Q2 2024 Targa Resources Corp Earnings Call
Sanjay Lad: to our website. Statements made during this call that might include Targa's expectations or predictions should be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, because actual results could differ materially from those projected in forward-looking statements.
Statements made during this call that might include targets for expectations or predictions should be considered forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 1934 actual results could differ materially from those projected in forward looking statements.
For a discussion of factors that could cause actual results to differ please refer to our latest SEC filings.
Sanjay Lad: For a discussion of factors that could cause actual results to differ, please refer to our latest SEC filing. Our speakers for the call today will be Matt Meloy, Chief Executive Officer, and Jen Kneale, President, Finance, and Administration. Additionally, the following senior management team members will be available for Q&A: Pat McDonie, President, Gathering and Processing; Scott Pryor, President, Logistics and Transportation; Bobby Muraro, Chief Commercial Officer; and Will Byers, Chief Financial Officer. With that, I'll turn the call over to Matt.
Our speakers for the call today will be Matt Meloy, Chief Executive Officer, and Jen Kneale, President Finance and administration.
Speaker Change: Surely the following senior management team members, who will be available for Q&A Patrick.
Speaker Change: Patrick Donnie President gathering and processing, Scott Pryor, President logistics, and transportation, Bobby Morocco, Chief commercial officer, and well buyers Chief Financial Officer.
Speaker Change: I'll now turn the call over to Matt.
Matthew Meloy: Thanks, Sanjay, and good morning to everyone. We had another record quarter across multiple fronts, but before we get into all the good things happening here at Targa, I would like to first recognize all our employees impacted by Hurricane Beryl. We prepared for the storm, weathered the storm, and performed across a difficult period to safely keep volumes flowing, providing best-in-class service when many of our employees were also managing without power and had damage to their homes.
Matt Meloy: Thanks, Sanjay and good morning to everyone. We had another record quarter across multiple fronts, but before we get into all the good things happening here at Targa I would like to first recognize all our employees impacted by hurricane barrel.
Matt: We prepared for the storm weather, the storm and performed across a difficult period to safely keep volumes flowing providing best in class service when many of our employees. We're also managing without power and had damage to their homes. The hard work and dedication demonstrated during the storm is really something to be proud of so I'd like to say.
Matthew Meloy: The hard work and dedication demonstrated during the storm is really something to be proud of, so I'd like to say thank you to the Targa team for all the extra effort. The storms reduced our volumes for only a short period, so we expect the impact on the third quarter to be minimal, as there was no material damage to any of our assets.
Speaker Change: Thank you to the target team for all the extra effort there.
Matt: The storms reduced our volumes for only a short period. So we expect the impact on the third quarter to be minimal as there was no material damage to any of our assets I would also like to welcome will buyers targets, New Chief Financial Officer to our call. This morning will officially joined US on July 20, <unk> and we're excited to have him as part of the target team.
Matthew Meloy: I would also like to welcome Will Byers, Targa's new Chief Financial Officer, to our call this morning. Will officially joined us on July 22nd, and we're excited to have him as part of the Targa team. Will adds a lot of depth to our organization, given his 20 plus years of midstream finance experience, including serving in CFO roles over the last 10 years. As part of Jen's continued development, she has now transitioned into the role of President, Finance, and Administration, and will continue to increase her role and responsibilities.
Speaker Change: <unk>.
Speaker Change: We'll add a lot of depth to our organization given his 20 plus years of midstream finance experience, including serving as CFO roles over the last 10 years.
Speaker Change: As part of <unk> continued development. She has now transitioned into the role of President Finance and administration and we will continue to increase her role and responsibilities.
Matthew Meloy: Turning now to our second quarter results, it was another strong quarter of performance across our organization, which sets us up well for the balance of this year and beyond. Record volumes in the Permian drove record NGL transportation and fractionation volumes downstream and record quarterly adjusted EBITDA. We brought our Train 9 Fractionator in Montbellevue and our Roadrunner 2 plant in Permian, Delaware, online, on time, on budget, and given increasing volumes across our systems, they were both very much needed. We also executed on a quarterly record $355 million of common share repurchases, which is reflective of our performance and strong conviction and outlook for our business going forward.
Speaker Change: Turning now to our second quarter results. It was another strong quarter of performance across our organization, which sets us up well for the balance of this year and beyond.
Speaker Change: Record volumes in the Permian drove record NGL transportation, and fractionation volumes downstream and record quarterly adjusted EBITDA.
Speaker Change: We brought our train nine fractionator in Mont Belvieu and a road runner to plant in Permian, Delaware online on time on budget and given increasing volumes across our systems. They were both very much needed.
Speaker Change: We also executed on a quarterly record $355 million of common share repurchases, which is reflective of our performance and strong conviction in the outlook for our business going forward. We also just announced our participation in a joint venture supporting the next natural gas pipeline from the Permian Basin, we provided a meaningful <unk>.
Matthew Meloy: We also just announced our participation in a joint venture supporting the next natural gas pipeline from the Permian Basin. We provided a meaningful volume commitment to support the project, and this provides for a 17.5 percent ownership interest in the Blackcomb Pipeline. Blackcomb will be a 42-inch pipeline transporting gas from the Permian to South Texas. The pipeline is expected to be financed by project financing, so Targa's capital investment should be less than $200 million.
Speaker Change: <unk> commitment to support the project and this provides for a 17, 5% ownership interest in the black home pipeline.
Speaker Change: Black home will be a 42 inch pipeline transporting gas from the Permian to South Texas. The pipeline is expected to be project finance, so targeted capital investments should be less than $200 million.
Speaker Change: Now, let's talk a little more about our Permian position and the good things happening there.
Matthew Meloy: Now let's talk a little more about our Permian position and the good things happening there. Activity in the Permian basin remains very strong, supporting our view of continued long-term growth from the basin. Our Permian volumes during the second quarter increased about 275 million cubic feet per day over the first quarter, which is a full plant. And year over year, our volumes in the Permian are up more than 600 million cubic feet per day.
Speaker Change: Activity in the Permian remains very strong supporting our view of continued long term growth from the basin.
Speaker Change: Our Permian volumes during the second quarter increased about 275 million cubic feet per day over the first quarter, which is a full plan and year over year our volumes in the Permian are up more than 600 million cubic feet per day and currently our volumes in the Permian are up another 200 million cubic feet per day compared.
Matthew Meloy: And currently, our volumes in the Permian are up another 200 million cubic feet per day compared to the second quarter. We expected strong growth from our Permian assets, but the growth we have seen this year has exceeded our expectations. We now expect low double-digit percentage volume growth this year, which sets us up well for meaningful growth in 2025 and beyond. This higher growth rate is driving incremental EBITDA and requiring additional growth capital investment.
Speaker Change: For the second quarter.
Speaker Change: We expected strong growth from our Permian assets, but the growth we have seen this year has exceeded our expectations. We now expect low double digit percentage volume growth this year, which sets us up well for meaningful growth in 2025 and beyond.
Speaker Change: This higher growth rate is driving incremental EBITDA and requiring additional growth capital investment.
Matthew Meloy: These volumes are core to our business, and we benefit across the integrated NGL value chain, driving higher margins into our downstream business and generating strong ROI. Given higher-than-anticipated Permian volumes and an outlook for continued strong activity across our Midland and Delaware footprints, we announce our next two plants in the Permian, one in the Midland Basin and another in the Delaware Basin. Some spending for these plants was included in the forecast we provided back in February, but the timing and cadence of spending have accelerated.
Speaker Change: These volumes are core to our business and we benefit across the integrated NGL value chain driving higher margins into our downstream business and generating strong ROIC.
Speaker Change: Given higher than anticipated Permian volumes and an outlook for continued strong activity across our Midland and Delaware footprints, we announce our next two plants in the Permian and one in the Midland Basin and another in the Delaware Basin.
Speaker Change: <unk> spending for these plants was included in the forecast we provided back in February, but the timing and cadence of spending has accelerated.
Matthew Meloy: To support our higher volume and higher EBITDA profile, we are updating our estimate for growth capital spending for 2024 to approximately $2.7 billion. This increase, or the increase in growth capital spending from our previously provided range, is attributable to the acceleration of the timing of plants in the Permian, incremental field capital, compression and gathering lines, the acceleration of downstream infrastructure connections, and other opportunities like spending on an enhancing residue gas takeaway. Similarly, we expect stronger than previously estimated per million volume growth next year and are updating our 2025 estimate for capital spending to $1.7 billion, driven by a similar acceleration of plant and field capital and our investment in black combs. We included a bridge on slide 5 in our Q2 earnings supplement presentation for our updated estimates for 2024 and 2025 growth capital.
Speaker Change: To support our higher volume or higher volume and higher EBITDA profile. We are updating our estimate for growth capital spending for 2020 force of approximately $2 7 billion.
Speaker Change: This increase or the increase in growth capital spend from our previously provided range is attributable to the acceleration of timing of plants in the Permian incremental field capital compression and gathering lines.
Speaker Change: Acceleration of downstream infrastructure connections and other opportunities like spending on enhancing residue gas takeaway.
Speaker Change: <unk>, we expect stronger than previously estimated Permian volume growth next year and are updating our 2025 estimate for capital spending to $1 7 billion driven by a similar acceleration of plant and field capital and our investment in Black Hawk we.
Speaker Change: We included a bridge on slide five in our Q2 earnings supplement presentation for our updated estimates for 2024 and 2025 growth capital.
Matthew Meloy: The strength of our first half 2024 performance and continued strong outlook going forward, driven largely by higher Permian volumes and higher volumes through our integrated system, means the updated midpoint estimate for our full year 2024 adjusted EBITDA is $4 billion, which is a $200 million or 5% increase from our previous estimate. We now expect higher adjusted EBITDA in 2025 and a similar free cash flow estimate to when we compared our outlook to when we provided our outlook in February, with 2025 representing an important inflection point for our company as our meaningful free cash flow generation positions us to continue to return an increasing amount of capital to our shareholders while further strengthening our investment grade balance.
Speaker Change: The strength of our first half 2020 for performance and continued strong outlook going forward, driven largely by higher Permian volumes and higher volumes through our integrated system means the updated midpoint estimate for our full year 2024, adjusted EBITDA is $4 billion, which is a 200 million.
Speaker Change: A 5% increase from our previous estimate.
Speaker Change: We now expect higher adjusted EBITDA in 2025, and a similar free cash flow estimate to when we compared our outlook to when we provided our outlook in February with 2025, representing an important inflection for our company as our meaningful free cash flow generation positions us to continue to return and <unk>.
Speaker Change: Creasing amount of capital to our shareholders, while further strengthening our investment grade balance sheet. We believe that we are uniquely positioned for the short medium and long term as an already strong outlook for Permian basin volume growth from best in class producers continues to get stronger which benefits our entire integrated value chain.
Matthew Meloy: We believe that we are uniquely positioned for the short, medium, and long term as an already strong outlook for Permian Basin volume growth from best-in-class producers continues to get stronger, which benefits our entire integrated value chain. Our fractionation volumes averaged a record 902,000 barrels per day at our Mont Belvieu complex, and our LPG export loadings averaged 12 million barrels per month.
Speaker Change: Our contract structures support us continuing to invest on behalf of our producers benefiting from cash flow stability and lower commodity price environments and upside as prices rise and we are delivering record financial performance, despite a weak commodity price backdrop.
Speaker Change: Before I turn the call over to Jim to discuss our second quarter results in more detail I'd 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 to our customers.
Jim: Thanks, Matt Good morning, everyone targets reported quarterly adjusted EBITDA for the second quarter with a record $984 million a.
Jim: A 2% increase over the first quarter for the second quarter, our natural gas inlet volumes averaged a record $5 7 billion cubic feet per day.
Speaker Change: NGL pipeline transportation volumes averaged a record 784000 barrels per day.
Jim: Our fractionation volumes averaged a record 902000 barrels per day at our Mont Belvieu complex and our LPG export loadings averaged 12 million barrels per month, let's.
Matthew Meloy: Let's talk about our operational results in more detail. In Permian, Delaware, activity and volumes across our footprint are also strong. Our Roadrunner 2 plant commenced operations in late May and was fully utilized after startup.
Jim: Let's talk about our operational results in more detail.
Jim: Starting in the Permian, our reported second quarter inlet volumes increased 5% when compared to the first quarter and.
Speaker Change: In Permian Midland our system is running near capacity and our new Greenwood two plant is expected to be highly utilized when it comes online in the fourth quarter of 2024, our next Midland plant <unk> II will be much needed and remains on track to begin operations in the fourth quarter of 2025.
Speaker Change: Matt mentioned today, we announced that we are moving forward with our latest Midland plant <unk>, which is expected to begin operations in the third quarter of 2026.
Speaker Change: In Permian, Delaware activity and volumes across our footprint are also strong our roadrunner to plant commenced operations in late May and was fully utilized after startup we are accelerating the timing of our next Delaware plant, which is now expected to come online in the first quarter of 2025 and is also expected to come online.
Matthew Meloy: We are accelerating the timing of our next Delaware plant, Full Move, which is now expected to come online in the first quarter of 2025 and is also expected to be highly utilized. The strength of our performance in the second quarter, with a backdrop of negative Waha gas prices and low NGL prices, demonstrates that by investing in opportunities backed by fee-based and fee-for contracts, we are able to successfully invest across cycles to continue to support the infrastructure needs of our customers.
Speaker Change: Highly utilized.
Speaker Change: We announced that we are moving forward with our latest Delaware plant boneless too, which is expected to begin operations in the first quarter of 2026.
Speaker Change: Shifting to our logistics and transportation segment construction on our Daytona NGL pipeline expansion has been going well and we believe that we may be able to bring the pipeline fully online earlier than estimated.
Speaker Change: Train nine fractionator in Mont Belvieu came online full in May and we are currently starting operations at our Gulf Coast Fractionator joint venture and we expect our portion of the capacity to be highly utilized at start up.
Speaker Change: Construction on our train 10, and train 11 fractionator in Mont Belvieu continues and our Fracs are expected to be much needed when they come online given our outlook for increasing Permian volume growth and resulting NGL volume growth to Mont Belvieu.
Speaker Change: <unk> is now expected to begin operations late in the fourth quarter of this year and train 11 is expected to begin operations in the third quarter of 2026.
Speaker Change: In our LPG export business at Galena Park, our second quarter volumes were impacted by required 10 year inspection that reduced our loading capability in the second half of June through late July we.
Speaker Change: We continue to benefit from night time, transits and fully expect that to be a permanent benefit going forward. We remain on track to complete our expansion, which will increase our loading capacity and incremental 650000 barrels per month in the second half of 2025.
Speaker Change: The strength of our performance in the second quarter with the backdrop of negative wall, how gas prices and low NGL prices demonstrates that by investing in opportunities backed by fee based and fee floor contracts. We are able to successfully invest across cycles to continue to support the infrastructure needs of our customers.
Speaker Change: We have largely removed exposure to downside commodity prices from our enterprise wide risk profile and given the strength of our outlook also recently added hedges to further increase our cash flow stability.
Speaker Change: As described previously 90% of our margin is fee based or supported by seafloor contracts. The remaining 10% is exposed to commodity prices of that remaining 10% of exposure. We have now hedged approximately 90% of volumes across commodities through 2026.
Matthew Meloy: As described previously, 90% of our margin is fee-based or supported by fee-floor contracts. 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 an increasing amount of capital to our shareholders across cycles. And we are delivering on those priorities. Hey, good morning.
Speaker Change: As commodity prices move higher we will benefit from that upside to our fee floor contracts.
Speaker Change: Turning to the balance sheet at quarter end, we had $1 6 billion of available liquidity and our consolidated net leverage ratio was three six times well within our long term leverage ratio target range of three to four times during the second quarter, we repaid the $500 million balance on our term loan and the term loan is no longer outstanding.
Speaker Change: 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 an increasing amount of capital to our shareholders across cycles, and we are delivering on those priorities.
Speaker Change: Our outperformance is leading to deleveraging faster than we previously forecasted creating incremental capacity to enhance our return of capital.
Speaker Change: Supported by the strength of our business outlook, we repurchased a record $355 million of common shares in the second quarter at a weighted average price of $118 91.
Speaker Change: This week, our board of Directors also authorized a new $1 billion common share repurchase authorization and we continue to expect to be in position to return capital to our shareholders through opportunistic repurchases.
Speaker Change: We are continuing to model the ability over time to return, 40% to 50% of adjusted cash flow from operations to equity holders and believe that as a useful framework for thinking about targeted return of capital proposition.
Matt Meloy: Our talented target team continues to execute on our strategic priorities across the organization and safely operate our assets to deliver the energy that enhances our everyday lives and I would like to Echo Matt. Thank you to all of our employees and with that I will turn the call back over to Sam.
Sam: Thanks Jen.
Sam: 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.
Sam: <unk> would you. Please open the line for Q&A.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star One again, one moment, while we compile the Q&A roster.
Speaker Change: Our first question will come from the line of Jeremy Tonet with Jpmorgan. Your line is open.
Jeremy Tonet: Hi, good morning.
Jeremy Tonet: Hey, good morning.
Operator: Morning. And that will come from the line of Spiro Dounis with Citi. Your line is open. Okay, thank you.
Jeremy Tonet: I just wanted to touch on the guidance raise here a little bit is especially the free cash flow inflection and just wanted to understand that a little bit better whether that is absolute dollars or rate of change or just any other I guess.
Speaker Change: You could.
Speaker Change: Bracket what that means.
Speaker Change: Yeah, Hey, Jeremy Yes, we raised our guidance for this year is really underpinned by the strength by the strength in the volume that we've seen not only so far this year, but also just our expectations for the back half of the year and then leading into 2025 producer.
Speaker Change: Producers, just really continue to have high levels of activity across our system and we received numerous I'd say kind of revisions to the short and medium term outlook from our producers across our system. So that led us.
Speaker Change: So we feel really good about the EBITDA this year and positioned us well going into 2025 and strong activity in 2025. So when you look at our overall EBITDA growth that we expect coupled with.
Speaker Change: The Capex moving from one four to $1 7 billion, we see a similar really similar dollar amount of free cash flow to what we saw when we gave kind of the original outlook back in February.
Speaker Change: Of this year.
Speaker Change: Got it that's helpful. Thank you for that and then.
Speaker Change: Looking across it seems like the implied GPM across a processing fleet stepped up quite nicely in <unk>. Just wondering how much of that was tied to better ethane extraction economics in the quarter. How sustainable is the volume uplift in downstream just trying to understand that better, particularly I guess with.
Speaker Change: With Daytona.
Speaker Change: Tracking well it seems.
Speaker Change: Yes, I don't think we've seen anything really fundamentally different from the production side, we had higher recoveries in the second quarter relative to the first quarter is what drove the higher recover GPM I think the underlying volumes are similar path.
Speaker Change: I mean, we had some periods of ethane rejection in the first quarter that coupled with.
Barry: Some weather issues at times and we've been in full recovery during the second quarter, Barry take gas market in the Permian in the second quarter and so that's another reason is our recoveries improve.
Barry: Got it and just the last part with Daytona if that's tracking early.
Speaker Change: Any impact there I guess.
Speaker Change: Yes, Jeremy this is Scott.
Scott: Construction on Daytona has gone very well when you enter into.
Scott: Construction of a long haul pipeline of this size and of this distance.
Speaker Change: You would anticipate once you get into the construction phase that you might have delays relative to weather or just in general construction delays, but for us quarter ending quarter out we've seen improvements the target team has done an excellent job installing that pipe and I would not be surprised if it actually comes online sometime during this quarter the third quarter of this year. So.
Speaker Change: Very pleased with the with the timeline.
Speaker Change: Got it that's very helpful I'll leave it there thanks.
Jeremy Tonet: Okay. Thanks, Jeremy.
Speaker Change: One moment for our next question.
Spiro <unk>: And that will come from the line of Spiro <unk> with Citi. Your line is open.
Spiro: Thanks, Operator, hi, everybody first start is.
Spiro: Just a two part question on volume growth.
Spiro: I think as we headed into the year. The messaging, we always debt maybe target start to sort of reflect baked in growth kind of more broadly, but it seems like you're sort of back in that mode or you're growing at accelerated pace. Maybe one can you just touch on the dynamics there.
Speaker Change: Going on in your system Thats driving that accelerated growth first the basin average homes at last.
Speaker Change: We think beyond the near term, maybe just thinking around cadence between the next frac and maybe even pipeline expansion here I'm just keeps up.
Speaker Change: Yes, sure I'll start and then Pat you can hop it I mean.
Pat: We've over the last several years that really outperformed the basin. Our team has done a really good job at.
Pat: Servicing our existing customers, but also having commercial success really across the Delaware and the Midland.
Pat: We also have our our assets, while we have a wide.
Pat: And have a wide area that we cover we are in the best spots are the Midland and we're in the best spots and most active spots in the Delaware as well so I think we benefit from that.
Spiro: We've seen this year continued strong activity from producers, but we've also seen revisions from our producers of the forecasts they've given us in the level of volumes that they are expecting to come across our system that for 2024 and 2025 I would say this year, we've seen more positive revisions than we have in other years. So we've just benefited more from.
Pat: That just goes that target's overall positioning and strong producer activity.
Pat: To add to that I think the key components there Matt are exactly what you said.
Speaker Change: Large footprint fungible system underpinned by millions of acres of dedication on both the Delaware.
Speaker Change: And Midland side of the basin.
Pat: And thats with producers that are committed to grow in the Permian basin production outlook. So when I look at the Midland system, It's pretty easy right. We've been there for a long time, we've had that system. It is on the core of the core of the best rock in the basin and then with the lucid acquisition. We did a couple of years ago now.
Speaker Change: That allowed us to get that same type of position in the Delaware Basin, where we are in the core of the core covering the best rock.
Speaker Change: A great group of producers again underpinned by.
Pat: Multimillion acres dedications with producers again that are committed to.
Pat: Developing and growing their production in the Permian and I think the one thing we left out and all of that as we continue to have commercial success.
Pat: We've had a lot of commercial success early in the Midland Basin and recently in the Delaware Basin that is additive to that footprint that we've already had in place for a good period of time.
Speaker Change: Got it and then as you think about the cadence for that nice frac rigs and pipeline expansion is that still kind of far enough out or does that seem like thats accelerating too.
Speaker Change: Spiro This is Scott again.
Scott: First start on the pipeline side of things certainly with Daytona coming online are likely during this quarter that gives us a lot of operational leverage as it relates to the volumes coming out of the west from the Permian.
Speaker Change: Along those two lines. So we've got the Grand Prix line. The original West line, we've got Daytona and with a lot of operational leverage with that then that ties into our trunk line that feeds into Mt. Belvieu, where we've got some operational leverage as well. So we feel really good about where we are positioned there I will say that with the cadence of the plants that patent is.
Speaker Change: <unk> team have been successful at executing on and.
Speaker Change: And we look at the volume growth that we have we've actually done some third party contracts out there given the number of announcements you've seen on on Y grade pipelines coming out of the Permian, we feel as though there is a little bit of overcapacity and we're in a position at reasonable prices.
Speaker Change: Or do a term contract with the volume growth that we see on that the likelihood is.
Speaker Change: Again with additional capacity that's out there we will look for some additional contracts that we can do again as long as the prices are reasonable.
Scott: It will allow us to push out the next expansion that we might have to have on our pipeline system and defer capital further out so.
Speaker Change: That puts us in a good position as we look at Frac side.
Speaker Change: Certainly we benefited in the second quarter of this year with trained non coming online during the month of May.
Speaker Change: We had some strong volumes across our fractionation footprint, we saw a little bit of impact in the first quarter because of us.
Speaker Change: Some maintenance that we had scheduled but the second quarter ran very well trained nine came online basically full from day, one and then when we look out in the end of the third quarter, we will have GCI coming online our equity share of that will likely before and then later this year trained 10 will come online not much benefit we expect at this point from train.
Speaker Change: But it is nice to see that we have moved the timeline of that in service date from the first quarter of 2025 to the latter part of this year.
Speaker Change: And we will see that come online and give us benefit when you think about the timing.
Speaker Change: The plants from our GMP footprint all of the announcement that we have all the announcements that we had previously made as well as the ones. This morning.
Speaker Change: Mid 2026 timeframe for train 11 fits us very well in order to catch those volumes as well so.
Speaker Change: Great position on the transportation side, both leveraging our current capacity as well as overcapacity. If you will from a midstream perspective as well as how we sit on the fractionation front.
Speaker Change: Great Thats helpful color.
Speaker Change: Quick follow up on Black Com, so pretty small capital investment out of the gate.
Speaker Change: Past, you've never really looked at residue gas pipeline, just kind of core to your portfolio of securities at some point just become a monetization candidate or too early for now.
Speaker Change: Yes.
Speaker Change: We just announced it this morning. So I think we will always look to do what's in the best interest of the shareholders, whether its holding a minority interest are monetizing it but I'd just say, we're really excited to partner with whitewater and the other partners on this its much needed for the industry much needed for the basin and so we were excited to put a commitment.
Speaker Change: They're in and push this past Friday and get going on this.
Speaker Change: Great I'll leave it there thanks for the call everyone.
Speaker Change: Okay. Thank you Sir thank.
Speaker Change: Thank you one moment for our next question and.
Operator: One moment for our next question, and that will come from the line of Theresa Chen with Barclays. Your line is open.
Speaker Change: And that will come from the line of Theresa Chen with Barclays. Your line is open.
Theresa Chen: Good morning.
Speaker Change: On the underlying growth.
Speaker Change: And not to your comment.
Speaker Change: Low double digit.
Speaker Change: <unk> growth in 2024 can you just give us more color.
Speaker Change: Color on your view quantitatively or at 2025.
Speaker Change: Some of the puts and takes that underlie that view based on your discussions with your producer customers.
Speaker Change: Yes, I'd say.
Speaker Change: For 2024, we felt strong we talked about low double digit growth, we haven't given an exact number where we see 2025, we continue to get updated producer forecasts. We've had some commercial success here recently as well so as we go into the fall, we'll put all that together and say what does that look like for 2025, I think what youre hearing from us today.
Speaker Change: Is it trending higher I think we feel better about it being stronger than our what our 2025 expectations what it would've been earlier this year.
Speaker Change: And so I think we feel good we're going to have strong growth in 2025, what exactly that looks like.
Speaker Change: We will continue to develop that and we'll likely provide that outlook for you sometime in February.
Speaker Change: And was there anything particular that drove lower quarter over quarter Opex on a unit basis, despite higher volumes and LNG.
Speaker Change: Okay.
Speaker Change: And LNG.
Speaker Change: I think what we saw was you saw a lot of volume increase through our Frac Andrea Grand Prix.
Speaker Change: We.
Speaker Change: We were waiting eagerly for train nine to come on and so you saw a really large increase.
Speaker Change: To reverse comparative periods over 100000 barrels a day. So we saw the volume number increase.
Speaker Change: <unk> significantly Theresa we also generally higher ahead of assets coming online. So you would have seen an increase in opex prior to train on coming online as we essentially got ready for it. So then when we get the volume associated with associated with the asset essentially being full when it does come online that maybe one of the reasons that the unit margins.
Speaker Change: Quarter, and I would also say Theresa that I alluded to the fact that we had some.
Speaker Change: Some maintenance issues during the first quarter those are behind US now again in the second quarter RIN ran very very well and to Matt's point, we had over 100 110000 barrels a day of incremental frac.
Speaker Change: Run run off during the second quarter.
Theresa: Thank you.
Theresa Chen: Okay. Thank you.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Michael Blum with Wells Fargo. Your line is open.
Operator: And that will come from the line of Michael Blum with Wells Fargo. Your line is open to more efficient use of combined acreage positions. So they are getting higher productivity, they are able to drill, you know, an equivalent number of wells with a lower rig count than the producer group that is on the target acreage, their commitment to drilling in the Permian, and their achieved, frankly, their achieved efficiencies, and again, it goes back to our commercial success, adding to the footprint we already have. Okay, John. Thank you.
Michael Blum: Thanks, Good morning, everyone I'm wondering if there.
Michael Blum: Any details on Blackstone.
Speaker Change: It could provide like percent contracted with the return profile.
Speaker Change: It looked like and would you expect there to be some project level financing for the project.
Speaker Change: Hey, Michael this is Bob.
Bob: I think we disclosed what we're going to disclose in the press release last night and in our earnings this morning.
Speaker Change: But when we think about.
Speaker Change: <unk> gas takeaway out of the base and we're excited to get this done.
Speaker Change: And bring in targets volumes of the table.
Speaker Change: Got it across the line to go.
Speaker Change: Obviously last night.
Speaker Change: Get supply for takeaway and out.
Speaker Change: Out of the Permian for 2026 done and launched.
Speaker Change: I think we will defer to whitewater on how much they share over time, but I think it rich.
Speaker Change: Returns and the returns as it fills up I think it's going to be a great deal for targeting all the partners that are investing in it.
Speaker Change: Okay understood and then I wanted to ask about capital spending really beyond 2025, so call it 2026 and beyond.
Speaker Change: You have that slide in prior presentations that shows a typical run rate capex year at growth Capex here at $1 7 billion.
Speaker Change: So I'm just wondering given the acceleration here you've seen volumes is that does that.
Speaker Change: Still the right way to look at the long term cadence for growth Capex.
Speaker Change: We believe it is Michael the $1 $7 billion multiyear outlook that we put out earlier. This year is really predicated on a high single digit Permian growth scenario. So as we said this morning to the extent that we see an acceleration of volume growth beyond that in 2026 and beyond that could change.
Speaker Change: That growth profile and then the other element that we've pointed to since we put that slide out is that our downstream capital spending is lumpier generally than our discrete projects on the gathering and processing side. So to the extent that we need to add fractionation or in particular transportation that can change the complexion of how that outlook plays.
Speaker Change: For a given individual year, but I think over a multiyear horizon. It is still very much holds again largely dependent on what the assumption is for underlying Permian growth volumes.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Thank you one moment our next question.
John Mccain: And that will come from the line of John Mccain with Goldman Sachs. Your line is open.
John Mccain: Hey, good morning, everyone and thanks for the time and congrats to churn and well.
John Mccain: I wanted to go back to something we've we've asked about a couple of times here, but maybe just to put a finer point on it when we are seeing this Permian Permian growth expectations continue to move up I guess I'd just be curious if you could see a little more out of that is it.
Speaker Change: These customers are actually expecting to bring in more rigs and crews back half of the year is it he actually productivity gains are a lot higher than we had expected is it all on the <unk> side anything there you can kind of break out for us would be helpful.
Speaker Change: Yes, what I would say is no we're not expecting an increase in rigs what we're seeing is greater efficiencies and with some of the recent combinations of companies that you've seen.
Speaker Change: More efficient use of combined acreage positions. So they are getting higher productivity. They are able to drill an equivalent number of wells with a lower rig count.
Speaker Change: <unk> is certainly a factor, but in the big scheme of things, it's not as big a factor obviously, we've seen that increase and continue to increase but the.
Speaker Change: The continuing to increase as a lot lower than what it was over the past three to five years. So it's really activity.
Speaker Change: The producer group that is on the target acreage their commitment to drilling in the Permian and they're they're achieved frankly, they're a chief efficiencies and again it goes back to our commercial success, adding to the footprint we already have.
Speaker Change: Okay.
Speaker Change: That's really clear appreciate that maybe.
Speaker Change: Just shifting to return of capital.
Speaker Change: Buyback number was great I guess I'd just be curious if you guys are the latest thoughts on the buyback versus the dividend given the recent run in the stock.
Speaker Change: I'd say that there's really no change to how we're thinking about capital allocation, Jon foundational to everything that we're doing as a strong balance sheet and as we've articulated. This morning, we see our balance sheet getting stronger through the end of this year and into next year and thats, creating a lot of flexibility for US we were very active in the second quarter, we have an opportunistic share repurchase.
Speaker Change: This program will continue to CSP opportunistic, which will create some variability quarter to quarter, but the underlying premise is that we believe that our outlook is only strengthening over the short medium and long term and we have a lot of conviction and where the company is today and where the company is headed and part of how we will continue to return capital to shareholders.
Speaker Change: <unk> is really through both a combination of likely meaningful increases in our annual dividends per share as well as continued opportunistic share repurchases.
Speaker Change: Thanks for the time.
Ron: Okay. Thanks, Ron.
Operator: One moment for our next question, and that will come from the line of Manav Gupta with UPS. Your line is open. Okay, thank you. Hi, good morning.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Manav Gupta with UBS. Your line is open.
Manav Gupta: Hi, guys. A quick question to take few quarters back you had indicated.
Speaker Change: Some of the growth projects, you have called delivered incremental EBITDA of $300 million or so.
Speaker Change: How has that guidance changed as some of the new projects that are coming in and how should we think about these incremental projects delivering EBITDA of over 20 526.
Speaker Change: Sure, Yes, yes, we indicated kind of our investment multiple going forward about five five times call. It five to six times EBITDA.
Speaker Change: I think you've seen our track record over the last several years. The EBITDA multiple is even as even been perhaps a little bit stronger than that we're investing in the same kind of projects that have delivered return strong returns for us over the last several years, it's investing in our gathering and processing business and then expanding our downstream NGL infrastructure to <unk>.
Speaker Change: Today those volumes. So we're really sticking to our core business. We expect the returns to be very good but five five is kind of what we indicated would be a pretty good base case, what we think we can do I hope, we can beat that but if we do five and a half it would be.
Speaker Change: Really good return profile for us.
Speaker Change: Thank you I'll turn it over.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Keith Stanley with Wolfe Research. Your line is open.
Keith Stanley: Hi, good morning.
Operator: First, wanted to start with a follow-up just on 2025 CapEx. Are you baking in any NGL pipeline spend in there, or are your comfortable third-party contracts giving you enough visibility that you don't need to invest in more pipeline capacity yet? Next, Yeah, no, good, good question. We're all looking around, who's going to answer that?
Keith Stanley: First wanted to start with a follow up just on 2025 Capex are you baking in any NGL pipeline spend in there or Youre comfortable third party contracts are giving you enough visibility that you don't need to invest in more pipeline capacity yet next year.
Speaker Change: Yeah, Hey, Keith you're correct for 2025 with Daytona coming on.
Speaker Change: Back half of this year, we should have sufficient transport through 'twenty, five and some period beyond Daytona coupled with a third party transportation that we've already executed and we're working on more.
Keith Stanley: So we're really talking about when and if we may need to do another NGL pipe and how it impact 'twenty six 'twenty 728 capital, but for 25, our expectation is we don't have any meaningful transportation capital in that number.
Speaker Change: Great. Thanks.
Speaker Change: Second question.
Speaker Change: With volumes coming in higher than expected is it fair to think you are offloading a lot more to third parties. This year than normal and then when we think about growth into 2025 in new assets coming online should we expect some additional financial tailwind just from bringing volumes back onto your <unk>.
Speaker Change: System in 'twenty, five that maybe Youre offloading this year.
Speaker Change: Yes, no. Good question, we're looking around who's going to answer that.
Speaker Change: Everyone's raising their hands.
Speaker Change: And then.
Matthew Meloy: Everyone's raising their hand. So I'll start. Yeah, when you think about offloads, it really is dependent on the part of the business. Is it gathering or processing, transportation, or frack? I'd say, as our volumes have really exceeded our expectations, there are periods of time where we do offload on the GMP side. But with the flexibility we have with our plants, mostly we handle that amongst ourselves, and we'll actually handle some offloads from third parties on the GMP side. As you look downstream, the transportation and frack of our NGL volumes have grown significantly. We have connectivity to basically every other pipe in the Permian going to Bellevue.
Speaker Change: Yes, we know when we think about offload it really is dependent on the piece of the business is gathering a processing transportation frac.
Speaker Change: I'd say as our volumes have really exceeded our expectations are periods of times, where we do offload on the GMP side, but with the flexibility we have with our plants, mostly we handle that amongst ourselves and we'll actually handle some off loads from third parties on the G&P side.
Speaker Change: As you look through the downstream transportation and Frac of our NGL volumes have grown significantly.
Speaker Change: Have connectivity to basically every other pipe in the Permian going to Bellevue. So we have those existing connections from our plants from legacy plants from acquired plants. So we have a lot of flexibility to move volumes. So we'll look to optimize that.
Matthew Meloy: So we have those existing connections from our plants, from legacy plants, from acquired plants. So we have a lot of flexibility to move volumes. So we'll look to optimize that for, you know, what's the cheapest cost of transport while we're bringing Daytona up.
Matthew Meloy: So there are some volumes that we're moving on other pipes that we'll be able to go on Daytona, you know, kind of day one, as soon as that comes up. And then same on the fractionation side, we have Train 9, GCF, and Train 10 all coming online this year. If you kind of look back at our volumes, the frack has not grown as much as some of our other volumes.
Speaker Change: Or what's the cheapest cost transport, while we're bring in Daytona. So there are some volumes that were moving on other pipes that will be able to go on Daytona.
Speaker Change: Kind of day, one as soon as that comes up and then same on the fractionation side. We have trained nine GC App and trained 10, all coming online this year.
Speaker Change: If you kind of look back at our volumes. The Frac has not grown as much as some of our other volumes and Thats because we are managing third party.
Matthew Meloy: And that's because we're managing third party fractionation there as well. So you saw a big step up this quarter with Train 9 coming on. That is kind of bringing some of those volumes back onto our system. I'd expect more of that to happen in the third quarter and the fourth quarter. Thank you.
Speaker Change: Fractionation, there as well so you saw a big step up this quarter with train nine coming on that is kind of bring in some of those volumes back onto our system I would expect more of that to happen in the third quarter and the fourth quarter.
Speaker Change: Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you one moment our next question.
Matthew Meloy: One moment for our next question, and then a similar amount to fill it up in terms of gathering systems, etc. Oh, how much field capital? Well, that's also one where it varies from year to year. How much pipeline compression you're going to need? Is it more high pressure? Is it more low pressure?
Speaker Change: And that will come from the line of Sunil Sibal with Seaport Global your line is open.
Sunil Sibal: Yes, hi, good morning, everybody.
Sunil Sibal: First of all congratulations to Jim and build noodles.
Sunil Sibal: So I wondered to start up.
Sunil Sibal: Wanted to start off on.
Sunil Sibal: On your Capex program, So could you remind us what's the current best estimate on building, a new 275 plant and filling it up.
Sunil Sibal: Yes.
Speaker Change: I would say on average our plants are around $200 million on the GMP side of things for a new $2 75, some of them a little bit cheaper. So it's been a little bit more depending on what kind of inlet compression youre doing some of the other bells and whistles so our suites.
Sunil Sibal: It's around 200 for the plans we have announced.
Sunil Sibal: And then similar amount to fill it up in terms of gathering systems et cetera.
Speaker Change: How much field capital well Thats also one where it is.
Sunil Sibal: Various from year to year, how much pipeline compression youre going to need is it more high pressure or is it more low pressure. So you can see more variability.
Sunil Sibal: On that.
Speaker Change: So.
Speaker Change: There are times, where also ordering more compression we're trying to build some inventory because we see strong growth in the next year. So.
Matthew Meloy: So, you can see more variability on that. So, you know, there are times we're also ordering more compression. We're trying to build some inventory up because we see strong growth in the next year. So, you know, that has moved around quite a bit. I don't know, Pat, any other color we want to give it? No, I think you described it.
Speaker Change: That has moved around quite a bit I don't know that.
Speaker Change: Add any other color you want to give no I think.
Speaker Change: You described it I mean, there's a lot of variability there depends on our producers drill behind existing batteries, where they drill how many new betters, we're connecting high pressure low pressure all of those things suites.
Matthew Meloy: I mean, there's a lot of variability there. It depends on if producers drill behind existing batteries, where they drill, how many new batteries we connect, high pressure, low pressure, all those things, sweet and sour. There's just a ton of it, and you're right. With lead times on compression and plants, you know, that capital kind of gets... get some kind of mothballed together and... There's not a real finite number that I'd be comfortable with getting.
Speaker Change: It's just a ton of it and Youre right with.
Speaker Change: Lead times on compression.
Speaker Change: And plans.
Speaker Change: Capital kind of gifts.
Speaker Change: Get some all kind of mothball together.
Speaker Change: There's not a real finite number that I'd be comfortable.
Matthew Meloy: And we haven't really seen, I'd say, a material change. It varies from year to year, but we haven't seen a trend of it getting more expensive or less expensive, really. It's been operating within a band that we've seen, you know, year in, year out.
Speaker Change: And we haven't really seen I'd say a material change it varies from year to year, but we haven't seen a trend of good.
Speaker Change: Adding more expensive or less expensive really it's been operating within a band that we've seen year on year out.
Speaker Change: Understood.
Speaker Change: Thanks for the bids that can provide you on the Capex program I just had one clarification on the other category.
Speaker Change: Seems like Youre, indicating.
Speaker Change: Carbon capture is also.
Speaker Change: Within the category could you indicate what kind of capital spent so flooding on carbon capture then when can we expect to see their guns on that.
Speaker Change: We're not going to break it out separately. So Neal what we've said is that we expect to be in position to potentially benefit from 45. Two credits later this year, we have a number of projects that we're commercializing in the Permian basin that is very much core to what we do and what we are good at.
Neal: So it's small enough to where it doesn't make sense for us to break it out separately, but I would say that returns are commensurate with what we're seeing across the rest of our investment opportunities across the portfolio.
Neal: Okay. Thanks for that.
Speaker Change: Okay. Thank you. Thank you.
Speaker Change: Thank you one moment our next question.
Operator: And that will come from the line of Tristan Richardson with Scotiabank. Your line is open, and your equity stake has some correlation with the capacity you expect to have on the pipe. And then maybe just thinking about your capacity.
Speaker Change: And that will come from the line of Tristan Richardson with Scotiabank. Your line is open.
Tristan Richardson: Hey, good morning, guys.
Tristan Richardson: Maybe just a quick one on black home is it is it wrong.
Tristan Richardson: Equity stake has some correlation with the capacity you expect to have in the pipe and then maybe just thinking about your capacity.
Speaker Change: Portfolio in general with the growth, you're seeing exiting 'twenty four and looking into 2025.
Tristan Richardson: This is Bobby yes, as we build our portfolio of transport.
Tristan Richardson: Obviously.
Speaker Change: Market a ton of gas for our producers across the Permian basin and as we look at the.
Speaker Change: The portfolio of takeaway, we've talked about a foreign type markets, we spend a lot of time to make sure that all the gas moves out of our plants. Some of that is long haul out of the basin like our Blackhawk deal and but I would tell you. The majority of it is within basin and tailgate sales to people that have transport. So we manage that altogether and then as we think about making sure.
Matthew Meloy: Some of that is long haul out of the basin, like our Blackcomb deal. But I tell you, a majority of it is within the basin and tailgate sales to people that have transport. So we manage that all together.
Matthew Meloy: And then as we think about making sure there is egress from the basin on pipes, that's when we step out on things like this Blackcomb deal to make sure that a pipe gets built timely enough such that the basin doesn't have more material issues than it already has. So when I think about what we put on a pipe like Blackcomb, it is a very small subset of the amount of gas we market across the basin.
Speaker Change: There is egress from the basin on pipes, that's when we step out on things like this back home deal to make sure the pipe gets built.
Speaker Change: Timely enough such that the basin doesn't have more material issues that already has so when I think about what we put on our pipeline <unk>. It is a very small subset of the amount of gas we market across the basin.
Speaker Change: So it's not a needle mover relative to the amount of gasoline market.
Matthew Meloy: So it's not a needle mover relative to the amount of gas we market. But it is part of the science we go through every year, thinking out one year, thinking out two years, thinking out three years, and how we're gonna make sure all the gas moves through our plants so that the NGLs get out, and our producers can produce their oil.
Tristan Richardson: It is part of the science, we go through every year thinking out one year thinking out two years, taking out three years and how we're going to make sure all the gas moves through our plants, so that the Ngls get out and our producers can producer of oil.
Tristan Richardson: Helpful. Bobby and then Jenn, obviously you said.
Speaker Change: <unk> is a very tight gas market.
Speaker Change: Curious where fee floors, a factor in <unk> or or even said another way.
Speaker Change: Target able to put up a very strong <unk> irrespective of where basis sits today versus when we see relief on the horizon hopefully by fourth quarter.
Speaker Change: I think the second quarter support slide that the floors are so important to us when you think about the amount of capital that we spent in the quarter now moving forward with two additional gas processing plant to support our producers.
Speaker Change: With a backdrop of negative wahhab prices and low NGL prices. So you can assume that the players.
Pete Florida: Pete Florida, we're very much important to us in the second quarter and really have been in play for a substantial number of months over the last call it year and a half or so and that again is really what's allowed us to invest through what is a low commodity price cycle right now and what is allowing us to continue to invest looking forward as well.
Speaker Change: That's great. Thank you guys very much I appreciate it.
Speaker Change: Alright. Thank you thanks, Jason.
Speaker Change: Thank you I would now like to turn the call back over to Mr. Sanjay Lad for any closing remarks.
Sanjay Lad: Thanks to everyone that was on the call. This morning, and we appreciate your interest in Targa resources. The IR team will be available for any follow up questions. You may have have a great day.
Speaker Change: Okay.
Speaker Change: This concludes today's program. Thank you for participating you may now disconnect.
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