Q1 2025 Targa Resources Corp Earnings Call
After the speaker's presentation, there will be a question and answer session to ask a question. During this session normally to press star one on your telephone you will then hear an automated message advising you. Your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speech.
Tristan Richardson: Your day, Tristan Richardson, Vice President Investor Relations and fundamentals. Please go ahead.
Tristan Richardson: Thanks, Michele good morning, and welcome to the first quarter of 2025 earnings call for Targa Resources Corp.
Tristan Richardson: The first quarter earnings release, along with the first quarter supplement presentation that accompany our call are available on our website at Targa resources Dot com in the investors section.
Tristan Richardson: In addition, an updated investor presentation has also been posted to our website.
Tristan Richardson: Statements made during this call that might include targeted expectations or predictions should be considered forward looking statements within the meaning of the section 20, <unk> Securities Exchange Act of $19 34.
Tristan Richardson: Actual results could differ materially from those projected in forward looking statements for a discussion of factors that could cause actual results to differ please refer to our latest SEC filings.
Speaker Change: Our speakers for the call today will be Matt Meloy, Chief Executive Officer, Jen Kneale, President and will buyers Chief Financial Officer.
Speaker Change: Additionally, members of Targa senior management will be available for Q&A, including Pat Mcdonald, President gathering and processing, Scott Pryor, President logistics, and transportation and Bobby Mara Chief Commercial officer.
I will now turn the call over to Matt.
Matt: Thanks, Kristen and good morning, everyone. We have spent the last many years positioning targa to be successful across changing environments and to be a beneficiary of market volatility and are proud of our execution across the first four months of the year, we reported quarter record quarterly adjusted EBITDA. Despite our volume is being impacted by several.
Matt: Winter weather events and as we look across the balance of 2025, we feel very good about our outlook, we step into the global market volatility to opportunistically repurchased nearly $215 million worth of common shares so far this year.
Matt: We have and will continue to manage the evolving global tariff impacts and have done an excellent job of purchasing steel in advance to limit our potential exposure on capital projects underway.
Matt: Just as Targa has spent the last many years strengthening our positioning the rest of the energy value chain has done the same meaning the industry. We believe is largely well positioned to manage through any environment with much stronger balance sheets and financial flexibility.
Matt: We have seen the forward crude price curve shift lower and our customers are not indicating material changes to their drilling programs for 2025, and 2026, which means we continue to expect meaningful volume growth going forward.
Matt: And lower commodity price environments producers typically focus on drilling their highest returning wells, which if you take 2020 as an example, net rigs left the Permian Basin last and ultimately helped drive record volumes for Targa as we grew volumes in the Permian Despite significant impacts from Covid since 2000.
Matt: <unk>, we have built an excellent footprint across the Delaware basin to complement our Midland basin footprint and believe that our best in class producer customers have the most resilient underlying drilling inventory our core value proposition of increasing adjusted EBITDA and increasing common dividend per share and declining share count is unchanged.
Matt: We believe that our integrated asset footprint largest position in the Permian and strong financial position more than 90% fee based investment grade rating and leverage ratio at the midpoint of our long term target range will allow us to continue to generate attractive returns and return an increasing amount of capital to our shareholders.
Speaker Change: Before I turn the call over to Jen to discuss operations in more detail I would like to thank the target team for their continued focus on safety and execution, even while navigating some difficult winter weather in the first quarter, while continuing to provide best in class service and reliability to our customers.
Jen: Thanks, Matt Good morning, everyone, let's talk about our operational results in more detail.
Jen: Starting in the Permian, our natural gas inlet volumes averaged over 6 billion cubic feet per day during the first quarter, an 11% increase from a year ago.
Jen: Permian volumes were down about 1% from last quarter as we were impacted by several winter weather that.
Jen: As expected Permian volumes have rebounded meaningfully and are trending approximately 200 million cubic feet per day higher than the first quarter.
Jen: Also forecasting a lot of well completions for the balance of this quarter and beyond which supports our expectation of significantly higher back half volumes.
Jen: In Permian Midland our Pembroke two plant is now expected to come online in the third quarter of 2025.
Jen: Our east Pembroke and he's driver plants remain on track to begin operations in the second quarter and third quarter of 2026 in Permian, Delaware or <unk> and Falcon two plants remain on track to begin operations in the first quarter and second quarter of 2026, supporting those continued underlying organic growth and a new commercial <unk>.
Jen: For charities that we executed in late 2024.
Jen: We continue to invest in our Permian intra basin and long haul residue gas takeaway and <unk> of their recently announced traverse pipeline project will continue to provide flow assurance and access to important markets for our customers.
Jen: Shifting to our logistics and transportation segment Curtis NGL pipeline transportation volumes averaged 844000 barrels per day and fractionation volumes averaged 980000 barrels per day during the first quarter impacted by winter weather events that reduced volumes from our G&P assets. We also had a.
Jen: Planned turnaround at trains one through three at our CBF fractionation complex in Mont Belvieu across much of the first quarter and into April.
Jen: Similar to what we are seeing in G&P NGL volumes across both transportation and fractionation have rebounded.
Jen: Given the anticipated growth in our Permian G&P business and corresponding announced plant additions our outlook for NGL supply growth remained strong our Delaware Express NGL transportation pipeline remains on track for completion in the third quarter of 2026.
Jen: Our gcs fractionator was reactivated in the first quarter and our next fractionator in Mont Belvieu trains, 11% and 12 remain on track for the third quarter of 2026 in the first quarter of 2027.
Jen: Turning to our LPG export business at Galena Park, our loadings averaged $13 4 million barrels per month during the first quarter. While we had a few days of fog in the first quarter. Our docs were effectively full and we are seeing continued strength in cargo loadings.
Jen: The demand for LPG is globally remains strong and we are well positioned with long term contracts in place American supply is cost advantaged and we believe that growth in U S supply.
Jen: <unk> to be important to serve global demand.
Jen: Our LPG export Debottleneck expansion is expected to be in service in the fourth quarter and we remain on track with our larger LPG export expansion, which will increase our loading capacity to 19 million barrels per month to be online in the third quarter of 2027.
Jen: To build on Matts earlier comments on our navigation of an evolving market of global tariffs, we see a low single digit percentage potential impact to project to budgeted project costs across our announced projects underway, which would fit well within our contingency for our projects. We are also doing a great job of managing our operating costs.
Jen: And procurement of materials that support our day to day operations.
Jen: We are well positioned operationally and believe that our wellhead to water strategy driven by activity in the Permian Basin will continue to put us in excellent position to execute for our shareholders.
Speaker Change: I will now turn the call over to will to discuss our first quarter results outlook and capital allocation will.
Will: Thanks, Jen <unk> reported adjusted EBITDA for the first quarter was $1 $179 billion.
Will: A 22% increase from a year ago. The increase was attributable primarily to higher Permian volumes, which drove higher volumes and margin across our integrated NGL system into 100% ownership of our badlands assets.
Will: Our adjusted EBITDA increased 5% sequentially.
Will: And was driven by the Badlands transaction and higher marketing margins.
Will: As Matt mentioned, we continue to estimate full year 2025, adjusted EBITDA to be in a range of $4 $6 5 billion to $4 85 billion.
Will: In February we successfully completed a $2 billion offering comprised of 555% notes due 2035.
Will: <unk> six <unk>, 5% notes due 2055.
Will: We used the net proceeds from the debt issuance to fund the repurchase of all of the outstanding preferred equity and Targa Badlands, LLC and for general corporate purposes, including to repay borrowings under our commercial paper program.
Will: At the end of the first quarter, we had $2 7 billion of available liquidity and our pro forma consolidated leverage ratio was approximately three six times.
Will: Well within our long term leverage ratio target range of three to four times.
Will: We continue to expect net growth capital spending for 2025, and a range of two six to $2 8 million.
Will: And continue to estimate 2025, net maintenance capital spending of $250 million.
Will: Shifting to capital allocation, our focus was more of the same from Targa maintain.
Will: We maintain our strong investment grade balance sheet.
Will: <unk> continued to invest in high returning integrated projects and returning an increasing amount of capital to our shareholders.
Will: We continued to deliver on our share repurchase program, we opportunistically repurchased $125 million in common shares at an average price of $191 86 per share during the first quarter and subsequently to quarter end, we repurchased an incremental $89 million at an average price of 100.
Will: <unk> $7 28 per share.
Will: We also declared a 33% increase to our common dividend for the first quarter of 2025 relative to 2024.
Will: We are in excellent financial position.
With a strong and flexible balance sheet and we'll continue to try to identify the different levers that we can use to best position target to create value for our shareholders.
Tristan Richardson: And with that I will turn the call back over to trust them.
Tristan Richardson: Well for the Q&A session. We ask that you limit to one question and one follow up and re enter the queue. If you have additional questions Michelle.
Speaker Change: Thank you and as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for your first question.
Speaker Change: Our first question comes from the line of Jeremy Tonet with Jpmorgan. Your line is open. Please go ahead.
Jeremy Tonet: Hi, good morning.
Speaker Change: Hey, good morning, Jeremy Jeremy.
Speaker Change: With oil price volatility there is a lot of concern in the market with regards to producer activity and you touched on this during your call.
Speaker Change: So I was wondering if you could expand a bit more just with regards to how targa differs from others as far as your customers who year Levered two versus maybe others your position in the Permian relative to others, maybe just if you could dive in a little bit more on how you see that could differentiate target in the current environment.
Speaker Change: Sure Jeremy this is Jen.
Speaker Change: I think when we think about 2025, we feel really good about where we are at this point in the year with one quarter under our belt, where volumes are trending right now in April the expected activity going forward with additional well completions expected and really where we expect to then exit 2025, we are of course and in the midst of a lot of.
Speaker Change: With our producers as we consistently are and what we're hearing so far is really that we've got producers with multiyear drilling programs in place and we expect there to be significant resiliency.
Speaker Change: Think that are differentiating factors are several we've got the best G&P footprint across the Midland Basin, and the Delaware Basin and that's supported by what we believe to be the best rock across both of those areas. The best producers that are very well capitalized very strong excellent balance sheets.
Speaker Change: And really a view that they're going to drill through cycles with that multi year drilling program approach in place and so I think we feel really very differentiated and that's part of what's driven our outperformance. If you go back and you look at 2020, I think that's really where you saw the differentiation of our Midland basin footprint, where it is.
Speaker Change: The impacts of Covid, we grew volumes. Since then we've now acquired what we believe to be the best in class Delaware footprint. So we've really got the basin I think covered and hopefully will continue to provide excellent customer service to our producers that will put us in really good stead going forward.
Speaker Change: Got it that's helpful. Thank you for that and then as it relates to Capex I was wondering if you might be able to elaborate a bit more the direction of Capex 26 relative to 'twenty five and just wondering on the potential interplay with with buybacks.
Speaker Change: And just how that all mixes together given the share price volatility.
Speaker Change: This is Jen Jeremy I think that from our perspective.
Strong and flexible balance sheet is paramount to everything that we do it allows us to continue to invest in the business and then it allows us to pull different levers as opportunities present themselves and you could see from our perspective that first quarter and in particular April presented some of those opportunities given we were blacked out for half of April.
Speaker Change: Those that we are pretty active there in the first half of the month I think as we look forward into 2026, we've got a number of growth capital projects underway that we believe will be much needed part of our 2026 spending on projects, particularly on the GMP side is for new processing plants that are supporting not only our organic.
Speaker Change: Base, but also the contracts that we entered into in the fourth quarter of 2024, and we think that those are going to be well positioned projects that will be well utilized.
Speaker Change: Ultimately what will change the cadence of growth capital spend in 2006 and beyond as activity levels and I think that we've put out a pretty good blueprint both through our track record in 2020 in 2021, when we rationalized spending quite significantly and then also with the more.
Speaker Change: Illustrative or hypothetical framework that we published last February.
Speaker Change: And really it's that activity levels around the needs for gathering and compression that could drive spending lower or higher depending where activity levels end up and then of course, we will have to think about the cadence of next project adds but with the projects that we're adding across gathering and processing, Delaware Express on the NGL transportation side, our next to Frac.
Speaker Change: And then our LPG export <unk> Debottlenecking later this year and then next major expansion, we're going to be sitting in a really good spot from an operating leverage position across the footprint as well.
Speaker Change: Got it that's very helpful. I'll leave it there thanks alright.
Speaker Change: Alright, thanks, Jeremy Thanks.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Superior Donuts with Citi. Your line is open. Please go ahead.
Speaker Change: Thank you operator, good morning team.
Speaker Change: I wanted to go back to your comments about being able to benefit from some volatilities clearly sort of proven out in the past I think last call. Even noted about $100 million of optimization in the year that you didn't really count on.
Speaker Change: I guess you'd have to argue this year.
Speaker Change: Potentially even more opportunities for that just given the volatility. So curious if you're if you're starting to see that manifest itself anywhere and if thats something that probably could offset some of the commodity impact.
Speaker Change: Yeah sure good question.
Speaker Change: Are seeing with our growing footprint really on the gas marketing side and the NGL marketing side, just as we are moving more and more volumes through our processing plants and into belvieu into different markets. We're just seeing more opportunities to monetize some of our position so.
Speaker Change: Last year was a good year for us I would say this first quarter. It was a good quarter for us. So we can kind of beat our expectations in terms of our marketing we benefited more on the gas marketing side, but also saw strong NGL marketing as well.
Speaker Change: But it wasn't to.
Speaker Change: To the magnitude I would say we saw last year necessarily I think if you kind of look quarter to quarter, we were may be up around $10 million or so first quarter to what we.
Speaker Change: Kind of pointed to last quarter. So it was some of the sequential beat.
Speaker Change: Just as we see more opportunities, but theres also just good underlying business fundamentals as well.
Speaker Change: Got it got it good to hear the second question, maybe just go into commodity maybe you can just remind us where you are relative to your fee floors, and how youre thinking about the hedging strategy from here.
Speaker Change: Yes, I mean.
Speaker Change: When we provided our guidance I would say, where we sit now while has been very volatile Bolton bouncing around zero is a little higher than that now we are below our fee floors.
Speaker Change: Across our G&P footprint so.
Speaker Change: That's really unchanged from where we were at the beginning of the year and our hedging strategy has really not changed too much the length of the remaining length that we do have we've hedged 90% of it through 2026 so.
Speaker Change: We've really taken a lot of the commodity price delta out of our.
Speaker Change: Kind of out of our operating results, which is why you see even with Wahaha at zero or close to it we're setting records in terms of EBITDA Youre rewind five years ago that would've had a much more punitive impact on us even with our hedging program. So we've done a good job from changing our contracts, but also hedging.
Speaker Change: Unprotected FIFA our volumes as well.
Speaker Change: Great color I'll leave it there thank you Dave.
Speaker Change: Okay. Thank you.
Speaker Change: And one moment our next question.
Speaker Change: Our next question is going to come from the line of Michael Blum with Wells Fargo. Your line is open. Please go ahead.
Michael Blum: Thanks, Good morning, everyone.
Michael Blum: So it seems like Youre not youre not seeing any change in LPG export activity levels, which is pretty consistent with.
Michael Blum: What your peers are saying, but im wondering if youre seeing any change in the destination of where theres cargoes are going versus historical patterns and do you see any scenario where.
Michael Blum: LPG exports kind of don't don't move off the docs in the U S.
Michael Blum: Hey, Michael This is Scott I would say fair to say that we have not seen any material change in our activity level at our dock as we've moved through not only through the first quarter, but through the second quarter as Matt mentioned in our comments, we had a very nice first quarter only impacted a little bit by by some fog delays. So it was not quite as robust as what we.
Michael Blum: In the fourth quarter, but again materially speaking, we are fully contracted not only through the through the second quarter, but through the balance of this year and beyond I would say that we are hearing that some of the destinations are changing relative to folks doing cargo switching on the water. If you will so the international market. The waterborne market is very nimble.
Michael Blum: When it starts looking at vessels that are on the water some of those have been.
Michael Blum: <unk> moved from China over to Japan, or Korea, and then backfill.
Michael Blum: From Saudi tons or from other areas. So generally speaking.
I'd say, yes, some of the transits of change, but the overall demand has not changed into those specific regions predominantly to the far east.
Michael Blum: We are hopeful much like what we saw with ethane ethane was excluded from the tariffs for imports into China. We know that there are a variety of discussions that are going on that perhaps LPG could be excluded we don't have that today, but again. It is a very fluid marketplace that is trying to evaluate what it needs to do.
Michael Blum: The market has the supply in the U S. It is growing demand is growing worldwide and I think the market is very capable of figuring out how to get product to where it needs to be from a supply demand perspective, and price will just predominantly on the commodity base side of things and not so much on the terminal fee side.
Speaker Change: Okay, Great that's very helpful.
Then just had.
Speaker Change: Maybe a different way to ask a question on buybacks.
Speaker Change: As we go into <unk>.
Seems like a more volatile macro backdrop, just wanted to get your take on how youre thinking about.
Speaker Change: Buybacks.
Speaker Change: Would you be more cautious trying to protect the balance sheet or at this point should we think of buybacks as sort of part of the ratable program of capital return.
Speaker Change: Yes, yes, good question Michael.
Speaker Change: Yes, I think as we think about buybacks, we've intentionally positioned that as an opportunistic buyback program.
Speaker Change: As will pointed out our balance sheet is three six times debt to EBITDA. We're in really good shape. So good EBITDA growth. So we're in good financial position to where we see dislocations or weakness to be able to opportunistically repurchase and that's what you saw US do in April we moved in in early April when there was dislocation and.
Speaker Change: And we purchase more I don't know what thats going to look like as we go forward, but its really our same posture.
Speaker Change: I see us continuing to be active.
Speaker Change: Buying back our shares and just we'll see what happens in the market, who but volatility is there, but we think buying back shares will be a portion of the way we return capital to our shareholders.
Speaker Change: Thank you.
Speaker Change: Okay. Thank you. Thank you one moment for our next question.
Speaker Change: Our next question is going to come from the line of Manav Gupta with UBS. Your line is open. Please go ahead.
Manav Gupta: Good morning, I just wanted to go back to the decision of moving forward with the travelers pipeline. So help us understand the demand here and also how do you see this partnership with <unk> and Enbridge evolving over a period of time.
Speaker Change: Second part of that this is Bobby asked the second part of that question again.
Bobby: How do you see the partnership with MPLX and Enbridge developing over a period of time.
Speaker Change: Got it.
Speaker Change: Im not going to comment on the partnership coming together and now theyre going to work together, but at the end of the day, there's a lot of demand growth lodging supply growth going down in the South Texas same thing into the Kt market, we were excited to see that pipeline.
Speaker Change: It was in the plan when Black home was launched but it was contingent around obviously enough demand going into that pipe going south.
Speaker Change: The commercialization of that pipe has gone really well, we're really excited about going with black home lending down in Agua Dulce, saying the amount of supply going down there is.
Speaker Change: The LNG demand is coming online over time.
We are excited to see those two markets demand centers and supply centers getting connected with the big entry pipe I think it'll be good for target it'll be good for the producers that will be good for the markets coming down there.
Speaker Change: Perfect. My quick follow up there is the macro uncertainty the valuations have come in.
Speaker Change: If targa as he is the right opportunity will you be open to some smaller scale bolt on deals I mean, you have a very attractive line of organic growth projects, but would you be open to small bolt on deals if they meet the threshold return great detail.
Speaker Change: Yes sure.
The M&A question I think our posture really remains unchanged to what it has been we have a really good footprint and a lot of really attractive organic growth opportunities, which is going to be our primary focus if there are opportunities to supplement our organic growth with bolt ons I think we'll continue to look at that.
Speaker Change: So as we have over the last several years I would say that.
Speaker Change: The bar remains high.
Speaker Change: A lot of good opportunities and growth opportunities in front of us, but yes, we'll continue to look for bolt ons or there's something that makes sense.
Speaker Change: Then we will evaluate those.
Speaker Change: Thank you so much.
Speaker Change: Okay. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is open. Please go ahead.
Keith Stanley: Hi, good morning, So Lauren last quarter last quarter. You you said you thought Permian volume growth on your system would likely be even stronger in 2026% in 2025, and obviously the macro has changed since then what I'm curious about as you've pointed to a lot of commercial.
Keith Stanley: <unk> and new plants, starting up with commitments next year should we think of that as potentially providing some protection if the macro stays weak and helps to lock in some growth next year if activity slows.
Keith Stanley: This is Jen I think what you're hearing from US is that so far this year is largely shaping up with expectations and we're excited about the growth that we expect this year I think when we think about 2026, what we're hearing from our major producer customers. So far is that drilling programs are unchanged clearly theres going to be a lot of conversations between now.
Keith Stanley: Now and the end of year and into Q1 of 2026 and producer Boardrooms.
Keith Stanley: But I think what we're saying is that we're really well positioned because we are going to have a lot of growth this year and thats going to result in us exiting 2025.
Keith Stanley: Hopefully a pretty attractive cadence of growth that will help support into 2026, and then when we're talking about those commercial agreements that we signed in the fourth quarter of 2024. The point, we're really trying to make is that those are really additive to the base growth that we were otherwise expecting for 2026 and part of 2025.
Keith Stanley: So I think yes, those help further support growth that we otherwise wouldn't have had if we hadn't entered into those agreements.
Keith Stanley: Great.
Keith Stanley: And second one just the Q1 results were pretty solid given the volumes were down and down meaningfully in the cases of Frac. So it implies a pretty good pickup in unit margins across the board any color you can give on that and if you're expecting continued stronger margins throughout the year.
Will: Hey, Keith this is will.
Will: Several factors that drove the stronger results, but if youre looking on the G&P side.
Contract mix and customer activity different people were off for different periods of time, and we had some higher margin contracts that delivered better margin.
The primary contributors.
Speaker Change: Okay. Thank you.
Will: Okay. Thanks Keith.
Will: Thank you one moment our next question.
Speaker Change: Our next question comes from the line of Theresa Chen with Barclays. Your line is open. Please go ahead.
Speaker Change: Good morning, there seems to be a bifurcation in the commentary from producers in terms of certain ones being more willing to be responsive to the uncertainty in the macro and totally hear you Jen on no material changes thus far just curious on your asset sorry customer composition at this point.
Speaker Change: What percent is on publics versus privates majors large independents versus smaller players any color around there. Please.
Speaker Change: Good morning Theresa.
Speaker Change: We're going to get into the Nitty gritty specifics of how we want to break down our producer customers, but I will say that certainly from our perspective, we're working with the biggest the best the most highly capitalized or most well capitalized producers across the Permian and that's part of what gives US a lot of confidence as we look forward as they continue to execute on there.
Speaker Change: On their sort of multiyear drilling programs I think that is something that as a result of consolidation across the Permian over the last many years, you've really seen the majors become more meaningful players across the basin and that's where we've got a lot of exposure along with the large independents and so thats part of whats, giving us I think at least a lot of.
Speaker Change: Comfort right now.
Speaker Change: When we think about the next several years, we're sitting in on a in a really good spot, but it really starts with that.
Speaker Change: <unk>, our producers are sitting on and the inventory that our producers have and ultimately that's what we think is going to put all of us in a good position going forward, but certainly for US. We believe that we are working with high cost producers really strong positions that they're sitting on across the basin both Midland side.
Speaker Change: In Delaware side.
Speaker Change: And I think thats part of what differentiates target relative to some others.
Speaker Change: Fair enough and on the LPG export side of things is there is not a carve out for LPG submit the ongoing trade war.
Speaker Change: Can you talk about how this.
Speaker Change: Impacts the competitive landscape as some of your competitors have been very open about there.
Brownfield and semi Greenfield economics, and especially in light of new entrants enter this part as Dee valley change towards the end of the decade.
Scott: Hey, <unk>. So this is Scott.
Speaker Change: Yes, as we talked about on our last earnings call, we talked about our brownfield project and how it will be very competitive in terms of the additions that it provides to our overall export capabilities as that comes online in the third quarter of 2027, when we look at the competitive landscape out there it really for US it starts back to the wellhead.
Speaker Change: The wellhead, obviously provides us a lot of opportunity for us to add gas processing plants, which as we walk through the lineup that we've got relative to the timing of plants that are coming online. The addition of our Frac train 11 and 12.
Speaker Change: In 2026, and 2027, respectively. All of that provides additional volume for us so for US it's really homegrown Ngls that are coming from the Permian basin predominantly that are feeding into our pipelines that are feeding into our fractionation facility and then ultimately down to down to our docks the facility. So.
Speaker Change: Yes, theres more expansions that are coming online, but again, we view it from the perspective of this is volumes that are coming off of our platform.
Speaker Change: And we want to keep them on the platform to feed across our export dock.
Speaker Change: Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: One moment as we move on to our next question.
Speaker Change: Our next question is going to come from the line of John Mccain with Goldman Sachs. Your line is open. Please go ahead.
Speaker Change: Tim I wanted to go back on a couple of things just first.
Speaker Change: Appreciate the comments on kind of the outer year capex flexibility.
Speaker Change: We go back to the numbers you framed up a year and a bit ago about being able to go down to $300 million of Capex.
Speaker Change: Slaughter.
Speaker Change: Permian environment.
Speaker Change: Given the bigger downstream projects Youre working on right now.
Speaker Change: Effectively one would you be able to get down to 300, let's say if the macro does start to soften as that.
Speaker Change: On the table for 2006 is that 28 frame up that.
Speaker Change: Downside protection for Us please.
Speaker Change: Sure no.
Yes, as you think about our Capex is really finishing up those larger downstream projects, which we see completing.
Speaker Change: So it's fractionation.
Speaker Change: 11, and 12, and our export and so those will be largely complete into 26 in the early part of 2007.
Speaker Change: So if we are in an environment, where again that.
Speaker Change: Natural gas volumes are flat it means crude oil declining than it was in that kind of environment. We said, we think <unk> stay flat it would be roughly about $300 million or so of capital to keep flat. So it's really after our downstream projects or major projects are online that we would then if we're in that environment stepped down to that level.
Speaker Change: Alright got it thank you and then.
Speaker Change: Just circling back I think it was a question Keith was asking me I'll just ask it a different way.
Speaker Change: The next set of plants coming online you've seen them come online pretty full in the past.
Is there anything you can frame up for us on how to think about visa ramping as they come online and then particularly guide if we're in a softer macro environment slower production growth environment.
Speaker Change: That ramp could look like do you get some help from.
Speaker Change: Volumes currently being Offloaded to a third party anything like that you can frame up.
al: Sure Al.
Speaker Change: Got it.
Speaker Change: Jenkins.
Speaker Change: Jump in here, but what we've seen and I'll talk about Midland and Delaware on the Midland side.
Speaker Change: Whenever we brought on plants, they've been pretty fall pretty quickly.
Speaker Change: That system really communicate well and we're able to deep pressure the system bring on when we bring on additional capacity and it fills up relatively quickly and I think that would be our expectation for our next plants.
Speaker Change: Across the Midland Delaware, we're working on enhancing the communication between all of our different facilities, we're laying additional lines and we're improving that.
Speaker Change: That one is probably a little bit more discrete and it will depend a bit more just on the overall production growth we have between now and kind of through 2006, when those plants come on so we still see those as highly utilized much needed, but perhaps a little bit more recall kind of white space on the Delaware side of things compared to the Midland.
Speaker Change: This will depend on what our producers say they want to do and in the 26 drilling plans and into 2007.
Speaker Change: Alright, that's great appreciate it thank you.
Speaker Change: Thank you. Thank you one moment our next question.
Speaker Change: Our next question is going to come from the line of AG O'donnell with Tpa <unk>. Your line is open. Please go ahead.
AG O'donnell: Good morning, everyone.
Speaker Change: Just wondering if I could start with the.
Speaker Change: Pembroke <unk> getting pulled forward.
Speaker Change: Just wondering if that is at all like kind of.
Speaker Change: And what changed your outlook on volume expectations for the year.
Speaker Change: Also it has was that was a pull forward more customer driven.
Speaker Change: Would you say it was more on year end with <unk>.
Speaker Change: Construction just.
Speaker Change: Finishing ahead of schedule.
Speaker Change: Good morning, a J. This is Jen I'd say, it's more of the latter I'd say that our engineers do a really good job of forecasting when they expect projects to be online, but we also have a pretty good track record of being able to move projects forward, a month or even a quarter as we get closer to nearing that date when they are expected online in <unk>.
Speaker Change: This was just frankly, we've been able to get it done a little bit more quickly than we previously forecasted.
Speaker Change: Okay, and then maybe just.
Speaker Change: One more question on the macro.
Speaker Change: I'm trying to figure out how you guys would anticipate Permian production trending.
Speaker Change: Fundamentals deteriorate, a little bit more and we have 50 to 55 <unk> for a sustained period of time or maybe asked differently.
Speaker Change: In a flat oil environment, what do you think Permian gas production would do on an annual basis.
Pat: Yeah. This is Pat.
Speaker Change: With increasing to yours, I've seen different numbers than our peers a state of different numbers, but I think there is.
Speaker Change: 2% to 3% growth in gas over over a flat crude oil environment is probably a pretty good baseline and.
Speaker Change: And certainly I've heard higher numbers.
Speaker Change: So as Youre flat on crude oil with current gas volumes is that somewhere between 800 million a day to one two Bcf a day.
Growth in gas.
Speaker Change: The range that I think you land in.
Speaker Change: Obviously as Jen alluded to earlier, we feel like a lot of what's getting drilled is going to get drilled on target acreage. So we feel like that we're going to capture a larger percentage of whatever does get drilled.
Speaker Change: <unk> positioned for continued growth.
Speaker Change: Okay.
Speaker Change: Great I appreciate the detail. Thank you.
Okay. Thank you.
Speaker Change: Thank you and one moment for our next question.
Speaker Change: Our next question comes from the line of <unk> with Seaport Global Your line is open. Please go ahead.
Speaker Change: Yes, hi, good morning, everybody and thanks for the color on the call.
I just wanted to start off on the hedging position.
Speaker Change: Potentially I think you said you're hedged through 2006.
Speaker Change: Have you layered on additional hedges in the recent few.
Speaker Change: Once.
Speaker Change: This is Jen I would say that we're always continuing to add hedges I think that we took a point of view previously when we stepped it up to be more than 90% hedged or at least 90% hedged through 2026 that was partially driven.
Speaker Change: Driven by a view of natural gas prices that we had we've been continuing to add hedges. Since then and we will continue to add hedges going forward I'd say that we are very disciplined around our hedging program and are more apt to add hedges and think about reducing our hedge exposure and then of course, we have a lot of protections in place from our fee for us as well so when we talk about our.
Speaker Change: Hedging program, we're generally not talking about a whole lot of margin that has exposure there but.
Speaker Change: Hedges do allow us to even protect that piece of margin. It does have that exposure.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Going back to the volume question a little bit.
Speaker Change: I fear that you.
Speaker Change: Producers not changed there.
Speaker Change: Production plants.
Speaker Change: What is your sense.
Speaker Change: In terms of talking to them, what kind of crude oil prices do you think.
Speaker Change: There will be a response from.
Speaker Change: This slide in terms of change of drilling plants.
Speaker Change: I think that every producer is different to them and ultimately that's part of what area are going to be a whole lot of board discussions for each and every producer I think that so far we've frankly seen a mixed bag. We saw one smaller producer that added a rig and we have seen one smaller producer that pushed some completions in terms of the larger producers.
Speaker Change: Or is that would really be the needle movers on target systems. We're just hearing that they've got multiyear drilling programs underway and there is no changes at this point in time, So I think each and every producer will evaluate their individual situation. They are individual acreage there are individual contracts for services and other items that really impacted.
Speaker Change: Economics, as well and then make the best decisions for them, we're well positioned with assets that we have in place to service all our producer customers and we believe that our assets will be well utilized and so things that were sitting in a really good spot, but ultimately I think a lot is going to continue to shake out it feels like every day, we've got a little bit of a changing environment here.
Speaker Change: So he has to say, where we will where we'll end up when we finish this year, but I think that we've got really strong producers that are moving volumes onto our system. They are in an excellent position from a balance sheet perspective, and that's part of what gives us a lot of confidence going forward in some level of continued activity.
Speaker Change: Okay. Thanks for that.
Speaker Change: Thanks, guys. Thank you.
Speaker Change: Thank you and I would now like to hand, the conference back over to Tristan Richardson for further remarks.
Speaker Change: Thanks, Michelle and thanks to everyone for joining the call. This morning, and we appreciate your interest in Targa resources.
Speaker Change: Okay.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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