Q4 2024 Targa Resources Corp Earnings Call
and others. Thank you. Thank you.
Speaker Change: Every group within Targa played a huge role in our execution across the year and we are proud of their efforts we provided our shareholders with the ninth highest total return in the S&P 500, which is a tremendous accomplishment that we want to build on lastly, I am pleased to announce that Jen kneale is moving into the president role effective March <unk>.
Jim: <unk> 2025, after leading our finance and administrative functions for the last seven years and as as part of <unk> continuing development. She is going to shift her focus to now lead our commercial engineering and operations functions across target over to you Jim.
Jim: Thanks, Matt Good morning, everyone building unmatched remarks, Theres a lot of activity on our acreage in the Permian starting in the Delaware or new bonus plan is now online and highly utilized. We also completed. The addition of our 800 million cubic feet per day front end sour gas treating and the 30 inch rich gas pipeline.
Jim: Next targets, two largest treating and processing facilities in the Delaware Basin. These projects spring targets, Delaware treating capacity to approximately $2 3 billion cubic feet per day.
Jim: Significant system Fungibility.
Jim: We are continuing to make progress in our next two plants that are under construction in the Delaware with our <unk> two plant expected online in the first quarter of 2026, and our Falcon to plant online in the second quarter of 2026 with two plants coming online within a quarter in 2026, we expect to be in great position to handle customer volume growth in the.
Jim: Delaware moving.
Jim: Moving to the Midland Basin, our Greenwood to plant came online in late October and was fully utilized at startup.
Jim: Currently have three additional plants under construction with our <unk> two plant expected online in the fourth quarter of 2025, our east Pembroke plant online in the second quarter of 2026, and our east driver plant online in the third quarter of 2026 across both the Midland and the Delaware, we are evaluating when we will need to move.
Jim: Forward with our next Permian plant to accommodate continued growth on our systems.
Jim: Turning to our logistics and transportation segment targets NGL pipeline transportation volumes averaged a record 872000 barrels per day and fractionation volumes averaged a record $1 1 million barrels per day during the fourth quarter as we benefited from our Daytona NGL pipeline coming into service in late August.
Jim: And our train 10 fractionator coming into service in late October our 30 inch 100 mile into Delaware Basin expansion of Grand Prix that we announced this morning is needed to accommodate growing Delaware basin volumes by moving forward with a 30 inch diameter pipeline, we have the flexibility to consider repurposing.
Jim: Part of our existing Grand Prix NGL lines to large diameter gathering lines or residue service, providing the opportunity to further enhance flow assurance and takeaway options for our producers.
Jim: Our outlook of increasing long haul NGL transportation volumes has continued to strengthen and Daytona coming online plus the third party medium term transportation deals that we mentioned previously provide us with flexibility looking forward given.
Jim: Given the anticipated growth in our Permian G&P business, our outlook for NGL supply growth remains robust and our downstream system expansions will be much needed to handle growth from our systems are.
Jim: Our next fractionator in Mont Belvieu train 11 remains on track for the third quarter 2026, and is expected to be much needed at startup our newly announced trained 12 is also expected to be much needed with startup estimated in the first quarter of 2027.
Jim: In our LPG export business at Galena Park, our loadings averaged a record 14 million barrels per month during the fourth quarter and we remain on track to complete our 650000 barrel per month expansion in the fourth quarter of 2025.
Jim: Given our fractionation expansions that will result in incremental propane and butane in the Targa system plus the continued strength in global demand for U S. Sourced LPG <unk>, we expect our LPG export expansion project announced this morning to be much needed when it comes online in the third quarter of 2027.
Jim: The addition of a new pipeline between Mont Belvieu, and Galena Park, and another refrigeration unit will significantly increase our loading rates and enhance our facility flexibility.
Jim: During the fourth quarter, we purchased Bp's, 12% interest in Cedar Bayou fractionator for net cash consideration of approximately $111 million and we now own 100% of CBS. This transaction allows us to provide our partner with liquidity, while simplifying our operational structure at an attractive return.
Jim: We also announced this morning, a definitive agreement to repurchase all of the outstanding preferred equity and target Badlands, LLC, which holds our north Dakota assets for approximately $1 8 billion.
Jim: When we executed the Badlands transaction in February 2019, we were in the midst of building our largest project ever Grand Prix and multiple plants and Fracs to help commercialize Grand Prix.
Jim: Maximize proceeds without any <unk> dilution with the structure, which was critical to us at the time, given our large law capital lift and strength of conviction in our outlook. We have now taken out the last piece of creative financing that we utilized back then to keep investing without dilution.
Jim: The rationale for taking out Blackstone now is simple the preferred had a low double digit cost essentially a $180 million of fixed annual charges with the strength of our balance sheet, we can refinance it with much lower cost debt, providing more than $80 million of annual cash savings and have minimal impact to our leverage ratio.
Jim: We will now own 100% of the Badlands again, which is a strong fee based free cash flow.
Jim: Characteristics that made it attractive for joint venture investment in 2019, and make it attractive for us to fully own now.
Jim: With an effective date of January one we will benefit from owning 100% of Badlands for all of 2025, resulting in approximately $180 million of incremental EBITDA.
Jim: As Matt mentioned, we have accelerated significant spending into 2025 that we were not forecasting at this time last year because of the outperformance of volume growth in 2024, and our expectations for continued growth looking forward through the end of 2024, our ROIC over the past five years was 21%.
A strong given we had the second largest project and targets history Daytona and several other major projects come online and only partially contribute to 2024.
Jim: We provided an illustrative framework last February that detailed a moat multiyear growth capital spend of approximately $1 $7 billion.
Jim: To support high single digit growth in Permian volumes. While this framework holds we clearly benefited from a lot more volume growth than that in 2024 and given our additional commercial success are likely to see more volume growth going forward. This growth accelerated several downstream projects, which added capital to 2025.
Jim: The framework should continue to be helpful. In a lower growth environment, but our capital spend over the next few years is likely to be higher for plants come online in 2026, we will need additional processing in 2027 and beyond and that volume growth has accelerated downstream spend importantly, these projects are all core to targa and leverage our existing footprint.
Jim: And we believe we will continue to result in attractive rates of return driving increasing EBITDA and free cash flow over time.
Jim: As a result of our strong returns and attractive growth. We continue to return meaningful increases in capital to our investors, we opportunistically repurchased $755 million of common shares at a weighted average price of $127 20 during 2024, a substantial increase over the 347.
Jim: <unk> million dollars of share repurchases for full year 2023.
In 2024, we returned 42% of our adjusted cash flow from operations to shareholders. This was higher than we expected at the beginning of last year, but the strength of our results positioned us to return capital to shareholders more quickly.
Jim: Consistent with the multi year framework. We've previously discussed we continue to model returning more than 40% of cash flow from operations to shareholders on a multiyear basis looking forward. We will continue to focus on and all of the above approach to creating value for our shareholders, maintaining our strong balance sheet positions us to both continue to invest in attractive.
Organic growth opportunities, while increasing our return of capital to shareholders. Our compelling value proposition continues to be supported by growing EBITDA meaningful increases to common dividends per share are reducing share count and an excellent outlook 2024. It was a big year for our company and I'm. So appreciative of the efforts of our employees.
Will: <unk>, we have a lot of momentum and are excited about the future I will now turn the call over to will to discuss our fourth quarter results and our 2025 outlook well.
Will: Thanks, Jen targets reported quarterly adjusted EBITDA for the fourth quarter was 112 2 billion.
Will: A 5% increase over the third quarter. The sequential increase was attributable to higher Permian volumes, which resulted in higher system volumes through our integrated NGL business.
Will: Full year 2024, adjusted EBITDA was a record $4 1 billion or 17.
Will: Teen percent increase over 2023 and was supported by record financial and operational metrics across the company, despite weak natural gas and NGL prices.
Will: We also benefited from stronger than expected natural gas and NGL marketing opportunities across 2024 with approximately $100 million of optimization opportunities that were not included in our original guidance.
Will: During 2024, we spent approximately $3 billion on growth capital projects growth capital spending came in ahead of our previous estimates as a result of the acceleration of spending attributable to our Permian commercial success and various growth projects that shifted spending into 2024 are.
Will: Our net maintenance capital was $232 million.
Will: At the end of the year, our net consolidated leverage ratio was approximately three four times below the midpoint of our long term leverage ratio target range of three to four times.
Will: With our strong balance sheet, we have stable mid triple B investment grade ratings with each of the three rating agencies.
Will: Turning to 2025, we are very excited about our outlook and expectations.
Will: We estimate full year 2025, adjusted EBITDA to be between $4 65 billion and $4 85 billion.
Will: 15% increase over 2024 based on the midpoint of our range.
Will: We expect continued volume growth in the Permian Basin will drive operating margin across our businesses.
Will: The logistics and transportation segment is well positioned to benefit from full year contributions of our Daytona NGL pipeline and train nine and 10.
Will: Our outlook assumes commodity prices of $1 55 per M. Btu for Wahoo natural gas 65 per gallon for our weighted average NGL barrel and $70 per barrel for WBI crude.
Will: Our cash flows are greater than 90% fee based and we have hedged about 90% of the remaining 10% non fee margin through 2026.
Will: The increasing fee based margin across our businesses will continue to provide us with cash flow stability and the fee floors in our G&P business support our ability to invest across lower commodity price environments, while positioning us to benefit from higher commodity prices.
Will: Relative to our full year 2025 financial guidance, a 30% move higher in commodity prices would increase full year adjusted EBITDA by around $130 million, while at 30% decrease would reduce adjusted EBITDA by around $80 million.
Will: This momentum will position us well going into 2026.
Will: We estimate $2 6 billion to $2 $8 billion of growth capital spending for 2025, and our capital budget includes spending on the three new downstream projects announced today. In addition to the five Permian plants and train 11 currently underway.
Will: Lending associated with the recent commercial success that Matt highlighted.
Will: Modest spending associated with long lead time items for our next potential Permian system expansions.
Will: And we are continuing to evaluate when we will need to move forward with spending on incremental long haul NGL transportation.
Will: As Jen mentioned, our third party medium term NGL transportation agreements provide us with flexibility and base load volumes for our <unk> NGL pipeline expansion when needed.
Will: Our estimate for net maintenance capital spending is $250 million.
Will: Similar to year end 2024, we expect to end 2025, with our leverage ratio comfortably within our long term target range of three to four times, providing continued flexibility going forward.
Will: In February we closed on a new five year $3 5 billion revolving credit facility maturing in February 2030.
The upsized revolver enhances our liquidity position and flexibility to continue to execute on our strategic priorities.
Will: Our available liquidity at the end of the fourth quarter pro forma for the new revolver was approximately $2 8 billion.
Will: There is no change to our assumption that we may be subject to the federal minimum tax in 2026, and a full cash taxpayer in 2027.
Will: Any favorable tax policy changes by the new administration, such as reinstating bonus depreciation or eliminating A&P would reduce our cash taxes relative to our expectations.
Speaker Change: I would like to join Madden Gen and thanking our 3400 employees, who have made our success possible.
Speaker Change: The team effort every day as we continue to execute on our growth program.
Tristan: And with that I will turn the call back over to Tristan.
Speaker Change: Thanks will for the Q&A session, we ask that you limit to one question and one for Steve.
Tristan: And reenter the queue. If you have additional questions. Please.
Tristan: Please open the line for Q&A.
Tristan: Thank you again to ask a question you May press star one on your telephone to remove yourself you May press Star one again, please standby, while we compile the Q&A roster.
Our first question comes from the line of Jeremy Tonet of Jpmorgan. Your question. Please Jeremy.
Hi, good morning.
Speaker Change: Hey, good morning, Jeremy.
Speaker Change: Jen congratulations there first off in <unk>.
Speaker Change: Just wanted to go I guess into I guess the forward outlook at this point.
Speaker Change: With the guidance you provided I believe those commentary that activity would accelerate over the back half of the year.
Speaker Change: And if I think about the.
Speaker Change: The capex pull forward here it seems like things are going better than previously expected growing faster and just wondering.
Speaker Change: Any high level thoughts you could share I guess on how the trajectory of EBITDA could grow across the year the back half higher and really how we should think about 2026 at this point given that trajectory later in the year as.
Speaker Change: As well as some of these growth projects being pulled forward here. Thanks.
Speaker Change: Yes, sure Jeremy I'll start yes, the growth outlook I'd say for US is really strong relative to where we are setting.
Speaker Change: Last year at this time.
Speaker Change: I'd say the multiyear growth outlook has improved really for every year.
Speaker Change: As we look at this year, specifically, we are pointing to more back half growth last year, we saw really strong volumes in the first part of the year and that continued through the rest of the year. This year as we look at our producer forecast.
Speaker Change: It is more back half weighted and the commercial success on the deals we talked about in 2024 really start contributing kind of second part of 'twenty five 'twenty six.
Speaker Change: This year is also for Q1 is impacted by weather. We've had just round after round of freezing weather thats impacted our Permian volumes and that impacted our NGL volumes downstream. So we have had some weather headwinds here in the first quarter, but our outlook for this year.
Speaker Change: It is really strong and we just kind of look through the bottoms up build of our producer forecast.
Speaker Change: 2026 looks like it's potentially even a stronger year than 2025, and Jeremy I'd just add when you think about four plants coming online in 2026, we're not trying to look too far beyond this year, we're really excited about this year, but for plants coming online next year as well, we've just got a tremendously strong outlook of multi years of growth here.
Speaker Change: We're really excited about.
Got it so 2026 looking better than 2025 at this point and long term growth outlook today looking better than it did in the past so got it there and then I believe there was some comments on optimization that occurred in 'twenty four and is not I guess in the EBITDA guide for 'twenty, five and obviously youre not baking the biz.
Speaker Change: <unk> around this but is there any reason to think that some optimization does not materialize again in 'twenty five just wondering how we should think about that.
Speaker Change: I would say that were already that were always pretty conservative when we guide to full year EBITDA and when we think about marketing opportunities in our footprint across both the natural gas and the natural gas liquid side, each year opportunities present themselves, but it's not part of what we forecast in a meaningful way, we let those present.
Speaker Change: One of the reasons that in 2024, you saw us increase our guidance range. In August then you saw us in November as say, we thought we'd be at the high end of the range and then you have of course seen us today beat all of that with where we ended up for 2024. So similarly, as we think about this year I'd expect opportunities to present themselves, but it's not something that we.
Speaker Change: Baked into our overall planning process until they are accounted for essentially.
Speaker Change: Got it so optimization still very much possible upside to the plan I think that's it for me. Thank you very much.
Speaker Change: Thanks, Jeremy.
Speaker Change: Thank you. Our next question comes from Keith Stanley of Wolfe Research. Please go ahead Keith.
Keith Stanley: Hi, Thank you good morning.
Speaker Change: Wanted to start on the Badlands buy in and just acquired Blackstone have an option to put the preferred interest back to you at a certain point.
Speaker Change: Or was the timing just you have excess balance sheet capacity and I think Jenn you noted $80 million a year of cash savings from doing this and so you are just opportunistic on it.
Speaker Change: I'd say that what we announced today was us being opportunistic and saying that from our perspective with the strength of our balance sheet with the cash savings from refinancing of higher cost low double digit preferred being able to put it on our balance sheet at a much much lower cost of debt made all the sense in the world to us and we quantified for the savings for you.
Speaker Change: Of around $80 million on the call as with any structure like that yes. There are eventual options for a partner like Blackstone to get out but by no means where we anywhere where we had to make a decision for us. It just was really on the backs of a really strong 2024 year end leverage ratio of three four times, we're taking on.
Speaker Change: A tiny bit of leverage here and generating $80 million of cash savings and now go back to owning a 100% of our stable fee based asset that's throwing off a lot of free cash flow.
Speaker Change: Great. Thanks for that second I, just wanted to ask on buybacks given some of the growth commentary, including 26, potentially even being stronger than than 25. So when you think about buybacks and just capital allocation generally the stock has re rated or what you are getting great rich.
Speaker Change: Turns on organic growth you could probably get pretty good returns on M&A as well. So how are you thinking about prioritizing capital allocation at this point, including buybacks, just given kind of the overwhelming growth potential that you're seeing.
Speaker Change: Russia continues to be in all of the above approach I think that we clearly have a lot of really attractive organic growth capital investment opportunities that we can invest in and you're seeing us do that our producers and customers and that will of course be a core area of focus for us moving forward.
Speaker Change: We're doing that you also saw us execute on record repurchases in 2024 meaningfully increase the dividend in 2024 and now of course, we have <unk> of 33% increase to the common dividend in 2025, what we really like about our repurchase program is it's opportunistic so to the extent we see a disconnect between.
Speaker Change: Our belief of the value of Targa and what the market is presenting itself or is presenting to us we've got the financial flexibility with the strength of our balance sheet to step in so and you saw us in 2024 execute a lot of repurchases in the second quarter. We knew how strong our 2024 was going to be we were allying on volume growth showing up.
Speaker Change: It was showing up in spades, even more than we expected. So you saw us step in because that was supporting a strengthening short medium and long term outlook of growth. Similarly, we executed on a lot of great commercial opportunities that supporting an outlook of significant growth in 2026 and beyond we've got a ton of conviction and what we have going on here and.
Speaker Change: Really proud of our employee execution across engineering operations commercial accounting everybody in the organization is moving in the right direction and that means that as we look out over the short medium and long term our forecast is strengthening and that's on the backs of really strong organic opportunities and we've got the flexibility financially to <unk>.
Speaker Change: <unk> opportunistically on repurchases when we think that it makes sense.
Speaker Change: Thanks, a lot.
Speaker Change: Alright, Thanks Keith.
Speaker Change: Our next question comes from Jackie <unk> of Goldman Sachs. Please go ahead Jackie.
Jackie: Hi, Thank you so much for the time first.
Jackie: Just wanted to start you pointed to commercial success really driving some of the capital spending higher where are you seeing this et cetera across your footprint, that's mostly on the sour gas opportunities.
Jackie: Or is it more across the entire G&P segment as a whole.
Speaker Change: Yes, sure Jackie I'll touch on that and then Pat if you want to jump in I mean, I'd say, we've really seen good commercial success in both the Midland and the Delaware.
Speaker Change: We actually included in our Investor presentation, a slide which highlighted what we characterize as three larger deals.
Speaker Change: All three of those were in the Delaware side of the basin.
Speaker Change: It shows that there is still a lot of activity and a lot of acreage positions available and we have millions of acres already dedicated thats going to provide us nice growth, but we continue to execute and have some wins with with our producer customers on I would call. It kind of step out acreage developments and we've seen that on both sweet and sour so.
Speaker Change: I think the fungibility of our system being able to have a significant amount of treating for both <unk> and <unk> and the fungibility to continue to operate when plants are in maintenance just provides an overall.
Speaker Change: Very good level of service for our customers and that's really paying off for us.
Speaker Change: Yes, I think the only thing I would add is as Matt alluded to and the investor presentation.
Speaker Change: Really the example, we gave there.
Speaker Change: Just illustrative I mean, there is a long list of new transactions that we did in 'twenty four and have already completed in 2025 that is adding to the overall acreage position that we have under contract and our growth going forward and that's why when you listen to our prepared.
Speaker Change: Thats et cetera.
Speaker Change: Okay.
Speaker Change: Back half loaded 25, and 26, we've got a lot of line of sight on.
Speaker Change: The stuff we've had under contract plus this new added.
Speaker Change: Acreage and drilling commitments are.
Our producers are bringing to us. So we really are excited about the short and long term outlook.
Our growth in the Permian Basin.
Speaker Change: Got it appreciate that and then.
Speaker Change: Just moving onto what the.
Speaker Change: Faster than expected Permian growth.
Speaker Change: Kind of implies you know looking at those long lead items for potential Permian expansions in evaluating incremental.
Speaker Change: Additional long haul.
Speaker Change: Right.
Speaker Change: What does the cadence kind of flows additional plants beyond 'twenty six might look like at what point do you kind of expect to.
Speaker Change: Move forward with additional infrastructure from here.
Speaker Change: Yes, good question and frankly internally.
Speaker Change: We're trying to estimate and do the best we can for having the right amount of capacity and not too much not too little.
Speaker Change: What you'll see is four plants coming on in 2026, that's higher than normal if you look in 'twenty five we have two plants coming on so you are kind of a three player on average for those two were currently evaluating 27 and 28, we have multiple sites already picked out for.
Speaker Change: New processing plants in the Delaware and Midland and were determining best location and best timing for those so.
Speaker Change: I think again as Jen mentioned, we gave a framework, which pointed to a $1 7 billion of Capex for call. It two plants a year I think what we're seeing is here in the short medium term it feels like we're higher than that and that's why you've seen capex move higher and it's accelerated some downstream spending all of which is core to us.
Right down our fairway of what we do gather and process and then handle the NGL volumes downstream so.
Speaker Change: We'll continue to kind of figure out what the right cadence for planters.
Two for 25, we have $4 26, and I'd say, we're evaluating 27% 28, but we see significant growth really in all of those years.
Speaker Change: Great I'll leave it there thank you.
Speaker Change: Okay. Thank you.
Manav Gupta: Thank you. Our next question comes from Manav Gupta of UBS. Please go ahead <unk>.
Manav Gupta: Good morning, My question relates to your obviously motivated Permian gas egress pipeline I'm, just trying to understand the scope over there obviously it looks like a very strong demand outlook driven by LNG coal to gas switching in data centers. So just trying to understand this and conversations that you're having or the people about.
Manav Gupta: Absolutely investing more with Permian gas acreage out there.
Bob: Hi, This is Bob.
Bob: As we announced our partnership with Whitewater and Black home.
Bob: We're excited to get that done and excited to get that pipe online 26.
Bob: We continue to talk to anyone and everyone about egress.
Bob: Obviously, there was another pipe that got announced coming out of the Permian.
Bob: That will help with egress natural gas as well as supply and new demand from LNG in data centers that team is out there.
Bob: <unk> out what the next pipe is where the next demand as data centers LNG those conversations are ongoing constantly.
Bob: And we are in that mix every day. So we're figuring out when that next pipe as needed where that next demand center is.
Bob: And as we evaluate some of that intra Permian basin pipe, we've got where we can deliver gas that can get burned to data centers or power plants in the Permian. So we're working on those things every day in all day in figuring that out, but we're excited to see <unk> come online in 'twenty six because it will be much needed when it does.
Bob: Perfect. Obviously, you have a very strong organic growth pipeline.
Speaker Change: To understand the appetite for some bolt on deals also and the reason I'm asking is one of your midstream slashed refining peers are seeing some activist pressure to start divesting some of their midstream assets and I'm just trying to understand if that is what will be the appetite for small bolt on deals that you could do.
Speaker Change: Yes, sure yes in terms of gas takeaway, we invested 17, 5% in black home and as we look at being part of the solution for additional takeaway in the Permian I think there'll be other opportunities afforded to us to invest in other pipes and as Bobby mentioned, we're looking at multiple opportunities. When is the next one is going to be needed and what what would be an opportunity for.
Speaker Change: For us to make a commitment to a pipe and then have some investment opportunity. So yes, I'd say, we will continue to look to invest in long haul takeaway. We're also evaluating we mentioned.
Speaker Change: We're putting in the Delaware Express 30 inch NGL line, we have some Grand Prix pipeline in the Delaware and we're evaluating whether we want to make those large diameter gathering lines or potentially making that residue lines as well to continue to aggregate natural gas residue from our plants to aggregate for additional long haul pipe takeaway. So we do have.
Speaker Change: Additional opportunities on the residue gas side and as we continue to grow we will continue to look to see if additional investments there makes sense and then on the broader topic of M&A I don't really think our posture has changed a whole lot. I mean, we have a lot of organic growth opportunities that we see that as our primary focus that is what we're going to be spending most of our time on.
Speaker Change: We've looked at some of these bolt on.
Speaker Change: Transactions we.
Speaker Change: Say, we have a high bar and nothing has.
Speaker Change: Either transacted with other parties or they've held so we've continued to focus on organic growth I think the bar for US continues to be high and we'll just kind of continue.
Speaker Change: Continue on that path.
Speaker Change: Thank you so much.
Speaker Change: Thank you.
Speaker Change: Thank you our next question.
Speaker Change: Comes from a J O'donnell of <unk>. Please go ahead a J.
Speaker Change: Hey, good morning, everybody.
Speaker Change: Maybe the first question just on the outlook I was wondering if you could spend a bit of time just talking about the <unk>.
Speaker Change: Expected returns on the projects that have been announced.
Speaker Change: Should we still be thinking about these around that five five times build multiple that you have guided before or have the returns in any way changed.
Jen: Good morning, AJ This is jen.
Jen: Say that everything that we provided in the framework before really holds which is we've got a demonstrated track record of being able to do better than that five five times multiple and our expectation is that we ought to be able to continue that track record going forward you saw in 2020 for the strength of our results with really weak commodity prices to the extent, we do every season.
Jen: The prices move higher on the natural gas and NGL side, we've got that asymmetric skew to the upside which would provide incremental returns that you really haven't seen play out here recently, despite us putting up really attractive rates of return on what we've invested in so I think continuing to use the five five or a little bit better is a reasonable starting point as you're modeling.
Jen: Our business and of course, we're working everyday to figure out how to utilize those assets to drive those returns higher I think what's been great for US is everything that we brought online has essentially been full at startup other than Daytona, which is an asset that we expect to ramp over time, but even the ramp there has been faster than expected and that's why we've had to do some of those medium term.
Jen: NGL transportation agreements so part of how we get better returns is that when assets come online we've been able to commercialize the volume growth more quickly than when we made the decision and the strength of our commercial team is certainly helping us to do that and we would expect that to continue going forward as well.
Jen: Okay, Great maybe just one more then on Q4 results and kind of talking about how those outfits ramped into service pretty quickly, but there is noticing that there was a pretty big step up in <unk>.
Jen: Frac volumes versus NGL production I was wondering if you could provide some comments on there was was there any third party step up involved in that increase.
Jen: Hey, Jay This is Scott, yes, we saw a really nice quarter in the fourth quarter. When you look at our volumes overall when you look at fourth quarter of 2003 to fourth quarter 24, our volumes grew by 29% over that timeframe a lot of that was.
Jen: Because we brought on Frac train nine during the third quarter, and then of course, but 2010 and came online in the fourth quarter. So that allowed us basically to utilize frac volumes that we had been offloading at times to other third parties.
Jen: As well as our volume growth that we saw from all of our processing plants, and then being able to work off inventory that we had stored so all of that is really part of the benefit that we saw at the $1 1 million barrels that we saw during the fourth quarter.
Jen: Needless to say when you think about the number of plants that we've announced on the Delaware side onto Plaza was announced on the Midland side and each of those plants contributed $35 to 40000 barrels a day of volume much of which will be directed to our pipelines and much of which will be coming to our fractionator that gives us line of sight on the reasons why train 11.
Jen: <unk> was announced previously and today trained 12. So when you think about when those are coming online in the third quarter of 2006, and then of course Frac train 12 now in the first quarter of 2027, all of that lines up very well with the plant cadence that we've already announced today.
Jen: Okay. Thanks for the color I'll turn it back.
Jen: Okay. Thank you.
Jen: Thank you.
Jen: Our next question.
Speaker Change: It comes from Michael Blum of Wells Fargo. Please go ahead Michael.
Michael Blum: Thanks, Good morning, everyone.
Michael Blum: I had two questions on volumes I'll, just I'll just start from here together.
Michael Blum: The first is on the fourth quarter Permian volumes sequentially were up only a little bit.
Only modestly.
Speaker Change: Q3 to Q4 and that's in spite of the fact, you've been bringing on plant you brought on plants in the second half of the year. So I'm. Just wondering maybe you can just talk about any dynamics going on there we should be aware of that I thought maybe the volumes will be a bit higher.
Speaker Change: And then for the full year you said you grew volumes overall, 14% in 2024, what does guidance assume in 'twenty five for volume growth. Thanks.
Speaker Change: Related to the fourth quarter Permian volumes, I mean, the trajectory of growth that we'd been on was pretty staggering. When you think about moving across the year and volumes moving up 277 million cubic feet. A day Q2 to Q1 and 311 million cubic feet. A day Q3 to Q2, and then the ADC 8 million cubic feet a day of growth Q4.
Speaker Change: Relative to Q3, we tried to call it out in our press release quarter over quarter commentary that we did have a low margin contracts that rolled over at the very beginning of the fourth quarter. So that's what was going to create some of that noise quarter to quarter.
Speaker Change: We certainly wanted to make sure that we highlighted for you.
Speaker Change: I'd say that when we think about our growth 25 relative to 'twenty six we had the Beaumont plant just come online. We've got another plant that comes online later this year, we've talked about about a back half ramp. We're certainly above that low is that sort of high single digit framework that we set underpinned the growth in the $1 $7 billion a case that we published last.
February so I would say expect higher growth in that 2024 was a really strong year, we're really pointing to 2026 and the four plants as our next strong year, but we're going to continue to have really attractive Permian.
Speaker Change: Across 2024, or sorry, excuse me 2025, as well, but again just trying to remind everybody we're going to see a lot of that growth materialize back half because as Matt said, that's when a lot of those commercial agreement arrangements really start to ramp up in the back half of 'twenty five and then provide significant incremental growth in 2026, which is what is under <unk>.
Speaker Change: Their opinion on the four plants in 2026.
Speaker Change: Thank you.
Okay. Thanks, Michael.
Speaker Change: Thank you. Our next question comes from Neal Dingmann of true Securities. Please go ahead Neil.
Neal Dingmann: Good morning, Thanks for the time my first question.
Neal Dingmann: Just want to ask maybe different way on the Badlands deal.
Neal Dingmann: Understand the lower cost of capital and financial ability there I'm just wondering maybe how this fits into the overall integrated NGL strategy again of course for the right price would you all consider selling this asset.
Neal Dingmann: Yes.
Neal Dingmann: Essentially about the Badlands as you know our strategy is obviously invest in gathering and processing and moving Ngls under our downstream footprint, we actually get those ngls into a fraction or we don't have transport all way up to the badlands, but it is tied into our fractionation and then those volumes are available for export. So we do get some synergies from the NGL downstream business on the Badlands.
Neal Dingmann: <unk>.
Neal Dingmann: With us.
Neal Dingmann: Refinancing at a lower cost at any option that we would have to do anything out there whether its with a partner or something strategic.
Neal Dingmann: Those are frankly, a little bit easier with us owning 100% of it so it doesn't change any of the dynamics about what's the best way for Targa.
Neal Dingmann: To look at all of its assets right. So if anything it kind of improve that position.
Speaker Change: Sure lots of flexibility and then second question, maybe just on your North Texas.
Speaker Change: Belvieu NGL pipeline I'm, just really wondering what is the what's the timing.
Speaker Change: When would you all need new capital there, maybe along with how you are using offload to bridge that.
Speaker Change: Yes.
Speaker Change: Yes, well first off obviously, we announced the Delaware Express line that is just to give a little bit more description on that that line is a 30 inch line.
Speaker Change: <unk> will basically allow us to move the incremental growth that we're seeing on the Delaware basin side in the fourth quarter, we had about 390000 barrels of NGL production on the Delaware and much of that was it.
Speaker Change: Moving on Grand Prix, but when you think about the number of plants that were adding on the Delaware side with Goldman's one will move to a core staff into all of which will be online in the second quarter of 2026 that volume will find its way and the necessary to move on on our Delaware Express, which ties into Daytona and Grand Prix our.
Speaker Change: <unk> all the way into Belvieu with our south leg is about $1 1 million barrels per day, we moved 872000 barrels a day on Grand Prix during the fourth quarter. So we still have some operating leverage there and then certainly the third party offload deals that we've done allows us to ramp into our cadence of plants and it gives us.
Speaker Change: Lot of flexibility on when we would need to announce a further long haul pipe. It's certainly something that we're looking at trying to stay in front of and again with our success that we're seeing on our upstream plant adds.
Speaker Change: Something that obviously, we have alluded to in our notes.
Speaker Change: That we're studying that hard.
Speaker Change: I am sure you Allstate right in front of us everything thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Theresa Chen Barclays. Please go ahead Teresa.
Speaker Change: Okay.
Theresa Chen: Thank you for taking my questions.
Speaker Change: Looking more to the medium term.
Speaker Change: As you see digitally the strong back half acceleration in 2025, tying into the four plants coming up next year I'm curious if you can.
Speaker Change: Quantify in any way.
Speaker Change: Strong strong growth in 2026 from a volumetric perspective as you look at your inlet volumes and then B.
Speaker Change: Beyond that and clearly you're in periods of accelerated and above average growth in capex and including the downstream infrastructure that needs to come online, but based on what you see today when do we kind of revert back to normal or would love to get your thoughts there.
Speaker Change: Yes sure.
Speaker Change: Part of it.
Speaker Change: Giving multi year volume guidance is difficult I mean as you saw in 2024, we thought we had a good estimate and we far exceeded.
Speaker Change: That producers ended up being more active wells came on better <unk> increase that they didn't decline as much. So we saw good outperformance in 24 part of what goes into 'twenty six but also just how strong things do ramp in the back half of 'twenty five and what our exit is 425. So that's why we're not given 2006 when you just look at it on an annual basis.
Speaker Change: We see higher year over year in 2006, we still see strong growth in 'twenty five I'd say not as strong as we saw in 24, it's definitely south of that but we still see pretty strong growth in 'twenty five but just the indicators. We're getting is from the commercial success. We've had in just the drilling plans. We currently have from producers that's looking like that back half of 'twenty five is setting up very nicely.
Speaker Change: <unk> for 2026, and then when you get into kind of more normal capital cadence. We have some again some chunkier downstream projects that we've announced here this morning with the.
Speaker Change: With the export terminal and additional Frac and we have train nine and 10 just came on we have 11 and 12, we have a looping.
Speaker Change: Out in the Delaware Express once a lot of those get in service.
Speaker Change: You could expect to see again after this next build cycle on the downstream side.
Speaker Change: Perhaps lower capex cadence at that point, but we're still sorting through what that looks like and what is all going to be dependent on what the what the volume growth is on the G&P side.
Speaker Change: Understood and training to the export component of Europe infrastructure value chain completely understanding that these supply push purity products you need to move and you will collect the fees on the growing volumes, but also curious to hear your view on the ebbs and flows of demand.
Speaker Change: And from your international customers.
Speaker Change: Hey, Theresa this is Scott.
Speaker Change: First off when you look at just the tremendous growth that we've seen with LPG volumes coming out of the U S.
Speaker Change: Just less than 10 years, the LPG market has grown two two and a half to three times in that timeframe and then when you look at the market share that the us has today.
Speaker Change: From 29% to 46% just in that timeframe as well and that's again on a growing volume we would expect that trend to continue if there is still.
Speaker Change: The vast majority.
Speaker Change: Volumes that can find their way predominantly to the Asian marketplace and to growing market centers that are out there for LPG. That's both on the propane on the butane side.
Speaker Change: There is a number of countries, obviously that are still in need of mobile fuel fuel that is clean burning and efficient and thats something that the LPG molecule.
Speaker Change: And a very effective manner. So we would just see that trend continue and so for us when we look at our export expansion project.
Speaker Change: <unk> expansion that includes a pipeline that includes a refrigeration unit and all of that is that on a cost of just less than $400 million. So that is a very attractive project for us.
Speaker Change: Provides the ability for us to continue to compete and make sure that the volumes stay on our system and it can be exported to the marketplace.
Speaker Change: Thank you very much.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question excuse me. Our next question comes from Brandon Bingham of Scotiabank. Please go ahead Brandon.
Brandon Bingham: Alright, thanks for taking the questions here.
Brandon Bingham: Just wanted to quickly go back on the strong Permian activity for this year, and then sort of the near medium term outlook.
Brandon Bingham: Wanted to just more specifically focused in and ask if there's been any <unk>.
Brandon Bingham: Discussions with customers or if theres any contemplation within the development schedules that youre getting four delineation efforts on deeper benches in the basin and if that's something that could potentially be.
Brandon Bingham: A tailwind to your outlook this year or outer years.
Pat: Yes. This is Pat.
Speaker Change: It's kind of a loaded question just to be Frank but.
Pat: Certainly when you think about the Permian.
Speaker Change: Primary benches of the Wolfcamp related et cetera.
Pat: We are definitely seeing.
Pat: Some parties on both the Delaware and Midland side.
Pat: Now look at the Woodford, Barnett, which is a little bit deeper horizon.
Pat: I would say that we're in the initial stages of that getting tested and drilled up.
Pat: Probably a little bit ahead in the Delaware relative to the Delaware versus the Midland.
Pat: And then certainly in both.
Pat: Both sides of the basin, there's multiple horizons.
Pat: For different reasons, either the quality of the rock relative to the other benches or ESR.
Pat: Our component in the Delaware.
Pat: Have waited to be developed and frankly, there is good economics with all of those and the expectation is they will get developed over time, but.
Pat: I guess the short answer is yes, we are seeing a little bit of interest in the deeper horizons.
We will see how that plays out.
Speaker Change: Got it. Thank you and then if we could just quickly go back to shareholder returns.
Speaker Change: I know it was previously asked about buybacks, but just kind of thinking through.
Speaker Change: That and how you see it shaping up this year with the <unk>.
Speaker Change: Stock above where you executed the buybacks in <unk>.
Speaker Change: Just how all that fits in with the 40% to 50% payout target and if you might consider any other alternative lenders like us special.
Speaker Change: Special dividend or something you know understanding you don't want to get the base dividend too high taking it through the cycle sort of approach there, but just how you guys are thinking through that.
Speaker Change: The stock currently sits today.
Speaker Change: Brandon This is Jim I'd say that it's really consistent with how we've been thinking about it going all the way back to when we put our share repurchase program in place in the third quarter of 2020 with a strong balance sheet, we've got a lot of flexibility.
Speaker Change: Since then we have been buying each quarter at higher prices than the previous quarter irrespective of a couple of quarters, where maybe we saw a little bit of dislocation and that's where you really saw step in.
Speaker Change: We've got a really strong short medium and long term outlook and we continue to have conviction that we can provide our shareholders with an increasing return of capital from utilizing that opportunistic share repurchase program, but we really like the fact that we get to report it after we've executed on it and so I don't think youre going to hear us come out and say this is how you should think of.
Speaker Change: At quarter to quarter or this is what we're forecasting for this year or next year I think that a 40% to 50% framework holds and that's a combination of dividends and thoughts on opportunistic repurchases that we have running through our models and that of course is a multi year framework, we got above 40% in 2024, I think we've got expectations.
Speaker Change: That will continue to return a meaningful increase in capital to shareholders as we move forward through time and it will be a combination of dividends and repurchases, but what youre definitely hearing us say is we value flexibility and we value balance sheet strength and we value the ability to continue to invest in high returning organic growth capital projects and then we value. The fact that we can.
Speaker Change: Returning capital to our shareholders as well and I think that all of the above approach has really worked well for us and so we really don't see a need to change it as we look forward.
Speaker Change: Yes, I agree. Thank you so much.
Speaker Change: Okay. Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from Harry Mateer of Barclays. Your line is open Harry.
Harry Mateer: Hi, good morning.
Speaker Change: I will turn to the balance sheet, a little bit so I mean, the narrative about leverages and very consistent from you for the past few years at a three point out a four point out but.
Speaker Change: He also previously messaged, a preference to be in the lower half of that range. So with Capex now expected to be higher in the next few years I'm. Just wondering how we should think about the prospects for targa being in the lower half of that range on leverage in the near to medium term.
Speaker Change: Good morning, Harry This is Jen I think that's still definitely our preference, but I think that consistent with what we've also said before we don't see a need to force our way. There. We ended 2024 at three four times, the badlands repurchase takes us a little bit higher but then as we look out over the next several years, what we really like is the trajectory of our leverage fairly quickly.
Speaker Change: Coming down into that lower end of the three to three five times, but at the end of the day, we're very comfortable managing this business, where we currently are from a leverage ratio perspective, but I do think that just as a natural.
Speaker Change: Movement through the current growth capital cycle as these projects come online we benefit from meaningful meaningful increases in year over year EBITDA contributions our leverage ratio will just naturally move down towards that lower end of the three to three five times.
Speaker Change: Okay. Thanks, and then.
Speaker Change: With you consolidated badlands and optimizing cost of capital.
Speaker Change: Wondering generally any thoughts on more comprehensively addressing some of your higher cost debt. Given you do have some callable notes with coupons that are still off market versus where our bonds trade today.
Speaker Change: I think we're always looking at how best we can essentially save money across our entire organization and the finance team has held to that same level of accountability, which says if there are opportunities to take out higher cost debt. Then certainly we will evaluate it right now we've got more than $1 billion drawn on our revolver. We've got of course the balance the badlands.
Speaker Change: Purchase so probably more focused short term on helping to manage that liquidity position, but we're always looking at those higher coupon callable notes and trying to assess what the right time, maybe to bring them in and refinance either utilizing our new revolver or potentially terming out that will continue to be a consistent evaluation by our finance team.
Speaker Change: Okay. Thanks, John Thanks.
Thanks, Gary.
Speaker Change: Thank you.
Speaker Change: Our final question comes from Sunil Sibal of Seaport Global. Please go ahead Sunil.
Sunil Sibal: Yes, hi, good morning, everybody and thanks for the time.
Sunil Sibal: So I wanted to start off on the capital program. It seems like inflation in the U S continues to be sticky and they've.
Sunil Sibal: Got it come into play cost to build anything in the U S is probably going up.
Sunil Sibal: Just curious.
Sunil Sibal: <unk> environment.
Sunil Sibal: Manager about returns on new investments are you able to pass on all of this.
Sunil Sibal: Potential cost to customers on any risk management.
Sunil Sibal: All aspects of your capital program.
Aneel: Yeah, sure Hey, as Aneel.
Speaker Change: Yes, we've actually seen steel prices move up here, just kind of talk of tariffs.
Aneel: <unk> seen that happen.
Aneel: It impacts our capital costs, whether it's processing plant our NGL pipes, we're putting in place as steel prices move up it does impact our overall capex capex budget, but as you look at the steel cost as a percent of an overall processing plant or.
Aneel: Or an NGL pipe.
Aneel: <unk>.
Aneel: I'd say, it's a modest contribution. So then you have a percent increase on a modest contribution of the overall capex I would say, it's a manageable.
Aneel: A manageable headwind on any of these projects will still get good returns, we've actually worked with some of the on some of our projects were working in.
Aneel: Supplying U S steel so we arent subject to the tariff so our procurement group is managing it it will be a bit of a headwind, but I think it's a manageable one.
Okay. Thanks, Thanks for that and then on the NGL export side of things.
Aneel: Seems like the competitive landscape is heating up a bit.
Aneel: You, obviously announced this significant expansion today.
Aneel: I was curious if you could talk about the competitive landscape.
Aneel: And.
Aneel: If I remember correctly.
Aneel: Believe you were mostly targeting the Latin American market has that has that changed or essentially.
Speaker Change: Yes, sure I'll start and then Scott you can you can you can add on the NGL LP or the LPG export market is competitive so there's multiple players so with another facility being built as competitive now it'll be competitive or another one gets built so we've been able to manage and do quite well with our we have a really good team.
Speaker Change: We move our volumes from our system across our dock and we expect to continue to do that Scott anything to yes, I would just add that again from our comments earlier. This is a very attractive brownfield project for US again, it's less the $400 million to out of pipeline from Mont Belvieu down to Galena Park.
Speaker Change: Along with the refresh on the refrigeration units gives us a lot of operating leverage going forward complements our overall business all the way back to the wellhead when we look at contracting for this we always stay very well contract that we had we do a tremendous job with our export team of renewing existing contracts, adding new contracts, both long term and <unk>.
Speaker Change: Short term in certain situations and as it relates to this project coming online in the third quarter of 2027, it's needed because it fits very well with the cadence of plants pipelines and fractionation that we need to move the LPG is across our dock. So we will continue to contract heavily.
Speaker Change: And take advantage of that marketplace. I also like the fact that we've got a number of contracts the volume actually ramps up over time.
Speaker Change: This new expansion projects. So we feel very comfortable with our with our project and the market share that we have today and again the U S is continuing to dominate the overall export market in general and it will continue to grow.
Speaker Change: Okay. Thanks for the color.
Speaker Change: Okay. Thank you. Thank you I would now like to turn the conference back to Tristan Richardson for closing remarks, Sir.
Tristan Richardson: Thanks, operator.
Speaker Change: Thanks, everyone for joining the call. This morning, we appreciate your interest in Targa resources.
Speaker Change: And this concludes today's conference call. Thank you for participating you may now disconnect.
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