Targa(TRGP) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Targa Resources reported a quarterly adjusted EBITDA of $506 million, representing a 10% sequential increase due to higher commodity prices and increased volumes across its integrated systems [20] - Year-to-date 2021, Targa generated adjusted free cash flow of$ 893 million, significantly reducing leverage throughout the year [21] - The company expects to end 2021 with a consolidated leverage ratio around 3.25 times, down from 3.5 times previously [23] Business Line Data and Key Metrics Changes - In the Permian region, third quarter system inlet volumes increased by 7% sequentially, with expectations to exceed the previously disclosed growth range of 5% to 10% for 2021 [14] - The Logistics and Transportation segment saw Grand Prix volumes increase to a record 417,000 barrels per day, with a 6% sequential increase in throughput volumes [16] - LPG Export Services averaged 9 million barrels per month in the third quarter, with lower sequential volumes attributed to maintenance at the Galena Park export facility [17] Market Data and Key Metrics Changes - The company noted a stronger outlook across its Permian Basin footprint, driving incremental volumes through its NGL downstream business [15] - The overall global LPG market was weaker, impacting export volumes, but Targa expects improved performance in the fourth quarter due to stabilized prices [18][80] Company Strategy and Development Direction - Targa is focused on fully integrating its NGL business and moving to a G&P contract structure that protects downside while allowing participation in strong commodity prices [8] - The company plans to recommend a $1.40 per common share annual dividend, equating to approximately 30% of its 2021 free cash flow, with expectations for modest annual increases going forward [11][25] - Targa aims to simplify its capital structure and return more capital to shareholders in 2022, while continuing to invest in high-return growth opportunities [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in exceeding the top end of the adjusted EBITDA guidance for 2021, driven by attractive organic growth opportunities [10] - The company is optimistic about continued growth in the Permian region, with robust activity levels expected to persist into the next year [14] - Management acknowledged the challenges posed by inflation but indicated that contracts include escalators to benefit from inflationary pressures [52] Other Important Information - Targa has been proactive in sustainability efforts, recently entering agreements to source renewable electricity for its G&P infrastructure [28] - The company is in discussions with rating agencies to achieve an investment-grade rating, with Moody's recently upgrading Targa to Ba1 [26] Q&A Session Summary Question: Outlook for producer activity in 2022 - Management noted that larger E&Ps are sticking to their plans, while smaller and private producers are showing increased activity [37] Question: Capital allocation priorities - The focus has shifted from debt repayment to returning capital to shareholders, with the dividend increase being the first step [41] Question: Activity levels in the Delaware Basin - Management indicated steady growth from both large public and smaller private producers in both the Midland and Delaware sides of the basin [50] Question: Inflation impact on contracts - Targa has escalators in its contracts, which should benefit the company in an inflationary environment [52] Question: Discussions with rating agencies - Management is optimistic about achieving investment-grade status and is in good dialogue with the agencies [61] Question: Future CapEx and inflation considerations - The increase in 2022 CapEx is primarily due to increased activity rather than inflation, although some cost pressures are expected [77] Question: Dividend increase metrics - The dividend set at$ 1.40 represents about 30% of 2021 free cash flow, but future increases will depend on performance and outlook [86] Question: M&A strategy in midstream - Targa will continue to evaluate M&A opportunities but maintains a high hurdle for acquisitions, focusing on organic growth [116] Question: ESG initiatives and renewable energy - Targa is exploring additional renewable energy projects and carbon capture opportunities as part of its ESG strategy [118]