Q3 2023 Targa Resources Corp Earnings Call

November 2, 2023

Good day, and thank you for standing by.

Welcome to the Targa Resources Corp, third quarter 2023 earnings 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 you will then hear automated message advising your hand is raised to withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Sanjay Lad, Vice President of Finance and Investor Relations. Please go ahead.

Thanks, Randy Good morning, you walk into the third quarter 2023 earnings call for Targa Resources Corp, third quarter earnings release, along with the third quarter earnings supplement presentation.

<unk> 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 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 the Q&A session.

Pat Mcdonald, President gathering and processing, Scott Pryor, President logistics, and transportation and Bobby Morrow Chief Commercial officer.

And with that I'll now turn the call over to Matt.

Thanks, Andrew and good morning.

We are very proud of the efforts of our employees across the third quarter, while battling an extended stretch of hot weather. We continued to operate at a high level demonstrated by record NGL pipeline transportation volumes, 6% higher sequential adjusted EBITDA and completion of our expansion at our LPG export.

Selling and Galena park, increasing our propane loading capacity by an incremental 1 million barrels per month.

We also continue to return an increasing amount of capital to our shareholders in the quarter with $132 million of common share repurchases.

The end of the third quarter positive momentum continues across our organization highlighted by the commencement of operations of our new Greenwood plant in Permian Midland ahead of schedule and on budget.

Expected rebound in our Permian volumes with current reported inlet about 150 million cubic feet per day higher than our third quarter average.

Publishing our annual sustainability report demonstrating our continued progress across ESG pillars, as an operator of critical natural gas and NGL infrastructure, receiving a two notch upgrade in our ESG rating from MSCI to double play and the announcement today that we expect to recommend to our board an increase to the 2020.

For annual common dividend to $3 per share a 50% increase over the 2023 dividend level.

The strength of our operational and financial outlook has resulted in consistent questions from investors and potential investors around how taro will return additional capital to shareholders going forward, which is why we wanted to provide some clarity today around our expectations for our 2024 common dividend and our current thoughts around our return.

Capital framework, we believe that we offer a unique value proposition for investors given the strength of our outlook for annual increases in adjusted EBITDA reflective of an excellent integrated asset footprint that will continue to provide high return organic investment opportunities.

Increasing fee based margin and cash flow stability from our continued progress around fee floor contracts in our G&P business.

Our strong credit and ESG ratings profile, demonstrating our commitment to a stable balance sheet and sustainable operations.

Continued opportunistic share repurchases further reducing our share count.

Our competitive common dividend with an expectation of meaningful best in class annual growth.

Looking forward and an outlook of significantly increasing free cash flow at some of our large fractionation and NGL transportation projects come online in 2024 and early 2025.

Our return of capital strategy is informed by a lot of internal and external information, including leverage and balance sheet flexibility along with our positioning relative to our midstream peers, S&P energy and broader S&P 500.

Across our base scenarios, we are modeling the ability to return 40% to 50% of adjusted cash flow from operations to equity holders. This is not a target or a bright line as we place a high priority on flexibility, but it is a framework that we believe can be helpful. In thinking through our return of capital or return.

A capital proposition going forward.

Now discuss our operations in more detail starting in the Permian high activity levels continue across our dedicated acreage despite lower than expected third quarter volumes, largely driven by the extended periods of heat across new Mexico, and Texas. We also had about 200 million cubic feet per day of lower margin high pressure.

<unk> move off our system in the Delaware Basin.

Our Permian Midland volumes increased 2% sequentially and was offset by reduced Permian, Delaware volumes, resulting in flat Permian inlet volumes.

Through the first three quarters of this year average reported inlet volumes across our system have increased over 300 million cubic feet per day in comparison to average fourth quarter 2022.

Our Permian volumes are currently operating at about 150 million cubic feet per day higher than our third quarter average as the growth we expected to see a bit earlier in the year is now materializing in the fourth quarter and Permian Midland, Our new 275 million a day Greenwood plant commenced operations in October and is quickly ramping up.

A big Thank you to our engineering and operations teams for bringing Green Greenwood online safely ahead of schedule and on budget. Despite challenging operating conditions. This past summer.

Our next plant and the Midland Greenwood two remains on track to begin operations in the fourth quarter of 2024 and is expected to be much needed when it comes online in.

In Permian, Delaware activity and volumes across our footprint are also running strong or weak.

Mild cat II and road runner two plants remain on track to begin operations in the first and second quarters of 'twenty four respectively, and both plants are expected to be much needed a startup.

In our central region, and the Badlands, our combined natural gas volumes increased 2% sequentially and our systems are performing well.

Shifting to our logistics and transportation segments targeted NGL pipeline transportation volumes were a record 660000 barrels per day and fractionation volumes remained strong averaging 793000 barrels per day during the third quarter, our Grand Prix NGL pipeline deliveries into Mont Belvieu increased 6% sequentially as we.

Benefited from higher third party supply volumes.

Our fractionation complex in Mont Belvieu continues to operate near capacity the restart of Gcs will provide much needed capacity. When it is fully restarted late in the first quarter of 2024, and we continue to expect our train nine fractionator to be highly utilized when it commences operations during the second quarter of 2024 are <unk>.

<unk> 10, fractionator is also expected to be much needed given the anticipated growth in our G&P business and corresponding plant additions and remains on track for the first quarter of 2025, and our LPG export business at Galena Park, our loadings increased 15% sequentially due to improved market conditions.

We loaded an average of $10 7 million barrels per month of LPG during the third quarter, even though our loading capability was reduced for part of the quarter do it due to a previously disclosed required 10 year inspection.

Our low cost expansion project to increase our propane loading capabilities by an incremental 1 million barrels per month of capacity was completed at the end of the third quarter and we expect our loadings to ramp during the fourth quarter, providing strong momentum for 2024.

We are excited about the long term outlook of Targa and remain focused on continuing to execute on our strategic priorities before I turn the call over to Jen to discuss our third quarter results in more detail I would like to extend a thank you to the target team for their continued focus on safety and execution, while continuing to provide best in class service and reliability.

Liability to our customers.

Thanks, Matt Good morning, everyone targets reported quarterly adjusted EBITDA for the third quarter with $840 million, a 6% increase over the second quarter sequential increase was attributable to higher system volumes across our integrated NGL businesses higher commodity prices, partially offset by higher operating and G&A.

Expenses with.

With three quarters of the year completed we are tracking towards the lower end of our 2023 adjusted EBITDA range of $3 5 billion to $3 7 billion, but believe that our performance through a lower commodity price environment and a tough operating environment relative to our guidance assumptions is reflective of the significant progress we have made at <unk>.

E&P business, our successful hedging program and the resiliency of our operations.

For a good part of this year, we have benefited from margin associated with seafloor contracts as natural gas and NGL prices were below <unk> level.

We believe that 2023 provides an example of the financial and durability of our business in a lower commodity price environment and the benefits of the <unk> structure, where we retain upside if commodity prices move higher.

We are well hedged across all commodities for the balance of the year and continue to add hedges for 2024 and beyond.

Through three quarters, we have spent approximately $1 $6 billion on growth capital projects and our current estimates for balance of year spending lead us towards the higher end of our two to $2 $2 billion range.

Net maintenance capital spending is tracking a little bit higher than initial expectations and our current estimate for 2023 is approximately $200 million.

At the end of the third quarter, we had $1 8 billion of available liquidity and our pro forma net leverage ratio was approximately three seven times well within our long term leverage ratio target range of three to four times.

Our major projects in progress are core to our business for new Permian gas processing plants train nine and trained 10, fractionator and our Daytona NGL pipeline and while we continue to project 2020 for growth capital spend to approximate spending levels similar to 2023 spending in 2025 is expected to be meaningfully lower.

As we will have completed the lumpier expansions in our downstream business as.

As Matt described underpinned by the strength of our business outlook for 2024 and beyond we plan to recommend to our board a 50% increase.

<unk> 2024 annual common dividend to $3 per share and we expect to be able to grow the annual common dividend meaningfully thereafter.

We also expect to remain in position to continue to execute opportunistically under our common share repurchase program during.

During the third quarter, we repurchased $132 million of common shares at a weighted average price of $83 38.

And have repurchased $333 million year to date through September we had about $811 million remaining under our $1 billion share repurchase program at the end of the third quarter.

We remain excited about the long term outlook at Targa, our talented team continues to execute on our strategic priorities and safely operate our assets to deliver the energy that enhances our everyday lives.

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 entered the lineup. If you have additional questions.

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

Yes. Thank you.

This time, we will conduct a question and answer session.

As a reminder to ask a question you will need to press star one one where your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Okay.

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

Good morning, Thank you for taking my questions and it's great to see a very strong dividend increase and your new capital return framework really a capital accountability framework if anything can.

Can you talk about your view of dividend growth within Altice, how did you arrive at the 50% increase over 2023 is there a deal you would like to achieve and how do you generally plan to balance dividend growth with share repurchases within that new 50% cash from ops framework, while maintaining a healthy balance sheet.

Good morning, Theresa this is jen.

As we said in our scripted remarks, the most consistent question that we've gotten from investors and especially potential investors is related to how we intend to return capital to our investors and we believe that we've got a really strong story there when we think about where we are today and where we are going forward. Clearly. This morning, you can see that we've got significant conviction in the under.

Allying strength of our business as evidenced by our continued activity under our share repurchase program.

Return of capital strategy begins with numerous multiyear scenarios and hopefully, it's becoming more evident that increasing GMP fees and fee floors are really positioning us to be able to invest in the business to support the activities of our upstream producers. Despite a lower Wuhan NGL environment, which are meaningful to us will also increase.

Our cash flow stability and resiliency across lower commodity price environment.

So as we look out across multiple years, we've got the flexibility to return an increasing amount of our adjusted cash flow from operations to shareholders and that's where we're saying that we think we're in a position over multi years to return call. It 40% to 50% of <unk>, it's not a bright line as we certainly continue to balance and really <unk>.

<unk> balance sheet strength and flexibility, but I do think it's part of how we're thinking about the world and it's important for us to provide a little bit more transparency around how targa and our board of directors look at the dividend beyond that we start to look at our peers broader S&P energy, an S&P 500, and how Theyre returning capital and then target.

Relative positioning across all of that and all of that is really at the end of the day informing our return of capital strategy that we believe can maximize shareholder value we've been very transparent since we instituted the program.

In October of 2020 that we want to have an opportunistic share repurchase program and hopefully we are demonstrating a track record of activity when given that opportunity as we look forward and move through time, we will have to see what the opportunities present themselves in the market and that will ultimately balance approach to dividends and.

But I think this is an important indication that clearly we are in position to return more capital to shareholders and can do that through its stable and meaningfully growing dividend and then also can continue to supplement that with opportunistic repurchases. It continues to be that all of the above approach that I think youre really seeing us execute on.

Thank you and on the topic of the continued volume growth and just with the recent announcements of upstream consolidation in the Permian, especially knit that news related to your Midland JV partner, an anchor shipper.

Do you think this all mean for Targa in terms of volume growth trajectory and the duration of the resource underlying our acreage.

Yeah sure Hi, Theresa this is Matt.

Have good relationships and really growing relationships with them, we handle a lot of their volumes today.

And as we think about it at least in the short term we have contracts in place with all of those parties mentioned so those contracts are typically long term contract. So it will just have to see how it plays out over time.

We think the outlook for growth in the Permian Basin continues to be very strong when you look at some of those parties mentioned they have pretty robust growth outlooks. So I think over the longer term I think we're optimistic on what it ultimately means for our underlying business, but we'll just have to kind of see how that plays out I think it's going to play out over time.

Thank you.

Okay. Thank you.

Thank you so much.

One moment for our next question please.

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

Thank you good morning, everyone.

I wanted to just ask about.

Your views now on that trajectory of Permian volume growth just wanted to understand that the third quarter would you say these were just really temporary operational issues are you seeing any real material change in producer activity, which would drive a change in the slope of.

For future growth.

Yeah.

Hey, Michael Yes. Good question, we're seeing strong growth from the Permian, So I'm talking about Midland versus Delaware really the Midland volumes are tracking in line with our guidance that we gave at the beginning of the year continued strong growth, it's really on track and we've seen that even ramp here in the fourth quarter. So it really kind of comes into the Delaware.

We did have 200 million a day kind of roll off in between Q2 and Q3 when you kind of look at the averages now that was we knew that was going to happen. So that was factored in to our to our guidance, but that just does illustrate we had underlying growth in the third quarter, but just not quite enough to offset the 200 that was rolling off we're seeing a lot.

Lot of activity in the Delaware, we've got a lot of compression.

We're adding frankly, it's coming in a little bit lighter than we had thought than we were going to have it in place at the beginning of the year. We've got 200 million a day scheduled to come online between now and year end. So I was just coming in a little bit later, but the volumes are there where frankly, it's still a little bit behind and trying to catch up in and be there to handle all the volume.

But the underlying outlook I think we're very confident that Permian volumes are going to continue to grow both in the Midland side and on the Delaware side, not just for Q4, but as you look out $2024 25 and beyond.

Great No that's perfect and then.

Actually just ties into my second question, which is.

As I'm sure you're aware of you and many others have announced NGL pipeline takeaway.

Expansions and so it was clearly getting pretty competitive. So just wondering how should we think about your contracted position in that market. You. Obviously had the 200 roll off. This this quarter is there any other major roll offs to flag in the future and just in general how are you thinking about your contract.

Position.

And specifically to the Grand Prix pipeline Michael.

Okay. This is Scott sorry, I just wanted to clarify when we look at the quarter. The third quarter. We had some volume improvements that came across in the quarter. Those were predominantly a third party volumes are upstream volumes as Matt indicated were relatively flat on the quarter, but we continue to see volume growth overall and as we look into <unk>.

24, and really in the fourth quarter and into 2024, we would expect those volumes to continue both from our upstream growth as well as some third party volumes that will roll onto us as contracts mature into there.

At the beginning.

With Daytona pipeline coming online in the fourth quarter of next year, we feel very comfortable with the timing of that.

Relative to the volume growth that we will have and we've seen a number of announcements in the marketplace obviously of late.

But the operating leverage that we get with Daytona coming online for our west leg. The operating leverage we have on our pipeline moving into Mt. Belvieu gives us a lot of runway.

That runway will allow us to basically evaluate what it looks like with our volume growth, whether or not there's opportunities to move on other people's pipes as our volumes grow. So we've got a lot of time to evaluate what that looks like over time.

Okay.

Great. Thank you.

Okay. Thanks, Michael.

Thank you so much please standby for our next question.

Okay.

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

Okay.

Thanks, Brian.

We can't hear anything I don't know.

Anyone else can.

Hello, Mr. Reynolds.

Okay. Brittany when you go ahead and move to the next yes, we will.

Q&A please.

Absolutely one moment.

Our next question.

Okay.

Okay. Our next line comes I'm sorry, our next question comes from the line of.

<unk> done this with Citi. Your line is now open.

Thanks, operator, good morning, guys maybe.

Maybe just going back to good morning, maybe to go back to NGL pipeline volumes quickly.

You guys need to hit record levels this quarter.

Third party volumes are coming onto the system.

Still a lot of time before data center comes online. So I'm just curious b now in Daytona.

So you guys could be Offloading volumes do you feel like you're pretty secure on that front.

Sure. This is Scott again.

We feel comfortable I would say that from time to time, where we've seen maintenance on the pipeline or managing the startup of our pump stations along Grand Prix on the west side as well as on the South side, we have from time to time taken the availability of industry capacity, where necessary to off load, but with the startup of pump stations those getting.

Fully energized that gives us a long runway going into 2024, we'll certainly evaluate what that looks like but we feel comfortable that with the timing of the ramp up of the volumes.

How we can facilitate offloads, where it where it may be necessary.

We'll look forward to Daytona coming online in the fourth quarter of next year and just to add to that two of the 660 that we moved.

Barrels per day, most of that is from the Permian, but theres still a significant amount of that that is coming in from the <unk>.

North lag kind of from the North, Texas, Oklahoma segment.

We can move call it up to when all the pump stations get on 650 ish, maybe low six hundreds in terms of barrels per day from the west leg. So we still have some running room between now and when Daytona comes on.

Okay got you. Thanks, Matt is helpful color.

Switching gears a bit too.

Great.

Excuse me a real bright spot once again with the Arb open just wondering if you just give us a sense of what that looks like today for you guys or you are passing inspection now you've got the new capacity online.

That's going pretty well.

Yes, our volumes in the third quarter, certainly benefited from increased demand and improved spot opportunities. We were very pleased with the quarter to quarter volume improvement that we saw despite obviously having to work around the planned outage for required inspections and the completion of our export expansion project now with that.

Expansion project on online we are already seeing benefits of that and we would expect to see that and into the fourth quarter. So our.

<unk> in the fourth quarter, we would expect them to be equal to or better than what we saw in the third quarter as the as the arb opportunities have improved.

First and foremost we're going to make sure that we're performing for our term contracts and taking advantage of spot opportunities that we can squeeze into our lineup relative to the schedule as we opt to optimize around the facility. We are still learning quite frankly, what the full capabilities will be of this expansion and we will continue to look for ways to optimize in and around that move.

Going forward through the fourth quarter and into 2024.

Helpful color I'll leave it there thanks Damian.

Okay. Thank you.

Thank you so much.

Please standby for our next question.

Yes.

Sure.

Yes.

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

Hi, good morning.

First hey, good morning, Justin.

Matt.

Are any of the I want to make sure any of the constraint issues. You saw in Q3 expected to have a sustained impact going forward or do you view. This as a one time event and we should see a good bounce back in.

In Q4, I just want to make sure there's an expectation that.

This was kind of a onetime thing in there is no lingering kind of issues that could pop up in future quarters.

Yeah, and I guess are you referring to the <unk>.

Volumes in the G&P side on the Delaware or.

Yes, that's right just G&P volumes and what you referred to in the quarter.

Yes.

I think part of it goes back to when we made the acquisition last year of of looser. There was a lot of growth on the system.

<unk>.

Yes.

We're immediately offloading a lot of volumes on a target and frankly, it was just kind of behind out in the field, Wang pipelines and getting compression and it's about a year.

Wait time to get more compression. So we were frankly, just a little bit more behind and we wanted to be and those volumes are coming in a little bit later in the year I don't want to make it sound like gum 30 days everything is fixed.

We're adding a lot of compression, but we're going to be adding a lot of compression next year or two so we are trying to handle and resolve the pressure issues that we're seeing out in the Delaware out in the field, we're going to be adding a lot of compression not only in this quarter, but next quarter and throughout next year. So.

Part of that was exacerbated because of the heat and operational issues and upset that we had so we're really trying to do.

Drafts and kind of get ahead of where the where the producers are going so yes.

So Pat I mean anything you want to add to that I think we showed the level of confidence in what we think our volume is going to be we've got two plants under construction in the process of.

Clearing a third plant site and we're not building because we don't think the volume growth is there certainly.

Certainly.

Through the producer discussions that we have and what we're seeing getting done and as Matt alluded to were behind getting compression in place et cetera. Some of the producers lag a few weeks.

There is equipment delays et cetera, So I would look at the third quarter as anomaly certainly when you walk into a winter you don't know what weather expectations and what impact that has on production, but I think the key answer there is the underlying business is solid the activity levels are high and we have a lot of confidence.

As indicated by what we're investing in in the Delaware for future volume growth.

That's helpful.

Just just want to clarify that the capital return framework, so 40% to 50% of operating cash flow to equity holders, which could be buybacks and dividends.

It sounds like the frameworks effectively allows the company to meet its growth objectives and still keep you in that leverage target of three to four times.

Overall, I'm asking just because it seems it just feels like a pretty big step change you have this 50% dividend hike and 40%, 50% would also imply a pretty big step up in buybacks as well as just want make sure I'm understanding that right.

Keith This is Jan I think what we're trying to do is just provide some visibility into some of that target specific metrics that we look at if you look at our LTM return of capital as a percent of cash flow from operations.

Here over the last 12 months, you will see that were lower than peers lower than the S&P 500, and S&P energy average and so part of this is indicating we had really strong total return performance and believe that we will have strong total return performance going forward, which is really based on the value proposition that we think we provide significant EBITDA growth continued ability to.

Return on high return organic growth capital projects, and because of that and having a strong balance sheet. The ability to also return more capital to shareholders. So wanted to big questions. We get is well how much more and what does that look like and how are you thinking about it and Thats why we are really trying to articulate that this isn't a bright line.

And this isn't we must it's really just instructive as we look out over a multiyear forecast across a number of different scenarios. That's one of the important elements or quantitative metrics that we're looking at and I think as we think about our multiyear framework. So 'twenty four 'twenty five 'twenty six 'twenty 798 five year.

Planning horizon, we look across those multiple years and believe that its reasonable to say that we will have the business that could support returning that much capital to shareholders and ultimately we've made one decision that we've announced today, which is this is our expectation that will recommend a $3 dividend to our board for approval affair.

In the first quarter of 2024, and then we will continue to evaluate but it is one of the important metrics that I think we are looking at to inform how we believe we can return capital over multiple years.

Got it thank you.

Thank you. Thank you.

Thank you so much.

One moment for our next question please.

Okay.

Alright. Our next question comes from the line of Tristan Richardson with Scotia Bank. Your line is now open.

Hey, good morning, guys.

I may missed it in the prepared remarks, but can you talk about any updates you're seeing broadly in the market on the gas solution side, maybe how that market has evolved since you first planted a flag with your potential solution and then maybe any update on commercial development of your specific project.

Yes. This is Bobby.

So what I would tell you is the message around apex and the effort on apex.

And residue solutions for the Permian Basin does not change for Targa.

Our priority is to make sure that.

Solutions for the base and get built.

We've talked about our solution needed in the 26 ish timeframe, which is why we have been pushing in APAC and I'd say why we have been pushing apex, it's really been a group of investment grade Counterparties shippers and markets.

That has driven the design of that but what I would tell you is as some of the changes which are which are positive as.

There I think our multiple options that have started to.

Come to fruition, maybe too stronger word but opportunities for other solutions and at the end of the day Targa has one priority and that's to make sure that the gas gets out of the basin. So whether it ends up being apex or another pipe and whether they need our help to back another pipe or or not.

That's where we'll be as to make sure of that pipe gets built our apex get built or something gets built for the 26 timeframe.

Again, its apex goes it'll be because it's in a framework that works for us and works for the Counterparties that are out there, but if FX doesn't go we stand ready to make sure. Another solution goes in 'twenty six.

And at the base and as that takeaway such that gaskins continue to flow in our plants and Ngls down our our integrated system.

I appreciate that context, Bobby and then I know, we've just now gotten the export expansion online.

As we think about Daytona and third party volumes coming in and Frac.

We see the export market starting to tighten up.

And then does your capacity today really allow for.

Headroom, assuming a reasonable utilization of Daytona once we begin ramping on that asset late in 'twenty four 'twenty five.

Hey, Tristan this is Scott, yes, I would say that.

Today, the market feels tight.

We're very pleased with the timing of our most recent export expansion coming online because we are seeing benefits and again as I say to stated earlier, we will continue to look for ways to optimize around that capacity and better ways to facilitate movement across the dock.

So we're very pleased with that being online with that said as we look.

<unk>.

As we look at further expansions at our facility we continuously explore opportunities in this form of small projects or debottlenecking projects at our Galena Park facility that will provide meaningful capacity improvements while being capital efficient. We are very fortunate to have an existing facility today that.

We have a lot of runway to add projects to that are very capital efficient that will provide us capabilities moving forward. So we'll continue to watch the volume growth in and through our system and we will time those various projects accordingly.

But again, we're very fortunate to already have an existing facility that we can kind of bolt onto very effectively.

Appreciate it Scott. Thank you guys and congrats on the capital allocation plan.

Okay. Thank you.

Alright. Thank you so much Ben please standby for our next question everyone.

Okay.

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

Hey, good morning, Thanks for taking my question.

Matt I think you alluded to.

200 million cubic feet rolling off in <unk>.

New Mexico, Delaware and now there's another probably smaller contracts roll off in 2024 can you speak to the dynamics.

In that area, just because it's so competitive.

Sure.

Competitors kind of undercutting you on price to try to win some some acreage dedications or is kind of the Red Hills complex, just so big that some producers wanted to diversify away.

And have a few players versus.

A very big concentrated player in the area.

Sure sure good.

Good question and let me just clarify I think I did say roll off it's really contracted volumes that we have coming to us that it was really contracted for it to move and we're not losing to third party midstream, that's not where that wedge so Bobby.

For clarity our producer owned plant came online and that 200 million a day move to that produce our own plant and when that plant goes up we get more guests. So it's part of our planning all along.

And it's.

Contracts didn't change contracted and expiring contracts.

Roll off producer plant that takes no third party gas came online and so and the reason we're highlighting the 200 is just because we were down $75 million quarter to quarter. So there was an underlying 125% growth from the quarter is kind of why we see strength, we see growth in that business. It was just contractually yes Bobby.

Said moved office system.

And frankly filling for back filling high pressure low margin gas with low pressure higher margin gas, which is kind of what our bread and butter right.

Perfect.

And then.

Maybe just a follow up on Patel.

Potential apex opportunities.

Could you maybe bookend the spend you would you would look at.

Just just in terms of 25 being a low lower Capex here, then 24 and.

Kind of the maximum that you would be willing to undertake in that investment.

For apex, if needed would you be the operator, which you take a small equity interest how would you go about looking about that.

Keep the capital down.

Yes sure.

Let me kind of start here and then if others want to jump in.

Think apacs or I'd say, the next pipe out of the Permian is going to likely be a joint venture between either multiple midstream midstream and producers. So there'll be a partial ownership. So if we participate in something we could have an ownership interest in the JV or we could move volumes on it and frankly not having ownership.

Interest if it gets a pipe down so I would say the book and the low end and we could be putting no capital into the next pipeline I think we'd like to have our options open where we can have an ownership interest we've seen it that creates value for targa at GC acts as a good example, we own 25% we invested in it and then ultimately monetize it so I think we're trying to.

Be open to opportunities like that that give us the ability to invest in that project and then whether we ended up holding it whether we operate or what percentage level. Those are all discussions and it depends on which pipe ends up going whether it is APAC or it is another pipe led by someone else.

As Bobby said, our primary focus is getting our pipe built where our ownership is and what and how we would finance that if we project finance that it would be very little capital out the door right. So we have all of those options to us I think as we look forward on our capital spend as James mentioned in the past is we see 24 being kind of in a similar.

Area, and we see 25 spending coming down I think the trajectory of our capital should be kind of down once we get past 2024, and we'll look to kind of optimize how much spending and how that all works in that framework.

Okay perfect. Thank you for the answer.

Yes.

Okay. Thank you.

Okay.

Thank you so much please standby for our next question.

Yes.

Okay.

Alright. Our next question comes from the line of Jeremy Tonet with J P. Morgan Securities LLC. Your line is now open.

Hi, good morning.

Hey, good morning, Jeremy.

So with the caveat upfront granted you're not giving 2024 guidance here and you've talked about a number of moving pieces.

You talked about I think some volume trends and maybe the LPG outlook, but just wondering if there's any other big moving pieces that we should think about when we are shaping our 24.

From where we sit and maybe just at a high level, how you see targets EBITDA growth being able trend organically from where you are with.

Targa largely track kind of Permian growth trends in general are there other kind of pieces to the puzzle we should think about.

Yeah, Hey, Jeremy Good question, Yes, as we look out into 2024, I think we're optimistic that not only 24 is going to be have good EBITDA growth of 25 and beyond and then it's really just kind of the timing as you mentioned what that shaping going to look like I think it does for us start in the Permian.

<unk> business, what volumes are moving through both the Delaware and the Midland that's going to provide them more volumes into NGL transport and fractionation and available for export. So I think it's kind of starts with what is overall.

And look like and I think we see a pretty strong outlook for 'twenty four 'twenty five and really five plus years, I'd say five to 10 years and even longer on the gas side. So I think short term it looks good and longer term. It looks good I would say the only other things to think about is we do have a lot of fractionation coming on in 2024, we have DCF coming on.

At the end of the quarter that will have train nine and then train.

Train 10, so thats.

Outsized amount of fractionation relative to just kind of normal volume growth that we're seeing we have the export expansion just Don I think we're set up well for exports.

In 2024.

Similarly, it kind of comes back to Permian gathering and processing growth will be the primary primary driver.

Got it that makes sense, there and you talked about upstream consolidation earlier in the call and just wanted to shift our focus towards midstream.

We have seen a bit of an up tick in consolidation in the industry and just wondering from where Targa sits right now do you feel comfortable with.

Yes.

The business is right now or do you see how do you see targets rule I guess, an industry consolidation going forward at this point.

Yes, sure I'd say, where I think we said is our internal business prospects look very good.

Have a very good case just to continue to operate in our core business gathering.

Gathering and processing in the Permian largest G&P footprint.

Permian Basin is going to afford us multiple years of growth. So I think we just said in a very fortunate position to just focus on target we're going to invest in GMP, we're going to invest in transport like we are with Daytona invest in fractionation, we're bringing three fractionator is on and continue to invest in export so.

In terms of us looking at bolt ons are tack ons, I think thats really kind of far down our capital priority list I think we want to execute on the organic growth projects. We have in front of US and then increase and increase and then distribute an increasing amount of that to our shareholders as John talked about and up 40% to 50% over time.

It's not in any one exact year, but.

We see being able to do all of those things distribute 40% to 50% lower our leverage invest in our business. So I think we're focused on target right now and just executing our plan in front of us.

Got it makes sense that's helpful I'll leave it there.

Okay. Thank you.

Okay.

Okay. Thank you so much.

One moment for our next question please.

Yeah.

Okay.

Alright. Our next question comes from the line of Neil Seabaugh with Seaport Global Your line is now open.

Yes, hi, good morning, everybody and thanks for taking my question. So my first question related to some of the operational issues et cetera in the third quarter that you talked about.

In addition to I think the weather and compression some of the operators they've also talked about higher CLO two concentration in the gas streams.

I believe that's an issue.

It's pretty familiar with so I was curious how do you handle that going forward and also does it kind of accelerates your cotwo sequestration solution.

So this pat.

<unk> wasn't really a major contributor to operational issues for us in the third quarter.

We have a lot of capabilities and are adding capabilities to handle C O two and frankly AIDS to us our gas.

We do see <unk> production growing in the Delaware Basin specifically.

There are a lot of producers that do things at the wellhead that are capital inefficient and expensive for them to do.

So.

As we move forward, we are putting infrastructure in place that allows us to handle handling high cotwo volumes sequestering.

Dealing with Zurich assets to us and other components.

But as far as the operational issues.

It's weather a little late on compression residue gas pipeline issues.

Which is more felt in the Delaware because we don't quite have the system fungibility in the Delaware that we do in the Midland We're building that infrastructure as you can see from our capital spend we've gotten a lot of benefit from integrating our northern Delaware lucid system with our other two Delaware systems, but over time, when we have it.

She is on the specific plant sites and or compressor sites will have that fungibility, where we can move gas around and keep production flowing.

A little more exacerbated right now.

And as we move forward that will get better.

So.

That's kind of where we're at right now and it looks better.

And then this is Bobby <unk> sequestration side, we've been pushing a bunch of projects forward I think people are seeing public.

Public filings relative to MRV plans that are already in place and wells that we have permitted out there and that continues to move forward.

That those businesses are not predicated on an increasing amount of <unk> in the stream, but to your point or question.

The concentrations do come up over time that would be.

Additive to the Cotwo business, we expect to start getting 45, Q this coming year.

And again over time composition starts to go up and the C. O. Two streaming we've already got those assets and wells and injection capability in place that'll just up to 40, <unk> credits and profitability of that business that we're putting together.

Okay. Thanks for that.

And then on the capital allocation front. Thanks Luke.

Providing that clarity I was just curious now that put some.

Some guardrails around that.

Does that impact also.

Targeted returns on investments I know previously with Doug about five to <unk> multiple.

Does that range change in any way with the guardrails that you are putting it on.

I think that we have a lot of organic growth capital investment opportunity at higher returns as we look out across our footprint. That's part of why the fee for our structure has been so important allowing us to continue to invest to support our producers' activities, even in lower and across lower commodity price environment. So as we look forward I Wouldnt say.

Say that anything that we've described today around return of capital is changing how we think about investments or investment opportunities. We've described it as a multiyear approach where we believe we can distribute call it 40% to 50% of cash flow from operations, but ultimately, we'll be assessing everything across the business, including balance sheet stability.

Organic growth opportunities everything that is involved in a targa forecast and then sensitivities of those forecasts to ultimately drive the return of capital decisions each year.

But thats one of the ways that were certainly thinking about it.

Got it thanks for that.

Okay. Thank you and thanks Neil.

Thank you so much please standby for our next question.

Okay.

Alright. Our next question comes from the line of Neal Dingmann with truly Securities. Your line is now open.

Hey, guys. This is Jamie Bhatia on for Neil Thanks for the question I just had one quick one here just strategically I know given how.

All of these fee based contracts will be ramping up for you guys over the past several years.

High level I'm, just curious do you feel now that you are in a good state.

As a percentage of your contracts being fee based or should we expect a little bit more of a ramp going forward have you.

If you can quantify that that'd be great, but really just yes, just thinking strategically where are we at.

That kind of.

Great. Thanks resolution here.

Okay, Yes sure. This is Matt and then Jan if you want to add on.

Yes, we've made a lot of progress.

<unk>.

Adding or really having fee based growth in both our GNP business and our downstream business, but also putting in fee based floors and component into our G&P business as contracts come up.

As you look at that really through this year, where we've had fee floors and those hybrid contracts, we are kind of at or below the floors. So as you think about just kind of earnings.

Power going forward most of those are at or below and.

And so as we get some tailwind if we get some tailwind from commodity prices that would just be upside, but on those before contracts, there's not a lot of downside.

From here. So we think we're in a good spot.

And I would just add that our commercial team has done a great job of putting ourselves in position to continue to invest for producers by getting those fee floors in place, but ultimately if commodity prices are higher and our percentage of fee margin is going down from our gathering and processing business because commodity prices are higher I think that will be a huge win for us and our shareholders.

And that's one of the reasons that we really like 54 structure, ultimately where we'd like to get to is having few floors in really all of our gathering and processing contracts or have them be fee base because that combined with our fee based downstream business just provides us with a lot more cash flow stability across commodity price environment, and so ultimately that sort of the.

A direction that we're heading in and our teams have done a great job of pushing us towards that.

Got it. Thank you if I could just squeeze one more in and I know we've touched on this a few times, but I just wanted to clarify something so the compression issues that you guys. It.

It sounds like things have been great, but does that mean, because things have been delayed and I know you guys mentioned you have a good amount coming in 2024 as well does that mean the delays pushed back the initial 2024 orders or.

Or should we just expect I guess more of an acceleration or just a little bit more in 2044 given delays here.

Just trying to get clarification here.

Yes, I mean for the most part those have been ordered and part of it was delivery delays.

So I don't know that the capex it shifts unnecessarily shift all that much.

We're just really constantly buying compressors and adding to inventory. So there is some flex there, but it just it just does take it takes some time there and then one thing to note too as were.

No kind of waiting on those compression device.

Still coordinated for the most part with our producers such that we can capture the initial production from there. So we're working with them to make sure. We're there for the IP and that we are getting that production. So it's not really lost it's just kind of deferred and pushed in other periods.

Got it yeah that makes sense. Okay. That's it for me. Thank you guys.

Okay. Thank you.

Thank you so much.

Please standby for our next question.

Alright.

Our final question comes from the line of Brian <unk> with UBS. Your line is now open.

Okay.

Good morning, Brian We can't hear you.

Okay.

Hello can you hear me okay.

Yes, we can hear you.

Sorry about that this morning.

Just to follow up on the Permian at this point it seems like target is not close to its potential full integration of G&P assets. The NGL long haul at this point, so I know basically all the Midland volumes make it downstream on the targeted integrated system, but could you talk about maybe the <unk>.

<unk>, Delaware volumes that are not being process better not being transported on targets downstream.

Roughly 50% and kind of how should we think about those volumes rolling on to target.

Long haul system on 24% to 25% to kind of gets that 100% number.

Yeah sure I mean.

I'd say, we have a lot of our G&P business is pointing liquids into our downstream business I don't know that we ever get to 100 per side, that's not really a goal there's going to be some amount of volumes that are going on third party pipes.

The vast majority on the Midland side move, but it's not 100% on the Midland side.

And in the Delaware I would say, it's a majority but because of some after.

Acquisitions and legacy.

Dedications onto other onto other pipes, that's going to take time, but as we grow I would say a disproportionate amount of the growth is tied to targa.

That's going to continue so I think we have a majority out there I see that number moving north just as you go as we go forward.

But I think we're in a really strong position of capturing the majority of volumes across the Permian and moving those.

And to the downstream assets.

Great. Thanks, and as a follow up I know you talked about capex, a little bit but kind of curious.

Curious if you could help sensitize us a little bit if we think about G&P capital.

Three processing plants, and perhaps the need for Frac 11, as we look ahead to 'twenty five how would that look to 'twenty for that 1517 or something like that and then ultimately ethane exports is very.

Intriguing part of the business and NGL value chain at this point seems to be getting more competitive based on announced projects is there an opportunity for targets participate as we look to the middle to end of the decade. Thanks.

Yes, I think on Capex, we appointed two with Daytona and multiple fractionation trains, we see 24 being kind of similar ish levels, which I would characterize those kind of higher than our normal run rate levels because the downstream projects are a bit lumpier. So that's why we have some confidence as we get into 'twenty, five and beyond potentially having.

<unk> earned <unk> 25, having having it would be lower and then maybe a.

More normalized rate.

Thereafter.

As you look at ethane exports, you know theres a number of expansions.

Parties that do that that is something we have talked about in the past we have the capability to do that.

Right now what we're really focused on is increasing our connectivity to the domestic pet chem market and flexibility to other.

I'd say just other customers for ethane demand.

I would say that it is.

Out there, we don't I wouldn't put that on the front of our list is something we are.

Looking at.

Right now, but that is on the potential.

We kind of keep on the list and I would just add Matt. This is Scott that again, Matt alluded to the fact, we are continuously improving our deliverability out of our system to the domestic petrochemical operators in and around Mount Belvieu and the surrounding area. So that will that will be a primary focus as we see volume growth continue.

Over the course of the next several years and given the increase in.

I think consumption with those petrochemical plants, we believe we will get a large portion of that just based upon our own upstream growth in and through our assets.

Great. Thanks, I appreciate all the color and enjoy the rest of the morning.

Okay. Thank you thanks, Brian.

Alright.

Thank you so much for that.

This concludes the question and answer session I would.

Now I'd like to turn it back 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 have have a great day.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Okay.

[music] okay.

Okay.

[music].

Good day, and thank you for standing by.

Welcome to the Targa Resources Corp, third quarter 2023 earnings.

Presentation at.

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 the session you will need to press star one one on your telephone you will then hear automated message advising your hand is raised to withdraw your question. Please press star one again.

Thanks for any good morning, you'll walk into the third quarter of 2023 earnings call for Targa Resources Corp.

Third quarter earnings release, along with a third quarter earnings supplement presentation.

Cargo 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 been posted to our website.

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 the Q&A session.

Pat Mcdonald, President gathering and processing, Scott Pryor, President logistics, and transportation and Bobby Morrow Chief Commercial officer.

And with that I'll now turn the call over to Matt.

Sanjay and good morning.

We are very proud of the efforts of our employees across the third quarter, while battling an extended stretch of hot weather. We continued to operate at a high level demonstrated by record NGL pipeline transportation volumes, 6% higher sequential adjusted EBITA and completion of our expansion at our LPG export.

Selling and Galena park, increasing our propane loading capacity by an incremental 1 million barrels per month.

We also continue to return an increasing amount of capital to our shareholders in the quarter with $132 million of common share repurchases.

Since the end of the third quarter positive momentum continues across our organization highlighted by the commencement of operations of our new Greenwood plant in Permian Midland ahead of schedule and on budget. The expected rebound in our Permian volumes with current reported inlet about 150 million cubic feet per.

Today higher than our third quarter average.

Publishing our annual sustainability report demonstrating our continued progress across ESG pillars, as an operator of critical natural gas and NGL infrastructure, receiving a two notch upgrade in our ESG rating from MSCI to double a and the announcement today that we expect to recommend to our board an increase to the 2024.

<unk> annual common dividend to $3 per share a 50% increase over the 2023 dividend level.

Capital framework, we believe that we offer a unique value proposition for our investors given the strength of our outlook for annual increases in adjusted EBITDA reflective of an excellent integrated asset footprint that will continue to provide high return organic investment opportunities increasing fee based margin and cash.

Flow stability from our continued progress around fee floor contracts in our G&P business.

Strong credit and ESG ratings profile, demonstrating our commitment to a stable balance sheet and sustainable operations.

Continued opportunistic share repurchases further reducing our share count.

Our competitive common dividend with an expectation of meaningful best in class annual growth.

Looking forward and an outlook of significantly increasing free cash flow as some of our large fractionation and NGL transportation projects come online in 2024 and early 2025.

Across our base scenarios, we are modeling the ability to return 40%, 50% of adjusted cash flow from operations to equity holders. This is not a target or a bright line as we place a high priority on flexibility, but it is a framework that we believe can be helpful. In thinking through our return of capital or return.

A capital proposition going forward.

Let's now discuss our operations in more detail starting in the Permian high activity levels continue across our dedicated acreage despite lower than expected third quarter volumes, largely driven by the extended periods of heat across new Mexico, and Texas. We also had about 200 million cubic feet per day of lower margin high pressure.

<unk> move off our system in the Delaware Basin.

Our Permian Midland volumes increased 2% sequentially and was offset by reduced Permian, Delaware volumes, resulting in flat Permian inlet volumes.

Through the first three quarters of this year average reported inlet volumes across our system have increased over 300 million cubic feet per day in comparison to average fourth quarter 2022.

A big Thank you to our engineering and operations teams for bringing Green Greenwood online safely ahead of schedule and on budget. Despite challenging operating conditions. This past summer.

Our next plant and the Midland Greenwood two remains on track to begin operations in the fourth quarter of 2024 and is expected to be much needed when it comes online in.

In Permian, Delaware activity and volumes across our footprint are also running strong or Wildcat too and road runner two plants remain on track to begin operations in the first and second quarters of 'twenty four respectively, and both plants are expected to be much needed a startup.

In our central region, and the Badlands, our combined natural gas volumes increased 2% sequentially and our systems are performing well.

Shifting to our logistics and transportation segment targets NGL pipeline transportation volumes were a record 660000 barrels per day and fractionation volumes remained strong averaging 793000 barrels per day during the third quarter, our Grand Prix NGL pipeline deliveries into Mont Belvieu increased 6% sequentially as we.

Benefited from higher third party supply volumes.

We loaded an average of $10 7 million barrels per month of LPG is during the third quarter, even though our loading capability was reduced for part of the quarter due to a previously disclosed required 10 year inspection.

Liability to our customers.

Senses with.

E&P business, our successful hedging program and the resiliency of our operations.

For a good part of this year, we have benefited from margin associated with fee floor contracts as natural gas and NGL prices were below <unk> level.

We believe that 2023 provides an example of the financial durability of our business in a lower commodity price environment and the benefits of the <unk> structure, where we retain upside if commodity prices move higher.

We are well hedged across all commodities for the balance of the year and continue to add hedges for 2024 and beyond.

Net maintenance capital spending is tracking a little bit higher than initial expectations and our current estimate for 2023 is approximately $200 million.

Shifting to capital allocation, our priorities remain the same which are to maintain a strong investment grade balance sheet to continue to invest in high returning integrated projects and to return at an increasing amount of capital to our shareholders across cycles are.

As we will have completed the lumpier and expansions in our downstream business.

As Matt described underpinned by the strength of our business outlook for 2024 and beyond we plan to recommend to our board a 50% increase to the 2024 annual common dividend to $3 per share and we expect to be able to grow the annual common dividend meaningfully thereafter.

We also expect to remain in position to continue to execute opportunistically under our common share repurchase program.

During the third quarter, we repurchased $132 million of common shares at a weighted average price of $83 38.

And have repurchased $333 million year to date through September we had about $811 million remaining under our $1 billion share repurchase program at the end of the third quarter.

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 entered the lineup. If you have additional question Brittany would you. Please open the line for Q&A.

Yes. Thank you.

We will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.

Okay.

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

Good morning, Thank you for taking my questions.

It's great to see a very strong dividend increase and your new capital return framework really a capital accountability framework if anything.

Can you talk about your view of dividend growth within all of this how did you arrive at the 50% increase over 2023 is there a yield you would like to achieve and how do you generally plan to balance dividend growth with share repurchases within that.

50% of cash from ops framework, while maintaining a healthy balance sheet.

Good morning, Theresa this is jen.

Allying strength of our business as evidenced by our continued activity under our share repurchase program.

Return of capital strategy begins with numerous multi year scenario and hopefully, it's becoming more evident that increasing GMP fees and P. Floors are really positioning us to be able to invest in the business to support the activities of our upstream producers, despite a lower wahaha and NGL environment, which are meaningful to us while also increasing.

Our cash flow stability and resiliency across lower commodity price environment.

Relative positioning across all of that and all of that is really at the end of the day informing our return of capital strategy that we believe can maximize shareholder value. We've been very transparent since we instituted the program in October of 2020 that we want to have an opportunistic share repurchase program and hopefully we are <unk>.

Constraining a track record of activity when given that opportunity as we look forward and move through time, we will have to see what the opportunities present themselves in the market and that will ultimately balance approach to dividends and repurchases, but I think this is an important indication that clearly we are in position to return more capital to shareholders and.

Can do that through its stable and meaningfully growing dividend and then also can continue to supplement that with opportunistic repurchases. It continues to be that all of the above approach that I think youre really seeing us execute on.

Thank you and on the topic of the continued volume growth and just with the recent announcements of upstream consolidation in the Permian, especially Mifid news related to your Midland JV partner, an anchor shipper.

What do you think this all mean for Targa in terms of volume growth trajectory and the duration of the resource underlying our acreage.

Yeah sure Hi, Theresa this is Matt.

With the announcements we've seen recently I would say consistent with the previous announcements we have really good relationships with the parties involved in those transactions, so whether youre talking about exxon or chevron or others, we have good relationships and really growing relationships with them, we handle a lot of their volumes today.

And as we think about it at least in the short term we have contracts in place with all of those parties mentioned so those contracts are typically long term contract. So.

We'll just have to see how it plays out over time.

We think the outlook for growth in the Permian Basin continues to be very strong when you look at some of those parties mentioned they have pretty robust growth outlooks. So I think over the longer term I think we're optimistic on what that ultimately means for our underlying business, but we'll just have to kind of see how that plays out I think it's going to play out over time.

Thank you.

Okay. Thank you.

Thank you so much.

One moment for our next question please.

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

Thank you good morning, everyone.

I wanted to just ask about your.

Your views now on.

The trajectory of Permian volume growth just wanted to understand that the third quarter would you say these were just really temporary operational issues are you seeing any real material change in producer activity, which would drive a change in the slope of our future growth.

Yeah.

Hey, Michael Yes. Good good question, we're seeing strong growth from the Permian, So talking about Midland versus Delaware really the Midland volumes are tracking in line with our guidance that we gave at the beginning of the year continued strong growth is really on track and we've seen that even ramp here in the fourth quarter. So it really kind of comes into the Delaware.

We did have 200 million a day kind of roll off in between Q2 and Q3 when you kind of look at the averages now that was we knew that was going to happen. So that was factored in to our to our guidance, but that just does illustrate we had underlying growth in the third quarter, but it does not quite enough to offset the 200 that was rolling off we're seeing a lot.

Lot of activity in the Delaware, We've got a lot of compression that we're adding frankly, it's coming in a little bit lighter than we had thought than we were going to have it in place at the beginning of the year. We've got 200 million a day scheduled to come online between now and year end. So it was just coming in a little bit later, but the volumes are there where frankly.

So a little bit behind and trying to catch up in and be there to handle all the volumes, but the underlying outlook I think we're very confident that Permian volumes are going to continue to grow both on the Midland side and on the Delaware side, not just for Q4, but as you look out $2024 25 and beyond.

Great No that's perfect and then.

Actually just ties into my second question, which is.

As I'm sure you're aware of you and many others have announced NGL pipeline takeaway.

Position.

And specifically to the Grand Prix pipeline Michael.

Okay. This is Scott sorry, just wanted to clarify when we look at the quarter. The third quarter. We had some volume improvements that came across in the quarter. Those were predominantly a third party volumes are upstream volumes as Matt indicated were relatively flat on the quarter, but we continue to see volume growth overall and as we look into <unk>.

At the beginning.

With Daytona pipeline coming online in the fourth quarter of next year, we feel very comfortable with the timing of that.

Relative to the volume growth that we will have and we've seen a number of announcements in the marketplace obviously of late.

But the operating leverage that we get with Daytona coming on online for our west leg. The operating leverage we have on our pipeline moving into Mt. Belvieu gives us a lot of runway.

Okay.

Great. Thank you.

Okay. Thanks, Michael.

Thank you so much please standby for our next question.

Okay.

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

Okay.

Yeah.

Morning, Brian.

We can't hear anything I don't know.

Anyone else can.

Hello, Mr. Reynolds.

Okay. Brittany when you go ahead and move to the next yes.

And in the Q&A. Please.

Absolutely one moment.

Our next question.

Okay. Our next line comes I'm sorry, our next question comes from the line of.

Alright, well Donnie with Citi. Your line is now open.

Thanks, operator, good morning, guys maybe.

Maybe just going back to good morning, maybe to come back to NGL pipeline volumes quickly.

You guys need to hit record levels this quarter.

Third party volumes are coming onto the system.

Still a lot of time before data center comes online. So I'm just curious b now in Daytona any chance you guys could be offloading volumes do you feel like you're pretty secure on that front.

Sure. This is Scott again.

We feel comfortable I would say that from time to time, where we've seen maintenance on the pipeline or managing the startup of our pump stations along Grand Prix on the west side as well as on the South side, we have from time to time taken the availability of industry capacity, where necessary to off loads, but with the startup of pump stations those getting.

Fully energized that gives us a long runway going into 2024, we'll certainly evaluate what that looks like but we feel comfortable that with the timing of the ramp up of the volumes.

How we can facilitate offloads, where where it may be necessary.

We'll look forward to Daytona coming online in the fourth quarter of next year, Yeah, and just to add to that two of the 660 that we moved.

Barrels per day, most of that is from the Permian, but theres still a significant amount of that that is coming in.

North lag kind of from the North, Texas, Oklahoma segment.

Okay got you. Thanks, Matt is helpful color.

Switching gears a bit.

Great.

That's going pretty well.

Expansion project on online we are already seeing benefits of that and we would expect to see that and into the fourth quarter. So our volumes in the fourth quarter, we would expect them to be equal to or better than what we saw in the third quarter as the as the arb opportunities have improved.

Moving forward through the fourth quarter and into 2024.

Helpful color I'll leave it there thanks David.

Okay. Thank you.

Thank you so much.

Please standby for our next question.

Sure.

Okay.

Right.

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

Hi, good morning.

First hey, good morning, Hey, Matt.

Are any of the.

Want to make sure any of the constraint issues you saw in Q3 expected to have a sustained impact going forward or do you view. This as a one time event and we should see a good bounce back in.

In Q4, I just want to make sure there's an expectation that.

This was kind of a onetime thing and there's no lingering kind of issues that could pop up in future quarters.

Yeah, and I guess are you referring to the <unk>.

<unk> on the G&P side on the Delaware or.

Yes, that's right G&P volumes and what you referred to in the quarter.

Yes.

I think part of it goes back to when we made the acquisition last year of of looser. There was a lot of growth on the system and.

Yes, we.

We're immediately off loading a lot of volumes on a target and frankly, it was just kind of behind out in the field, Wang pipelines and getting compression and it's about a year.

Part of that was exacerbated because of the heat and operational issues and upset that we add so we're really trying to address and kind of get ahead of where the where the producers are going so yes.

So Pat I mean anything you want to add to that I think we showed the level of confidence in what we think our volume is going to be we've got two plants under construction in the process of.

Clearly in the third plant site.

<unk> building, because we don't think the volume growth is there.

Certainly.

Through the producer discussions that we have and what we're seeing getting done and as Matt alluded to were behind getting compression in place et cetera. Some of the producers lag a few weeks.

As indicated by what we're investing in in the Delaware for future volume growth.

That's helpful.

Second just just want to clarify that the capital return framework, so 40% to 50% of operating cash flow to equity holders, which could be buybacks and dividends.

It sounds like the frameworks effectively allows the company to meet its growth objectives and still keep you in that leverage target of three to four times.

Keith This is Jim I think what we're trying to do is just to provide some visibility into some of that target specific metrics that we look at if you look at our LTM return of capital as a percent of cash flow from operations.

Here over the last 12 months Youll see that were lower than peers lower than the S&P 500, and S&P energy average and so part of this as indicating we've had really strong total return performance and believe that we will have strong total return performance going forward, which is really based on the value proposition that we think we provide significant EBITDA growth continued ability to.

Return in high return organic growth capital projects, and because of that and having a strong balance sheet. The ability to also return more capital to shareholders. So one of the big questions. We get is well how much more and what does that look like and how are you thinking about it and that's why we're really trying to articulate that this isn't a bright line.

And this is in a way.

It's really just instructive as we look out over a multiyear forecast across a number of different scenarios. That's one of the important elements or quantitative metrics that we're looking at and I think as we think about our multiyear framework. So 'twenty four 'twenty five 'twenty six 'twenty 728, five year planning horizon.

We look across those multiple years and believe that its reasonable to say that we will have the business that could support returning that much capital to shareholders and ultimately we've made one decision that we've announced today, which says this is our expectation that we will recommend a $3 dividend to our board for approval effective the first quarter of 2020.

Four and then we will continue to evaluate but it is one of the important metrics that I think we are looking at to inform how we believe we can return capital over multiple years.

Got it thank you.

Thank you. Thank you.

Thank you so much.

One moment for our next question please.

Yeah.

Alright. Our next question comes from the line of Tristan Richardson with Scotia Bank. Your line is now open.

Hey, good morning, guys.

Maybe I missed it in the prepared remarks, but can you talk about any updates you're seeing broadly in the market on the gas solution side, maybe how that market has evolved since you first planted a flag with your potential solution and then maybe any update on commercial development of your specific project.

Yes. This is Bobby.

So what I'd tell you is the message around apex and the effort on apex.

And residue solutions for the Permian Basin does not change for Targa.

Our priority is to make sure that.

<unk> solutions for the basin get built.

We've talked about our solution needed in the 26 ish timeframe, which is why we have been pushing in APAC and I would say why we have been pushing apex, it's really been a group of investment grade Counterparties shippers and markets.

It has driven the design of that.

But what I would tell you is as some of the changes which are which are positive as.

There I think our multiple options that have started to.

Come to fruition, maybe too strong of a word but opportunities for other solutions and at the end of the day Targa has one priority and that's to make sure that the gas gets out of the basin. So whether it ends up being apex or another pipe and whether they need our help to back another pipe or or not.

Thats, where it will be is to make sure of that pipe gets built our apex get built or something gets built for the 26 timeframe.

Again, its apex goes it'll be because it's in a framework that works for us and works for the Counterparties that are out there, but its apex doesn't go we stand ready to make sure. Another solution goes in 'twenty six.

And that the basin has that takeaway such that gaskins continue to blow in our plants and Ngls down our our integrated system.

I appreciate the context, Bobby and then I know, we've just now gotten the export expansion online.

As we think about Daytona and third party volumes coming in and Frac Tc the export market starting to tighten up.

And then as your capacity today really allow for Ed.

Headroom, assuming a reasonable utilization at Daytona once we begin ramping on the asset late in 'twenty four 'twenty five.

Interest in this is Scott, yes, I would say that.

Today, the market feels tight.

So we're very pleased with that being online with that said as we look.

Today that we have a lot of runway to add projects to that are very capital efficient that will provide us capabilities moving forward. So we'll continue to watch the volume growth in and through our system and we will time those various projects accordingly.

But again, we're very fortunate to already have an existing facility that we can kind of bolt onto very effectively.

I appreciate it Scott. Thank you guys and congrats on the capital allocation plan.

Okay. Thank you.

Great. Thank you so much Ben please standby for our next question everyone.

Okay.

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

Hey, good morning, Thanks for taking my questions.

Matt I think you alluded to.

200 million cubic feet rolling off in <unk>.

The new Mexico, Delaware and now there is another probably smaller contract roll off in 2024 can you speak to the dynamics.

In that area, just because it's so competitive.

Sure.

Competitors kind of undercutting you on price to try to win some some acreage dedications or is kind of the Red Hills complex just so big.

Just wanted to diversify away.

And have a few players versus.

Very big concentrated player in the area.

Sure sure.

Good question, let me just clarify I think I did say roll off it's really contracted volumes that we have coming to us that it was really contracted for it to move and we're not losing to third party midstream, that's not where that wedge so Bobby.

Bobby for clarity our produce our own plant came online and that 200 million a day move to that produce our own plan and when that plant goes up we get more guests. So it's part of our planning all along.

And its contracts didn't change contracts expiring contracts didn't.

You said it moved office system.

And frankly, <unk> filling for back filling high pressure low margin gas with low pressure higher margin gas, which is kind of what our bread and butter right.

Perfect.

And then.

Maybe just a follow up on Patel.

Potential.

Apex opportunities.

Could you maybe broke and the spend you would you would look at.

Just just in terms of 25 being a low lower Capex here, then 24 and.

Kind of the maximum you would be willing to undertake that investment.

For apex, if needed would you be the operator, which you take a small equity interest how would you go about looking about that.

Keep the capital down.

Yes sure.

Let me kind of start here and then if others want to jump in.

Yes, I think apacs or I would say the next pipe out of the Permian is going to likely be a joint venture between either multiple midstream midstream and producers. So there'll be a partial ownership. So if we participate in something we could have an ownership interest in the JV or we could move volumes on it and frankly not having.

Ownership interest if it gets a python so I'd say the book and the low end, we could be putting no capital into the next pipeline I think we'd like to have our options open where we could have an ownership interest we have seen that that creates value for targa at GC acts as a good example, we owned 25% we invested in it and then ultimately monetize it. So I think we are.

To be open to opportunities like that that give us the ability to invest in that project and then whether we ended up holding it whether we operate at what percentage level. Those are all discussions and it depends on which pipe ends up going whether it is apex or it is another pipe led by someone else.

As Bobby said, our primary focus is getting our pipe built where our ownership is and what and how we would finance that if we project finance that it would be very little capital out the door right. So we have all those options to us I think as we look forward on our capital spend as Jen mentioned in the past is we see 24 being kind of in a similar.

Area, and we see 25 spending coming down I think the trajectory of our capital should be kind of down once we get past 2024, and we will look to kind of optimize how much spending and how that all works in that framework.

Okay perfect. Thank you for the answer.

Okay. Thank you.

Alright.

Thank you so much please standby for our next question.

Alright. Our next question comes from the line of Jeremy Tonet with J P. Morgan Securities LLC. Your line is now open.

Hi, good morning.

Hey, good morning, Jeremy.

So with the caveat upfront granted you're not giving 2024 guidance here and you've talked about a number of moving pieces.

Talked about I think some volume trends and maybe the LPG outlook, but just wondering if there's any other big moving pieces that we should think about when we are shaping our 24.

From where we sit and maybe just at a high level, how you see targets EBITDA growth being able to trend organically from where you are with.

Targa largely track kind of Permian growth trends in general are there other kind of pieces to the puzzle we should think about.

Yeah, Hey, Jeremy Good question, Yes, as we look out into 2024, I think we're optimistic that not only 24 is going to be have good EBITDA growth of 25 and beyond and then it's really just kind of the timing as you mentioned, what that shaping and going to look like I think it does for us start in the Permian.

<unk> business, what volumes are moving through both the Delaware and the Midland that's going to provide then more volumes into NGL transport and fractionation and available for export. So I think it's kind of starts with what is overall Permian look like and I think we see a pretty strong outlook for 'twenty four 'twenty, five and really five plus years I'd say.

The 10 years and even longer on the gas side. So I think short term it looks good and longer term. It looks good I would say the only other things to think about is we do have a lot of fractionation coming on in 2024, we have DCF coming on at the end of the quarter that will have train nine and then train.

Train 10, so thats outsized amount of fractionation relative to just kind of normal volume growth that we're seeing we have export expansion just Don I think we're set up well for exports.

In 2024.

But ultimately it kind of comes back to Permian gathering and processing growth will be the primary our primary driver.

Got it that makes sense, there and you talked about upstream.

Consolidation earlier in the call and just wanted to shift our focus towards the midstream.

We have seen a bit of an up tick in consolidation in the industry and just wondering from where Targa sits right now do you feel comfortable with.

Yes.

The business is right now or do you see how do you see targets rule I guess, an industry consolidation going forward at this point.

Yes, sure I'd say, where I think we said of our internal business prospects look very good.

We have a very good case just to continue to operate in our core business gathering.

Gathering and processing in the Permian largest G&P footprint in the Permian basin is going to afford us multiple years of growth. So I think we just said in a very fortunate position to just focus on target we're going to invest in G&P, we're going to invest in transport like we are with Daytona invest in fractionation, we're bringing three fractionator is on and continue to invest in <unk>.

Sport so.

It's not in any one exact year, but we see being able to do all of those things distribute 40% to 50% lower our leverage invest in our business. So I think we're focused on target right now and just executing our plan in front of us.

Got it makes sense that's helpful I'll leave it there.

Okay. Thank you.

Okay. Thank you so much.

One moment for our next question please.

Alright. Our next question comes from the line of Neil Seabaugh with Seaport.

Global Your line is now open.

Yes, hi, good morning, everybody and thanks for taking my question. So my first question related to some of the operational issues at <unk> in the third quarter that you've talked about.

In addition to I think the weather and compression some of the operators. They have also talked about higher <unk> concentration in the gas streams I.

I believe that's an issue.

He is pretty familiar with so I was curious how do you handle that going forward and also does it kind of accelerates iOS cotwo sequestration solution.

This pad.

<unk> wasn't really a major contributor to operational issues for us in the third quarter.

We have a lot of capabilities and are adding capabilities to handle <unk> and frankly age to us our gas.

We do see <unk> production growing in the Delaware Basin specifically.

There are a lot of producers that do things at the wellhead that are capital inefficient and expensive for them to do.

So.

As we move forward, we are putting infrastructure in place that allows us to handle handling high cotwo volumes sequestering.

Dealing with sour gas <unk> and other components.

But as far as the operational issues.

It's weather a little late on compression residue gas pipeline issues.

Which is more felt in the Delaware because we don't quite have the system funds ability in the Delaware that we do in the Midland We're building that infrastructure as you can see from our capital spend we've gotten a lot of benefit from integrating our northern Delaware lucid system with our other two Delaware systems, but over time, when we have it.

<unk> on the specific plant sites and work compressor sites will have that Fungibility, where we can move gas around and keep production flowing.

A little more exacerbated right now.

And as we move forward that will get better.

So.

That's kind of where we're at right now and it looks better forward.

And then this is Bobby <unk> sequestration side, we've been pushing a bunch of projects forward I think people are seeing public.

Public filings relative to MRV plans that are already in place and wells that we have permitted out there and that continues to move forward.

That those businesses are not predicated on an increasing amount of cotwo in the stream, but to your to your point or question.

The concentrations do come up over time that would be.

Additive to the Cotwo business, we expect to start getting 45, Q this coming year.

And again it overtime composition starts to go up in the C. O. Two streaming we've already got those assets and wells and injection capability in place that'll just up to 40, <unk> credits and profitability of that business that we're putting together.

Okay. Thanks for that.

And then on the capital allocation front. Thanks Luke.

Providing that clarity I was just.

Curious now that put.

Some guardrails around that.

Does that impact also.

Good good returns on investments I know previously we talked about five to seven makes kind of multiples.

Does that range change in any way with the guardrails that you are putting it on.

I think that we have a lot of organic growth capital investment opportunity at higher returns as we look out across our footprint. That's part of why the seafloor structure has been some important allowing us to continue to invest to support our producers' activities, even in lower and across lower commodity price environment. So as we look forward I Wouldnt say.

Say that anything that we've described today around return of capital is changing how we think about investments or investment opportunities. We've described it as a multiyear approach where we believe we can distribute call it 40% to 50% of cash flow from operations, but ultimately we will be assessing everything across the business, including balance sheet stability.

Organic growth opportunities everything that is involved in a target forecast and then sensitivities of those forecasts to ultimately drive that return of capital decisions each year, but that's one of the ways that were certainly thinking about it.

Got it thanks for that Nick.

Okay. Thank you and thanks Neil.

Thank you so much please standby for our next question.

Yes.

Okay.

Alright. Our next question comes from the line of Neal Dingmann with truly Securities. Your line is now open.

Hey, guys. This is Jake Nicola Shaw on for Neil. Thanks for the question I just had one quick one here just strategically I know given how.

All of these fee based contracts that are ramping up for you guys over the past several years just at a high level I'm. Just curious do you feel now that you are at a good state.

As a percentage of your contracts being fee based or should we expect a little bit more of a ramp going forward have you.

If you can quantify that that'd be great, but really just yes, just thinking strategically where are we at.

That kind of.

Great. Thanks resolution here. Thank you.

Okay. Yeah sure. This is Matt and then Jan if you want to add on.

Yes, we've made a lot of progress.

<unk>.

Adding or really having fee based growth in both our GNP business and our downstream business, but also putting in fee based floors and component into our G&P business as contracts come up.

As you look at that really through this year, where we've had fee floors and those hybrid contracts, we are kind of at or below the floors. So as you think about just kind of earnings.

Power going forward most of those are at or below and.

And so as we get some tailwind if we get some tailwind from commodity prices that would just be upside, but almost before contracts, there's not a lot of downside.

From here. So we think we're in a good spot.

I would just add that our commercial team has done a great job of putting ourselves in position to continue to invest for producers by getting those fee floors in place, but ultimately if commodity prices are higher than our percentage of fee margin is going down from our gathering and processing business because commodity prices are higher I think that will be a huge win for us and our shareholders in that.

One of the reasons that we really like 64 structure, ultimately where we'd like to get to is having <unk> and really all of our gathering and processing contracts or have them be fee base because that combined with our fee based downstream business just provides us with a lot more cash flow stability across commodity price environment and so ultimately that's sort of the direct.

Isn't that we're heading in and our teams have done a great job of pushing us towards that.

Got it. Thank you if I could just.

One more in and I know we've touched on this a few times, but I just wanted to clarify something so the compression issues that you guys. It.

Or should we just expect I guess more of an acceleration or just a little bit more in 2044 given delays here.

Just trying to get clarification here.

No I mean for the most part of those had been ordered a part of it was delivery delays.

I don't know that the capex it shifts necessarily shift all that much.

We're just really constantly buying compressors and adding to inventory. So there is some flex there, but it just it just does take it takes some time there and then one thing to note too as were.

Kind of waiting on those compression device.

Work still coordinated for the most part with our producers such that we can capture the initial production from there. So we're working with them to make sure. We're there for the IP and that we are getting that production. So it's not really lost it's just kind of deferred and pushed into other periods.

Got it that makes sense. Okay. That's it for me. Thank you guys.

Okay. Thank you.

Thank you so much.

Please standby for our next question.

Alright.

Our final question comes from the line of Brian Reynolds with UBS. Your line is now open.

Okay.

Good morning, Brian We can't hear you.

Okay.

Hello can you hear me.

Yes, we can hear you.

Thank you.

Sorry about that this morning.

To follow up on the Permian at this point it seems like target is not close to its potential full integration of GMP assets. The NGL long haul at this point, so I know basically all the Midland volumes make it downstream on the targeted integrated system.

But could you talk about maybe the process Delaware volumes that are not being processed that are not being transported on targets downstream.

Roughly 50% and kind of how should we think about those volumes rolling on to target long haul system in 'twenty four 'twenty five to kind of get to that 100% number.

Yes, sure I mean.

I'd say, we have a lot of our G&P business is pointing liquids into our downstream business I don't know that we ever get to 100 per side. That's not really a goal there is going to be some amount of volumes that are going on third party pipe.

Yes.

The vast majority on the Midland side move, but it's not 100% on the Midland side.

And in the Delaware I would say, it's a majority, but because of some because of some acquisitions and just legacy.

Dedications onto other onto other pipes, that's going to take time, but as we grow I would say a disproportionate amount of the growth is tied to target.

And I think thats going to continue so I think we have a majority out there I see that number moving north just as you go as we go forward.

But I think we're in a really strong position of capturing the majority of volumes across the Permian and moving those.

The downstream assets.

Great. Thanks, and as a follow up I know you talked about capex, a little bit but kind of curious.

Curious if you could help sensitize us a little bit if we think about G&P capital III.

Three processing plants, and perhaps the need for Frac 11, as we look ahead to 'twenty five.

Look just for that 1517 or something like that.

Ultimately.

Exports is very.

<unk> part of the business and NGL value chain at this point it seems to be getting more competitive based on announced projects is there an opportunity for targets participate as we look to the middle to end of the decade.

<unk> earned 25, having it having it would be lower and then maybe a more normalized rate.

Thereafter.

As you look at ethane exports, you know theres a number of expansions.

Uh huh.

Parties that do that that is something we have talked about in the past we have the capability to do that.

Right now what we're really focused on is increasing our connectivity to the domestic pet chem market and flexibility to other.

I'd say just other customers for ethane demand.

I would say that.

It's out there we don't.

I wouldn't put that on the front of our lift is something we are.

Looking at.

Right now, but that is on the potential.

Are we kind of keep on the list and I would just add Matt This is Scott.

<unk>.

Matt alluded to the fact, we are continuously improving our deliverability out of our system to the domestic petrochemical operators in and around Mount Belvieu and the surrounding areas. So that that will be a primary focus as we see volume growth continue over the course of the next several years.

Given the increase in.

I think consumption with those petrochemical plants, we believe we will get a large portion of that just based upon our own upstream growth and into our assets.

Great. Thanks, I appreciate all the color and enjoy the rest of the morning.

Okay. Thank you thanks, Brian.

Alright.

Thank you so much for that.

This concludes the question and answer session I would.

Now I'd like to turn it back 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 have have a great day.

Okay.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Q3 2023 Targa Resources Corp Earnings Call

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