Targa(TRGP) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Targa reported record quarterly adjusted EBITDA of $1,179 million, a 22% increase year-over-year, primarily driven by higher Permian volumes [5][14][15] - The adjusted EBITDA increased 5% sequentially, attributed to the Badlands transaction and higher marketing margins [14] - The company expects full-year 2025 adjusted EBITDA to be in the range of $4,650 million to $4,850 million [14] Business Line Data and Key Metrics Changes - In the Permian, natural gas inlet volumes averaged over 6,000 million cubic feet per day, an 11% increase from a year ago, despite a 1% decrease from the previous quarter due to winter weather impacts [9][10] - NGL pipeline transportation volumes averaged 844,000 barrels per day, and fractionation volumes averaged 980,000 barrels per day, both impacted by winter weather events [11] - LPG export loadings averaged 13,400,000 barrels per month during the first quarter, with continued strength in cargo loadings [12][13] Market Data and Key Metrics Changes - The forward crude price curve has shifted lower, but customers are not indicating material changes to their drilling programs for 2025 and 2026, suggesting continued volume growth [6][10] - The demand for LPGs globally remains strong, with long-term contracts in place, positioning the company well in the market [12][13] Company Strategy and Development Direction - The company aims to maintain a strong investment-grade balance sheet, invest in high-return integrated projects, and return increasing capital to shareholders [14][17] - Targa's integrated asset footprint and strong financial position, with over 90% fee-based revenue, are expected to generate attractive returns [7][14] - The company is focused on expanding its footprint in the Permian Basin and enhancing its logistics and transportation capabilities [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning and outlook for 2025, citing strong producer relationships and multiyear drilling programs [6][24] - The company is well-prepared to navigate global tariff impacts and has managed operating costs effectively [13][14] - Management noted that the current environment allows for opportunistic share repurchases, with a focus on maintaining financial flexibility [14][49] Other Important Information - Targa has successfully completed a $2 billion debt offering to fund share repurchases and general corporate purposes [14][15] - The company has a pro forma consolidated leverage ratio of approximately 3.6 times, well within its long-term target range [15][17] Q&A Session Summary Question: How does Targa differ from others regarding customer relationships and positioning in the Permian? - Management highlighted their strong G&P footprint and relationships with well-capitalized producers, which provide resilience in drilling programs [22][24] Question: Can you elaborate on CapEx direction for 2026 relative to 2025? - Management indicated that CapEx will depend on activity levels, with ongoing growth capital projects expected to support future growth [26][30] Question: Are there any signs of optimization opportunities due to market volatility? - Management noted that they are seeing more opportunities to monetize positions, particularly in gas and NGL marketing [34][35] Question: What is the current hedging strategy and fee floor status? - Management confirmed that they are hedged 90% through 2026, which mitigates commodity price impacts on operating results [38][102] Question: How is the LPG export activity and destination changing? - Management reported no material change in activity levels but noted some shifts in cargo destinations due to market dynamics [43][46] Question: Would Targa consider small-scale bolt-on deals in the current environment? - Management stated that they remain open to bolt-on acquisitions if they meet return criteria, while focusing on organic growth opportunities [59][60] Question: What is the outlook for Permian production if crude prices remain flat? - Management suggested a baseline growth of 2% to 3% in gas production under flat crude oil conditions, with confidence in capturing a larger share of drilled volumes [98][105]