Targa(TRGP) - 2021 Q2 - Quarterly Report

Cautionary Statement About Forward-Looking Statements This section identifies forward-looking statements and outlines key risks that could cause actual results to differ materially - The report contains forward-looking statements identifiable by words such as 'may,' 'could,' 'project,' 'believe,' 'anticipate,' 'expect,' 'estimate,' 'potential,' 'plan,' and 'forecast'[7][8] - Key risks that could cause actual results to differ materially include: level and success of crude oil and natural gas drilling, changes in commodity prices and demand, ability to access capital markets, impact of public health crises (like COVID-19), collateral requirements, success in risk management, creditworthiness of counterparties, changes in laws and regulations, weather and natural phenomena, industry changes, ability to obtain/maintain licenses, growth through projects/acquisitions, and general economic conditions[9][11] Glossary of Terms This section provides definitions for key terms used throughout the report Glossary of Terms | Term | Meaning | | :--- | :--- | | Bbl | Barrels (equal to 42 U.S. gallons) | | BBtu | Billion British thermal units | | Bcf | Billion cubic feet | | Btu | British thermal units, a measure of heating value | | /d | Per day | | GAAP | Accounting principles generally accepted in the United States of America | | gal | U.S. gallons | | LPG | Liquefied petroleum gas | | MBbl | Thousand barrels | | MMBbl | Million barrels | | MMBtu | Million British thermal units | | MMcf | Million cubic feet | | MMgal | Million U.S. gallons | | NGL(s) | Natural gas liquid(s) | | NYMEX | New York Mercantile Exchange | | NYSE | New York Stock Exchange | | SCOOP | South Central Oklahoma Oil Province | | STACK | Sooner Trend, Anadarko, Canadian and Kingfisher | PART I—FINANCIAL INFORMATION This part presents the company's unaudited consolidated financial statements and related disclosures Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Targa Resources Corp., including balance sheets, statements of operations, comprehensive income (loss), changes in owners' equity, and cash flows, along with detailed explanatory notes Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheets (In millions) | (In millions) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | ASSETS | | | | Total current assets | $1,317.9 | $1,460.3 | | Property, plant and equipment, net | $11,996.6 | $12,173.6 | | Intangible assets, net | $1,316.9 | $1,382.4 | | Total assets | $15,411.8 | $15,875.7 | | LIABILITIES, SERIES A PREFERRED STOCK AND OWNERS' EQUITY | | | | Total current liabilities | $2,102.1 | $1,779.4 | | Long-term debt | $6,603.8 | $7,387.1 | | Series A Preferred Stock | $749.7 | $301.4 | | Total owners' equity | $5,396.5 | $5,903.2 | | Total liabilities, Series A Preferred Stock and owners' equity | $15,411.8 | $15,875.7 | Consolidated Statements of Operations This statement reports the company's revenues, expenses, and net income (loss) over specific periods Consolidated Statements of Operations (In millions, except per share amounts) | (In millions, except per share amounts) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $3,415.9 | $1,523.5 | $7,048.7 | $3,572.4 | | Income (loss) from operations | $245.8 | $213.1 | $589.9 | $(1,864.4) | | Net income (loss) | $155.4 | $177.1 | $383.3 | $(1,643.2) | | Net income (loss) attributable to Targa Resources Corp. | $56.2 | $81.0 | $202.6 | $(1,656.8) | | Net income (loss) attributable to common shareholders | $34.4 | $48.9 | $158.9 | $(1,720.8) | | Net income (loss) per common share - basic | $0.15 | $0.21 | $0.70 | $(7.38) | | Net income (loss) per common share - diluted | $0.15 | $0.21 | $0.69 | $(7.38) | Consolidated Statements of Comprehensive Income (Loss) This statement presents net income (loss) and other comprehensive income (loss) to arrive at total comprehensive income (loss) Consolidated Statements of Comprehensive Income (Loss) (In millions) | (In millions) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $155.4 | $177.1 | $383.3 | $(1,643.2) | | Other comprehensive income (loss) | $(136.0) | $(146.8) | $(152.6) | $(70.9) | | Comprehensive income (loss) | $19.4 | $30.3 | $230.7 | $(1,714.1) | | Comprehensive income (loss) attributable to Targa Resources Corp. | $(79.8) | $(65.8) | $50.0 | $(1,727.7) | Consolidated Statements of Changes in Owners' Equity and Series A Preferred Stock This statement details changes in equity accounts and Series A Preferred Stock over the reporting period Consolidated Statements of Changes in Owners' Equity and Series A Preferred Stock (In millions, except shares in thousands) | (In millions, except shares in thousands) | Balance, December 31, 2020 | Balance, June 30, 2021 | | :--- | :--- | :--- | | Common Stock Shares | 228,062 | 228,655 | | Common Stock Amount | $0.2 | $0.2 | | Additional Paid in Capital | $4,839.9 | $4,330.8 | | Retained Earnings (Accumulated Deficit) | $(1,893.5) | $(1,690.9) | | Accumulated Other Comprehensive Income (Loss) | $(141.8) | $(294.4) | | Treasury Shares | 6,731 | 7,016 | | Treasury Shares Amount | $(150.9) | $(159.5) | | Noncontrolling Interests | $3,249.3 | $3,210.3 | | Total Owner's Equity | $5,903.2 | $5,396.5 | | Series A Preferred Stock | $301.4 | $749.7 | - The adoption of accounting standard ASU 2020-06 on January 1, 2021, resulted in a $448.3 million decrease in Additional Paid in Capital and a $448.3 million increase in Series A Preferred Stock[26][40] Consolidated Statements of Cash Flows This statement reports the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (In millions) | (In millions) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,303.6 | $738.9 | | Net cash used in investing activities | $(185.9) | $(472.1) | | Net cash provided by (used in) financing activities | $(1,151.5) | $(401.7) | | Net change in cash and cash equivalents | $(33.8) | $(134.9) | | Cash and cash equivalents, end of period | $209.0 | $196.2 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering organization, accounting policies, asset details, debt, equity, derivatives, fair value measurements, contingencies, revenue recognition, income taxes, and segment information Note 1 — Organization and Operations Targa Resources Corp. controls Targa Resources Partners LP and conducts operations through its subsidiaries, focusing on natural gas, NGLs, and crude oil services - TRC controls the general partner and owns all common units in Targa Resources Partners LP (TRP), consolidating TRP and its subsidiaries under GAAP[34] - Primary operations include gathering, compressing, treating, processing, transporting, purchasing, and selling natural gas, NGLs, and crude oil, along with NGL product services and LPG exports[35] Note 2 — Basis of Presentation Unaudited consolidated financial statements are prepared under Form 10-Q and GAAP, with 2021 reclassification of fuel and power costs to Product purchases and fuel - Unaudited consolidated financial statements are prepared in accordance with Form 10-Q and GAAP, and should be read with the Annual Report[36] - Beginning in 2021, fuel and power costs were reclassified from Operating expenses to Product purchases and fuel to align with revenue-generating activities and business performance evaluation[37] Reclassified Fuel and Power Costs (In millions) | Reclassified Fuel and Power Costs (In millions) | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Reclassified Amount | $12.0 | $34.8 | $19.5 | $38.6 | Note 3 — Significant Accounting Policies The company early adopted ASU 2020-06 on January 1, 2021, simplifying convertible instrument accounting and eliminating beneficial conversion for Series A Preferred Stock - Early adopted ASU 2020-06, 'Accounting for Convertible Instruments and Contracts in an Entity's Own Equity,' effective January 1, 2021, on a modified retrospective basis[39][40] - The adoption eliminated the beneficial conversion accounting model for Series A Preferred Stock, now presented as a single unit of account at $749.7 million, removing discount accretion as a deemed dividend[40] Note 4 — Property, Plant and Equipment and Intangible Assets This note details property, plant, and equipment and intangible assets, highlighting a $2,442.8 million impairment in Q1 2020 with no further indicators in 2020 or H1 2021 Property, Plant and Equipment and Intangible Assets (In millions) | (In millions) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Property, plant and equipment, net | $11,996.6 | $12,173.6 | | Intangible assets, net | $1,316.9 | $1,382.4 | - Depreciation expense was $179.1 million for the three months ended June 30, 2021, and $362.5 million for the six months ended June 30, 2021[41] - A non-cash pre-tax impairment of $2,442.8 million was recorded in Q1 2020, primarily for Gathering and Processing assets, with no further impairment indicators identified in the remainder of 2020 or H1 2021[43][47] Note 5 — Debt Obligations Targa's total debt decreased to $6,975.5 million by June 30, 2021, following $1.0 billion Senior Notes issuance and other redemptions, while remaining compliant with all debt covenants Debt Obligations (In millions) | (In millions) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Current debt obligations | $371.7 | $368.6 | | Long-term debt | $6,603.8 | $7,387.1 | | Total debt obligations | $6,975.5 | $7,755.7 | - In February 2021, the Partnership issued $1.0 billion of 4% Senior Notes due 2032, with net proceeds of approximately $991 million used for redemptions and revolver repayments[58] - Redemptions of 5⅛% Senior Notes due 2025, TPL Notes, and 4¼% Senior Notes due 2023 resulted in a net loss from debt extinguishment of $14.9 million, a gain of $0.2 million, and a loss of $1.9 million, respectively[58][59][60] - The Partnership's accounts receivable securitization facility was increased from $350.0 million to $400.0 million and extended to April 21, 2022[54] - As of June 30, 2021, the company was in compliance with all debt covenants[57] Note 6 — Other Long-term Liabilities Other long-term liabilities include deferred revenue totaling $166.7 million as of June 30, 2021, with $129.0 million tied to a disputed Vitol Splitter Agreement Deferred Revenue (In millions) | (In millions) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Deferred Revenue | $166.7 | $168.5 | - Deferred revenue includes $129.0 million from payments received from Vitol Americas Corp. related to a terminated Splitter Agreement, currently in litigation regarding revenue recognition[66] Note 7 — Preferred Stock As of June 30, 2021, Targa accrued $21.8 million in cumulative preferred dividends on Series A Preferred Stock, with total dividends paid to preferred shareholders reaching $43.7 million for the six months - Accrued cumulative preferred dividends on Series A Preferred Stock were $21.8 million as of June 30, 2021[67] Preferred Stock Dividends Paid (In millions) | Preferred Stock Dividends Paid (In millions) | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Dividends Paid | $21.8 | $43.7 | Note 8 — Common Stock and Related Matters For the three months ended June 30, 2021, Targa declared $23.3 million in common stock dividends, or $0.10 per share, payable upon vesting of restricted stock and units Common Stock Dividends (In millions, except per share amounts) | Common Stock Dividends (In millions, except per share amounts) | Three Months Ended June 30, 2021 | | :--- | :--- | | Total Common Dividends Declared | $23.3 | | Dividends Declared per Share | $0.10000 | Note 9 — Partnership Units and Related Matters Targa Resources Corp. receives all Partnership distributions, with $45.5 million declared for Q2 2021 and $36.0 million in capital contributions made by TRC in H1 2021 Partnership Distributions (In millions) | Partnership Distributions (In millions) | Three Months Ended June 30, 2021 | | :--- | :--- | | Total Distributions Declared | $45.5 | | Distributions to Targa Resources Corp. | $45.5 | - Targa Resources Corp. made $36.0 million in capital contributions to the Partnership during the six months ended June 30, 2021[71] Note 10 — Earnings per Common Share This note reconciles basic and diluted earnings per common share, showing Q2 2021 basic EPS at $0.15 and H1 2021 basic EPS at $0.70, a significant improvement from $(7.38) in 2020 Earnings per Common Share (In millions, except per share amounts) | (In millions, except per share amounts) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to common shareholders | $34.4 | $48.9 | $158.9 | $(1,720.8) | | Net income (loss) per common share - basic | $0.15 | $0.21 | $0.70 | $(7.38) | | Net income (loss) per common share - diluted | $0.15 | $0.21 | $0.69 | $(7.38) | | Weighted average shares outstanding - basic | 228.6 | 233.1 | 228.5 | 233.1 | | Weighted average shares outstanding - diluted | 231.3 | 233.8 | 230.9 | 233.1 | Note 11 — Derivative Instruments and Hedging Activities Targa uses derivatives to manage commodity price risk, with a net liability of ($349.2) million as of June 30, 2021, and expects to reclassify ($387.4) million in deferred losses by the end of 2023 - The primary purpose of commodity risk management is to manage exposure to commodity price risk and reduce volatility in operating cash flow[74] Notional Volumes of Commodity Derivative Contracts (June 30, 2021) | Commodity | Instrument | Unit | 2021 | 2022 | 2023 | 2024 | 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Natural Gas | Swaps | MMBtu/d | 183,743 | 108,253 | 54,726 | — | — | | Natural Gas | Basis Swaps | MMBtu/d | 558,929 | 308,356 | 250,000 | 200,000 | 110,041 | | NGL | Swaps | Bbl/d | 37,448 | 26,780 | 10,825 | 838 | — | | NGL | Futures | Bbl/d | 15,027 | (11) | — | — | — | | Condensate | Swaps | Bbl/d | 5,434 | 3,853 | 2,081 | 56 | — | - The estimated fair value of derivative instruments was a net liability of ($349.2) million as of June 30, 2021, reflecting unfavorable movements in natural gas forward basis prices[81][83] - Expected reclassification of commodity hedge-related deferred losses from accumulated other comprehensive income into earnings before income taxes is ($387.4) million through the end of 2023, with ($266.1) million expected in the next twelve months[82] Note 12 — Fair Value Measurements Targa categorizes fair value measurements using a three-tier hierarchy, reporting derivative instruments at a net liability of ($349.2) million as of June 30, 2021, with Level 3 classifications for certain contracts - The fair value of derivative instruments was a net liability of ($349.2) million as of June 30, 2021[87] Effect of Hypothetical 10% Price Movements on Derivative Fair Value (June 30, 2021, In millions) | Commodity | Fair Value | Result of 10% Price Decrease | Result of 10% Price Increase | | :--- | :--- | :--- | :--- | | Natural gas | $(65.4) | $(23.9) | $(106.9) | | NGLs | $(232.3) | $(168.2) | $(296.4) | | Crude oil | $(51.5) | $(30.4) | $(72.6) | | Total | $(349.2) | $(222.5) | $(475.9) | - Certain swaps and option contracts are classified as Level 3 due to unobservable market prices or implied volatilities for substantially the full term of the derivative[92][94] - In Q1 2020, non-cash pre-tax impairments of $2,442.8 million were recorded for long-lived assets, primarily gas processing facilities and gathering systems[96] Note 13 — Contingencies Targa is appealing a District Court award of $129.0 million plus interest and $10.5 million in damages to Vitol Americas Corp. related to a terminated splitter agreement, with Targa retaining these liabilities - Vitol Americas Corp. filed a lawsuit against Targa Channelview LLC, seeking recovery of $129.0 million in payments and additional damages related to a terminated Splitter Agreement[254] - The District Court awarded Vitol $129.0 million (plus interest) and $10.5 million in damages, which Targa has appealed[255] - Targa retained the liabilities associated with the Vitol proceedings after selling Targa Channelview in October 2020[256] Note 14 — Revenue This note presents estimated minimum revenue from unsatisfied performance obligations, totaling $3,288.8 million as of June 30, 2021, primarily from long-term contracts with minimum volume commitments Fixed Consideration to be Recognized as of June 30, 2021 (In millions) | Period | Amount | | :--- | :--- | | 2021 | $252.6 | | 2022 | $431.8 | | 2023 and after | $2,604.4 | | Total | $3,288.8 | - These contracts primarily include gathering and processing, fractionation, export, terminaling, and storage agreements, with remaining terms from 1 to 18 years[99] Note 15 — Income Taxes Targa's valuation allowance decreased by $42.0 million from December 31, 2020, resulting in a net deferred tax liability of $124.1 million after recognition as an ordinary item - The existing valuation allowance decreased by $42.0 million from December 31, 2020, recognized as an ordinary item in the estimated annual effective tax rate[103] - After the change in valuation allowance, the company has a net deferred tax liability of $124.1 million[103] Note 16 — Supplemental Cash Flow Information This note provides supplemental cash flow details, with $182.6 million in net interest paid and $1.0 million in net income taxes paid for the six months ended June 30, 2021 Supplemental Cash Flow Information (Six Months Ended June 30, In millions) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Interest paid, net of capitalized interest | $182.6 | $171.8 | | Income taxes (received) paid, net | $1.0 | $(44.4) | | Impact of capital expenditure accruals on property, plant and equipment, net | $(0.3) | $(143.9) | Note 17 — Segment Information Targa operates in Gathering and Processing and Logistics and Transportation segments, reporting operating margins of $576.6 million and $640.1 million respectively, with total revenues of $7,048.7 million for H1 2021 - Targa operates in two primary segments: Gathering and Processing, and Logistics and Transportation (Downstream Business)[105] Operating Margin by Segment (Six Months Ended June 30, In millions) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Gathering and Processing | $576.6 | $492.8 | | Logistics and Transportation | $640.1 | $525.5 | | Other | $(69.1) | $127.2 | | Consolidated Operating Margin | $1,147.6 | $1,145.5 | Total Revenues by Type (Six Months Ended June 30, In millions) | Revenue Type | 2021 | 2020 | | :--- | :--- | :--- | | Sales of commodities | $6,459.3 | $3,060.2 | | Fees from midstream services | $589.4 | $512.2 | | Total Revenues | $7,048.7 | $3,572.4 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Targa's financial condition and operational performance, covering business overview, recent developments, management's evaluation methods, consolidated and segment results, liquidity, capital resources, and off-balance sheet arrangements Overview Targa Resources Corp. is a leading North American midstream infrastructure company operating in Gathering and Processing and Logistics and Transportation segments, focusing on natural gas, NGLs, and crude oil services - Targa Resources Corp. is a leading provider of midstream services and one of the largest independent midstream infrastructure companies in North America[118] - Operations are conducted through two primary segments: Gathering and Processing, and Logistics and Transportation (Downstream Business)[119] - The company's business includes gathering, processing, transporting, and selling natural gas; transporting, storing, fractionating, and selling NGLs; and gathering, storing, terminaling, and selling crude oil[124] Recent Developments Recent developments include COVID-19 market volatility, February 2021 winter storm impacts, Permian Midland processing expansions, $1.0 billion Senior Notes issuance, increased Securitization Facility, and a completed IRS audit with no adjustments - The global spread of COVID-19 caused significant market volatility, but Targa is currently experiencing no material issues with workforce or supply chain disruptions[123][124] - The February 2021 winter storm caused short-term disruptions to Targa's operations and wide fluctuations in commodity prices, but all facilities have returned to full operations without significant adverse financial impacts[126] - Permian Midland processing expansions include the Heim Plant (200 MMcf/d) expected in Q3 2021, and the Legacy Plant (250 MMcf/d) expected in Q4 2022[127][128] - Financing activities included issuing $1.0 billion of 4% Senior Notes due 2032, redeeming 5⅛% Senior Notes due 2025 (loss of $14.9 million), TPL Notes (gain of $0.2 million), and 4¼% Senior Notes due 2023 (loss of $1.9 million)[129][130][131] - The Partnership's accounts receivable securitization facility was increased from $350.0 million to $400.0 million and extended to April 21, 2022[133] - An IRS examination of federal income tax returns for 2014, 2015, and 2016 was completed without proposed adjustments[135] How We Evaluate Our Operations Targa assesses profitability by analyzing revenues versus costs, driven by contract mix, commodity prices, hedging, and throughput, utilizing both GAAP and non-GAAP measures like gross margin, operating margin, Adjusted EBITDA, distributable cash flow, and free cash flow - Profitability is a function of the difference between revenues (service fees, commodity sales) and costs (product purchases, operating, G&A, hedging impacts)[138] - Key factors influencing profitability include contract portfolio, commodity pricing, hedging program effectiveness, and throughput volumes[138] - Management uses non-GAAP measures including gross margin, operating margin, Adjusted EBITDA, distributable cash flow, and free cash flow, in addition to GAAP measures, to analyze performance[140][148] - Growth capital expenditures and focus on fee-based contracts are increasing the proportion of fee-based margin[139] Consolidated Results of Operations For Q2 2021, total revenues increased by 124% to $3,415.9 million, while H1 2021 revenues rose 97% to $7,048.7 million, with net income attributable to TRC significantly improving to a $202.6 million gain from a $(1,656.8) million loss in 2020 Consolidated Financial Highlights (In millions, except percentages) | Metric | Q2 2021 | Q2 2020 | Change YoY | H1 2021 | H1 2020 | Change YoY | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $3,415.9 | $1,523.5 | 124% | $7,048.7 | $3,572.4 | 97% | | Net income (loss) attributable to Targa Resources Corp. | $56.2 | $81.0 | (31%) | $202.6 | $(1,656.8) | 112% | | Adjusted EBITDA | $460.0 | $351.2 | 31% | $975.7 | $779.3 | 25% | | Distributable cash flow | $339.5 | $273.7 | 24% | $737.0 | $575.5 | 28% | | Free cash flow | $256.1 | $130.4 | 96% | $592.6 | $171.0 | 247% | - The increase in commodity sales reflects higher NGL, natural gas, and condensate prices and volumes, partially offset by unfavorable hedge impacts[160][168] - The decrease in net income attributable to TRC for Q2 2021 was partly due to a larger valuation allowance release in Q2 2020 and financing losses in 2021[165][164] - The significant improvement in H1 2021 net income was due to the absence of the $2,442.8 million impairment charge recognized in H1 2020[172] Results of Operations—By Reportable Segment This section details the operating performance of Targa's Gathering and Processing and Logistics and Transportation segments, both showing increased operating margins, while the 'Other' category reflected a significant negative impact from derivative activity Gathering and Processing Segment The Gathering and Processing segment's operating margin increased by 27% to $301.2 million in Q2 2021 and 17% to $576.6 million in H1 2021, driven by higher commodity prices and Permian/Badlands volumes Gathering and Processing Segment Operating Margin (In millions) | Period | 2021 | 2020 | Change YoY | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $301.2 | $237.2 | 27% | | Six Months Ended June 30 | $576.6 | $492.8 | 17% | Key Operating Statistics (Q2 2021 vs. Q2 2020) | Statistic | 2021 | 2020 | Change YoY | | :--- | :--- | :--- | :--- | | Plant natural gas inlet, Total Permian (MMcf/d) | 2,765.9 | 2,350.5 | 18% | | NGL production, Total Permian (MBbl/d) | 391.1 | 334.6 | 17% | | Average realized Natural gas price ($/MMBtu) | $2.45 | $1.03 | 138% | | Average realized NGL price ($/gal) | $0.51 | $0.19 | 168% | | Average realized Condensate price ($/Bbl) | $59.06 | $28.13 | 110% | - Realized commodity hedge gain/loss for the segment was ($43.9) million in Q2 2021, compared to $45.0 million in Q2 2020, and ($81.8) million in H1 2021, compared to $83.0 million in H1 2020[182][183] Logistics and Transportation Segment The Logistics and Transportation segment's operating margin increased by 26% to $291.4 million in Q2 2021 and 22% to $640.1 million in H1 2021, driven by higher pipeline, fractionation, marketing, and LPG export volumes Logistics and Transportation Segment Operating Margin (In millions) | Period | 2021 | 2020 | Change YoY | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $291.4 | $231.5 | 26% | | Six Months Ended June 30 | $640.1 | $525.5 | 22% | Key Operating Statistics (Q2 2021 vs. Q2 2020) | Statistic | 2021 | 2020 | Change YoY | | :--- | :--- | :--- | :--- | | Pipeline throughput (MBbl/d) | 391.7 | 256.1 | 53% | | Fractionation volumes (MBbl/d) | 643.7 | 579.3 | 11% | | Export volumes (MBbl/d) | 340.6 | 253.8 | 34% | | NGL sales (MBbl/d) | 900.0 | 692.6 | 30% | - Operating expenses were higher in Q2 2021 due to increased repairs, maintenance, system throughput, and ad valorem taxes, but flat for H1 2021 due to cost reduction measures and asset sales[193][195] Other The 'Other' category, reflecting mark-to-market derivative activity, reported an operating margin of ($70.5) million for Q2 2021 and ($69.1) million for H1 2021, indicating unfavorable derivative valuations Other Operating Margin (In millions) | Period | 2021 | 2020 | Change YoY | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $(70.5) | $10.8 | (81.3) | | Six Months Ended June 30 | $(69.1) | $127.2 | (196.3) | - This category reflects mark-to-market gains/losses related to derivative contracts not designated as cash flow hedges[196] Our Liquidity and Capital Resources Targa manages liquidity and capital resources through cash flows, credit facilities, and capital markets, with total liquidity of $2,930.3 million as of July 30, 2021, and significantly reduced capital outlays in H1 2021 Short-term Liquidity As of July 30, 2021, Targa's total short-term liquidity was $2,930.3 million, comprising cash on hand and available capacity under the TRC Revolver, TRP Revolver, and the increased Securitization Facility Short-term Liquidity (July 30, 2021, In millions) | Item | Amount | | :--- | :--- | | Cash on hand | $279.1 | | Total availability under the TRC Revolver | $670.0 | | Total availability under the TRP Revolver | $2,200.0 | | Total availability under the Partnership's Securitization Facility | $400.0 | | Less: Outstanding borrowings (TRP Revolver, Securitization Facility, Letters of Credit) | $(618.8) | | Total liquidity | $2,930.3 | - The Partnership's Securitization Facility was amended on April 21, 2021, increasing its size from $350.0 million to $400.0 million and extending its termination date to April 21, 2022[204] Working Capital Working capital decreased by $465.1 million from December 31, 2020, to June 30, 2021, primarily due to higher product purchases payable, increased derivative liabilities, and reduced NGLs inventory - Working capital decreased by $465.1 million from December 31, 2020, to June 30, 2021[207] - The primary drivers of the decrease were higher product purchases payable (due to higher commodity prices), an increase in current derivative liabilities, and a reduction in NGLs inventory[207] Long-term Financing Targa's long-term financing includes $1.0 billion in 4% Senior Notes due 2032 issuance, other debt redemptions, an increased Securitization Facility, and continued compliance with all debt covenants - In February 2021, the Partnership issued $1.0 billion aggregate principal amount of 4% Senior Notes due 2032[211] - The Partnership redeemed 5⅛% Senior Notes due 2025 (resulting in a $14.9 million loss), TPL Notes (resulting in a $0.2 million gain), and 4¼% Senior Notes due 2023 (resulting in a $1.9 million loss)[211][212][213] - The Securitization Facility was increased from $350.0 million to $400.0 million and extended to April 21, 2022[215] - As of June 30, 2021, Targa and the Partnership were in compliance with all debt covenants[216] Cash Flow Net cash from operating activities increased by $564.7 million to $1,303.6 million in H1 2021, while investing cash flow decreased by $286.2 million to $185.9 million, and financing cash flow used increased to $1,151.5 million Cash Flow Summary (Six Months Ended June 30, In millions) | Cash Flow Type | 2021 | 2020 | Change YoY | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $1,303.6 | $738.9 | $564.7 | | Net cash used in investing activities | $(185.9) | $(472.1) | $286.2 | | Net cash provided by (used in) financing activities | $(1,151.5) | $(401.7) | $(749.8) | - Operating cash flow increased primarily due to higher collections from customers, partially offset by higher payments for product purchases and fuel and hedge transactions[220] - Investing cash flow decreased due to lower outlays for property, plant and equipment following the completion of major growth projects in 2020[221] - Financing cash flow used increased primarily due to repayments of debt and net distributions to noncontrolling interests, partially offset by new borrowings[222] - Common stock dividends declared for Q2 2021 were $23.3 million ($0.10 per share), and preferred stock dividends paid for H1 2021 were $43.7 million[224][225] Capital Expenditures Cash outlays for capital projects decreased significantly to $198.9 million in H1 2021 due to major project completions in 2020, with 2021 growth capital expenditures estimated at $350-$450 million and maintenance at $120 million Capital Expenditures (Six Months Ended June 30, In millions) | Capital Expenditure Type | 2021 | 2020 | | :--- | :--- | :--- | | Growth | $151.8 | $420.1 | | Maintenance | $47.2 | $53.7 | | Gross capital expenditures | $199.0 | $473.8 | | Cash outlays for capital projects | $198.9 | $615.9 | - The decrease in capital outlays is due to the completion of major growth projects in 2020, such as fractionation trains, LPG export expansion, and Permian processing plants[229] - Estimated net growth capital expenditures for 2021 are $350 million to $450 million, and estimated maintenance capital expenditures (net of noncontrolling interests) are approximately $120 million[228] Off-Balance Sheet Arrangements As of June 30, 2021, Targa had $65.7 million in surety bonds outstanding, supporting performance obligations and typically not called upon due to compliance - As of June 30, 2021, there were $65.7 million in surety bonds outstanding related to various performance obligations[230] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines Targa's primary market risks: commodity price, interest rate, and counterparty credit, managed through derivatives with a net liability of ($349.2) million as of June 30, 2021, and customer credit procedures Risk Management Targa actively manages counterparty risks for derivative contracts and trade credit, using derivatives to hedge commodity price risks for natural gas, NGL, and condensate volumes through 2025 - Targa evaluates counterparty risks related to commodity derivative contracts and trade credit, primarily with major financial institutions or energy companies[233] - Derivative instruments are used to hedge commodity price risks for expected natural gas, NGL, and condensate equity volumes, future commodity purchases and sales, and natural gas transportation basis risk through 2025[234][236] Commodity Price Risk Targa's revenues are exposed to volatile natural gas, NGL, and crude oil prices, mitigated by derivatives with a net liability of ($349.2) million as of June 30, 2021, and a 10% price increase would result in a ($475.9) million net liability - A portion of revenues are derived from percent-of-proceeds contracts, exposing the company to volatile natural gas, NGL, and crude oil prices[235] - The company uses derivative instruments (swaps, collars, purchased puts/floors, futures) to hedge commodity price risks and reduce cash flow variability[236] - The estimated fair value of derivative instruments was a net liability of ($349.2) million as of June 30, 2021, due to unfavorable movements in forward commodity prices[243] Effect of Hypothetical 10% Price Movements on Derivative Fair Value (June 30, 2021, In millions) | Commodity | Fair Value | Result of 10% Price Decrease | Result of 10% Price Increase | | :--- | :--- | :--- | :--- | | Natural gas | $(65.4) | $(23.9) | $(106.9) | | NGLs | $(232.3) | $(168.2) | $(296.4) | | Crude oil | $(51.5) | $(30.4) | $(72.6) | | Total | $(349.2) | $(222.5) | $(475.9) | Interest Rate Risk Targa is exposed to interest rate risk from $530.0 million in variable-rate borrowings as of June 30, 2021, with a 100 basis point increase impacting annual interest expense by $5.3 million, and currently has no interest rate hedges - Exposure to interest rate risk primarily from variable rate borrowings under the TRC Revolver, TRP Revolver, and Securitization Facility[244] - As of June 30, 2021, the Partnership had $530.0 million in outstanding variable rate borrowings[244] - A hypothetical 100 basis point increase in variable interest rates would impact annual interest expense by $5.3 million[244] - The company does not have any interest rate hedges as of June 30, 2021[244] Counterparty Credit Risk Targa faces counterparty credit risk from derivatives and customers, with master netting reducing potential loss by $8.2 million as of June 30, 2021, and manages customer risk through credit analyses and enhancements - Targa is subject to risk of losses from nonpayment or nonperformance by its counterparties, including commodity derivative counterparties and trade creditors[233][245] - Master netting provisions in derivative agreements would reduce the maximum loss due to counterparty credit risk by $8.2 million as of June 30, 2021[245] - Customer credit risk is managed through credit analyses, setting credit limits, and requiring credit enhancements (e.g., letters of credit, parental guarantees)[246] Allowance for Doubtful Accounts (In millions) | Date | Amount | | :--- | :--- | | June 30, 2021 | $3.9 | | December 31, 2020 | $0.1 | - No single customer comprised 10% or greater of consolidated revenues during the three and six months ended June 30, 2021[248] Item 4. Controls and Procedures Management concluded that Targa's disclosure controls and procedures were effective as of June 30, 2021, ensuring timely and accurate financial reporting, with no material changes in internal control during the quarter - Management concluded that disclosure controls and procedures were effective as of June 30, 2021, ensuring timely and accurate reporting[250] - There were no material changes in internal control over financial reporting during the most recent fiscal quarter[251] PART II—OTHER INFORMATION This part contains additional information not covered in the financial statements, including legal proceedings, risk factors, and equity security disclosures Item 1. Legal Proceedings This section details an ongoing lawsuit where Vitol Americas Corp. was awarded $129.0 million plus interest and $10.5 million in damages against Targa Channelview LLC, which Targa is appealing while retaining associated liabilities - Vitol Americas Corp. filed a lawsuit against Targa Channelview LLC, seeking recovery of $129.0 million in payments and additional damages related to a terminated Splitter Agreement[254] - The District Court awarded Vitol $129.0 million (plus interest) and $10.5 million in damages, which Targa is appealing[255] - Targa retained the liabilities associated with the Vitol proceedings after selling Targa Channelview in October 2020[256] Item 1A. Risk Factors This section highlights weather as a significant risk factor, noting the February 2021 winter storms' impact and the potential for future severe weather events to materially harm Targa's business - Weather, including unseasonably wet conditions, extended freezing periods, or hurricanes, can disrupt operations and development activities[258] - The February 2021 winter storms adversely affected Targa's operations and the financial condition of some counterparties, leading to temporary outages and commodity price fluctuations[258] - Potential climate changes, such as increased frequency and severity of storms, floods, and other climatic events, could have a material adverse effect on the business[258] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Targa reported no unregistered sales of equity securities, with $408.5 million remaining under its $500 million Share Repurchase Program as of June 30, 2021, primarily used for tax withholding obligations - No unregistered sales of equity securities occurred[260] - A Share Repurchase Program for up to $500 million of outstanding common stock was approved in Q4 2020[262] - As of June 30, 2021, $408.5 million remained available under the Share Repurchase Program[261] - Shares purchased were primarily withheld to satisfy tax withholding obligations of officers, directors, and key employees upon the lapse of restrictions on restricted stock[261] Item 3. Defaults Upon Senior Securities This item is not applicable, indicating no defaults upon senior securities during the reported period - This item is not applicable, indicating no defaults upon senior securities[263] Item 4. Mine Safety Disclosures This item is not applicable, indicating no mine safety disclosures to report - This item is not applicable, indicating no mine safety disclosures[264] Item 5. Other Information This item is not applicable, indicating no other information to disclose not already covered in the report - This item is not applicable, indicating no other information to disclose[265] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, debt agreements, Sarbanes-Oxley Act certifications, and Inline XBRL documents - Exhibits include Amended and Restated Certificate of Incorporation, Certificate of Amendment, Certificate of Designations of Series A Preferred Stock, and Amended and Restated Bylaws[266] - The Tenth Amendment to Receivables Purchase Agreement, dated April 22, 2021, is included[266] - Certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are filed/furnished[266][267] - Inline XBRL Instance Document and Taxonomy Extension documents are included[267] SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the report - The report was signed on behalf of Targa Resources Corp. by Jennifer R. Kneale, Chief Financial Officer, on August 5, 2021[269]