Q3 2024 Targa Resources Corp Earnings Call
Thank you for watching!
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Targa Resources Corps 3rd, 420-24 earnings left cast and presentation.
At this time, I'll participate in the list and only mode. After the speaker's presentation, that will be a question and answer session.
Speaker Change: To ask a question during the session you would need to press star 11 when you're telephone. You would then hear an automated message of advising your hand to threaten your face.
Speaker Change: and to withdraw your question, please press star, one one again. Please be advised that today's conference is being recorded.
Speaker Change: I would like now to turn the conference over to Tristan Richardson, Vice President Ambassador Relations and Fundamental. Please go ahead sir.
Tristan Richardson: Thank you Michelle. Good morning and welcome to the third quarter 2020 for earnings call for target resources court.
The third quarter earnings release along with the third quarter earnings supplement presentation for target resources at a company our caller available on our website at targetresources.com and the investor section.
In addition, an updated investor presentation has also been posted to our website.
Tristan Richardson: State, may during this call, the might include target expectations or predictions should be considered forward-looking statements within the meaning of Section 21 of the Security's Exchange Act in 1934.
Speaker Change: Actual results could differ materially from those projected and forward looking statements. For discussion of factors that could cause actual results to differ, please refer to our latest FTC filings.
Tristan Richardson: Our speakers for the call today will be Matt Meloy, Chief Executive Officer, Jen Meal, President, [inaudible]
Tristan Richardson: Chief Financial Officer. Additionally the following senior management team members will be available for Q&A. Pat McDonough, President, Gathering and Processing. Scott Pryor, President, Logistics and Transportation. And Bobby Marrero, Chief Commercial Officer.
Speaker Change: I'll now turn the call over to Matt.
Matt Meloy: Thanks, Tristan, and good morning to everyone. Before we get started, I want to welcome Tristan Richardson to Target. Tristan will be leading our Investor Relations and Fundamentals functions after previously working in energy sell-side research for the last 13 years.
With Tristan and Sanjay, we are in excellent position to continue to support our investors, analysts, and potential investors with our best-in-class team.
The third quarter was very strong on a number of fronts. Record volumes, record adjusted EBITDA, and continued execution across our footprint, which sets us up well for the balance of this year and provides a lot of momentum as we turn into 2025.
Speaker Change: Given our outperformance through the first nine months of the year, we expect to beat the high end of our previously provided adjusted EBITDA range, which means more than $500 million of year-over-year growth, exceeding the midpoint of our initially provided guidance range for 2024 by more than $250 million.
Speaker Change: Over the past several years we have deliberately taken steps to successfully position Targa across volatile markets and we are benefiting from those steps.
Speaker Change: We have largely removed exposure to downside commodity prices with 90% of our margin now fee-based or supported by feed floor contracts.
Speaker Change: We have continued to invest in growth capital and attractive opportunities with best-in-class customers with a focus on deals that allow us to move volumes all the way through our integrated system.
Speaker Change: We have significantly strengthened our balance sheet and are now a strong investment grade credit across all three agencies. We have returned an increasing amount of capital to our shareholders while maintaining financial flexibility.
Speaker Change: We believe that these important steps enhance our ability to generate attractive returns for our shareholders across commodity price cycles.
Speaker Change: Our excitement around Target's short, medium, and long-term outlook begins with our Permian position, and there are a lot of good things going on there.
Speaker Change: Our new plants have continued to come online, essentially full and given our expectation that our plants-in-progress will do the same. Today we announce that we are moving forward with our next two new Permian plants in response to higher anticipated growth we are seeing and to ensure we keep pace with our producers.
Speaker Change: We are continuing to enhance our sour gas treating position in the Delaware Basin with additional investments in front-end treating and AGI infrastructure.
Speaker Change: Our new 800 million cubic feet per day sour gas treater and injection well.
Speaker Change: comes online in early 2025 at our Bull Moose complex, which, along with our current six active acid gas injection wells, will increase our treating capacity to over 2.3 billion cubic feet per day in the Delaware.
Speaker Change: Additionally, we are utilizing and enhancing existing infrastructure to capture and sequester CO2 in the Permian and will be accruing some 45Q tax credits in the fourth quarter of this year and increasing over time.
Speaker Change: Our Permian growth drives increasing volumes through our downstream assets. Daytona was much needed when it came online. Train 9 has been full since it came online. And Train 10 and GCF are much needed and will be highly utilized.
Speaker Change: Our premier Permian supply aggregation position coupled with our integrated NGL system.
Speaker Change: positions us nicely to continue to generate strong returns on our invested capital and be able to continue to return increasing capital to our shareholders over time.
Speaker Change: Before I turn the call over to Jen to discuss operations and capital allocation in more detail, I would like to extend a thank you to the TARGET team for their continued focus on safety and execution.
Speaker Change: while continuing to provide best-in-class service and reliability to our customers. The growth we're experiencing requires a lot of coordination across our organization, and we are proud of our employees.
Jen: Thanks Matt, good morning everyone. Let's talk about the strength of our operational results in more detail.
Jen: Our GMP volume growth has led to an acceleration of timing of our processing plants, including the two that we announced today.
Jen: In Permian Midland, our new Greenwood II plant commenced operations in early October, essentially full. Our next Midland plants, Pembroke II and East Pembroke, will be much needed and remain on track to begin operations in the fourth quarter of 2025 and second quarter of 2026.
Jen: The new Mendelian plant that we announced this morning, East Driver, is expected to begin operations in the third quarter of 2026.
Jen: In Permian, Delaware, we are continuing to benefit from increasing volumes. Our next Delaware plants, Bull Moose and Bull Moose 2, will be much needed and remain on track to begin operations in the first quarter of 2025 and the first quarter of 2026. Our next new Delaware plant, Falcon 2, is expected to begin operations in the second quarter of 2026.
Jen: Shifting to our logistics and transportation segment, Targa's NGL pipeline transportation volumes averaged a record 829,000 barrels per day and fractionation volumes averaged a record 954,000 barrels per day during the third quarter. Our NGL transportation and fractionation volumes increased 6% sequentially as we benefited from increased supply from our Permian GMP systems.
Jen: Given the anticipated growth in our Permian GMP business and corresponding plant additions, our outlook for NGL supply growth is robust and our downstream system expansions are very much needed to handle growth from our systems.
Jen: Our next Fractionator in Mont Belvieu, Train 11, remains on track for the third quarter of 2026.
Jen: In our LPG export business at Galena Park, our loadings averaged 12.4 million barrels per month during the third quarter, despite our volumes being impacted by a required 10-year inspection that reduced our loading capability from mid-June through late July.
Jen: We see continued strength and global demand for U.S.-sourced LPGs, and we remain on track to complete our next expansion, which will increase our loading capacity an incremental 650,000 barrels per month in the second half of 2025.
Jen: Turning 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.
Jen: We are returning meaningful increases in capital year over year to our investors.
Jen: We opportunistically repurchased $168 million of common shares during the third quarter.
Jen: Through three quarters, we have repurchased nearly $650 million of common shares at a weighted average price of $121.50, a substantial increase over $347 million of share repurchases for full year 2023.
Jen: We are pleased to announce this morning that we expect to recommend to our board an increase to the 2025 Annual Common Dividend to $4 per share, a 33% increase over the 2024 dividend level.
Jen: This provides our shareholders with a meaningful year-over-year increase while continuing to maintain our flexibility. Beyond 2025, we expect to be in position to continue to provide meaningful annual increases to our common dividend per share.
Jen: We believe that we offer a compelling value proposition for our shareholders and potential shareholders. Growing EBITDA, a growing common dividend per share, reducing share count, and excellent short, medium, and long-term outlooks.
Jen: We also recently published our 2023 Sustainability Report.
Jen: Our report reflects that we take our responsibilities of being an operator of critical natural gas and NGL infrastructure seriously, and celebrates the continued hard work of our employees. We look forward to your feedback. I will now turn the call over to Will to discuss our third quarter financial results. Will?
Speaker Change: Thanks, Jen. Target's reported adjusted EBITDA for the third quarter was a record $1.07 billion, a 9% increase over the second quarter.
Jen: The sequential increase was attributable to higher Permian volumes, which resulted in higher system volumes across our integrated NGL business, and to continued natural gas and NGL optimization opportunities in our marketing business.
Jen: The adjusted operating margin for our gathering and processing segment set another quarterly record of $788 million as a result of the strength of volume growth supported by our fee and fee floor contracts.
Jen: Our logistics and transportation segment also set another quarterly record with adjusted operating margin of $717 million backed by record NGL transportation and fractionation throughput.
Speaker Change: As Matt mentioned, we now estimate full year 2024 adjusted EBITDA.
Speaker Change: to be above the top end of our previously disclosed
Speaker Change: $3.95 billion to $4.05 billion range. We anticipate a strong finish to 2024 as our recently completed expansions and capacity additions across Permian GMP and NGL transportation and fractionation support continued volume growth.
Speaker Change: For the third quarter, our net maintenance capital spending was approximately $60 million. Our current year estimate for net maintenance capital spending remains $225 million.
Speaker Change: Our net growth capital spending was approximately $700 million for the quarter. Our net growth capital spending for 2024 will depend on our ability to order certain long lead time items before year end, among other factors.
Speaker Change: We currently expect spending to modestly exceed $2.7 billion.
Speaker Change: The acceleration of spending on infrastructure to handle additional volume growth is expected to increase our net growth capital spending for 2025 and contribute to higher-adjusted EBITDA when the incremental plants we announced today are in service in 2026.
Speaker Change: We continue to expect a meaningful inflection in 2025 free cash flow generation relative to 2024, and we'll provide additional details on 2025 growth capital spending in February once we are fully through our planning process.
Speaker Change: In August, we extended the maturity of our $600 million accounts receivable securitization facility to August 2025.
Speaker Change: And we've successfully completed a $1 billion note offering of 5.5% coupon senior notes due 2035.
Speaker Change: The notes offering allowed us to enhance our liquidity position by reducing borrowings under our commercial paper note program, a portion of which was incurred to repay the remaining $500 million
Speaker Change: outstanding under our prior 1.5 billion dollar unsecured terminal facility which was terminated in May 2024.
Speaker Change: At the end of the third quarter, we had approximately $1.9 billion of available liquidity, and our net consolidated leverage ratio was approximately 3.6 times.
Speaker Change: Well within our long-term leverage ratio target range of three to four times.
Speaker Change: Moody's upgraded Target BAA-2 in early October, reflective of the progress we have made to date and our outlook for the future.
Speaker Change: We have now achieved upgrades from all three agencies in 2024 and have mid BBB ratings and a stable outlook at each of the three rating agencies.
Speaker Change: Maintaining a strong investment grade balance sheet remains a priority at Target.
Speaker Change: Having been at Targa for a little over three months now, I am humbled every day by the dedication and tremendous work ethic of the employees of Targa. I am grateful for the opportunity to be a part of this exceptional team.
Speaker Change: And with that, I will turn the call back over to Tristan.
Tristan Richardson: Thank you Will. For the Q&A session, we ask that you limit yourself to one question and one follow-up, and re-enter the queue if you have additional questions.
Tristan Richardson: Michelle, please open the line for Q&A. Thank you. As a reminder to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw the question, please press star 1 1 again.
Michelle: And our first question will come from Teresa Chin with Barclays. Your line is now open.
Teresa Chin: Good morning and thank you for taking my question. Congratulations on the fundamental growth and the accelerated pace of growth over the near term.
Teresa Chin: I was curious, as we look to 2025 CapEx and general capital allocation plans, can you provide more color on A, how long do you expect this accelerated growth to endure, and B, how high could CapEx go to in 2025?
Speaker Change: Hey, good morning, Teresa. Yeah, no, we're excited about the results today. We're really excited just about the overall performance we've seen so far this year.
Speaker Change: Translating into higher EBITDA growth, you know, higher volumes.
Tristan Richardson: across our GMP footprint into downstream. And we think that really sets us up well as we look into 2025.
Speaker Change: You know, in terms of capital spending, as we looked at 2025, we've certainly seen an acceleration on the gathering and processing side of things.
Speaker Change: resulted in more field level capital for this year and is likely to continue into next year. You know additional pipelines, additional compression, but it's also resulted in acceleration of our plant timing. You know earlier in this year we had a estimate of when we were going to be putting plants on for the next you know 12, 24, 36 months and that has accelerated just as our volumes have moved significantly higher. You know third quarter was up 900 million a day versus third quarter of last year. We were expecting growth this year but not that level of growth. So we think that really just puts us in good position.
Speaker Change: as we go forward. So.
Speaker Change: Accelerating, Falcon 2 plant and East Driver plant.
Speaker Change: You know, that's going to drive more capital in 2025. We don't have a number we're going to give you yet. We're still going through our planning process. We plan to give you more details of what our GMP spending is, cadence of...
Speaker Change: any additional plants and plant timing in February and on the downstream side, what ultimately that means when those plants come on, generate more NGLs, what that's gonna mean for our downstream business. So that's kind of the planning we're going through now and we plan to give you more color on that in February.
Speaker Change: I'm
Speaker Change: Got it. Thank you. And looking at the downstream throughput across your doc, clearly seeing, you know, an uptick following partial downtime in third quarter and fourth quarter looks
Speaker Change: extremely robust. Can you just provide a broad outlook on how you expect this to trend? How much of it at this point do you think is going to be seasonal versus just the relentless supply push of molecules across your docs through the integrated NGL Valley chain?
Speaker Change: Hi Teresa, this is Scott. First off, yes, we had a nice quarter during the third quarter. It was a nice rebound from what we had.
Speaker Change: in the second quarter of this year so a lot even though it was impacted the second quarter was impacted by the vessel inspection that we had and that lingered into the month of July so when we look at the back half of third quarter we certainly had significant increase over the months
Speaker Change: And we would see that continuing as we move into the fourth quarter now that we've got the full complement of all of our refrigeration capacity. So I would anticipate during the fourth quarter that the volumes would be very complementary, if not exceed what we saw in the third quarter.
Speaker Change: We continue to benefit from a variety of sources of demand, both of it on the propane side as well as on the butane side.
Speaker Change: and we're utilizing really not only our VLGC docs but we're using some of our smaller docs that complement MGCs and LGCs and moving to markets that are closer than say the Far East. So a lot of that benefited as we looked at across the third quarter then into the fourth quarter.
Speaker Change: Moving into 2025, I think it's going to be very much the same story.
Speaker Change: We've benefited as an industry with a number of vessels that have come online both in 24 and now in 25.
Speaker Change: We'll continue to see more vessels delivered it to the marketplace on both the VLGC side as well as the MGC side.
Speaker Change: So, I think it's just setting itself up to where right now freight is relatively low and it puts us in a position to where it's easy to fund supply from the U.S. into the markets across the world.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Jeremy Tonant with JP Morgan. Your line is open.
Jeremy Tonant: Hi, good morning.
Speaker Change: Hey, good morning.
Jeremy Tonant: So, out of the producer activity, I think the producers in the basin, I think we've heard some mixed messages with regards to, I think, the integrated versus large independents versus smaller.
Jeremy Tonant: And just wondering if you could share a bit more on your...
Jeremy Tonant: conversations with producer customers here and particularly how your New Mexico position I guess differentiates you from others in the business.
Speaker Change: Yeah, hey, Jeremy, this is Matt. I'll start and then Pat if you want to add on. You know, the discussions we're having with producers, you know, it is a mix. You know, the small, mid, large cap, you know, we have a portfolio of customers and it's not all the same. But what we are seeing generally is
Speaker Change: more growth on the gas side relative to their expectations.
Speaker Change: So, we haven't necessarily seen more activity, but we have just seen the wells be more productive. And whether that's slower declines, increasing GORs, higher IPs, we're just seeing more volumes. We continue to be surprised this year.
Speaker Change: to the upside on gas volumes, and as we look out, we're sorting through our producer forecast right now, what that's going to mean for 2025-26 growth. We think there's going to be significant growth, kind of where exactly that falls out is kind of what we're working through right now, but I think we remain bullish on the outlook for natural gas growth across our footprint.
Speaker Change: You know, if you look to New Mexico, you know, we've
Speaker Change: had a really good footprint in the Delaware for some time.
Speaker Change: But I would say when we acquired the Lucid assets in 2022, you know, to us, they had the best Delaware footprint. And so that fit nicely into our systems that we had. We were able to integrate those systems, and I think when you look at just the rigs, where the activity is.
Speaker Change: We're, you know, kind of have a best-in-class system across the Delaware with the complement of Lucid. So I think we're in good position to capture, you know, the strong activity in the New Mexico area.
Speaker Change: For more information go to www.fema.gov
Speaker Change: Got it, I'll make sure I have that.
Speaker Change: The Delaware Basin is growing rapidly. There's a lot of gas over there and we're positioned very well to take advantage of that.
Speaker Change: Thank you for watching!
Speaker Change: Got it. That's very helpful. Thank you. And then kind of continuing here as it relates to the gas picture and gas egress from the basin You we have a couple projects in motion at this point. You're part of one of them. How do you think about?
Speaker Change: I guess the picture for future gas egress needs in the basin, when do you think that could materialize next and what do you think TARGA's involvement could be here?
Speaker Change: This is Bobby. I think we announced our partnership with Blackcomb a little bit ago. We're excited about that project moving forward and it's going well. I think we said before and we'll continue to say we we want to see as much egress out of the basin happen.
Speaker Change: As possible. We know there are a lot of other pipes that are in the works right now. We were thinking about 28 when we were working on the 26 pipe with Blackcomb. So, we continue to work on what is needed going forward. With what we're seeing in gas production coming out of the wells,
Speaker Change: We expect there to be an on-the-margin, faster cadence for the need on gas pipes, so if someone else gets another gas pipe done, quote-unquote, today, we think that's great for the basin, and we would be excited to see it happen.
Speaker Change: Got it. If I could just round that out a little bit more. In-basin consumption growth, industrial demand growth, or even maybe data centers down the road, do you see that I guess impacting the picture there?
Speaker Change: This is Bob again. I think we know there are a lot of people talking about it right now. We are in conversations with customers that are in conversations with all of those consumptions.
Speaker Change: Thank you very much, James.
James: Got it. Thank you very much.
Speaker Change: Okay, thanks Jeremy.
Michael Blum: And our next question comes from Michael Blum with Wells Fargo. Your line is open.
Michael Blum: Thanks. Good morning, everyone. I wanted to ask about the growth. Good morning. I wanted to ask about the...
Michael Blum: It's sort of a long-term trend here in growth capex. Obviously, you're trending higher here in the near term.
Michael Blum: I noticed you still have that same slide which shows like a typical year at 1.7 billion. So is that still kind of the kind of normal year normalized run rate or is that number moving higher as producers, these numbers sort of exceed your expectations?
Michael Blum: Michael, this is Jen. I think that when we put out that illustrative framework we said that a good multi-year average for growth capital spending in a high single-digit Permian Basin growth environment would be about 1.7 billion dollars.
Speaker Change: I believe we even caveated on the slide that if we were going to see growth substantially higher from there, we would expect CapEx to move higher as well. All very much core growth capital spending, the need for more gathering lines, more compression.
Speaker Change: potentially requiring the acceleration of major growth.
Speaker Change: Capital Projects like plants and then downstream infrastructure.
Speaker Change: So the framework still holds for an environment where you're seeing high single-digit growth.
Speaker Change: As Matt said, so far we've experienced 18% growth.
Speaker Change: Permian this quarter relative to the third quarter of last year. For the nine months of this year, we're up 14 percent relative to the nine months of last year. So clearly we are in a more robust environment and that's resulting in us needing to accelerate some spending for that core infrastructure, additional gathering lines, compression, plant capital to make sure that we're in position to handle the increasing growth for our producers.
Speaker Change: when we expect growth to continue to increase versus previous expectations when we provided that in February. So I think absolutely, it still holds together. It ultimately just depends what your view is of Permian growth, and in particular, Permian growth on target systems where we are seeing more growth.
Speaker Change: And we very consistently have said that that's the case since we put out that framework in February.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: Okay, makes sense. Then I wanted to just ask about buybacks.
Speaker Change: Would you say that you're now in more of a almost readable type of
Speaker Change: buyback approach, or is it still very much opportunistic and price sensitive? And if it's the latter, how do you think about the pace of buybacks as the stock price just continues to move higher? Thanks.
Speaker Change: I would say that we are very much continuing to be opportunistic around share repurchases and that's how we expect to continue to think about it going forward. Our priorities around capital allocation are unchanged.
Speaker Change: I think that what we've seen this year is a very strong 2024 is resulting in a lot more momentum when we think about 25, 26, 27, 28 and beyond that.
Speaker Change: Based on that conviction and so I think you should continue to expect repurchases going forward But they will continue to be opportunistic We consider a number of different factors in terms of what our daily and quarterly activity looks like So you should certainly expect some continued variability moving forward But we do believe it's a very important tool for us to be able to use to return more capital to our Shareholders as we move forward through time
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And the next question comes from Keith Stanley with Wolf Research. Your line is open.
Keith Stanley: Hi, good morning.
Keith Stanley: It seems like a pretty meaningful change in your volume outlook even versus three months ago. I mean you just updated the 2024 and 2025 EBITDA and CapEx, so with that in mind I wanted to just check back in on plans for NGL pipeline spending. Do you envision that potentially now being accelerated into 2025 at this point?
Scott Pryor: Hey, Keith. Oh, I'm sorry. Oh, no, sorry. I was going to say, Scotty, go ahead. Okay. Keith, this is Scott. So...
Scott Pryor: Certainly, when we look at our transportation legs, you know, when we look at the third quarter, we averaged 784,000, excuse me, 829,000 barrels a day of transportation. We got a partial benefit of Daytona coming online in the third quarter. Obviously in the fourth quarter, we'll have the full complement of our west leg of Grand Prix and then Daytona. And then that marries up with our 30-inch pipe that moves into Bellevue that gets contributions from the north Texas area as well as Oklahoma. So we've got some operating leverage today, certainly on the west leg when you think about those two 24-inch pipes.
Scott Pryor: and then we've got some operating leverage on the 30-inch pipe.
Scott Pryor: The other thing that we've done in order to really...
Scott Pryor: take care of
Keith Stanley: what our growing capacities are relative to what's going on on the upstream side. As we've entered into some third-party agreements, it allows us the opportunity to really push out some capital, benefit from the timing of when we would need to basically loop our 30-inch line.
Keith Stanley: So those agreements, along with the operating leverage we have today, really gives us the benefit of time to evaluate what the volume ramps look like over time. Those agreements that we've done really are in cadence. They ramp up in volume capacities that match up very well with kind of our near-term plant growth. But obviously, as we continue to add plants on the upstream side, eventually we'll be in a position where we'll have to loop that 30-inch pipe.
Keith Stanley: We will continue to evaluate that as we move into 2025 with our budget process and we're looking at CapEx. So I think we've got the benefit of time on our side right now with those agreements and the current leverage that we have.
Speaker Change: Thank you for watching!
Speaker Change: Okay, thanks for that. Second question, the marketing was really strong in Q3. Would you attribute that more to SPOT LPG exports or is it...
Keith Stanley: optimization around weak permeant gas again and on exports it seems like you're constructive on pricing but any sense of volumes you can share that might be able to take advantage of the strong ARBs.
Keith Stanley: This is Jen. I'll start. I'd say that it's been a strong year of marketing for us across all of NGL, natural gas, and export marketing. We generally don't factor that into our guidance so when you think about some of the factors that have contributed to our outperformance this year, certainly having a strong marketing year has been one of those variables.
Keith Stanley: I think that as we look forward, we expect that given the vastness of our footprint, we would be able to continue to identify strong marketing opportunities. But ultimately, it's really a combination of a lot of factors, and it's driven by the fact that we are moving so much volume across both our gas and NGL systems.
Keith Stanley: that's really affording us unique marketing opportunities as we've moved forward through time.
Keith Stanley: And Keith, this is Scott. Just as a follow-up to what we said earlier, you know, the volumes in the third quarter were impacted a little bit due to our vessel inspection, but as we move into the fourth quarter, we would expect that to improve.
Keith Stanley: Again, we benefited on the export side by being able to squeeze other cargos in, again, the smaller size type vessels because we were playing a little bit of catch up.
Keith Stanley: With the downtime that we had with the vessel inspection in the third quarter So we'll see if the ARBs continue to be strong and we and we'll look for opportunities to optimize around the system
Speaker Change: Thank you for joining us.
Speaker Change: Thank you.
Speaker Change: Okay, thanks Keith.
Speaker Change: And our next question comes from Jean Salisbury with Bank of America. Your line is open.
Speaker Change: For more information visit www.FEMA.gov
Jean Salisbury: Hi, I believe that you've said before that most of your producer base has gas egress and hasn't been backed up the last two quarters Which I think has really showed in your in your volume results today
Speaker Change: Yeah, hey, I'll start. You know, we have not seen, I would say across our producers, really Midland and Delaware, any negative volume impact from not having gas take away. We try and work with our customers to make sure that if Targa is handling and moving those volumes on behalf of our producers, we have enough firm transport intra and out of the basin to be able to move those volumes, and then producers on our system that have their own, you know, taking kind positions typically have enough transport to get those out. And so we work with them to make sure we can move those volumes. So I wouldn't say that'll be a factor in kind of quarter to quarter growth. But as you look at just our volume growth across this year, you know, the last two quarters we've been, you know, about 300 million a day, give or take a volume growth in the second and third quarter.
Speaker Change: That's, you know, higher than normal. I don't know that I'd plug that in for, plug in another 300 for Q4. I think we're going to have some growth, but it's likely not going to be in a straight line.
Speaker Change: as you kind of move forward. I think we see strong growth going forward, but Q4 is likely to be a bit muted compared to the strength we saw in the second and third quarter.
Speaker Change: Just to provide a little bit more visibility in the fourth quarter, we do also have a lower margin contract that's rolling over on the GMP side.
Speaker Change: So that will also reduce volumes quarter over quarter. So again, I think that speaks to us not being able to sustain the $300 million a day of growth that we've seen in the last couple of quarters, although we are still performing exceptionally well and are still seeing a lot of volumes come to us. That contract rollover will impact the fourth quarter.
Speaker Change: That makes sense. Very clear. Thank you. And then it seems like you should have the volume to fill your LPG expansion basically like immediately after it comes online next year. But there's obviously a lot of LPG export capacity coming online at the same time. Beyond that existing expansion, would you consider deploying the strategy that you've discussed of
Speaker Change: signing up for third-party LPG capacity, kind of like what you do for pipelines, to defer your own spend. From here, do you see it as more strategic in value to have your own export capacity?
Speaker Change: Yeah, I think what we're trying to do, the EZD bottlenecks, which are really economic for us, to just handle kind of the incremental volume growth we see across our footprint. But as, you know, this next one we have coming on mid-next year, we are right now looking at kind of a larger step up in our LPG exports and bringing on capacity. Others are adding some as well. We're just seeing a lot of NGL volume growth, and so are others. So I think it's all going to be needed. So we're currently evaluating right now.
Speaker Change: The timing and the size of our next LPG export expansion is likely going to include pipeline and additional refrigeration.
Speaker Change: You add both those together, it's probably around $350 million or so for those two pieces. And so that's part of our planning process. And as we think about capital for 2025 and 2026,
Speaker Change: When we're going to need that, does some of that capital end up in the back half of $25,000, or is that a $26,000, $27,000, $28,000 kind of spending? That's what we're sorting through right now, but I do think it's needed. I don't see us in any real meaningful or term, you know, way.
Speaker Change: contracting with others to bridge for us. I think we'll handle our own export across our dock.
Speaker Change: And just to compliment that a little bit, Gene, this is Scott, I would say that, you know, the primary pieces that Matt talked about on the LEP, excuse me, on the refrigeration side and on the pipeline side, as he said, kind of in that $350 million range,
Speaker Change: will, and then before that and even after that, we'll look for ways to kind of de-bottleneck even around that system by just improved piping, both at our Bellevue facility as well as at our Galena Park facility.
Speaker Change: You know, we're an aggregator of supply in Bellevue, so as our volumes start ramping up, that is, quote-unquote, that is coming off of our system, puts us in a position to prioritize that volume as opposed to volumes that we could aggregate in and around the Bellevue marketplace. So future expansions, we would look to take care of our volumes, but we would also put ourselves in a position to where we might have some capacity that we could optimize around that as well.
Speaker Change: Great, thank you.
Speaker Change: Okay, thank you.
Speaker Change: And our next question comes from John McKay with Goldman Sachs. Your line is open.
Speaker Change: http://TheBusinessProfessor.com
John McKay: Hey, good morning. Thanks for the time. You guys have had this sour gas footprint for a while now, but you spent a little more time talking about it on this call. So I'd just be curious to hear how much of that pocket of the business could grow from here, what CapEx associated with that could look like, because it's a little different than a typical kind of GNP build out, and maybe just next milestones to watch there. Thanks.
Speaker Change: Yeah, sure. You know, we have...
Speaker Change: been operating sour gas infrastructure, you know, kind of through Target's history and even going back to the Dynagy days. So we have decades of experience of handling sour gas out there.
Speaker Change: You know, we've seen the Delaware side continue to get more and more sour. So years ago, we really ramped up our spending to be able to handle more sour volumes out there. And that's really both H2S and CO2. So we mentioned in the call today, we have an 800 million a day treater coming online at our Bull Moose Complex.
Speaker Change: We have additional wells being drilled in the permitting phase to continue to hand more and more volumes as the Delaware gets more and more sour over time. So we think that really does give us, you know, an advantage as we look out for growth over the short, medium, and longer term. You know, it's a little bit more tricky to handle the sour volumes. It's a little more difficult than just handling sweet volumes.
Speaker Change: And so, you know, when it's harder, it gives us just better opportunity to work with our producers to handle those volumes. So we see that trend continuing, and I think that leads to some of our optimism about our longer-term growth rate out in the Delaware.
Speaker Change: And this is Bobby. If you think about all the plants we've announced over the last several years on the eastern side of the Delaware Basin, even though we don't talk about it, all those plants are sour plants. So we don't talk about that, but if you think about Midway or if you think about Wildcat or if you think about Bull Moose or any of those plants, all those are sour plants.
Speaker Change: We just don't label them that way, or we haven't historically as brightly as we do now, just because that has obviously become front and center of one of the talking points in the industry.
Speaker Change: I appreciate that. Maybe just a quick follow-up to that then. You talked about getting some 45Q credits in this quarter.
Speaker Change: You know, we're getting closer, you guys are getting closer to kind of a broader cash tax payment requirement over the next couple years. Could the 45Qs get to a, you know, meaningful size where we're talking about some real offsets there?
Speaker Change: Kind of nice to have, but a little more on the margin in the grand scheme.
Speaker Change: This is Bobby. So I think when you talk about grand scheme, I think it's on the margin, but it's also a nice to have. So when you think about all of that, all of those assets I just talked about on the eastern side of Delaware Basin where we are putting in sour infrastructure that
Speaker Change: Yeah, there's that sour gas
Speaker Change: Stripped out the CO2 and H2S and Injects it. We modified those systems a little bit and then we were able to get 45Q. So it is a very nice compliment to that business and very efficient capital to spend in order to get that 45Q. So it turns into something that we don't have to do a whole lot more and be able to capture the 45Q. We continue to develop the...
Speaker Change: CCUS business where it's not required to inject and that's in our forecasts over time. But at the end of the day when you talk about grand scheme of TARGA, it is not huge relative to everything else we have going on.
Speaker Change: And so just to finish that out, John, that means that from our perspective it doesn't meaningfully change our outlook for cash taxes. As Bobby said, it's a nice-to-have, but there's really no change.
Speaker Change: to our current expectation that we'll be subject to the ATM in 2026 and then a full cash taxpayer in 2027 when we've worked our way through our NOL. And that's all inclusive of our full business operations, including the opportunities set around CCUS.
Speaker Change: Appreciate that. Thanks very much.
John: Okay, thank you.
Speaker Change: And our next question comes from Manav Gupta with UBS. Your line is open.
Manav Gupta: First of all, a big congratulations to Tristan. You know, every time a Southside analyst is able to do a jailbreak, it feels very nice for the rest of us. There is hope for us.
Manav Gupta: Well, thank you for that. My quick question, just one of them, is can you provide us, you know, more details around Falcon 2 or East Driver plans, you know, why decision to move ahead with them, anything you can give us on the economics or the build multiple. Thank you.
Speaker Change: I'd say the economics and build multiple is really the same that we've articulated previously. We've kind of pointed to around five and a half times as our organic build multiple. I don't see these.
Manav Gupta: being materially different from that. So, I think it just, it's...
Manav Gupta: Just puts us in position to continue to invest, be there for our producers, and execute on our core business. Gathering and processing and then moving the NGLs through our downstream infrastructure. And the timing of those, as I mentioned earlier, we're just seeing more volumes across both the Delaware and the Midland side of the Permian. And so that's...
Manav Gupta: led us to announce those kind of sooner than we were expecting, to kind of go back to the beginning of the year. We were not anticipating announcing these plants right now and starting this work as soon as we are. But the volume upside has led us to accelerate these plants and then evaluate the timing of the next plants.
Manav Gupta: And this is Bobby. As Jen mentioned earlier in the call, Greenwood 2 coming up, highly utilized. At the end of the day, we keep trying to get a plant ahead. We keep trying to create space to be able to do overhauls and maintenance and everything else. And this is a continued effort to try to get ahead so we can do all the things we need to do within our system and service our producers at the same time.
Speaker Change: Thank you for taking my question.
Speaker Change: Okay, thank you. And our next question comes from Neil Dingman with Truist. Your line is open.
Neil Dingman: Morning, and congrats on another nice quarter. Welcome, Tristan. Guys, my first question is just on your Permian Basin activity outlook, specifically I see on slide 8 you mentioned your associated gas forecast that looks very favorable. I'm just wondering, I'd love to hear sort of what type of rig activity you are and maybe macro oil price you're assuming around that associated gas forecast.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: Yeah, this is Pat. When you look across the Permian right now, one out of every three rigs is running on target acreage. So, activity level on...
Manav Gupta: You know, our acreage footprint is very robust, and obviously that acreage position that we have tied up is pretty significant.
Manav Gupta: You know, Matt alluded to that earlier on one of the other questions is...
Manav Gupta: It's producer specific, right? We are seeing a lot of activity from.
Manav Gupta: different size producers.
Manav Gupta: and new formations being explored and developed, some of those very gassy, which...
Manav Gupta: leads to gas growth across both Midland and Delaware sides of the basin.
Manav Gupta: And fortunately, we've had commercial success, additional new commercial success to tie up those plays. So...
Manav Gupta: It's the historical stuff we've always seen with the large acreage dedications and the activity and the commitment of...
Manav Gupta: you know very high-grade producers and then some new stuff that's getting developed that we've been successful on. So when we look across the next five years, especially the next 24 to 36 months, we see a lot of gas growth on our systems and a lot of activity on our systems.
Speaker Change: No, that makes total sense. And then my second question, just on your future capital spend specifically, just wondering, would you all suggest there's any...
Speaker Change: possible and potential incredible assets out there.
Speaker Change: that could delay your meaningful 2025 pre-cash inflection or does that nodal upside or upcoming inflection appear to be relatively certain?
Speaker Change: You know, I think when you just look at just our overall EBITDA growth we're going to have in 2025 and with, you know, haven't given a firm number for capital yet for 2025, but I think we're comfortable saying we're going to have a significant amount of free cash flow in 2025, where exactly that shakes out is kind of what we're working through in our planning process as we've talked about.
Speaker Change: You know, delaying or deferring that, I guess you're implying kind of M&A. You know, we continue to look at assets, you know, bolt-ons in and around our systems. We've continued to look really since the loose of acquisition at assets. But I think just for us, the bar continues to be very high for us. So we'll continue to evaluate if there's something we can tuck in that looks really nice and has, you know, good value for target shareholders. We'll look at it. It's just the bar is going to be pretty high. We have a lot of growth, you know, on our G&P footprint and our downstream footprint. Our first priority is to make sure we execute on what we have organically.
Manav Gupta: in front of us. That's just going to continue to be our priority.
Speaker Change: Yeah, the growth is notable. Thank you all. Thank you. Thank you.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: And our next question comes from AJ O'Donnell with TPH. Your line is open.
Speaker Change: Thank you for watching. I'm Jeffrey Mellon. I'll see you next time.
AJ O'Donnell: Good morning, everyone. Thanks for taking my question. Just one for me, and I kind of just wanted to go on a clarifying question to
Speaker Change: That's something that Jean-Anne brought up. You know, looking at Q4 volumes and our potential Q4 volume growth, and now that Matterhorn is aligned.
Speaker Change: I'm curious if you guys have seen a jump in production from your customers with the new pipe being online or If you know some of the flows we're seeing online or with that pipe right now is just gas moving around the basin. Thanks
Speaker Change: Yeah, sure. No, from from our customers, we we, I would say I have heard of some customers that were not producing because they didn't have, they either didn't like the Waha price or didn't have takeaway, but customers on our system, they were flowing and producing.
Speaker Change: So, I think basin-wide, perhaps there is some of that, but for our customers, for I think the most part, they were producing and had take-away. Absolutely.
Speaker Change: pipelines online, there should be sufficient capacity, at least for a while, to handle handle those volumes. What you're seeing now is some maintenance on some pipes and some other disruptions on existing pipes, which is why our WAHA has been kind of flat to negative here recently.
Speaker Change: Thank you.
Speaker Change: Great, thank you very much. Okay, thank you.
Speaker Change: And our next question comes from Sanyal Sibal with Seaport Global. Your line is open.
Speaker Change: Go to Beadaholique.com for all of your beading supply needs!
Sanyal Sibal: Yeah, hi, good morning, everybody, and thanks for the time. So I wanted to start off on the NGL pipeline segment. Seems like, you know, ethane prices have been weak lately, so I was curious, you know, what kind of ethane recovery trends you're seeing on your systems? And then with Daytona kind of, you know, contributing partly for the third quarter, how should we think about, you know, volumes on the Daytona system, especially any, you know, switchovers from third party processing plants also?
Sanyal Sibal: Hi, this is Scott. First off, Daytona...
Scott Pryor: coming online, gives us the ability to obviously flow on both our Grand Prix West system as well as Daytona. So, it gives us some operating efficiency around just being able to split volumes between those two pipes and gives us a lot of operating leverage, as I said earlier, moving into our 30-inch pipe.
Sanyal Sibal: When it comes to ethane, certainly ethane prices sitting around 18 cents. There may be some outlying areas that would be looking at rejection-type economics, but when you look at the Wauhaw area where gas prices are, I think pretty much most of the industry is in full recovery wherever they can, predominantly in the Permian Basin. And for us,
Speaker Change: We stay pretty much in recovery mode all the time just so that we can feed our system on all of our integrated platforms So again, I think some of the outlying areas outside of the Permian would probably be in rejection mode Just based upon where prices are but for us It's pretty much full tilt for us
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: Okay, thanks for that. And then in the back land system seems like you had a pretty sizable uptick on the crude volumes. I was curious, you know, is that something you can expect to continue or any one-time items there?
Speaker Change: Go to Beadaholique.com for all of your beading supply needs!
Speaker Change: Yeah, this is Pat We had a an uptick in our activity level We had some producers who have been waiting on permits and another producer frankly that hasn't been real active over the past let's say three or four years that won the activity level from that producer uptick and secondly the permits were granted and and You know the wells were drilled so we got in a really nice uptick in our crude oil volumes
Speaker Change: And our base level continues, so we expect, you know, good activity.
Speaker Change: I wouldn't say continued robust growth, but good activity level going forward on the system.
Speaker Change: Okay, thanks for that.
Speaker Change: Okay, thank you.
Speaker Change: I show no further questions at this time. I would now like to turn the call back over to Tristan Richardson for closing remarks.
Tristan Richardson: Great. Thanks, Michelle. Thank you to everyone for joining the call this morning, and we appreciate your interest in Target Resources.
Speaker Change: Thank you.
Michelle: This does conclude today's conference call. Thank you for participating. You may now disconnect.
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