Targa Resources Corp. (NYSE: TRGP) (“TRGP,” the “Company” or
“Targa”) today reported first quarter 2022 results.
First Quarter 2022 Financial
Results
First quarter 2022 net income attributable to
Targa Resources Corp. was $88.0 million compared to
$146.4 million for the first quarter of 2021.
The Company reported adjusted earnings before
interest, income taxes, depreciation and amortization, and other
non-cash items (“adjusted EBITDA”) of $625.8 million for the first
quarter of 2022 compared to $515.7 million for the first
quarter of 2021.
On April 14, 2022, Targa declared a quarterly
dividend of $0.35 per share of its common stock for the first
quarter of 2022, or $1.40 per share on an annualized basis. Total
cash dividends of approximately $80 million will be paid on
May 16, 2022 on all outstanding shares of common stock to
holders of record as of the close of business on April 29, 2022.
Also, on April 14, 2022, Targa declared a quarterly cash
dividend of $23.75 per share of its Series A Preferred Stock
(“Series A Preferred”) for the first quarter of 2022. Total cash
dividends of approximately $22 million were paid on May 2, 2022 on
all outstanding shares of Series A Preferred to holders of record
as of the close of business on April 25, 2022.
The Company reported distributable cash flow and
adjusted free cash flow for the first quarter of 2022 of $494.6
million and $373.2 million, respectively.
First Quarter 2022 - Sequential Quarter over Quarter
Commentary
Targa reported first quarter 2022 adjusted
EBITDA of $625.8 million, representing a 10 percent increase when
compared to the fourth quarter of 2021. The sequential increase in
adjusted EBITDA was primarily attributable to the repurchase of the
Company’s development company joint ventures (“DevCo JVs”) in
January 2022 and higher Permian volumes across Targa’s Gathering
and Processing (“G&P”) and Logistics and Transportation
(“L&T”) systems, partially offset by the sale of Targa’s equity
interest in Gulf Coast Express Pipeline LLC (“GCX”) in February
2022. In the G&P segment, favorable adjusted operating margin
attributable to higher Permian natural gas inlet volumes and higher
realized natural gas liquids (“NGL”) and condensate prices was
offset by the impact of winter weather across Targa’s systems
during the first quarter of 2022 and lower realized natural gas
prices. In the L&T segment, higher pipeline transportation and
fractionation volumes, partially offset by lower LPG export volumes
and lower marketing margin, drove the sequential increase in
segment adjusted operating margin. NGL pipeline transportation and
fractionation volumes achieved record levels during the first
quarter primarily due to higher supply volumes from Targa’s Permian
G&P systems and third parties. Marketing margin was lower due
to fewer optimization opportunities. Lower operating and G&A
expenses were attributable to lower compensation expense and
contract labor.
Capitalization and Liquidity
The Company’s total consolidated debt as of
March 31, 2022 was $7,248.7 million, net of $41.3 million of debt
issuance costs, with $5,997.6 million of outstanding Targa
Resources Partners LP’s (the “Partnership”) senior notes, $995.0
million outstanding under the Company’s $2.75 billion senior
revolving credit facility (the “TRGP Revolver”), $270.0 million
outstanding under the Partnership’s accounts receivable
securitization facility (the “Securitization Facility”), and $27.4
million of finance lease liabilities.
Total consolidated liquidity as of March 31, 2022 was
approximately $2.0 billion, including $1.7 billion available under
the TRGP Revolver, $135.9 million of cash, and $130.0 million
available under the Securitization Facility.
Financing Update
In March 2022, the Partnership redeemed all of
its outstanding 5.375% Senior Notes due 2027 (the “5.375% Notes”)
with available liquidity under the TRGP Revolver. The Company
recorded a loss due to debt extinguishment of $15.0 million,
comprised of $12.6 million of premiums paid and a write-off of $2.4
million of debt issuance costs.
In April 2022, Targa completed an underwritten
public offering of (i) $750.0 million in aggregate principal amount
of the Company’s 4.200% Senior Notes due 2033 (the “4.200% Notes”)
and (ii) $750.0 million in aggregate principal amount of 4.950%
Senior Notes due 2052 (the “4.950% Notes”), resulting in net
proceeds of approximately $1.5 billion. A portion of the net
proceeds from the issuance was used to fund the concurrent cash
tender offer (the “March Tender Offer”) and the subsequent
redemption payment of the Partnership’s 5.875% Senior Notes due
2026 (the “5.875% Notes”), with the remainder of the net proceeds
used for repayment of outstanding borrowings under the TRGP
Revolver. As a result of the March Tender Offer and the subsequent
redemption of the 5.875% Notes, the Company will record a loss due
to debt extinguishment of $33.5 million in the second quarter of
2022.
In April 2022, the Partnership amended its
Securitization Facility to, among other things, extend the facility
termination date to April 19, 2023 and replace the London interbank
offered rate-based interest rate option with Secured Overnight
Financing Rate (“SOFR”) based interest rate options, including term
SOFR and daily simple SOFR.
Capital Investments and Divestitures
Targa’s estimate for 2022 net growth capital
expenditures remains unchanged between $700 million to $800
million, based on announced projects and other identified spending,
including the Legacy I, Legacy II and Midway plants in its Permian
region.
In January 2022, Targa closed on the purchase of
all of Stonepeak Infrastructure Partners’ (“Stonepeak”) interests
in its DevCo JVs for $926.3 million.
In February 2022, Targa announced that it
executed agreements to sell Targa GCX Pipeline LLC, which held
Targa’s 25 percent equity interest in GCX, for approximately $857
million. Targa expects to receive the full proceeds from the sale
in the second quarter of 2022 as the customary call right period
has now expired.
In April 2022, Targa closed on the acquisition
of Southcross Energy Operating LLC and its subsidiaries in South
Texas for a purchase price of approximately $200 million. Targa
acquired a portfolio of complementary midstream infrastructure
assets and associated contracts that have been integrated in its
SouthTX Gathering and Processing operations.
Common Share Repurchases and Preferred Stock
Redemption
In the first quarter of 2022, Targa repurchased
737,799 shares of its common stock at a weighted average price of
$67.37 for a total net cost of $49.7 million. There was $318.8
million remaining under the Company’s $500 million authorized
common share repurchase program as of March 31, 2022.
In May 2022, Targa redeemed in full all of the
Company’s issued and outstanding shares of Series A Preferred.
Following the redemption, the Company has no Series A Preferred
outstanding and all rights of the holders of shares of Series A
Preferred were terminated.
2022 Operational and Financial Expectations
Targa’s estimate for 2022 average Permian
natural gas inlet volumes to increase 12 percent to 15 percent over
its 2021 average Permian natural gas inlet volumes remains
unchanged and would drive incremental volumes through its L&T
systems.
As the underlying fundamentals of Targa’s
businesses continue to strengthen, Targa continues to expect that
if prices average around current levels for 2022, the Company would
exceed the top end of its previously disclosed full year 2022
adjusted EBITDA guidance range. In February 2022, the Company
disclosed that it estimated full year adjusted EBITDA to be between
$2.3 billion and $2.5 billion, which assumed NGL composite barrel
prices average $0.85 per gallon, crude oil prices average $75 per
barrel and Waha natural gas prices average $3.75 per million
British Thermal Units (“MMbtu”) for 2022. Please see the section of
this release entitled “Non-GAAP Financial Measures” for a
discussion of forward-looking estimated adjusted EBITDA and a
reconciliation of such measure to its most directly comparable GAAP
financial measure.
An earnings supplement presentation and an
updated investor presentation are available under Events and
Presentations in the Investors section of the Company’s website at
www.targaresources.com/investors/events.
Conference Call
The Company will host a conference call for the
investment community at 11:00 a.m. Eastern time (10:00 a.m. Central
time) on May 5, 2022 to discuss its first quarter results. The
conference call can be accessed via webcast under Events and
Presentations in the Investors section of the Company’s website at
www.targaresources.com/investors/events, or by going directly to
https://edge.media-server.com/mmc/p/wassgyck. A webcast replay will
be available at the link above approximately two hours after the
conclusion of the event.Targa Resources Corp. –
Consolidated Financial Results of Operations
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
(In millions) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of commodities |
$ |
4,566.2 |
|
|
$ |
3,367.7 |
|
|
$ |
1,198.5 |
|
|
36 |
% |
Fees from midstream services |
|
392.9 |
|
|
|
265.0 |
|
|
|
127.9 |
|
|
48 |
% |
Total revenues |
|
4,959.1 |
|
|
|
3,632.7 |
|
|
|
1,326.4 |
|
|
37 |
% |
Product purchases and
fuel |
|
4,204.1 |
|
|
|
2,836.3 |
|
|
|
1,367.8 |
|
|
48 |
% |
Operating expenses |
|
183.5 |
|
|
|
171.1 |
|
|
|
12.4 |
|
|
7 |
% |
Depreciation and amortization
expense |
|
209.1 |
|
|
|
216.2 |
|
|
|
(7.1 |
) |
|
(3 |
%) |
General and administrative
expense |
|
67.1 |
|
|
|
61.4 |
|
|
|
5.7 |
|
|
9 |
% |
Other operating (income)
expense |
|
(0.5 |
) |
|
|
3.6 |
|
|
|
(4.1 |
) |
|
(114 |
%) |
Income (loss) from
operations |
|
295.8 |
|
|
|
344.1 |
|
|
|
(48.3 |
) |
|
(14 |
%) |
Interest expense, net |
|
(93.6 |
) |
|
|
(98.4 |
) |
|
|
4.8 |
|
|
5 |
% |
Equity earnings (loss) |
|
5.6 |
|
|
|
11.8 |
|
|
|
(6.2 |
) |
|
(53 |
%) |
Gain (loss) from financing
activities |
|
(15.8 |
) |
|
|
(14.7 |
) |
|
|
(1.1 |
) |
|
7 |
% |
Other, net |
|
(0.5 |
) |
|
|
0.1 |
|
|
|
(0.6 |
) |
NM |
|
Income tax (expense)
benefit |
|
(22.9 |
) |
|
|
(15.0 |
) |
|
|
(7.9 |
) |
|
53 |
% |
Net income (loss) |
|
168.6 |
|
|
|
227.9 |
|
|
|
(59.3 |
) |
|
(26 |
%) |
Less: Net income (loss)
attributable to noncontrolling interests |
|
80.6 |
|
|
|
81.5 |
|
|
|
(0.9 |
) |
|
(1 |
%) |
Net income (loss) attributable
to Targa Resources Corp. |
|
88.0 |
|
|
|
146.4 |
|
|
|
(58.4 |
) |
|
(40 |
%) |
Premium on repurchase of
noncontrolling interests, net of tax |
|
53.1 |
|
|
|
— |
|
|
|
53.1 |
|
|
100 |
% |
Dividends on Series A
Preferred Stock |
|
21.8 |
|
|
|
21.8 |
|
|
|
— |
|
|
— |
|
Net income (loss) attributable
to common shareholders |
$ |
13.1 |
|
|
$ |
124.6 |
|
|
$ |
(111.5 |
) |
|
(89 |
%) |
Financial
data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (1) |
$ |
625.8 |
|
|
$ |
515.7 |
|
|
$ |
110.1 |
|
|
21 |
% |
Distributable cash flow
(1) |
|
494.6 |
|
|
|
397.4 |
|
|
|
97.2 |
|
|
24 |
% |
Adjusted free cash flow
(1) |
|
373.2 |
|
|
|
336.4 |
|
|
|
36.8 |
|
|
11 |
% |
(1) |
Adjusted
EBITDA, distributable cash flow and adjusted free cash flow are
non-GAAP financial measures and are discussed under “Non-GAAP
Financial Measures.” |
NM |
Due to a low denominator, the noted percentage change is
disproportionately high and as a result, considered not meaningful
or material. |
|
|
Three Months Ended March 31, 2022 Compared to Three Months
Ended March 31, 2021
The increase in commodity sales reflects higher
NGL, natural gas and condensate prices ($1,385.7 million) and
higher natural gas volumes ($20.3 million), partially offset by
lower NGL volumes ($20.2 million) and the unfavorable impact of
hedges ($188.0 million).
The increase in fees from midstream services is
primarily due to higher gas gathering and processing fees,
transportation and fractionation fees and export volumes.
The increase in product purchases and fuel
reflects higher NGL, natural gas and condensate prices and higher
natural gas volumes, partially offset by lower NGL volumes.
The increase in operating expenses was due to
higher labor and maintenance costs primarily due to increased
activity and system expansions, partially offset by lower taxes and
the reduction in expense from a major winter storm that affected
regions across Texas, New Mexico, Oklahoma and Louisiana during the
first quarter of 2021.
See “—Review of Segment Performance” for
additional information on a segment basis.
The decrease in depreciation and amortization
expense is primarily due to a lower depreciable base associated
with assets that were impaired during the fourth quarter of
2021.
The increase in general and administrative
expense is primarily due to higher insurance costs and professional
fees.
The decrease in interest expense, net is
primarily due lower net borrowings and an increase in capitalized
interest resulting from higher growth capital investments.
The decrease in equity earnings is primarily due
to lower earnings from the Company’s investments in GCX DevCo JV
and the Badlands, partially offset by lower losses from the
Company’s investments in Gulf Coast Fractionators, T2 Eagle Ford
Gathering Company L.L.C. and T2 LaSalle Gathering Company L.L.C.
Lower equity earnings from the Company’s investments in GCX DevCo
JV were due to the DevCo JV Repurchase in 2022.
During 2022, the Company terminated its previous
TRGP senior secured revolving credit facility and the Partnership’s
senior secured revolving credit facility and the Partnership
redeemed the 5.375% Notes, resulting in a net loss from financing
activities. During 2021, the Partnership redeemed its 5.125% Senior
Notes due 2025, the Targa Pipeline Partners LP (“TPL”) 4.750%
Senior Notes due 2021 and the TPL 5.875% Senior Notes due 2023,
resulting in a net loss from financing activities.
The increase in income tax expense is primarily
due to a smaller release of the valuation allowance in 2022
compared to 2021, partially offset by a decrease in pre-tax book
income.
During the first quarter of 2022, the Company
closed on the purchase of all of Stonepeak’s interests in the DevCo
JVs for $926.3 million. The change in the Company’s ownership
interests was accounted for as an equity transaction representing
the acquisition of noncontrolling interests resulting in a $53.1
million premium on repurchase of noncontrolling interests, net of
tax. Review
of Segment Performance
The following discussion of segment performance
includes inter-segment activities. The Company views segment
operating margin and adjusted operating margin as important
performance measures of the core profitability of its operations.
These measures are key components of internal financial reporting
and are reviewed for consistency and trend analysis. For a
discussion of adjusted operating margin, see “Non-GAAP Financial
Measures ― Adjusted Operating Margin.” Segment operating financial
results and operating statistics include the effects of
intersegment transactions. These intersegment transactions have
been eliminated from the consolidated presentation.
The Company operates in two primary segments:
(i) Gathering and Processing; and (ii) Logistics and
Transportation.
Gathering and Processing
Segment
The Gathering and Processing segment includes
assets used in the gathering and/or purchase and sale of natural
gas produced from oil and gas wells, removing impurities and
processing this raw natural gas into merchantable natural gas by
extracting NGLs; and assets used for the gathering and terminaling
and/or purchase and sale of crude oil. The Gathering and Processing
segment's assets are located in the Permian Basin of West Texas and
Southeast New Mexico (including the Midland, Central and Delaware
Basins); the Eagle Ford Shale in South Texas; the Barnett Shale in
North Texas; the Anadarko, Ardmore, and Arkoma Basins in Oklahoma
(including the SCOOP and STACK) and South Central Kansas; the
Williston Basin in North Dakota (including the Bakken and Three
Forks plays); and the onshore and near offshore regions of the
Louisiana Gulf Coast and the Gulf of Mexico.
The following table provides summary data
regarding results of operations of this segment for the periods
indicated:
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
|
(In millions, except operating statistics and price
amounts) |
|
Operating margin |
$ |
397.6 |
|
|
$ |
275.1 |
|
|
$ |
122.5 |
|
|
45 |
% |
Operating expenses |
|
116.6 |
|
|
|
105.5 |
|
|
|
11.1 |
|
|
11 |
% |
Adjusted operating margin |
$ |
514.2 |
|
|
$ |
380.6 |
|
|
$ |
133.6 |
|
|
35 |
% |
Operating statistics
(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant natural gas inlet,
MMcf/d (2),(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permian Midland (4) |
|
2,075.1 |
|
|
|
1,658.3 |
|
|
|
416.8 |
|
|
25 |
% |
Permian Delaware |
|
977.0 |
|
|
|
737.6 |
|
|
|
239.4 |
|
|
32 |
% |
Total Permian |
|
3,052.1 |
|
|
|
2,395.9 |
|
|
|
656.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SouthTX (5) |
|
162.1 |
|
|
|
176.4 |
|
|
|
(14.3 |
) |
|
(8 |
%) |
North Texas |
|
175.3 |
|
|
|
175.4 |
|
|
|
(0.1 |
) |
|
— |
|
SouthOK (5) |
|
407.3 |
|
|
|
375.2 |
|
|
|
32.1 |
|
|
9 |
% |
WestOK |
|
202.5 |
|
|
|
202.7 |
|
|
|
(0.2 |
) |
|
— |
|
Total Central |
|
947.2 |
|
|
|
929.7 |
|
|
|
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Badlands (5) (6) |
|
125.0 |
|
|
|
134.9 |
|
|
|
(9.9 |
) |
|
(7 |
%) |
Total Field |
|
4,124.3 |
|
|
|
3,460.5 |
|
|
|
663.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coastal |
|
602.1 |
|
|
|
652.6 |
|
|
|
(50.5 |
) |
|
(8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
4,726.4 |
|
|
|
4,113.1 |
|
|
|
613.3 |
|
|
15 |
% |
NGL production, MBbl/d
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permian Midland (4) |
|
300.8 |
|
|
|
237.0 |
|
|
|
63.8 |
|
|
27 |
% |
Permian Delaware |
|
129.8 |
|
|
|
96.5 |
|
|
|
33.3 |
|
|
35 |
% |
Total Permian |
|
430.6 |
|
|
|
333.5 |
|
|
|
97.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SouthTX (5) |
|
20.3 |
|
|
|
17.6 |
|
|
|
2.7 |
|
|
15 |
% |
North Texas |
|
19.2 |
|
|
|
19.2 |
|
|
|
— |
|
|
— |
|
SouthOK (5) |
|
50.5 |
|
|
|
43.8 |
|
|
|
6.7 |
|
|
15 |
% |
WestOK |
|
14.9 |
|
|
|
16.1 |
|
|
|
(1.2 |
) |
|
(7 |
%) |
Total Central |
|
104.9 |
|
|
|
96.7 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Badlands (5) |
|
14.7 |
|
|
|
15.5 |
|
|
|
(0.8 |
) |
|
(5 |
%) |
Total Field |
|
550.2 |
|
|
|
445.7 |
|
|
|
104.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coastal |
|
37.1 |
|
|
|
40.0 |
|
|
|
(2.9 |
) |
|
(7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
587.3 |
|
|
|
485.7 |
|
|
|
101.6 |
|
|
21 |
% |
Crude oil, Badlands,
MBbl/d |
|
122.7 |
|
|
|
136.2 |
|
|
|
(13.5 |
) |
|
(10 |
%) |
Crude oil, Permian,
MBbl/d |
|
30.6 |
|
|
|
34.9 |
|
|
|
(4.3 |
) |
|
(12 |
%) |
Natural gas sales, BBtu/d
(3) |
|
2,126.3 |
|
|
|
1,956.0 |
|
|
|
170.3 |
|
|
9 |
% |
NGL sales, MBbl/d (3) |
|
424.8 |
|
|
|
349.0 |
|
|
|
75.8 |
|
|
22 |
% |
Condensate sales, MBbl/d |
|
14.4 |
|
|
|
15.2 |
|
|
|
(0.8 |
) |
|
(5 |
%) |
Average realized
prices - inclusive of hedges (7): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas, $/MMBtu |
|
4.09 |
|
|
|
2.51 |
|
|
|
1.58 |
|
|
63 |
% |
NGL, $/gal |
|
0.79 |
|
|
|
0.46 |
|
|
|
0.33 |
|
|
72 |
% |
Condensate, $/Bbl |
|
75.72 |
|
|
|
46.80 |
|
|
|
28.92 |
|
|
62 |
% |
______________________
(1) |
Segment operating statistics include the effect of intersegment
amounts, which have been eliminated from the consolidated
presentation. For all volume statistics presented, the numerator is
the total volume sold during the period and the denominator is the
number of calendar days during the period. |
(2) |
Plant natural gas inlet represents the Company’s undivided interest
in the volume of natural gas passing through the meter located at
the inlet of a natural gas processing plant, other than
Badlands. |
(3) |
Plant natural gas inlet volumes and gross NGL production volumes
include producer take-in-kind volumes, while natural gas sales and
NGL sales exclude producer take-in-kind volumes. |
(4) |
Permian Midland includes operations in WestTX, of which the Company
owns 72.8%, and other plants that are owned 100% by the Company.
Operating results for the WestTX undivided interest assets are
presented on a pro-rata net basis in the Company’s reported
financials. |
(5) |
Operations include facilities that are not wholly owned by the
Company. |
(6) |
Badlands natural gas inlet represents the total wellhead volume and
includes the Targa volumes processed at the Little Missouri 4
plant. |
(7) |
Average realized prices include the effect of realized commodity
hedge gain/loss attributable to the Company’s equity volumes. The
price is calculated using total commodity sales plus the hedge
gain/loss as the numerator and total sales volume as the
denominator. |
|
|
The following table presents the realized
commodity hedge gain (loss) attributable to the Company’s equity
volumes that are included in the adjusted operating margin of the
Gathering and Processing segment:
|
Three Months Ended March 31, 2022 |
|
|
Three Months Ended March 31, 2021 |
|
|
(In millions, except volumetric data and price
amounts) |
|
|
VolumeSettled |
|
|
PriceSpread (1) |
|
|
Gain(Loss) |
|
|
VolumeSettled |
|
|
PriceSpread (1) |
|
|
Gain(Loss) |
|
Natural gas (BBtu) |
|
17.5 |
|
|
$ |
(1.78 |
) |
|
$ |
(31.2 |
) |
|
|
18.0 |
|
|
$ |
(0.72 |
) |
|
$ |
(12.8 |
) |
NGL (MMgal) |
|
170.4 |
|
|
|
(0.46 |
) |
|
|
(78.0 |
) |
|
|
122.7 |
|
|
|
(0.19 |
) |
|
|
(22.9 |
) |
Crude oil (MBbl) |
|
0.5 |
|
|
|
(39.40 |
) |
|
|
(19.7 |
) |
|
|
0.5 |
|
|
|
(4.00 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
$ |
(128.9 |
) |
|
|
|
|
|
|
|
|
|
$ |
(37.9 |
) |
______________________
(1) |
The price spread is the differential between the contracted
derivative instrument pricing and the price of the corresponding
settled commodity transaction. |
|
|
Three Months Ended March 31, 2022 Compared
to Three Months Ended March 31, 2021
The increase in adjusted operating margin was
due to higher realized commodity prices, natural gas inlet volumes
and fees predominantly in the Permian. The increase in natural gas
inlet volumes in the Permian was attributable to higher production,
higher producer activity and the addition of the Heim plant during
the third quarter of 2021. Prior year natural gas inlet volumes
were impacted by the short-term operational disruption associated
with a major winter storm that affected regions across Texas, New
Mexico, Oklahoma and Louisiana, which reduced the Company’s Permian
and Central region volumes during the first quarter of 2021. In the
Badlands, the decrease in volumes was attributable to lower
production and the impact of winter weather, while lower volumes in
the Coastal region were due to lower production and continued low
producer activity.
Operating expenses were higher due to increased
activity levels in the Permian and the addition of the Heim plant
in the third quarter of 2021, which resulted in increased labor
costs, materials and chemicals.
Logistics and Transportation
Segment
The Logistics and Transportation segment
includes the activities and assets necessary to convert mixed NGLs
into NGL products and also includes other assets and value-added
services such as transporting, storing, fractionating, terminaling,
and marketing of NGLs and NGL products, including services to LPG
exporters and certain natural gas supply and marketing activities
in support of the Company’s other businesses. The Logistics and
Transportation segment also includes Grand Prix NGL Pipeline, which
connects the Company’s gathering and processing positions in the
Permian Basin, Southern Oklahoma and North Texas with the Company’s
Downstream facilities in Mont Belvieu, Texas. The associated assets
are generally connected to and supplied in part by the Company’s
Gathering and Processing segment and, except for the pipelines and
smaller terminals, are located predominantly in Mont Belvieu and
Galena Park, Texas, and in Lake Charles, Louisiana.
The following table provides summary data
regarding results of operations of this segment for the periods
indicated:
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
(In millions, except operating statistics) |
Operating margin |
$ |
352.1 |
|
|
$ |
348.7 |
|
|
$ |
3.4 |
|
|
1 |
% |
Operating expenses |
|
66.9 |
|
|
|
65.8 |
|
|
|
1.1 |
|
|
2 |
% |
Adjusted operating margin |
$ |
419.0 |
|
|
$ |
414.5 |
|
|
$ |
4.5 |
|
|
1 |
% |
Operating statistics
MBbl/d (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL pipeline transportation
volumes (2) |
|
459.7 |
|
|
|
342.5 |
|
|
|
117.2 |
|
|
34 |
% |
Fractionation volumes |
|
702.8 |
|
|
|
545.8 |
|
|
|
157.0 |
|
|
29 |
% |
Export volumes (3) |
|
340.8 |
|
|
|
283.3 |
|
|
|
57.5 |
|
|
20 |
% |
NGL sales |
|
872.8 |
|
|
|
827.3 |
|
|
|
45.5 |
|
|
5 |
% |
______________________
(1) |
Segment operating statistics include intersegment amounts, which
have been eliminated from the consolidated presentation. For all
volume statistics presented, the numerator is the total volume sold
during the period and the denominator is the number of calendar
days during the period. |
(2) |
Represents the total quantity of mixed NGLs that earn a
transportation margin. |
(3) |
Export volumes represent the quantity of NGL products delivered to
third-party customers at the Company’s Galena Park Marine Terminal
that are destined for international markets. |
|
|
Three Months Ended March 31, 2022 Compared
to Three Months Ended March 31, 2021
The increase in adjusted operating margin was
primarily due to higher pipeline transportation and fractionation
volumes and higher LPG export volumes, partially offset by lower
marketing margin. Pipeline transportation and fractionation volumes
benefited from higher supply volumes primarily from the Company’s
Permian Gathering and Processing systems. Prior year Downstream
system volumes were impacted by the short-term operational
disruption and impacts associated with a major winter storm that
affected regions across Texas, New Mexico, Oklahoma and Louisiana,
which reduced our Permian and Central region volumes during the
first quarter of 2021. Higher optimization margin attributable to
the winter storm resulted in higher marketing margin in the first
quarter of 2021.
Operating expenses were slightly higher due to
higher repairs and maintenance.
Other
|
Three Months Ended March 31, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
(In millions) |
|
Operating margin |
$ |
(178.3 |
) |
|
$ |
1.5 |
|
|
$ |
(179.8 |
) |
Adjusted operating margin |
$ |
(178.3 |
) |
|
$ |
1.5 |
|
|
$ |
(179.8 |
) |
Other contains the results of commodity
derivative activity mark-to-market gains/losses related to
derivative contracts that were not designated as cash flow hedges.
The Company has entered into derivative instruments to hedge the
commodity price associated with a portion of the Company’s future
commodity purchases and sales and natural gas transportation basis
risk within the Company’s Logistics and Transportation segment.
About Targa Resources Corp.
Targa Resources Corp. is a leading provider of
midstream services and is one of the largest independent midstream
infrastructure companies in North America. The Company owns,
operates, acquires and develops a diversified portfolio of
complementary domestic midstream infrastructure assets and its
operations are critical to the efficient, safe and reliable
delivery of energy across the United States and increasingly to the
world. The Company’s assets connect natural gas and NGLs to
domestic and international markets with growing demand for cleaner
fuels and feedstocks. The Company is primarily engaged in the
business of: gathering, compressing, treating, processing,
transporting, and purchasing and selling natural gas; transporting,
storing, fractionating, treating, and purchasing and selling NGLs
and NGL products, including services to LPG exporters; and
gathering, storing, terminaling, and purchasing and selling crude
oil.
Targa is a FORTUNE 500 company and is included
in the S&P 400.
For more information, please visit the Company’s
website at www.targaresources.com.
Non-GAAP Financial Measures
This press release includes the Company’s
non-GAAP financial measures: adjusted EBITDA, distributable cash
flow, adjusted free cash flow and adjusted operating margin
(segment). The following tables provide reconciliations of these
non-GAAP financial measures to their most directly comparable GAAP
measures.
The Company utilizes non-GAAP measures to
analyze the Company’s performance. Adjusted EBITDA, distributable
cash flow, adjusted free cash flow and adjusted operating margin
(segment) are non-GAAP measures. The GAAP measure most directly
comparable to these non-GAAP measures are income (loss) from
operations, Net income (loss) attributable to Targa Resources Corp.
and segment operating margin. These non-GAAP measures should not be
considered as an alternative to GAAP measures and have important
limitations as analytical tools. Investors should not consider
these measures in isolation or as a substitute for analysis of the
Company’s results as reported under GAAP. Additionally, because the
Company’s non-GAAP measures exclude some, but not all, items that
affect income and segment operating margin, and are defined
differently by different companies within the Company’s industry,
the Company’s definitions may not be comparable with similarly
titled measures of other companies, thereby diminishing their
utility. Management compensates for the limitations of the
Company’s non-GAAP measures as analytical tools by reviewing the
comparable GAAP measures, understanding the differences between the
measures and incorporating these insights into the Company’s
decision-making processes.
Adjusted Operating Margin
The Company defines adjusted operating margin
for the Company’s segments as revenues less product purchases and
fuel. It is impacted by volumes and commodity prices as well as by
the Company’s contract mix and commodity hedging program.
Gathering and Processing adjusted operating
margin consists primarily of:
- service fees
related to natural gas and crude oil gathering, treating and
processing; and
- revenues from the
sale of natural gas, condensate, crude oil and NGLs less producer
settlements, fuel and transport and the Company’s equity volume
hedge settlements.
Logistics and Transportation adjusted operating
margin consists primarily of:
- service fees
(including the pass-through of energy costs included in fee
rates);
- system product
gains and losses; and
- NGL and natural gas
sales, less NGL and natural gas purchases, fuel, third-party
transportation costs and the net inventory change.
The adjusted operating margin impacts of
mark-to-market hedge unrealized changes in fair value are reported
in Other.
Adjusted operating margin for the Company’s
segments provides useful information to investors because it is
used as a supplemental financial measure by management and by
external users of the Company’s financial statements, including
investors and commercial banks, to assess:
- the financial
performance of the Company’s assets without regard to financing
methods, capital structure or historical cost basis;
- the Company’s
operating performance and return on capital as compared to other
companies in the midstream energy sector, without regard to
financing or capital structure; and
- the viability of
capital expenditure projects and acquisitions and the overall rates
of return on alternative investment opportunities.
Management reviews adjusted operating margin and
operating margin for the Company’s segments monthly as a core
internal management process. The Company believes that investors
benefit from having access to the same financial measures that
management uses in evaluating the Company’s operating results. The
reconciliation of the Company’s adjusted operating margin to the
most directly comparable GAAP measure is presented under “Review of
Segment Performance.”
Adjusted EBITDA
The Company defines adjusted EBITDA as Net
income (loss) attributable to Targa Resources Corp. before
interest, income taxes, depreciation and amortization, and other
items that the Company believes should be adjusted consistent with
the Company’s core operating performance. The adjusting items are
detailed in the adjusted EBITDA reconciliation table and its
footnotes. Adjusted EBITDA is used as a supplemental financial
measure by the Company and by external users of the Company’s
financial statements such as investors, commercial banks and others
to measure the ability of the Company’s assets to generate cash
sufficient to pay interest costs, support the Company’s
indebtedness and pay dividends to the Company’s investors.
Distributable Cash Flow and Adjusted Free Cash
Flow
The Company defines distributable cash flow as
adjusted EBITDA less cash interest expense on debt obligations,
cash tax (expense) benefit and maintenance capital expenditures
(net of any reimbursements of project costs). The Company defines
adjusted free cash flow as distributable cash flow less growth
capital expenditures, net of contributions from noncontrolling
interest and net contributions to investments in unconsolidated
affiliates. Distributable cash flow and adjusted free cash flow are
performance measures used by the Company and by external users of
the Company’s financial statements, such as investors, commercial
banks and research analysts, to assess the Company’s ability to
generate cash earnings (after servicing the Company’s debt and
funding capital expenditures) to be used for corporate purposes,
such as payment of dividends, retirement of debt or redemption of
other financing arrangements.
The following table presents a reconciliation of Net income
(loss) attributable to Targa Resources Corp. to adjusted EBITDA,
distributable cash flow and adjusted free cash flow for the periods
indicated:
|
Three Months Ended March 31, |
|
|
2022 |
|
|
2021 |
|
|
(In millions) |
|
Reconciliation of Net income (loss) attributable to Targa
Resources Corp. to Adjusted EBITDA, Distributable Cash Flow and
Adjusted Free Cash Flow |
|
|
|
|
|
|
|
Net income (loss) attributable to Targa Resources Corp. |
$ |
88.0 |
|
|
$ |
146.4 |
|
Interest (income) expense, net |
|
93.6 |
|
|
|
98.4 |
|
Income tax expense (benefit) |
|
22.9 |
|
|
|
15.0 |
|
Depreciation and amortization expense |
|
209.1 |
|
|
|
216.2 |
|
(Gain) loss on sale or disposition of assets |
|
(1.0 |
) |
|
|
— |
|
Write-down of assets |
|
0.5 |
|
|
|
3.5 |
|
(Gain) loss from financing activities (1) |
|
15.8 |
|
|
|
14.7 |
|
Equity (earnings) loss |
|
(5.6 |
) |
|
|
(11.8 |
) |
Distributions from unconsolidated affiliates and preferred partner
interests, net |
|
12.5 |
|
|
|
33.3 |
|
Compensation on equity grants |
|
13.5 |
|
|
|
15.0 |
|
Risk management activities |
|
178.2 |
|
|
|
(1.5 |
) |
Noncontrolling interests adjustments (2) |
|
(1.7 |
) |
|
|
(13.5 |
) |
Adjusted
EBITDA |
$ |
625.8 |
|
|
$ |
515.7 |
|
Interest expense on debt obligations (3) |
|
(91.7 |
) |
|
|
(98.8 |
) |
Maintenance capital expenditures, net (4) |
|
(37.7 |
) |
|
|
(19.0 |
) |
Cash taxes |
|
(1.8 |
) |
|
|
(0.5 |
) |
Distributable Cash
Flow |
$ |
494.6 |
|
|
$ |
397.4 |
|
Growth capital expenditures, net (4) |
|
(121.4 |
) |
|
|
(61.0 |
) |
Adjusted Free Cash
Flow |
$ |
373.2 |
|
|
$ |
336.4 |
|
______________________
(1) |
Gains or losses on debt repurchases or early debt
extinguishments. |
(2) |
Noncontrolling interest portion of depreciation and amortization
expense. |
(3) |
Excludes amortization of interest expense. |
(4) |
Represents capital expenditures, net of contributions from
noncontrolling interests and includes net contributions to
investments in unconsolidated affiliates. |
|
|
The following table presents a reconciliation of
estimated net income of the Company to estimated adjusted EBITDA
for 2022:
|
2022E |
|
|
(In millions) |
|
Reconciliation of Estimated Net Income attributable to
Targa Resources Corp. to |
|
|
|
Estimated Adjusted
EBITDA |
|
|
|
Net income attributable to Targa Resources Corp. |
$ |
1,260.0 |
|
Interest expense, net |
|
350.0 |
|
Income tax expense |
|
270.0 |
|
Depreciation and amortization expense |
|
880.0 |
|
(Gain) loss on sale of assets |
|
(440.0 |
) |
Equity (earnings) loss |
|
— |
|
Distributions from unconsolidated affiliates and preferred partner
interests, net |
|
45.0 |
|
Compensation on equity grants |
|
55.0 |
|
Noncontrolling interests adjustments (1) |
|
(20.0 |
) |
Estimated Adjusted EBITDA |
$ |
2,400.0 |
|
______________________
(1) |
Noncontrolling interest portion of depreciation and amortization
expense. |
|
|
Forward-Looking Statements
Certain statements in this release are
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included in this release that
address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future,
are forward-looking statements. These forward-looking statements
rely on a number of assumptions concerning future events and are
subject to a number of uncertainties, factors and risks, many of
which are outside the Company’s control, which could cause results
to differ materially from those expected by management of the
Company. Such risks and uncertainties include, but are not limited
to, weather, political, economic and market conditions, including a
decline in the price and market demand for natural gas, natural gas
liquids and crude oil, the impact of pandemics such as COVID-19,
commodity price volatility due to ongoing conflict in Ukraine,
actions by the Organization of the Petroleum Exporting Countries
(“OPEC”) and non-OPEC oil producing countries, the timing and
success of business development efforts, and other uncertainties.
These and other applicable uncertainties, factors and risks are
described more fully in the Company’s filings with the Securities
and Exchange Commission, including its most recent Annual Report on
Form 10-K, and any subsequently filed Quarterly Reports on Form
10-Q and Current Reports on Form 8-K. The Company does not
undertake an obligation to update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Contact the Company's investor relations
department by email at InvestorRelations@targaresources.com or by
phone at (713) 584-1133.
Sanjay LadVice President, Finance & Investor
Relations
Jennifer KnealeChief Financial Officer
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