Grand Prix or are you going to.

Maybe have it go.

On a different direction and some places so it can access new processing facilities and then the second part of that is.

Is it limited to.

400000.

Cubic feet a day because of the <unk>.

The limitation on the 30 inch pipe from North, Texas to Mont Belvieu.

Hey, Neil This is Scott Pryor first off.

The way you need to view Daytona is is basically a loop of the existing Grand Prix west leg, albeit we will be taking advantage of the lines at move further west.

<unk> and Texas as well as into new Mexico.

That Grand Prix system today will help feed both the Grand Prix west as well as the Daytona system. So it will run virtually parallel of the Grand Prix West system, tying into our 30 inch leg in North, Texas, what we refer to as our junction point, which is just south of Dallas, Texas.

It allows us to leverage capacity that we have on the 30 inch pipeline.

And when we say that it has an initial capacity of 400000 barrels a day at similar to how we said Grand Prix West had initial capacity of roughly 400000 barrels a day when it first started up but we have put pumps onto amped that up to call. It 550000 barrels a day, we would have the same ability to do that with Daytona. So.

We're taking advantage of where all of our planned activity is in the Permian.

So it will have the ability to again fee, both Grand Prix west as well as data and again.

Take advantage of that that line out of North, Texas, beating in the Mount Belvieu. So it lines up very well with where our concentration of plant.

Yes.

And if I could just.

Follow up on that it seemed like.

<unk> nine.

<unk> 50 is not a limitation from north, Texas to Mont Belvieu or could you get more capacity with pumps.

Yes.

We have had a cadence of where we've been putting on pumps, both on the west leg as well as the south leg to complement the volumes that are coming from west as well as in North, Texas and up into Oklahoma I would call. It nominally 1 million barrels per day of capacity on the 30 inch led going into Mount Bellevue.

Okay great.

And then just the second question it seems like you've had some commercial success Wildcat too and in Winkler.

Wildcat plant you brought on in <unk>.

<unk> four years in the legacy Delaware could you just comment on the customer mix or.

Private publix and activity Youre seeing in that area.

To to cause you to go forward with that project.

Sure. It is a mix as you described.

We have.

Big chunk of the majors dedication on both of those systems and certainly if you think about the Delaware basin. There's been acquisitions recently by majors that have gobbled up some of the smaller guys. So that has added to their portfolio, which is dedicated up under <unk> and then we have a.

A ton of mid to smaller guys that are extremely active.

Some of which we've done business with a long time and some of which as you described we've had commercial success with and added to our portfolio.

Okay got it thank you very much.

Thank you one moment for our next question.

Our next question comes from the line of John Mckay from Goldman Sachs.

Hi, all thanks for the time I wanted to pick up on that last piece you guys are showing really much better volume outlook than a lot of your peers in midstream side or are talking about.

<unk> seen a couple of the producers starting to slow down I was just wondering if you could spend another minute, maybe just talking about kind of what's differentiating your footprint what kind of.

Giving us the confidence on the growth outlook, and whether or not you have seen a little bit of a slowdown from from your producer customers.

I'll address the last part first this is Pat Mcdonald.

We really haven't seen an appreciable slowdown.

The people that have employed rigs continue to employ them and just move them across our acreage.

Continue to drill.

Certainly we've been fortunate that a lot of those rigs are running on our acreage.

But I would tell you that our infrastructure underpins a lot of the best acreage in the Delaware Basin and also obviously in the Midland Basin.

Seen by many years of history.

You've seen the exxon's the chevron's, the big guys come out and announced what their plans are for next year.

And there is no appreciable slowdown from them just their public information is available and chevron's actually adding rigs.

Our smaller guys. The economics are very good and continue to stay active so we have not seen a slowdown there certainly has been some logistical constraints.

Have a time may duck pond's, a little bit lumpy in other words waiting on completion crews et cetera, but the wells are still getting drilled eventually getting completed.

No.

I can't speak to our competitors or peers, but certainly we're seeing a continued level of high activity.

I appreciate that maybe picking up on that.

One comment from earlier to I think <unk> question just back to the exports have you guys commented on what.

What youre contracted levels are.

John I'm, sorry, we cannot hear a word of that.

I'll try again, just circling back to <unk> question on the exports have you guys commented where your current contracted level set.

I'm, sorry, John we Couldnt hear word of that either.

Okay.

From a different line, okay I'll follow up offline perfect. Thank you sorry about that sorry about that.

Thank you one moment for our next question.

Our next question comes from the line of Michael Cusimano from Pickering Energy partners.

Hi, good morning.

I just have a few follow ups from some of my questions have been asked.

First Ken I.

I appreciate the help on the hedging exposure.

Specifically.

Hi, Joe.

Should we think about any waiting throughout the year for how those hedges are on I guess I'm thinking of the first three quarters more heavily weighted.

But that basis in the back.

Fourth quarter.

And is that 80%.

An annual average.

The percent that I gave would be annual averages for next year, Michael and then the way that we generally hedge as there can be some shaping where theres more hedged earlier in the year than later in the year, but I'd say that for next year, it's actually all pretty ratable at this point in time on the gas side.

Okay. That's helpful.

And then on <unk>.

Thank rejection that you experienced.

It is fair to assume that that was in the midcon with the volumes a.

A little bit lower quarter to quarter.

And then the follow on for that.

Can we assume that the Westlake.

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Pre line.

Similar to what volumes did.

Just how do we think about that.

This is jen related to the mid Con, we actually had a contract expiration that we called out in South Africa, and so thats part of what resulted in the volumes there being lower quarter over quarter. It was really in the Permian and a little bit elsewhere that we are making decisions around rejection and recovery base.

On what we are seeing related to some of the maintenance issues on certain pipes and pricing around natural gas and ethane.

Okay got it.

And then lastly can you remind us the typical cadence for just your standard processing plant.

If it's a fourth quarter lead time, how that typically look and if there's any nuance to the ongoing.

Processing plant that Youre working on.

It depends each plant has a little bit different based on whether there is additional trading infrastructure or what else is required if it's close to existing infrastructure or not so again each plant is a little bit different I would say that generally the spend is across the life of the project prior to come.

Online so there isn't significant lumpiness for Wildcat too for example that would be hitting this quarter, but then as we move into 2023, you wouldn't see continued spending so I would say that for modeling purposes, it's easiest and probably most accurate just to see them ratable spending from now until a project comes online.

Okay. That's really helpful. That's all from me I appreciate the help.

Thanks, Michael.

Thank you I would now like to turn the conference back over to Sanjay Lad for closing remarks.

Thanks to everyone that was on the call. This morning, and we appreciate your interest in Targa resources. The IR team will be available for any follow up questions. You may have have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Good day and thank you for standing by welcome to the Targa Resources Corp, third quarter 2022 earnings webcast and presentation.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.

Sanjay Lad VP of finance and Investor Relations. Please go ahead.

Thanks, Hey, good morning, and welcome to the third quarter 2022 earnings call for Targa Resources Corp, third quarter earnings release, along with the third quarter earnings supplement presentation for our cargo resources.

Many of our call are available on our website as part of our resort 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.

In the media.

As of the year.

Exchange at 1934 actual results could differ materially from those projected in forward looking statements.

Further discussion of the factors.

That could cause actual results to differ please refer to our most recent annual report on Form 10-K, our latest SEC filings.

Our speakers for the call today will be Pat Malloy, Chief Executive Officer.

Got it.

Gathering and processing Scott.

Prior President logistics in Frankfurt.

Robert Mara Chief Commercial Officer, and Jen Kneale, Chief Financial Officer.

I will now turn the call over to Matt who is recovering from laryngitis comments and Q&A.

Thanks, Sanjay and good morning.

And apologies for my Hoarse voice.

Integration of our Delaware Basin acquisition.

That's really bringing on two plants in the Permian basin safely ahead of schedule and on budget.

$73 million of opportunistic common share repurchases and we were also recently added to the S&P 500.

Our record third quarter EBITDA was attributable to higher base business volumes, particularly in the Permian plus a partial quarter contribution from our Delaware Basin acquisition.

Given the significant growth in volumes that we expect looking forward in the catch up on some of our Delaware Basin infrastructure, We announced this morning that we are moving forward with a new 275 million cubic feet per day gas processing plant in the Permian, Delaware, which we're calling.

The Wildcat to plant the.

The acceleration of these additional projects shift some spending into 2022, but there is no change to our year end 2022 leverage ratio expectation of about three five times.

Meaning we continue to have significant financial flexibility looking forward.

I will now turn it over to Pat to discuss our GMP operations in more detail.

Thanks, Matt and good morning, everyone.

Starting in the Permian our systems across the Midland and Delaware basins averaged a record $4 1 billion cubic feet per day of <unk>.

Volumes during the third quarter, including two months of contribution from our recently completed Delaware Basin acquisition.

Given our performance year to date, we expect our full year average 2022 Permian volume not including our Delaware Basin acquisition.

The increase at the high end of our initial 12% to 15% year over year volume guidance.

In Permian Midland our inlet volumes increased 8% sequentially as our system essentially ran at capacity until our new legacy plant came online late in the third quarter.

We have an incremental 550 million cubic feet per day of processing expansions underway in Permian Midland.

Our legacy II plant remains on track to begin operations during the second quarter of 2023.

And our Greenwood plant remains on track to begin operations late in the fourth quarter of 2023. Similarly.

Similarly, we expect both plants to be highly utilized when they come online next year.

In Permian, Delaware inlet volumes across our system, not including contribution from our Delaware Basin acquisition.

Increased 7% sequentially.

We have successfully integrated our Delaware basin assets and employees and appreciate the efforts of the collective target team that supported the integration.

We commenced operations on our new 230 million cubic feet per day Red Hills six plant in late September which was full at startup.

Our overall, Delaware system is also running highly very highly utilized and volumes continue to ramp.

And we remain on track to bring our new 275 million cubic feet per day Midway plant online during the second quarter of 2023.

Wildcat two is expected to begin operations in the first quarter of 2024.

We are playing some catch up on our newly acquired Delaware basin assets as evidenced by Redhill six being full at startup.

The expectation that midway will be highly utilized on startup and now moving forward with construction of the Wildcat two facility.

All a positive reflection of how quickly current volumes are increasing and future volumes are expected to increase.

This will also give us the ability to capture cotwo from the trading process and sequester the emissions in our acid gas injection storage wells.

We have already obtained class II permits and are working on MRV plans and additional class II and class six permits to further enhance our carbon capture abilities.

We expect to begin receiving 45 key tax credits as early as the fourth quarter of 2023.

Shifting to the Badlands.

Our natural gas and crude gathered volumes rebounded in the third quarter. Following the reduced reported volumes that were impacted by late winter storms in the prior quarter.

In our central region, a full quarter contribution from the acquired assets in South, Texas and solid activity levels in Oklahoma and North Texas.

Drove a sequential increase in aggregate volumes during the third quarter, partially offset by a contract exploration in South Africa.

Scott will now discuss our logistics and transportation business in more detail Scott.

Thanks, Pat targets NGL transportation volumes were a record 500000 barrels per day of fractionation volumes were a record 742000 barrels per day during the third quarter.

Our volumes would've been higher had it not been for some ethane rejection across our system and third party systems during the third quarter plus some maintenance at our Mount Belvieu facility.

Daytona is expected to be in service by the end of 'twenty 'twenty four.

Target will own 75% of Daytona and Blackstone energy partners will own 25% with each member funding their respective share of the pipelines cost based on their ownership percentage.

With an estimated project cost of about $650 million.

Targets net growth Capex share is estimated to be approximately $488 million.

In Mount Belvieu construction continues on our train nine fractionator, which is expected to begin operations. During the second quarter of 2024 with an estimated cost of around $450 million.

We currently expect fourth quarter volumes to improve but will be impacted by similar global dynamics and some required maintenance at the terminal.

Our low cost to LPG export expansion project to increase our propane loading capabilities with an incremental 1 million barrels per month of capacity remains on track for mid 2023.

I'll now turn the call over to Jim.

Scott Good morning, everyone.

Our record quarterly adjusted EBITDA and operational stats reflect that our business is performing really well our balance sheet is strong we're continuing to invest in our business. We are returning an increasing amount of capital to our shareholders and we are very excited about targets outlook.

Let's now go over some additional financial information targets reported quarterly adjusted EBITDA for the third quarter was $769 million, increasing 15% sequentially as we benefited from a partial quarter contribution from our Delaware basin acquisition higher volumes across our gathering and processing and logistics and transportation.