Q2 2019 Earnings Call
Fourth its corporation second quarter, 2019, or anything like that and presentation.
At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone I see a reminder, this conference call is being recorded.
I would now like the trend on friends over to your host.
Sanjay Lad director of Investor of Investor Relations.
Sir Please go ahead.
Good morning, and welcome to the second quarter 2019 earnings call for Targa Resources Corp, second quarter earnings release for Targa resources, Corp., Targa Trc or the company along with the second quarter earnings supplement presentation are available on the Investor section of our website at Targa resources Dot com.
In addition, an updated investor presentation has also been posted to our website.
Any statements made during this call that might include the company's expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provision of the Securities Act of 933 and 18 34.
Please note that actual results could differ materially from those projected in any forward looking statement.
For a discussion of factors that could cause actual results to differ please refer to our recent SEC filings, including the company's annual report on Form 10-K for the year ended December 31st 2018, and subsequently filed reports.
Our speakers for the call today will be Joe Bob Perkins, Chief Executive Officer, Matt Malloy, President and Gen, Neil Chief Financial Officer.
We will also have the falling senior management team members are available for the Q and a session.
Pat Mcdonie, president gathering and processing.
Scott Pryor, President logistics, and marketing and Bobby MREL, Chief Commercial officer.
Joe Bob will begin today's call with a few strategic highlights followed by Matt who will provide an update on business outlook.
And then Ken will discuss second quarter results before we take your questions.
Before I turn the call over to Joe Bob.
I'd like to bring your attention to an update to our company website.
We recently introduced a new page to our company web site presenting our initial sustainability of disclosures.
We highlight our framework of policies and practices and systems in the areas of safety environmental social and governance complemented by our focus towards continuous improvement in these areas.
We plan to continue to progress our disclosures in these areas as we move forward.
And with that I'll now turn the call over to Joe Bob.
I think Sanjay good morning, everyone.
Before we get into our prepared remarks. This morning, I want to take a moment to mention our recently announced planned executive succession and management transition.
As described in the press release effective March one 2020 that will become the Chief Executive officer and will be elected to the board of directors.
At the same time I will become executive chairman of the board.
And we'll remain as a member of the management team and Jim Whalen, Our current executive Chairman Bill recently retired from the management team and will continue to serve on the board of directors.
These changes early next year, we'll continue the succession and transition in leadership.
Long contemplated then developed under targets I'm, calling management succession plan.
Of course developed with an approved by Congress Board of directors.
That is ready for and largely already performing his next role.
And I look forward to continuing to work with him the executive team and targets Board of directors as executive Chairman.
On behalf of the entire target team I want to take this opportunity to thank Jim Whalen for his dedicated service and invaluable contributions on the management team and as a member of our board across targets history.
It is a privilege to work alongside Jim.
Although it's hard for me to imagine Jim not being a part of the management team. We expect to continue to benefit from his wisdom as a readily accessible and highly interested board member.
So picking off the prepared remarks.
It continues to be a special time at Targa with multiple important growth projects recently online.
And we look forward to increasing cash flow contribution from these highly strategic assets now online.
Especially important as our Grand Prix NGL pipeline, which just started blowing ngls all the way to Mont Belvieu.
We announced that we were building Grand Prix more than two years ago.
And is the largest and clearly most strategic single project can targas history.
Now having the pipeline in service is the realization of our integrated vision and a lot of hard work by many target people.
Thank you to everyone who has been involved in this key project for Targa.
It really underpins our excitement about the near term and long.
For our company.
With our premier assets customer reputation in both our gathering and processing business and our downstream NGL business.
With the Grand Prix pipeline further integrating those businesses and with talented leadership and employees cargo is exceedingly well positioned for the future.
With that I'll now turn it over to Matt.
Thanks, Joe Bob and good morning.
It is certainly an exciting time at Targa as we begin to benefit from the cash flows associated with our significant investment cycle.
These projects are coming online at a good time when the outlook for commercial activity and production in many of our operating regions remains robust.
Since the end of the first quarter, we have had the busiest and most productive period and targets history in terms of bringing on an aggregate gross value of about 3 billion of projects online, including Grand Prix pipeline.
Fractionation train six hopson plant little Missouri for plant and the Pembroke point.
Grand Prix have commenced full operation and have consistently flowed between 150 and 170000 barrels per day first filling the pipeline and now flowing into Mont Belvieu.
We expect these volumes to increase to approximately 200000 barrels per day in September and further increase throughout the rest of the year as short term third party transport arrangements continue to roll off and as additional GMP facilities come online.
Overall Grand Prix came online with about two months of delay versus our initial announcement timing provided over two years ago and about 10% over budget.
Most of the delay in cost overrun was related to this year's construction of the 30 inch line in East, Texas that flows into Mont Belvieu.
This delay and related cost overrun was largely caused by longer permitting timing as well as weather related construction delays primarily for much heavier than normal rainfall at critical times.
Even with the increased overall cost for Grand Prix. Our estimated returns are significantly higher than when we announced the project as we have continued to add significant long term acreage contracts and TNF contracts further strengthening the volume outlook for Grand Prix going forward.
Moving to our gathering and processing business and beginning in the Badlands. We recently commenced operations of our new 200 million cubic feet per day little Missouri for plant, providing much needed relief given our system has been operating at capacity.
The plant is expected to quickly ramp through the balance of this year.
Incremental NGL takeaway capacity from the basin comes online.
The final cost associated with L. M was roughly 30 million higher than originally estimated as a result of the shift in project timing, but again given the strong outlook for volumes. We estimate our returns are at least as good as when we announced the project.
Moving to the Permian, we're seeing volumes from the Midland basin, even above our expectations. So far this year.
We commenced operations of our new 250 million cubic feet per day Hopson point in late April and the facility is already operating at capacity.
Our next 250 million cubic feet per day, Pembroke plant, starting up and is expected to be highly utilized.
Given the volume growth that we're seeing across the Midland Basin. We are moving forward with our next new 250 million cubic feet per day plant named Gateway and anticipate that will be online in the fourth quarter of 2012.
Capital associated with the Gateway plant was previously included in our initial 2019 net growth Capex guidance.
And as we go forward, we expect our integrated NGL business will generate higher returns than we have experienced in the past as the Ngls from new plants will largely be transported down Grand Prix and to our Mont Belvieu fractionation complex.
In the Delaware, we remain on track to complete our 250 million cubic feet per day Falcon plant in the fourth quarter of 2019, and the 250 million cubic feet per day Paragould plant is expected to be complete in the second quarter of 2020.
While our Permian residue gas exposure is substantially hedged in 2019 weak waha natural gas pricing during the second quarter weighed on our realized natural gas prices for those volumes on hedge Fortunately, we are seeing the residue gas landscape and the Permian basin improve with the Gulf Coast Express pipeline on track to begin full operations by the end of the third quarter.
Turning to our downstream business, our fractionation facilities in Mont Belvieu continued to remain highly utilized during the second quarter.
Our new train six fractionator, which commenced operations in May.
Quickly ramped up capacity.
Construction continues on train seven and eight which are expected to be online late first quarter in late third quarter of 2020 perspective.
We expect both Frac trains to be highly utilized that startup based on our expectation of rapidly growing NGL volumes from Grand Prix and contracted to third parties.
And our LPG export business, we are on track to complete the rebuild of dock to at the end of the third quarter of this year.
Our next phase of export expansion at our Grand at our Galena Park facility remains on track as well.
And will increase our effective capacity to approximately 11 to 15 million barrels per month in the third quarter of 2020.
We remain focused and executing on our strategic priorities to increase longer term shareholder value.
I want to recognize our talented and dedicated employees across the company, who continue to safely operate our infrastructure facilities everyday.
With the completion of Grand Prix.
Combined with the completion of a number of gathering and processing and downstream expansion projects year to date.
The trajectory of our Capex spend will substantially moderate and we expect 2020 net growth capex to be meaningfully lower in 2019.
Additionally, we continue to thoroughly evaluate and highly scrutinized all future new capital projects to align capital spend with available cash flow going forward.
With that I will now turn the call over to Jim to discuss Targas results for the second quarter.
Thanks, Matt Good morning, everyone targets reported quarterly adjusted EBITDA for the second quarter was $307 million, which was about $7 million lower than first quarter of 2019 as a result of the sale of the 45% interest in the Badlands, which closed April threerd.
Overall strong fundamentals for Targas gathering and processing and downstream businesses led by higher sequential volumes in the Permian region higher fractionation volumes and LPG export volumes would have resulted in higher sequential adjusted EBITDA, if not for the Badlands sale.
In the GMP segment operating margin contribution from higher sequential inlet volumes led by our Permian Midland and Permian, Delaware region was offset by the impact of lower NGL and natural gas prices NGL prices Troughed at historic lows during the second quarter net realized hedge gains second quarter gross margin was only about $3 million higher than the first quarter as a result of those prices.
In our logistics and marketing segment operating margin sequentially increased due to higher volumes from the startup of train six higher marketing opportunities, which contributed roughly $10 million in the second quarter, and which I would characterize as more onetime in nature and higher LPG export volumes. In addition to pipeline transportation margin from the startup of the portions of the Grand Prix.
Our GMP and downstream operating expenses increased in the second quarter over the first quarter from additional assets and system expansions, primarily in the Permian, where labor costs have been increasing and also from a re class of certain gionee expenses to operating expense our DNA decreased in the second quarter versus the first quarter. Looking forward. We are very focused on managing our operating and DNA expenses and expect to begin to see our per unit operating expenses decrease overtime as utilization of recently completed projects increases and we benefit from a new agey I well at our Wildcat facility.
Which should reduce chemical cost the debate and increasing to treat sour gas.
Well there have been obvious pluses and minuses year to date, our full year adjusted EBITDA guidance range of $1.3 billion to $1.4 billion remains unchanged.
Some of the larger headwinds that we faced so far this year include lower NGL hub prices.
Shifting Grand Prix completion to August the shift in the little Missouri for plant completion in the Bakken to August lower South, Texas volumes and higher operating expenses, particularly in GMP on the positive side. Some of the some of the process have been higher frac volumes and marketing opportunities and higher Permian inlet volumes.
I would also like to point out that our non controlling interest cutback, increasing and expected to continue to increase given the ramp up in train six and Grand Prix, which is a deduction for partnership ownership interest to align with Targa as reported adjusted EBITDA.
Turning to hedging our percent of proceeds equity commodity positions are well hedged as we continue to execute additional hedges to increase cash flow stability, particularly for the back half of 2019.
Our updated hedge disclosures can be found in our investor presentation.
On a debt compliance basis CRP is leverage ratio at the end of the second quarter was approximately 4.4 times versus a compliance covenant of 5.5 times.
We continue to expect our compliance leverage to peak in the third quarter, and then begin to come down rapidly.
In early June we executed an amendment to our TRP credit facility.
Hi, guys greater benefits by EBITDA contribution from our projects in progress, but not yet in service, which successfully increased our flexibility and also resulted in lower compliance leverage which reduces our borrowing costs as it puts TRP in a lower pricing tier.
Our consolidated reported debt to EBITDA ratio was approximately 5.3 times.
Our 2019 net growth Capex estimate for announced projects is now expected to be approximately $2.4 billion, which represents a 4% increase compared to our initial estimates we've spent about $1.4 billion of net growth capex through the first half of this year.
As Matt described earlier project costs associated with both Grand Prix and L. M were higher than initially estimated additionally over the last 12 months, we have seen labor costs moved higher and now forecast that a new 250 million cubic feet per day Permian plant cost approximately $160 million.
We continue to make remain highly focused on our capital spend.
Looking diligently across the organization manage capex for 2019, and all future new capital projects.
Our full year 2019 maintenance Capex forecast remains unchanged at approximately $130 million.
No common equity equity has been issued year to date and based on current market conditions. Our expectation is we may not need to issue any equity into the foreseeable future as we benefit from increasing cash flow and lower leverage from our projects now in service.
Looking forward to the second half of this year, we expect adjusted EBITDA and dividend coverage to be highest during the fourth quarter as we benefit from a full quarter contribution from a number of recently completed growth projects, providing target with significant momentum towards improving metrics as we exit 2019.
The trajectory of our capital spending relative to our cash flow is improving and we're spending a lot of time, employing and enhance top down focused approach to control future capex prioritize future investments around our core strategy, which is to maximize participation across targas integrated value chain.
We are at a key inflection point moving past the second quarter were spending peaked as a result of our strategic growth Capex program and the final permitting earn out payment and with our EBITDA at its lowest point of the year as a result of the badlands partial interest sale now moving through the third quarter, where we benefit from some partial quarter contributions from key assets lower gross capital spending and then moving to the fourth quarter. When we will demonstrate rapidly increasing EBITDA and dividend coverage with lower growth capital spending and improving leverage metrics.
With that I would like to turn it back to Matt for a few closing comments.
Thanks Jen.
We have accomplished a lot and we still have a lot of work ahead of us. So I want to thank all of the Targa employees, who have been working very hard to complete the important strategic projects that have recently come online.
And thank you to all of the operations and support organization employees that have prepared for and are now handling the new facilities.
Handed volume this is an exciting time at Targa.
Great projects coming online and the strong outlook ahead.
So with that operator, please open the line for questions.
Sure. Thank you.
Ladies and gents.
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Okay.
Our first question comes from the line of Spyros business from Credit Suisse. Your line is open.
Hey, good morning, everyone, maybe just starting with Capex Hey, Matt.
Sort of a capex very encouraging comments around then sounds like Weve essentially hit the peak here I know, sometimes some of your peers, maybe talk to shadow backlogs.
And you guys have held pretty firm to that 1.8 billion of Capex across 2020, 2021, which does assume things go down from here.
Just anything sizable in the backlog that you're working on now that could increase that spend in 2020 and as we get closer to 2020 any sense you can give us in terms of what percentage that 1.8 billion could hit.
Sure Yeah, we are obviously working.
Very hard to keep.
Yes, 2019, Capex, we actually worked very hard to keep it at the 2.3, but with the cost overruns that moved to the 2.4 as we look out the kind of capital that we have been describing is adding additional fractionation trains, which we've announced train seven and eight thats, obviously going to be capital that spent next year, adding additional processing plants.
Adding the gateway plant.
We've got the Falcon plant out in the Delaware the Peregrine plant.
I'd say as we look out kind of over the near term what we see in terms of capital spending is more normal capital spending associated with our core integrated strategy, which is gathering and processing largely going to be in the Permian basin, and then additional fractionation and export those projects are for the most part already announced and included and what we're planning for 2020.
Great Thats helpful. And then just follow up on Grand Prix and thinking about the ramp up there.
How should we think about filling that pipeline up from here I guess more specifically what processing plants are going to be connected into that and do you benefit from NGL coming off with some of the third party pipelines onto a Grand Prix.
Yes, exactly we are going to benefit from really both of those.
Both of those items going forward, one will have shorter term.
Transportation agreements that we had to enter into to move NGL, while Grand Prairie was being built so those are going to continue to roll off so we'll be able to continue to just move volumes off other pipes on to Grand Prix, but we're also going to benefit from new.
Our our new gathering and processing plants being put in place as most of those Ngls are going to be pointed towards Grand Prairie and then into our fractionation and export so we'll be benefiting on that.
Really from the full value chain.
As new processing plants get put online.
Great I appreciate all that color thanks, everyone.
All right. Thank you.
Our next question comes from the line of Shneur Gershuni from you'll be at your line is open.
Hi, good morning, everyone.
Maybe to start off first of all I just want to do off like congratulations to both Joe Bob and Matt on your new roles.
Thank you appreciate it.
Just in terms of a couple of quick questions maybe to follow up on Spiros question here, just when starting with Capex. When you talk about a meaningful reduction in Capex for 2020 are we talking in the neighborhood of greater than 50% because the numbers are kind of split over two years is it more 2020 versus 2019 and then you also talked about some cost overruns, but also last call you talked about moving some of the in service dates of some of your facilities to capture some labor cost benefits.
Is it too early to see some of those benefits I was just wondering if you can talk about those trends.
Sure. This is jen.
I think that from our perspective, it's premature to roll out 2020 direct sort of Capex guidance as we did in February four 2019, what we provided last November was meant to be really instructive. It was a point in time forecast that really I think directionally demonstrates that at that point in time, what we felt like our capex budget would be reduced to over 2020 and 2021.
We're very much focused on reducing capex on a go forward basis, certainly expect 2020 to be substantially absolutely substantially lower than 2019, but we do think just that theres a lot change anything about everything that change as we move through this year that it is a little premature for us to come out with a direct sort of hard and fast number that will certainly be holding ourselves to in 2020.
And the cost trends.
In terms of starting project later.
Talk about capturing benefits from that.
I think you've seen that we shifted some frac try and some frac timing so the timing of training, which we shifted on our last earnings call.
You see with the announcement of the gateway plant that really on the Midland Basin side volumes have exceeded our expectations and so while we expected that we will be moving forward with that plant. This year, maybe a little bit sooner than expected and with the announcement today and so I think that when we look out across our portfolio of future sort of capital projects.
To Matt's point, it feels like it's going to be very much across the core value chain I think it will be hopefully easy for you to forecast when we will be adding plants and fracs just as a result of the volume growth that you're seeing across.
Across target because of the integrated value chain that means that as we bring on new plants. Those volumes will have to go to new fracs and so yes.
I think be easy for you to forecast the associated spending and timing of when the new facilities.
I think generally you've also described.
The ongoing discipline that the team is using.
Yes, pushing the Frac trains out a little bit which saves some labor costs in the US we announced gateway that is right about own time, not pushing it out because the volumes are causing the that's the disciplined framework that the management team is using.
No that makes sense and appreciate that that follow up there Joe Bob just with the new assets coming online.
A lot of them are fee based in nature can you give us a sense of.
Where your commodity exposure sort of ends up as a result like.
From the two and from type of scenario and are there any opportunities to further reduce exposure either by some selling assets or restructurings and contract.
I think this year, we forecast about 75% of our operating margin to be fee based shneur and when we think about the assets that have been placed in service such as Grand Prix additional frac trains the plants out in the Delaware certainly we're moving to a more fee based model and that I think will become very obvious in our results really beginning in the fourth quarter and then going forward I think that we are continuing to look across our portfolio of assets to figure out where there are opportunities to move less away from commodity price expose contracts and more to fee based contracts and we will be continuing to do that but that's really a practice that we've had within targa going on for years now and so that will continue I think that when you think about the complexity and of our assets and contracts in the Midland Basin, where we've got largely a lot of our PLP exposure. We are trying to make those contracts more fee based or at least have more fee.
Based elements, there and I expect that will continue but that's a slow process and so.
You know I would expect that our fee based margin will increase going forward 2020 over 1921 over 2020 et cetera.
But it won't be as sort of a monumental onetime shift that gets us to you know largely entirely fee based.
Okay that makes sense final question.
Export or for LPG has been extremely wide.
Obviously, you have a new facility coming online.
Have you been able to use the white nature of the spread right now to leg into some more longer term contract too.
Two more permanently capture some of that spread.
Yes, I'll turn it over to Scott to.
Handle that.
Yeah, we basically we've seen through the first quarter and second quarter. There was some tightness in the export market. Some of that was related to some challenges at the Houston ship channel was facing due to some fires and.
Some issues that they had so we were playing a little bit of catch up during the second quarter, but now that we have kind of clear that opportunity. We are excited to see the revamping of our dock to which will come online during the third quarter of this year.
And then of course, our refrigeration unit that comes online in this and the third quarter of next year.
So, though we've had limited opportunities to.
Match up the larger arb that was present at times, we do think that given the opportunities with the expansion projects that we've got underway the de bottleneck projects that we have.
Gone under over the last several quarters to include.
Assets added at our Bellevue facility to de bottleneck butane as well as our pipeline down to glean. Apart. These will provide further opportunities for us to participate when those opportunities are present.
We're very comfortable where we are on our on our term contract basis, and and look forward to when that presents itself in the future.
Perfect. Thank you very much guys really appreciate the color today.
Okay. Thank you.
Our next question comes from the line of wholesome from Tudor Pickering Holt Your line is open.
Morning, So not to belabor the discussion on the capital program, but I think in that 2020 in 2021 forecasts there was an assumption around three potential Permian plants.
Gateway being slated for Q4 20 does that imply that there would be two plants in 21 or should we think that maybe there is.
One of those plants to move in to 2022.
Yes, so we're still working through.
Timing.
Both the Midland Basin and on the Permian side, we've already got.
To announce that have yet to come on out on the on the Delaware side of things so they're potentially another plant in that time frame out in the Delaware potentially.
I'd say, there could be easily potentially another plant on the Midland side there.
So I think thats still a reasonable estimate having three points come online in that timeframe, but again talked about were still really working through going over producer volumes forecast moving that into our forecast and trying to stage the plants at the correct time.
Got it that's helpful and then just.
With both coast Express starting up in about a month and a half can you clarify for us what sort of uplift that has on your commodity margins. So understanding that you have the equity interest, but when you look at your PDP.
Nat gas exposure, what does that do for using our Q4.
Yes, I mean really for us having gcs online we're going to benefit much like the producers are going to benefit which has higher wahab prices out in the Permian. So we are you saw realizations relatively low producers out of the same.
Effect here recently prices are still low. So we are greatly looking forward to the gtx coming online and we'll see higher while higher prices, which will benefit us on the on the equity side of our volumes.
And would effectively 100% of your equity volumes be covered by Gtx or should we still assume that theres a little bit of in basin there.
Yes, so it'll be a mix, it's not necessarily going to be all transported down gtx, but our equity volumes will benefit.
Even if they're not moving down Gtx just from the uplift in Whitehall prices from Gcs.
Got it appreciate the time.
Thanks, Thank you.
Our next question comes from the line of Keith Stanley from Wolfe Research. Your line is open.
Hi, good morning.
Hi, good morning.
I wanted to clarify first just with the.
Good second quarter here.
That you feel good on the EBITDA guidance for the year, even using current commodity assumptions over the balance of the year.
We reaffirmed our guidance for the year and we've got the first half of the year is completed and now as we moved through the third quarter with Grand Prix coming online.
We didn't think that it made sense for us to change our guidance, we're not expecting to change our annual guidance on a quarterly basis anyway.
So I think we detailed some of the headwinds that we have faced as we move through the year and we've got some of the Tailwinds as well and now its Grand Prix online feel very very good about a fourth quarter contribution of Grand Prix to our EBITDA, increasing cash flow from other assets as utilization increases so.
Really are just reaffirming what is out there.
Okay, and one follow up on LPG exports so.
Well, you have 10 million barrels per month of capacity in the fourth quarter and are there any bottlenecks too.
Sort of a feeling that ramping that higher pretty quickly in the fourth quarter on exports.
And I just want to clarify it sounds like you have a little bit more exposure to the arms.
Once these expansions come online.
Well, what I would say is again, we were highly utilized during the second quarter, we moved about 7 million barrels per month during the second quarter.
Somewhere around 231000 barrels a day.
Our focus continues to be to complement our export business as it relates to our overall platform our GMP business.
That feeds into Grand Prix that feeds and through and into our storage through our fractionation business and then all the way down to our dock for Galena to Galena Park for exports.
As I said earlier the projects that we that we took and underway to debottleneck. The facility a lot of those projects were geared more toward do tank.
Our ability to export butane at higher volumes so dependent upon.
What the mixture is of Propanes and Butanes will kind of dictate.
Whether or not we are hitting the $9 million or 10 million barrels of export volumes during the fourth quarter.
Once we enhance that even more with the refrigeration unit in the third quarter of next year that provides us even further opportunity. So we were highly utilized most of that was related to term business.
So I would not say that were exposed to what the arb is because we've got fee based related contracts.
That are going to flow in and through our our business and so the volumes have to move offshore when you think about incremental volumes of production of propane and butane.
Thank you.
Our next question comes from the line of Tristan Richardson from Suntrust. Your line is open.
Hey, good morning, guys now that you've got substantially more visibility on Grand Prix and train six and Gtx.
Tracking to schedule.
Can you talk about just sort of the plans to update the multiyear outlook.
With that enhanced visibility now.
I think that from our perspective, we have left the long term outlook slide in our materials largely because we find it instructive I'm, particularly with those that are less familiar with targa. When we have an opportunity to talk about our growth capital program. That's been on underway that now many of those assets are on online around it is it easy slide to point to.
I don't think that we see it as necessary for us to continue to update a multi year outlook. I mean, if you think about all the pluses and minuses that I have even gone through today around what's happened in 2019, that's just a difficult endeavor to undertake in putting out a multi term outlook every quarter and so I think Tristan right now Oh, we're thinking that we will put out typical 2020 guidance around our normal timeframe, which would be in February which is when we have.
The optimal amount of information from producers to really I think effectively predicts not only EBITDA, but capital for 2020, and that's really I think the tactics that will most likely take.
Very helpful. Thank you and then just on the capital deployment you guys have been very vocal very clear with us that your assumption for substantially lower Capex next year and and when we think about governors of that I mean is that a stronger governor then sort of your return hurdle.
Metrics.
And criteria I mean in other words.
If something came along it was very strategic and very compelling.
You know it is is it that.
Substantially lower sort of comment that drives.
Your decision, making or is it more sort of how complimentary project might be.
Yeah. So good good question I mean it is.
It is difficult as we're going through and allocating capital and trying to allocate the capital to the highest return projects I think as Jan said, where we are looking at a top down in time, we're trying to move towards that free cash flow. So we don't need to issue anymore.
Equity and go towards free cash flow so that is our starting point.
And then we look at what's the best use and how do we balance the capital between investing in gathering and processing projects and other projects on downstream our focus.
Has been and really will continue to be what is along the core value chain, where we can earn margin on the gathering and processing side on transportation fractionation and export. So those are the lenses that we're using.
As we think about growth capital into 2020, but we're starting with what financial metrics are we going to try and hit in 2020, what a reasonable targets that we can have to move towards that free cash flow as soon as possible.
And I think that the Williams project that we announced earlier this year really highlights how we're thinking about the world of capital. So Thats a project that's incredibly strategic for us in terms of additional volumes on Grand Prix to our fractionation, but we approach it as Ted Williams and what we both see it as the most capital efficient way possible to get a very attractive deal done for both sides, but again in a capital efficient manner.
Makes sense. Thank you guys very much.
Okay. Thank you.
Our next question comes from the line of Jeremie bone from JP Morgan.
Your line is open.
Good morning, guys. Thanks for taking my question. This is it all hold on for Jeremy.
Oh good one one that's an idea on the books like could you update us on your second half outlook Whats US doing this initial expectations on probably does your latest thoughts on what you're seeing in terms of sort of your sort of equity and what it could mean for the exit rate.
Yeah sure.
I think as we said in the.
Prepared comments and I'll, just reiterate maybe expand a little bit on those we saw really good volumes on the GMP side across our Perm business. So we saw good growth in the Midland side really good growth sequentially on the on the Delaware side.
So I think as we look into the back half of the year, we'd expect that strength to continue as we are bringing on Pembroke will be bringing on additional facilities here as we start up on that plant will have falcon coming on so I think our outlook for the back half of the year.
On the on the Permian side has continued strong growth even exceeding our previous guidance potentially there. So I think we see really good good growth on that side and that's going to bode well for us on the Grand Prix volumes as most those volumes are headed towards Grand Prix into our fractionation and export.
Got you. Okay. That's helpful color I'm, just going back to the Grand Prix for a second considering all the gives and takes on the pipe as it sometimes on that's a short term contract. It's still a loss like or do you guys have an oh in a position to hit that 250000 Boes per day by mid Twentys when do not good.
You guys talked about before.
Yeah, so our our previous guidance there was 250000 barrels at some point in 2020.
We are officially changing that although sitting here, giving you guidance that we're going to be at 200000 or so in September I'd say, we feel really good.
About hitting that.
And I feel good about hitting that kind of earlier in the year versus maybe the previous guidance. We gave was later in the year right. So as we're moving forward in time, feeling better about those volumes our volume expectations kind of continue to increase on on Grand Prix volumes.
Sounds good that heads up on done like just a housekeeping question on the NC, I think which picked up notably you guys talk about in the prepared remarks, all aspects Exxon gun ramps it could step up like is that any good.
Indication on how we should look at it in the back half of the year.
I'd suggest you follow up with Sanjay.
Obviously, the other ownership.
Our disclose related to you know Blackstone owning at 25% interest in Grand Prix as well as the Devcos that are in place, but we can walk you through all the steps associated with where that ought to increase just in terms of making sure that your modeling our partnerships accurately and how that impacts NCR cutback.
Sounds good thanks for taking my questions guys.
Thanks, good thank you.
Our next question comes from the line of Binnie Little gains from BMO capital markets. Your line is open.
Good morning, and thank you some producers in the Permian are talking about.
Capital discipline, and so forth that pretends to lower volume outlook going forward.
But that's of course, a crew is it fair to say that because of the higher g. or do you still see pretty solid growth even into 2020 and understanding that you don't give any guidance for 2020, but do you still see yourself sort of solid volumetric outlook out of the Brian .
Yes, I'm going to turn it over to Pat to add but I would say, we expect continued growth in the Permian and in 2020. The outlook. There is still very good at anything you want to yeah, I would echo that I mean, when we look at our core customers.
Their balance sheet their available capital to put to the drill bit we feel really really good about their continued activity level.
Matter of fact, we have line of sight on what they're doing in the next 612 and 18 months.
So that would be a huge surprise in a huge commodity price drop too to alter that drilling schedule, we feel really really good about our core producers and what our volumes are going to look like.
Thank you for that and I guess as a follow up do you see gcs a sort of.
Immediately help mitigate any flaring issues that you've seen out of the Permian.
Well, there's flaring issues for a number of reasons a lot of the flaring issues.
Tend to be even more local and could be related to the quality of gas, where there's age to ask than others.
So gcs may provide some relief to that I wouldn't expect it to alleviate all of it because things are flared for for different reasons.
I think.
With US everyone is producing gas out there is going to be a welcome addition to capacity goes you know well how prices are hovering around around zero. So we need that capacity online and we're going to benefit benefit producers are going to benefit.
Thank you last question for me and I appreciate the update in the press release on the rigor earn outs.
Obviously, there's a delicate payments to be made 2023 and beyond and so forth, but with respect to the Bakken sale are there any payments that you guys would have to make as well at the end of that deal or is it simply go find to the highest cadence of distribution in the early years that ultimately.
Go versus down to that 45% as the discussed previously.
It would be the latter anyway. So there are no obligation for us to make any payments at any point in time beyond the minimum quarterly distribution and then what Blackstone will be entitled to as a result of their 45% interest.
Okay. Thanks for that update then.
Thank you.
And our next question comes from the line of Chris Taylor from Barclays. Your line is open.
Hi, guys good morning.
I guess just first for me.
I appreciate all the color so far on Grand Prix it looks like.
Based on.
What you are expecting say, maybe the volumes out of your own processing plants.
That will be feeding into the pipe or are on track for or maybe even better than what we expected when you.
First announced the project, but you also have a number of third parties on that pipe as well can you maybe just give us an update on how the volumes are trending relative to maybe your original expectations and whether or not there are any nvcs behind those.
Sure. So it's it's a mix so we have multiple third party.
I'd say third party dedications multiple third party nbcs on that on that pipe.
Depending on the producer.
We have seen.
I would say volumes coming on not as fast as early indications when we were contracting that pipe which is not.
Unusual when you're getting forecast from from customers.
But overall the outlook and some of the cases catches up or even exceeds as you move forward in time, but again, it's a diverse customer base, we have many customers and it's a mix so our volumes are.
Going I'd say, even above expectations and then for something for an aggregate we've added more contracts than we estimated so even if those contracts are slightly under the volume forecast. They gave us there's still more third party than we originally anticipated when we announce Grand Prix.
Okay I appreciate that thank you and then.
Next from me I guess.
Now that you have.
You know the full NGL pipeline, you have more of an integrated value chain than you did.
Even just a year or two ago.
I guess, we kind of thought of it is the lack of pipeline was.
You know the hole in the value chain that part of your business. So should we think about.
The way that you operate commercially going forward would that be any different.
And I guess, maybe what I mean by that is should we look.
For you guys to take more advantage of some marketing opportunities contango in the NGL price.
Things like that.
I'd say, we think it makes us more competitive so when we're talking to the larger producers.
We're able to offer the integrated suite of not only gathering and processing, but be able to handle the liquids all the way to the dock and even through export. So I think it makes us more competitive.
Having the pipeline there.
Yes, anything Pat you want to add to that.
Yeah I think.
Once we announce Grand Prix and we were sitting down with some of the larger production opportunity capture opportunities in Delaware Basin. The fact that we were going to have Grand Prix going forward.
That we would have that fully integrated platform significantly added to our success and blending some of those big dedications and those capturing some of those larger opportunities and quite frankly that continues to be that way going forward.
Were known as a very low level GNP.
Unit.
We keep peoples oil coming out of the ground now.
The NGL interruptions et cetera that we were afforded the having to rely on third parties. We now have the ability to get around that so it's just another.
Kind of added piece that our reliability and how we perform and provide service for our customers enhance that much further so we feel really good about that and we are using it and we will continue to use it.
Okay. Thank you that's all for me.
Okay. Thank you.
And that concludes our question and answer session.
I would like to I'm, sorry didn't back to Sanjay Lad for any further comments.
Thank you to everyone that was on the call. This morning, and we appreciate your interest in Targa resources.
Hi, Andr I will be available for any follow up questions. You may have thanks and have a great day.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may now disconnect.