Targa Resources Corp. (NYSE: TRGP) (“Targa” or the “Company”) and
Lucid Energy Group, a leading privately held natural gas processor
in the Permian Basin, announced today a definitive agreement under
which a wholly-owned subsidiary of Targa will acquire Lucid Energy
Delaware, LLC (“Lucid”) from Riverstone Holdings LLC (“Riverstone”)
and Goldman Sachs Asset Management (“Goldman Sachs”), for $3.55
billion in cash.
Lucid provides natural gas gathering, treating,
and processing services in the Delaware Basin, including
approximately 1,050 miles of natural gas pipelines and
approximately 1.4 billion cubic feet per day (“Bcf/d”) of cryogenic
natural gas processing capacity in service or under construction
located primarily in Eddy and Lea counties of New Mexico. Lucid’s
Delaware Basin footprint overlays some of the most economic crude
oil and natural gas producing acreage in North America. Current rig
activity supports over 20 years of drilling inventory on Lucid’s
greater than 600,000 dedicated acres, which are further
supplemented by significant volumes subject to minimum volume
commitments. Lucid’s assets are anchored by long-term, fixed-fee
contracts and acreage dedications from a diverse set of
high-quality customers. Approximately 70 percent of current system
volumes are sourced from investment grade producers.
Targa’s standalone 2022 financial and
operational outlook has continued to improve given the strength of
commodity markets and producer activity levels. The Company now
estimates full year standalone adjusted EBITDA to be between $2.675
billion and $2.775 billion and reported year-end leverage ratio of
about 2.7 times. Targa’s updated financial expectations assume
natural gas liquids (“NGL”) composite prices average $1.05 per
gallon, crude oil prices average $100 per barrel and Waha natural
gas prices average $6.00 per million British Thermal Units
(“MMbtu”) for the remainder of 2022.
“The strength of Targa’s standalone financial
position has afforded us the flexibility to consider attractive
opportunities to grow our business through acquisitions, as
evidenced by our ability to finance the purchase of Lucid utilizing
available cash and debt with estimated pro forma year-end 2022
leverage around 3.5 times, well within our long-term leverage ratio
target range,” said Matt Meloy, Chief Executive Officer of Targa.
“Lucid’s management team has developed an attractive position in
the Delaware Basin and we look forward to continuing to provide
value added services to the producer customers. This is an exciting
acquisition that aligns with our integrated strategy as we are
expanding and diversifying our Permian Basin footprint with Lucid’s
complementary presence at an attractive investment multiple that we
expect will further enhance the creation of shareholder value and
continue to drive more volumes through Targa’s downstream
businesses.”
“The acquisition is expected to be immediately
accretive to distributable cash flow per share. This acquisition
further supports our already strong cash flow profile and ability
to return an increasing amount of capital to our shareholders
through common dividend increases and common share repurchases,”
added Meloy.
“Over the past several years, Lucid has firmly
established itself as a leading midstream processor in the Delaware
Basin, with a talented team, sophisticated operations and
infrastructure, and strong customer partnerships,” said Mike
Latchem, CEO of Lucid Energy. “I am immensely proud of what we have
achieved, as today’s transaction is a testament to the commitment
and expertise of our team members and our strategy of growing the
business for the benefit of all stakeholders. On behalf of Lucid, I
want to express our gratitude to our sponsors, Riverstone and
Goldman Sachs, whose partnership was instrumental in building the
platform and helping to position the company for its next chapter
of success.”
“We congratulate Mike Latchem and the entire
Lucid team on today’s milestone,” said Baran Tekkora, a Partner at
Riverstone and Co-Head of Private Equity. “The transaction with
Targa will position Lucid for its next stage of growth, while
creating enhanced opportunities for its employees, customers and
communities. Riverstone is pleased to have executed its strategy of
partnering with Goldman Sachs and Lucid’s exceptional management
team, where the combination of our capital and industry expertise
resulted in strong returns for all stakeholders. Since the joint
acquisition of Lucid in 2018, Lucid has significantly grown volumes
and EBITDA and has differentiated itself as a highly sought-after
midstream operator with a best-in-class safety and environmental
track record.”
“We are pleased to have partnered with Lucid and
Riverstone over the last several years, as the company has
continued its growth as a leading gas gathering and processing
platform in the Delaware Basin,” said Scott Lebovitz, Partner and
Co-Head of the Infrastructure investing business within Goldman
Sachs Asset Management. “We believe Mike and the team have done a
great job of expanding customer relationships with high quality
producers in the basin while continuing their commitment to the
environment, safety, and the communities they serve.”
Additional Information and
Advisors
Completion of this transaction is subject to
customary closing conditions, including regulatory approvals. The
transaction is expected to close in the third quarter of 2022.
Targa has available liquidity, including cash on hand, its existing
$2.75 billion revolving credit facility, and committed debt
financing to fund the acquisition.
Evercore and Mizuho Securities USA LLC are
serving as Targa’s financial advisors and Vinson & Elkins LLP
is acting as Targa’s legal counsel on the transaction. Jefferies
LLC is serving as financial advisor, and Latham & Watkins, LLP
and Fried, Frank, Harris, Shriver & Jacobson LLP are acting as
legal counsel to the seller group.
The Lucid Acquisition investor presentation has
been posted to the Investors page of the Company's website, in the
Events and Presentations section, or by going directly to
www.targaresources.com/investors/events.
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.
About Lucid Energy Group
Lucid Energy Group is the largest privately held
natural gas processor in the Permian Basin, providing the full
range of gas midstream services to more than 50 customers in New
Mexico and West Texas. Lucid is supported by growth capital
commitments from a joint venture formed by Riverstone Global Energy
and Power Fund VI, L.P., an investment fund managed by Riverstone
Holdings LLC, and investment funds managed by Goldman Sachs Asset
Management. Please visit www.lucid-energy.com for more
information.
About Riverstone Holdings
LLC
Founded in 2000 by David Leuschen and Pierre
Lapeyre, Riverstone Holdings LLC is an asset management firm that
invests in the private markets primarily within energy, power and
infrastructure. Since inception, the Firm has raised $43 billion of
capital to invest across the capital structure and in all major
components of the industry’s value chain. This includes nearly $8
billion in investments in renewable infrastructure and
decarbonization, where Riverstone has partnered with or established
industry leading companies.
About Goldman Sachs Asset
Management
Bringing together traditional and alternative
investments, Goldman Sachs Asset Management provides clients around
the world with a dedicated partnership and focus on long-term
performance. As the primary investing area within Goldman Sachs
(NYSE: GS), we deliver investment and advisory services for the
world’s leading institutions, financial advisors and individuals,
drawing from our deeply connected global network and tailored
expert insights, across every region and market—overseeing more
than $2 trillion in assets under supervision worldwide as of March
31, 2022. Driven by a passion for our clients’ performance, we seek
to build long-term relationships based on conviction, sustainable
outcomes, and shared success over time. Follow us on LinkedIn.
Non-GAAP Financial Measure
This press release includes the Company’s
non-GAAP financial measure: adjusted EBITDA. The following table
provides reconciliation of this non-GAAP financial measure to its
most directly comparable GAAP measure.
The Company utilizes non-GAAP measures to
analyze the Company’s performance. Adjusted EBITDA is a non-GAAP
measure. The GAAP measure most directly comparable to this non-GAAP
measure is Net income (loss) attributable to Targa Resources Corp.
This non-GAAP measure should not be considered as an alternative to
GAAP measures and has important limitations as analytical tools.
Investors should not consider this measure in isolation or as a
substitute for analysis of the Company’s results as reported under
GAAP. Additionally, because the Company’s non-GAAP measure 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 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.
The following table presents a reconciliation of
estimated standalone net income of the Company to estimated
standalone 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. |
$ |
1,350.0 |
|
Interest expense, net |
|
350.0 |
|
Income tax expense |
|
300.0 |
|
Depreciation and amortization expense |
|
865.0 |
|
(Gain) loss on sale of assets |
|
(440.0 |
) |
(Gain) loss from financing activities (1) |
|
50.0 |
|
Equity (earnings) loss |
|
— |
|
Distributions from unconsolidated affiliates and preferred partner
interests, net |
|
45.0 |
|
Compensation on equity grants |
|
55.0 |
|
Risk management activities |
|
170.0 |
|
Noncontrolling interests adjustments (2) |
|
(20.0) |
|
Estimated Adjusted EBITDA |
$ |
2,725.0 |
|
___________ |
|
|
|
(1) Gains or losses on debt repurchases or early debt
extinguishments. |
(2) 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, the completion of the
acquisition of Lucid, which may not be completed on a timely basis
or at all, expected benefits relating to the acquisition of Lucid
and their impact on the Company’s results of operations, 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.
Contacts:
For
TargaInvestorRelations@targaresources.com (713)
584-1133
Sanjay LadVice President, Finance & Investor
Relations
Jennifer KnealeChief Financial Officer
For Lucid &
RiverstoneDaniel Yunger / Daniel HoadleyKekst
CNCdaniel.yunger@kekstcnc.com / daniel.hoadley@kekstcnc.com
For Goldman Sachs Asset ManagementAvery Reed
avery.reed@gs.com
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