Targa Resources Corp. (TRGP) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Record Quarter Performance: Targa Resources Corp. experienced another record quarter with significant achievements across multiple fronts, including record volumes in the Permian, driving record NGL transportation and fractionation volumes downstream, and record quarterly adjusted EBITDA.

• Strategic Asset Additions: The company successfully brought online the Train 9 fractionator in Mont Belvieu and the Roadrunner II plant in Permian Delaware, both on time and on budget, to accommodate increasing volumes across their systems.

• Share Repurchases: Targa executed a quarterly record of $355 million in common share repurchases, reflecting strong performance and confidence in the business outlook.

• Joint Venture in Blackcomb Pipeline: Announced participation in a joint venture for the Blackcomb pipeline, a 42-inch pipeline transporting gas from the Permian to South Texas, with Targa providing a meaningful volume commitment and obtaining a 17.5% ownership interest.

• Permian Basin Growth: Activity in the Permian remains strong, supporting views of continued long-term growth. Targa's Permian volumes increased significantly, exceeding expectations and setting the company up for meaningful growth in 2025 and beyond.

Pessimistic Highlights

• Impact of Hurricane Beryl: The hurricane temporarily reduced volumes, although the impact on the third quarter is expected to be minimal due to no material damage to assets.

Company Outlook

• Updated Growth Capital Spending: Targa updated its estimate for growth capital spending for 2024 to approximately $2.7 billion, driven by accelerated timing of plants in the Permian, incremental field capital, and other investments. The 2025 capital spending estimate is updated to $1.7 billion, reflecting stronger than previously estimated Permian volume growth.

• Adjusted EBITDA Increase: The updated midpoint estimate for full-year 2024 adjusted EBITDA is $4 billion, a $200 million or 5% increase from the previous estimate, driven largely by higher Permian volumes and higher volumes through the integrated system.

Q & A Highlights

• Q: Can you provide more details on the guidance raise, especially regarding the free cash flow inflection? (Jeremy Tonet, JPMorgan)

  A: The guidance raise for this year is underpinned by the strength and volume seen so far and expectations for the back half of the year, leading into 2025. The outlook for EBITDA this year positions Targa well going into 2025 with strong activity expected. The updated outlook reflects similar dollar amounts of free cash flow to what was provided in February, despite higher capital spending estimates for 2025. (Matt Meloy)

• Q: Could you discuss the dynamics driving accelerated growth in your system versus the basin average? (Spiro Dounis, Citi)

  A: Targa's accelerated growth is attributed to its large footprint, commercial success, and being in the core areas of both the Midland and Delaware basins. The company has seen more positive revisions from producers this year than in other years, benefiting from strong activity and positioning in the Permian. (Matt Meloy, Pat McDonie)

• Q: On Blackcomb, can you provide details like percent contracted and the return profile? Also, is project level financing expected for Blackcomb? (Michael Blum, Wells Fargo)

  A: Specific details on Blackcomb, such as percent contracted and return profile, were not disclosed. The focus is on ensuring gas takeaway from the basin, with Targa's capital investment expected to be less than $200 million. The project is important for the industry and the basin, with financing details deferred to WhiteWater, the leading partner. (Bobby Muraro)

• Q: How has the guidance on incremental EBITDA from growth projects changed with new projects coming in? (Manav Gupta, UBS)

  A: Targa indicated an investment multiple of about 5.5 times EBITDA for new projects, consistent with past performance. The company expects strong returns from investing in its core business, including gathering and processing and expanding downstream NGL infrastructure. (Matt Meloy)