Targa(TRGP) - 2021 Q4 - Annual Report

Part I Business Targa Resources operates as a major midstream company through its Gathering & Processing and Logistics & Transportation segments - Targa operates through two primary segments: (i) Gathering and Processing, which handles raw natural gas and crude oil from wellheads, and (ii) Logistics and Transportation, which converts mixed NGLs into marketable products and manages their transport, storage, and export[20][21][22] - The company is actively expanding its natural gas processing capacity in the Permian Basin with several new plants scheduled to come online between 2021 and 2023 to meet growing producer demand[26][27][28] - Recent strategic capital allocation includes increasing the common stock dividend, repurchasing interests in development company joint ventures (DevCo JVs) for approximately $925 million, and agreeing to sell its 25% equity interest in the Gulf Coast Express Pipeline (GCX) for approximately $857 million[30][31][32] Gathering and Processing Segment Key Statistics (2021) | Metric | Value | | :--- | :--- | | Natural Gas Pipelines | ~28,400 miles | | Owned/Operated Processing Plants | 42 | | Average Natural Gas Processed | 4,470.3 MMcf/d | | Average NGLs Produced | 550.4 MBbl/d | | Average Crude Oil Purchased/Gathered | 175.9 MBbl/d | Business Operations and Segments The company's operations are divided into two main segments with assets strategically located in major US production basins - The Gathering and Processing segment's assets are strategically located in key production basins such as the Permian (Midland and Delaware), Eagle Ford (SouthTX), Barnett Shale (North Texas), Anadarko Basins (Central Oklahoma), and Williston Basin (Badlands)[55] - The Logistics and Transportation (Downstream) segment's key assets include the Grand Prix NGL pipeline, eight fractionation trains at Mont Belvieu with a total capacity of 843.0 MBbl/d, and the Galena Park Marine Terminal with an effective export capacity of approximately 12.5 MMBbl per month[77][84][92] Gathering & Processing Segment - 2021 Throughput & Production | Region | Natural Gas Inlet (MMcf/d) | NGL Production (MBbl/d) | | :--- | :--- | :--- | | Permian Midland | 1,928.4 | 277.9 | | Permian Delaware | 839.8 | 114.1 | | SouthTX | 177.7 | 22.2 | | North Texas | 178.9 | 20.1 | | SouthOK | 405.9 | 49.5 | | WestOK | 212.6 | 16.5 | | Coastal | 587.2 | 33.9 | | Badlands | 139.8 | 16.2 | | Total | 4,470.3 | 550.4 | Regulation and Environmental Matters Operations are subject to extensive federal, state, and local regulations, including environmental, health, and safety laws - Natural gas gathering operations are generally exempt from FERC jurisdiction but are subject to state-level statutes, while interstate NGL pipelines like Grand Prix are regulated by FERC as common carriers[124][125][128] - Operations are subject to stringent environmental laws (e.g., Clean Air Act, Clean Water Act) and occupational health and safety regulations (e.g., OSHA), which can result in significant compliance costs and penalties[148][149][150] - Pipelines are regulated by the Pipeline and Hazardous Materials Safety Administration (PHMSA), which mandates integrity management programs with an estimated average annual cost of $5.8 million from 2022-2024[154] Risk Factors The company faces significant risks from commodity price volatility, operational hazards, competition, and regulatory changes - The company's cash flow is highly sensitive to volatile commodity prices (natural gas, NGLs, crude oil), which are influenced by supply/demand, economic conditions, and geopolitical factors beyond its control[165][166][167] - A reduction in demand for NGL products from petrochemical, refinery, or export markets, or a significant oversupply, could adversely affect the volumes Targa handles and the fees it charges[172][173] - The company faces substantial financial risk due to its significant level of indebtedness, which could impair its ability to obtain additional financing and limit operational flexibility[254][256] - Regulatory risks are significant, including potential legislation related to climate change and GHG emissions, which could increase operating costs and reduce demand for fossil fuels[264][265][288] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[293] Properties The company's principal executive offices are located in Houston, Texas - The company's principal executive offices are located at 811 Louisiana Street, Suite 2100, Houston, Texas 77002[294] Legal Proceedings The company is appealing a court decision that awarded Vitol Americas Corp damages related to a terminated agreement - Vitol Americas Corp filed a lawsuit against a Targa subsidiary seeking recovery of $129.0 million in payments and other damages related to a terminated splitter agreement[295] - In October 2020, a district court awarded Vitol $129.0 million plus interest and an additional $10.5 million in damages; Targa has filed an appeal, which is currently pending[296] Mine Safety Disclosures This item is not applicable to the company - Not applicable[298] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Targa's common stock trades on the NYSE, and the company executed share repurchases in Q4 2021 under an existing program - The company's common stock is listed on the New York Stock Exchange (NYSE) under the trading symbol "TRGP"[301] - As of December 31, 2021, approximately $369 million remained available under the company's $500 million common share repurchase program[33][307] Q4 2021 Share Repurchases | Period | Shares Purchased | Average Price per Share | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | Oct 2021 | 1,706 | $51.46 | $87,800 | | Nov 2021 | 353,224 | $54.24 | $19.2 Million | | Dec 2021 | 405,250 | $51.58 | $20.9 Million | | Total Q4 2021 | 760,180 | - | ~$40.2 Million | Management's Discussion and Analysis of Financial Condition and Results of Operations Financial performance improved significantly in 2021 due to higher commodity prices and increased volumes in the Permian Basin - The increase in 2021 revenue was primarily driven by higher NGL, natural gas, and condensate prices, which contributed $8.45 billion to the increase in commodity sales[345] - In 2021, the company recognized a non-cash pre-tax impairment loss of $452.3 million on assets in the South Texas region, compared to a $2.44 billion impairment in 2020[349] - Net cash from operating activities increased by $558.4 million to $2.3 billion in 2021, primarily due to higher commodity prices and collections from customers[391][393] Consolidated Financial Performance (2021 vs. 2020) | Metric (in millions) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $16,949.8 | $8,260.3 | 105% | | Income (loss) from operations | $864.8 | $(1,303.7) | 166% | | Net income (loss) attributable to TRC | $71.2 | $(1,553.9) | 105% | | Adjusted EBITDA | $2,052.0 | $1,636.6 | 25% | | Distributable Cash Flow | $1,541.4 | $1,172.8 | 31% | Segment Results Both segments saw increased adjusted operating margins in 2021, driven by higher commodity prices and increased throughput volumes - The Gathering and Processing segment's performance was boosted by higher realized commodity prices and increased natural gas inlet volumes in the Permian region, which grew by 12% year-over-year[362] - The Logistics and Transportation segment's growth was primarily due to higher pipeline transportation and fractionation volumes, reflecting increased supply from the Permian basin[367] Adjusted Operating Margin by Segment (2021 vs. 2020) | Segment (in millions) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Gathering and Processing | $1,801.5 | $1,447.6 | 24% | | Logistics and Transportation | $1,537.3 | $1,402.0 | 10% | Liquidity and Capital Resources The company maintains strong liquidity through a new credit facility and manages capital expenditures while servicing its debt obligations - In February 2022, the company entered into a new $2.75 billion revolving credit facility (New TRC Revolver) maturing in 2027, enhancing its financial flexibility[385] - The company projects net growth capital expenditures for 2022 to be between $700 million and $800 million, with maintenance capital expenditures estimated at approximately $150 million[402] Capital Expenditures (2021 vs. 2020) | Type (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Growth | $421.9 | $617.3 | | Maintenance | $138.6 | $109.5 | | Gross Capital Expenditures | $560.5 | $726.8 | Contractual Obligations Summary (as of Dec 31, 2021) | Obligation Type (in millions) | Total | Within 12 Months | | :--- | :--- | :--- | | Long-term debt obligations | $6,465.7 | $0.0 | | Interest on debt obligations | $2,457.4 | $359.3 | | Purchase obligations | $1,477.0 | $645.0 | | Total | $10,829.1 | $1,047.0 | Quantitative and Qualitative Disclosures About Market Risk The company manages commodity price, interest rate, and counterparty risks, primarily through derivative hedging instruments - The company uses derivative instruments, including swaps and futures, to hedge a portion of its commodity price risk for natural gas, NGLs, and condensate equity volumes through 2025[419][421] - The company is exposed to interest rate risk from variable rate borrowings; a hypothetical 100 basis point change in interest rates would impact annual interest expense by $1.5 million[430] Fair Value of Derivative Instruments (as of Dec 31, 2021) | Commodity | Fair Value (in millions) | | :--- | :--- | | Natural gas | $(82.5) | | NGLs | $(187.4) | | Crude oil | $(46.8) | | Total | $(316.7) | Financial Statements and Supplementary Data This section contains the company's consolidated financial statements and the independent auditor's report - The company's Consolidated Financial Statements and the report of the independent registered public accounting firm begin on page F-1[435] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective[437] - Management's report concluded that internal control over financial reporting was effective as of December 31, 2021, and there were no material changes in the fourth quarter[438][439] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and governance is incorporated by reference from the 2022 proxy statement - Information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[443] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2022 proxy statement - Information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[444] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2022 proxy statement - Information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[445] Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the 2022 proxy statement - Information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[446] Principal Accounting Fees and Services Information regarding accounting fees and services is incorporated by reference from the 2022 proxy statement - Information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[447] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and exhibits filed with the report, with schedules omitted as inapplicable - The company's Consolidated Financial Statements are included under Part II, Item 8 of the Annual Report[450] - All financial statement schedules have been omitted because they are not applicable, not required, or the information is included elsewhere in the financial statements or notes[451] Form 10-K Summary No Form 10-K summary is provided - None[460] Financial Statements Consolidated Financial Statements The company reported a significant turnaround to a net income of $71.2 million in 2021 from a net loss in 2020 Consolidated Balance Sheet Highlights (as of Dec 31) | Account (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Total Current Assets | $1,769.8 | $1,460.3 | | Property, Plant and Equipment, net | $11,667.7 | $12,173.6 | | Total Assets | $15,208.2 | $15,875.7 | | Total Current Liabilities | $2,298.5 | $1,779.4 | | Long-term Debt | $6,434.4 | $7,387.1 | | Total Liabilities | $9,179.8 | $9,671.1 | | Total Owners' Equity | $5,178.7 | $5,903.2 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenues | $16,949.8 | $8,260.3 | | Income (loss) from operations | $864.8 | $(1,303.7) | | Net income (loss) attributable to TRC | $71.2 | $(1,553.9) | | Net income (loss) per common share - diluted | $(0.07) | $(7.26) | Consolidated Cash Flow Highlights (Year Ended Dec 31) | Account (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,302.9 | $1,744.5 | | Net cash used in investing activities | $(473.2) | $(738.1) | | Net cash used in financing activities | $(1,914.0) | $(1,094.7) | Notes to Consolidated Financial Statements The notes detail key accounting policies, a $452.3 million impairment charge, and significant transactions and financing activities - In Q4 2021, the company recorded a non-cash pre-tax impairment charge of $452.3 million for certain gas processing facilities and gathering systems in its Central operations[574] - In January 2022, Targa repurchased its interests in the DevCo JVs for ~$925 million and subsequently agreed to sell its 25% equity interest in GCX for ~$857 million[559][560] - As of December 31, 2021, total debt obligations were $6.6 billion; in February 2022, the company replaced its existing credit facilities with a new $2.75 billion revolving credit facility[598][603] - The company's derivative contracts for commodity hedging had a total net liability fair value of $316.7 million as of December 31, 2021, compared to a net liability of $51.2 million at the end of 2020[429][680]