Targa(TRGP)2022-08-04 20:00Financial Data and Key Metrics Changes - Targa Resources reported a quarterly adjusted EBITDA of $666.4 million, a 6% sequential increase driven by higher commodity prices and volumes across gathering and processing and logistics and transportation systems, partially offset by lower marketing margins and higher operating expenses [25][26] - The company updated its full-year 2022 adjusted EBITDA guidance to a range of $2.85 billion to $2.95 billion, reflecting the completion of the Delaware Basin acquisition [11][32] - The consolidated net leverage ratio was reported at 3.1x at the end of the second quarter, with an expectation to end the year around 3.5x [28][32] Business Line Data and Key Metrics Changes - In the Gathering and Processing segment, record inlet volumes averaged 3.1 Bcf per day during the second quarter, with expectations for continued growth in both the Permian Midland and Delaware positions [17][11] - NGL transportation volumes reached a record 492,000 barrels per day, with fractionation volumes at Mont Belvieu also hitting a record of 737,000 barrels per day [21][25] - The company announced new projects including a 275 million cubic feet per day processing plant in the Permian Midland and a 120,000 barrel per day fractionator in Mont Belvieu [13][14] Market Data and Key Metrics Changes - The Delaware Basin acquisition increased Targa's processing capacity to a combined total of 6.4 Bcf per day across the Permian Basin [14] - The logistics and transportation segment is experiencing a tightening fractionation market, with expectations for continued supply growth from Targa's G&P systems and third parties [21][76] Company Strategy and Development Direction - Targa is focused on executing strategic priorities to drive increasing EBITDA, reduce common share count, and maintain leverage within target ranges [10][32] - The company is investing in organic growth projects across its integrated footprint, which is expected to provide attractive returns and enhance shareholder capital returns [13][34] - Management emphasized the importance of integrating recent acquisitions and capturing synergies while maintaining a strong balance sheet [44][45] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about continued strong performance and growth in volumes across both the Permian Midland and Delaware positions [11][10] - The company is actively managing inflation impacts, benefiting from inflation-linked fee escalators across commercial contracts [26][27] - Management highlighted the potential for increased cash flow and capital returns to shareholders in 2023, while maintaining a focus on organic investments [39][40] Other Important Information - Targa has repurchased approximately 2.4 million common shares at a cost of around $154 million year-to-date, with plans for continued share repurchases [24][28] - The company is significantly hedged for the remainder of 2022 and has added hedges for 2023 at higher weighted average prices than in 2022 [30][115] Q&A Session Summary Question: Capital allocation thoughts for 2023 - Management indicated strong flexibility for capital allocation in 2023, focusing on organic investments and increasing returns to shareholders [39][40] Question: Commodity exposure post-Lucid acquisition - The Lucid acquisition is expected to marginally increase fee-based margins over time, with continued investments in both G&P and logistics and transportation [48][50] Question: Lucid synergies and near-term opportunities - Management discussed near-term synergies from moving volumes to Targa's existing systems and the gradual increase in NGLs captured over time [58][60] Question: Impact of Inflation Reduction Act on cash taxes - Management expects to be a material cash taxpayer by 2024, with potential minimum tax implications starting in 2024 [61][62] Question: Expansion and demand for additional products - Management noted a tightening frac market and increasing demand for fractionation services, with ongoing evaluations for additional transportation capacity [76][68] Question: Hedging strategy for 2023 - Management confirmed that hedges for 2023 are at higher prices than in 2022, providing a potential tailwind for the company [115][116]