Targa(TRGP) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Targa Resources reported record high quarterly EBITDA of $626 million, an increase of 10% sequentially, driven by higher volumes across most assets despite lower marketing margins [20][10] - Adjusted free cash flow for the first quarter was$ 373 million, with a consolidated leverage ratio of 3.4x, indicating a strong financial position [21][22] - The company completed the redemption of all outstanding Series A preferred stock for approximately $973 million, simplifying its capital structure [23] Business Line Data and Key Metrics Changes - In the Permian region, inlet volumes averaged over 3 billion cubic feet per day, with expectations for a 12% to 15% increase in average volumes for 2022 compared to 2021 [11][13] - NGL transportation volumes reached a record 460,000 barrels per day, with fractionation volumes rebounding to 703,000 barrels per day following a previous outage [16] - The acquisition of assets in South Texas is expected to be immediately accretive, enhancing the company's gathering and processing operations [15] Market Data and Key Metrics Changes - The company experienced strong activity levels across its Midland and Delaware systems, with volumes rebounding nicely in March and April after winter weather impacts [11][12] - The LPG export business at Galena Park loaded an average of 10.2 million barrels per month, with a strong outlook supported by a low-cost expansion project [17] Company Strategy and Development Direction - Targa Resources continues to invest in its businesses, with ongoing construction of new plants in the Permian and the acquisition of bolt-on assets [8][24] - The company aims to return increasing capital to shareholders through dividends and opportunistic share repurchases, with a$ 1.40 annualized dividend per common share for 2022 [25][29] - The long-term outlook remains strong, supported by a premier integrated Permian NGL business and a focus on safety and operational performance [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to withstand risks related to commodity prices and volumes, citing improvements in the balance sheet and hedging strategies [31][33] - The company anticipates that if commodity prices average around current levels for 2022, it would exceed the top end of its previously disclosed full-year financial guidance range [10][36] - Management noted that while weather impacts affected operations in the Badlands, they expect to recover and see positive activity levels across various regions [52][101] Other Important Information - Targa Resources has significantly hedged its positions for 2022 and continues to add hedges for 2023 and beyond, reducing exposure to commodity price fluctuations [21][68] - The company is evaluating opportunities in renewable energy and carbon capture, indicating a commitment to sustainability [76] Q&A Session Summary Question: Capital allocation priorities moving forward - Management plans to increase the common share dividend for 2022 and continue investing in the business while executing opportunistic share repurchases [29] Question: Key risks moving forward - Management identified commodity prices and volumes as key risks but noted improvements in balance sheet strength and hedging strategies to mitigate these risks [31][32] Question: Guidance reconciliation - Management acknowledged that current spot prices and the Southcross acquisition could lead to EBITDA exceeding guidance, but noted that the sale of GCX was included in the guidance [36][37] Question: Update on M&A considerations - Management remains selective regarding M&A opportunities, having recently completed the Southcross acquisition, and sees more assets available in the market [54][56] Question: Future growth projects and capacity - Management indicated that the fractionation market is tightening, and they are evaluating the need for additional capacity while monitoring producer activity [59][60] Question: Update on ethane recovery and Grand Prix - Management expects most plants to be in ethane recovery, but does not anticipate significant volume changes from this recovery [104][105] Question: Planning for gas egress issues - Management emphasized the importance of planning for gas takeaway capacity and collaborating with partners to ensure transport out of the basin [108][109]