Item 1. Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Except as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in millions of dollars.
Note 1 — Organization and Operations
Our Organization
Targa Resources Corp. (“TRC”) is a publicly traded Delaware corporation formed in October 2005. Our common stock is listed on the New York Stock Exchange under the symbol “TRGP.” In this Quarterly Report, unless the context requires otherwise, references to “we,” “us,” “our,” “the Company” or “Targa” are intended to mean our consolidated business and operations. TRC controls the general partner of and owns all of the outstanding common units representing limited partner interests in Targa Resources Partners LP, referred to herein as the “Partnership” or “TRP.”
Our Operations
The Company is primarily engaged in the business of:
|
•
|
gathering, compressing, treating, processing, transporting and selling natural gas;
|
|
•
|
transporting, storing, fractionating, treating and selling NGLs and NGL products, including services to LPG exporters; and
|
|
•
|
gathering, storing, terminaling and selling crude oil.
|
See Note 19 – Segment Information for certain financial information regarding our business segments.
Note 2 — Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by GAAP. Therefore, this information should be read in conjunction with our consolidated financial statements and notes contained in our Annual Report. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim periods reported. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in prior periods may have been reclassified to conform to the current year presentation. Operating results for the three months ended March 31, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
10
Note 3 — Significant Accounting Policies
The accounting policies that we follow are set forth in Note 3 – Significant Accounting Policies of the Notes to Consolidated Financial Statements in our Annual Report. Other than the updates noted below, there were no significant updates or revisions to our accounting policies during the three months ended March 31, 2020.
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
Simplifying the Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update remove certain exceptions for performing intra-period tax allocations and calculating income taxes in interim periods when a year-to-date loss exceeds the anticipated loss for the year. These amendments also simplify the accounting for income taxes, including requiring that an entity reflect the effect of an enacted change in tax law or rate in the annual effective tax rate computation in the applicable interim period. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. We early adopted the amendments on January 1, 2020, on a prospective basis, with no material effect on our consolidated financial statements as a result of adoption.
Fair Value Measurements Disclosure Requirements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements. The amendments in this update removed certain fair value measurement disclosure requirements and added a requirement to disclose the range and weighted average of significant unobservable inputs used to develop both recurring and nonrecurring Level 3 fair value measurements. The amendments were effective for us on January 1, 2020, and were adopted on a prospective basis, with no material effect on our consolidated financial statements as a result of adoption.
Measurement of Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update modifies the impairment model for financial instruments, including trade and other receivables, held-to-maturity debt securities and other instruments.
The amendment requires entities to consider historical information, current conditions and supportable forecasts to estimate expected credit losses, which may result in earlier recognition of losses. The amendments were effective for us on January 1, 2020, and were adopted by applying the modified retrospective transition approach. The adoption did not result in a cumulative effect adjustment to retained earnings on January 1, 2020. As a result of our adoption, see Accounting Policy Updates – Allowance for Doubtful Accounts below.
Accounting Policy Updates
Allowance for Doubtful Accounts
Estimated losses on accounts receivable are provided through an allowance for doubtful accounts. We estimate the allowance for doubtful accounts through various procedures, including extensive review of our trade receivable balances by counterparty, assessing economic events and conditions, our historical experience with counterparties, the counterparty’s financial condition and the amount and age of past due accounts.
We continuously evaluate our ability to collect amounts owed to us. Receivables are considered past due if full payment is not received by the contractual due date. These procedures also include performing account reconciliations, dispute resolution and payment confirmation. We may involve our legal counsel to pursue the recovery of defaulted trade receivables.
As the financial condition of any counterparty changes, circumstances develop or additional information becomes available, adjustments to our allowance may be required.
11
Note 4 — Property, Plant and Equipment and Intangible Assets
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Estimated Useful Lives (In Years)
|
Gathering systems
|
|
$
|
9,027.1
|
|
|
$
|
8,976.8
|
|
|
5 to 20
|
Processing and fractionation facilities
|
|
|
5,370.3
|
|
|
|
5,143.0
|
|
|
5 to 25
|
Terminaling and storage facilities
|
|
|
1,498.3
|
|
|
|
1,495.5
|
|
|
5 to 25
|
Transportation assets
|
|
|
2,313.1
|
|
|
|
2,292.4
|
|
|
10 to 50
|
Other property, plant and equipment
|
|
|
298.1
|
|
|
|
184.1
|
|
|
3 to 25
|
Land
|
|
|
159.3
|
|
|
|
159.7
|
|
|
—
|
Construction in progress
|
|
|
1,425.2
|
|
|
|
1,576.5
|
|
|
—
|
Finance lease right-of-use assets
|
|
|
51.2
|
|
|
|
48.8
|
|
|
—
|
Property, plant and equipment
|
|
|
20,142.6
|
|
|
|
19,876.8
|
|
|
|
Accumulated depreciation, amortization and impairment
|
|
|
(7,730.8
|
)
|
|
|
(5,328.3
|
)
|
|
|
Property, plant and equipment, net
|
|
$
|
12,411.8
|
|
|
$
|
14,548.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
2,643.5
|
|
|
$
|
2,643.5
|
|
|
10 to 20
|
Accumulated amortization and impairment
|
|
|
(1,155.5
|
)
|
|
|
(908.5
|
)
|
|
|
Intangible assets, net
|
|
$
|
1,488.0
|
|
|
$
|
1,735.0
|
|
|
|
During the preparation of the Company's consolidated financial statements for the three months ended March 31, 2019, the Company identified an error related to depreciation expense on certain assets that should have been placed in-service during 2018. The Company does not believe this error is material to its previously issued historical consolidated financial statements for any of the periods impacted and accordingly, has not adjusted the historical financial statements. The Company has recorded the cumulative impact of the adjustment in the three months ended March 31, 2019. This adjustment resulted in a one-time $12.5 million overstatement of depreciation expense during the three months ended March 31, 2019.
During the three months ended March 31, 2020 and 2019, depreciation expense was $200.7 million and $194.4 million.
Asset Impairments
We review and evaluate our long-lived assets, including intangible assets, for impairment when events or changes in circumstances indicate that the related carrying amount of such assets may not be recoverable, and changes to our estimates could have an impact on our assessment of asset recoverability.
During the first quarter of 2020, global commodity prices declined due to factors that significantly impacted both demand and supply. As the COVID-19 pandemic spread, causing travel and other restrictions to be implemented globally, the demand for commodities declined. Additionally, the supply shock late in the first quarter from certain major oil producing nations increasing production significantly also contributed to the sharp drop in commodity prices. The sharp drop in commodity prices has resulted in prompt reactions from some domestic producers, including significantly reducing capital budgets and resultant drilling activity and shutting-in production. The likelihood of additional domestic production shut-ins increases as the availability of domestic crude oil storage decreases, commodity prices remain depressed and concerns about a global oversupply of crude from reduced demand associated with COVID-19 continues.
The above circumstances are a triggering event that requires long-lived assets to be evaluated for impairment. At March 31, 2020, we determined that indictors of impairment existed for certain asset groups reported primarily within our Gathering and Processing segment. For each asset group for which undiscounted future net cash flows were not sufficient to recover the net book value, fair value was determined through use of discounted estimated cash flows to measure the impairment loss.
The estimated cash flows used to assess recoverability of our long-lived assets and measure fair value of our asset groups are derived from current business plans, which are developed using near-term price and volume projections reflective of the current environment and management's projections for long-term average prices and volumes. In addition to near and long-term price assumptions, other key assumptions include volume projections, operating costs, timing of incurring such costs and the use of an appropriate discount rate. We believe our estimates and models used to determine fair value are similar to what a market participant would use.
The fair value measurement of our long-lived assets was based, in part, on significant inputs not observable in the market (as discussed above) and thus represents a Level 3 measurement. The significant unobservable inputs used include discount rates and terminal value exit multiples. We utilized a weighted average discount rate of 14.0% when deriving the fair value of the asset groups impaired during the quarter. The weighted average discount rate and exit multiples reflect management’s best estimate of inputs a market participant would utilize.
12
For the three months ended March 31, 2020, we recorded non-cash pre-tax impairments of $2,442.8 million. The carrying value adjustments are included in Impairment of long-lived assets in our Consolidated Statements of Operations.
The above impairment charge is primarily associated with the partial impairment of gas processing facilities and gathering systems associated with our Mid-Continent operations and full impairment of our Coastal operations - all of which are in our Gathering and Processing segment. Based on the current market conditions, our first quarter impairment assessment forecasts further decline in natural gas production across the Mid-Continent and Gulf of Mexico.
We may identify additional triggering events in the future which will require additional evaluations of the recoverability of the carrying value of our long-lived assets and may result in future impairments. Such non-cash impairments could have a significant effect on our results of operations, which would be recognized in the period in which the carrying value is determined to be not fully recoverable.
Intangible Assets
Intangible assets consist of customer contracts and customer relationships acquired in prior business combinations. The fair value of these acquired intangible assets were determined at the date of acquisition based on the present values of estimated future cash flows. Amortization expense attributable to these assets is recorded over the periods in which we benefit from services provided to customers.
As a result of the triggering events and analysis described above, for the three months ended March 31, 2020 we recognized a non-cash pre-tax impairment loss associated with certain intangible customer relationships for which undiscounted future net cash flows were not sufficient to recover the net book value.
The estimated annual amortization expense for intangible assets is approximately $139.1 million, $129.2 million, $120.9 million, $115.7 million and $111.9 million for each of the years 2020 through 2024.
The changes in our intangible assets are as follows:
Balance at December 31, 2019
|
|
$
|
1,735.0
|
|
Impairment
|
|
|
(208.6
|
)
|
Amortization
|
|
|
(38.4
|
)
|
Balance at March 31, 2020
|
|
$
|
1,488.0
|
|
Note 5 – Investments in Unconsolidated Affiliates
Our investments in unconsolidated affiliates consist of the following:
Gathering and Processing Segment
|
•
|
a 50% operated ownership interest in Little Missouri 4 LLC (“Little Missouri 4”); and
|
|
•
|
two operated joint ventures in South Texas: a 75% interest in T2 LaSalle Gathering Company L.L.C. (“T2 LaSalle”) and a 50% interest in T2 Eagle Ford Gathering Company L.L.C. (“T2 Eagle Ford”), (together the “T2 Joint Ventures”).
|
Logistics and Transportation Segment
|
•
|
a 25% non-operated ownership interest in Gulf Coast Express Pipeline LLC (“GCX”);
|
|
•
|
a 38.8% non-operated ownership interest in Gulf Coast Fractionators LP (“GCF”); and
|
|
•
|
a 50% operated ownership interest in Cayenne Pipeline, LLC (“Cayenne”).
|
The terms of these joint venture agreements do not afford us the degree of control required for consolidating them in our consolidated financial statements, but do afford us the significant influence required to employ the equity method of accounting.
The T2 Joint Ventures were formed to provide services for the benefit of their joint venture owners and have capacity lease agreements with their joint venture owners, which cover costs of operations (excluding depreciation and amortization).
13
The following table shows the activity related to our investments in unconsolidated affiliates:
|
|
Balance at December 31, 2019
|
|
|
Equity Earnings (Loss)
|
|
|
Distributions
|
|
|
Contributions
|
|
|
Balance at March 31, 2020
|
|
GCX (1)
|
|
$
|
447.5
|
|
|
$
|
16.4
|
|
|
$
|
(21.0
|
)
|
|
$
|
1.4
|
|
|
$
|
444.3
|
|
Little Missouri 4
|
|
|
103.7
|
|
|
|
3.3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107.0
|
|
T2 Eagle Ford (2)
|
|
|
89.6
|
|
|
|
(2.2
|
)
|
|
|
(0.9
|
)
|
|
|
—
|
|
|
|
86.5
|
|
T2 LaSalle (2)
|
|
|
44.8
|
|
|
|
(1.2
|
)
|
|
|
(0.4
|
)
|
|
|
—
|
|
|
|
43.2
|
|
GCF
|
|
|
37.2
|
|
|
|
2.4
|
|
|
|
(1.6
|
)
|
|
|
—
|
|
|
|
38.0
|
|
Cayenne
|
|
|
15.9
|
|
|
|
1.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17.8
|
|
Total
|
|
$
|
738.7
|
|
|
$
|
20.6
|
|
|
$
|
(23.9
|
)
|
|
$
|
1.4
|
|
|
$
|
736.8
|
|
(1)
|
Our 25% interest in GCX is owned by Targa GCX Pipeline LLC (“GCX DevCo JV”), of which we own a 20% interest. GCX DevCo JV is accounted for on a consolidated basis in our consolidated financial statements.
|
(2)
|
As of March 31, 2020, $22.7 million of unamortized excess fair value over the T2 LaSalle and T2 Eagle Ford capital accounts remained. These basis differences, which are attributable to the underlying depreciable tangible gathering assets, are being amortized on a straight-line basis as components of equity earnings over the estimated 20-year useful lives of the underlying assets.
|
Note 6 — Accounts Payable and Accrued Liabilities
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Commodities
|
|
$
|
318.6
|
|
|
$
|
683.6
|
|
Other goods and services
|
|
|
264.8
|
|
|
|
313.5
|
|
Interest
|
|
|
108.2
|
|
|
|
125.7
|
|
Income and other taxes
|
|
|
37.0
|
|
|
|
62.4
|
|
Compensation and benefits
|
|
|
13.8
|
|
|
|
62.0
|
|
Preferred Series A dividends payable
|
|
|
22.9
|
|
|
|
22.9
|
|
Accrued distributions to noncontrolling interests
|
|
|
87.8
|
|
|
|
91.7
|
|
Other
|
|
|
20.5
|
|
|
|
18.1
|
|
|
|
$
|
873.6
|
|
|
$
|
1,379.9
|
|
Accounts payable and accrued liabilities includes $9.5 million and $21.9 million of liabilities to creditors to whom we have issued checks that remained outstanding as of March 31, 2020 and December 31, 2019.
14
Note 7 — Debt Obligations
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Current:
|
|
|
|
|
|
|
|
|
Obligations of the Partnership: (1)
|
|
|
|
|
|
|
|
|
Accounts receivable securitization facility, due December 2020 (2)
|
|
$
|
268.1
|
|
|
$
|
370.0
|
|
Finance lease liabilities
|
|
|
12.5
|
|
|
|
12.2
|
|
Current debt obligations
|
|
|
280.6
|
|
|
|
382.2
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
TRC obligations:
|
|
|
|
|
|
|
|
|
TRC Senior secured revolving credit facility, variable rate, due
June 2023 (3)
|
|
|
435.0
|
|
|
|
435.0
|
|
Obligations of the Partnership: (1)
|
|
|
|
|
|
|
|
|
Senior secured revolving credit facility, variable rate, due
June 2023 (4)
|
|
|
360.0
|
|
|
|
—
|
|
Senior unsecured notes:
|
|
|
|
|
|
|
|
|
5¼% fixed rate, due May 2023
|
|
|
559.6
|
|
|
|
559.6
|
|
4¼% fixed rate, due November 2023
|
|
|
583.9
|
|
|
|
583.9
|
|
6¾% fixed rate, due March 2024
|
|
|
580.1
|
|
|
|
580.1
|
|
5⅛% fixed rate, due February 2025
|
|
|
491.9
|
|
|
|
500.0
|
|
5⅞% fixed rate, due April 2026
|
|
|
992.7
|
|
|
|
1,000.0
|
|
5⅜% fixed rate, due February 2027
|
|
|
490.1
|
|
|
|
500.0
|
|
6½% fixed rate, due July 2027
|
|
|
714.9
|
|
|
|
750.0
|
|
5% fixed rate, due January 2028
|
|
|
719.9
|
|
|
|
750.0
|
|
6⅞% fixed rate, due January 2029
|
|
|
689.9
|
|
|
|
750.0
|
|
5½% fixed rate, due March 2030
|
|
|
988.0
|
|
|
|
1,000.0
|
|
TPL notes, 4¾% fixed rate, due November 2021 (5)
|
|
|
6.5
|
|
|
|
6.5
|
|
TPL notes, 5⅞% fixed rate, due August 2023 (5)
|
|
|
48.1
|
|
|
|
48.1
|
|
Unamortized premium
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
7,660.8
|
|
|
|
7,463.5
|
|
Debt issuance costs, net of amortization
|
|
|
(46.2
|
)
|
|
|
(49.1
|
)
|
Finance lease liabilities
|
|
|
25.2
|
|
|
|
25.8
|
|
Long-term debt
|
|
|
7,639.8
|
|
|
|
7,440.2
|
|
Total debt obligations
|
|
$
|
7,920.4
|
|
|
$
|
7,822.4
|
|
Irrevocable standby letters of credit:
|
|
|
|
|
|
|
|
|
Letters of credit outstanding under the TRC Senior
secured credit facility (3)
|
|
$
|
—
|
|
|
$
|
—
|
|
Letters of credit outstanding under the Partnership senior
secured revolving credit facility (4)
|
|
|
73.1
|
|
|
|
88.2
|
|
|
|
$
|
73.1
|
|
|
$
|
88.2
|
|
(1)
|
While we consolidate the debt of the Partnership in our financial statements, we do not have the obligation to make interest payments or debt payments with respect to the debt of the Partnership.
|
(2)
|
As of March 31, 2020, the Partnership had $268.1 million of qualifying receivables under its $400.0 million accounts receivable securitization facility (“Securitization Facility”), resulting in zero availability.
|
(3)
|
As of March 31, 2020, availability under TRC’s $670.0 million senior secured revolving credit facility (“TRC Revolver”) was $235.0 million.
|
(4)
|
As of March 31, 2020, availability under the Partnership’s $2.2 billion senior secured revolving credit facility (“TRP Revolver”) was $1,766.9 million.
|
(5)
|
“TPL” refers to Targa Pipeline Partners LP.
|
The following table shows the range of interest rates and weighted average interest rate incurred on variable-rate debt obligations during the three months ended March 31, 2020:
|
|
Range of Interest Rates Incurred
|
|
Weighted Average Interest Rate Incurred
|
|
TRC Revolver
|
|
2.7% - 3.5%
|
|
3.4%
|
|
TRP Revolver
|
|
2.5% - 6.0%
|
|
3.4%
|
|
Partnership's Securitization Facility
|
|
1.5% - 2.7%
|
|
2.3%
|
|
Compliance with Debt Covenants
As of March 31, 2020, we were in compliance with the covenants contained in our various debt agreements.
15
Debt Repurchases
During the three months ended March 31, 2020, the Partnership repurchased on the open market a portion of its outstanding senior notes as follows:
Debt Repurchased
|
|
Book Value
|
|
|
Payment
|
|
|
Gain/(Loss)
|
|
|
Write-off of Debt Issuance Costs
|
|
|
Net Gain/(Loss)
|
|
5⅛% Senior Notes due 2025
|
|
$
|
8.1
|
|
|
$
|
(5.3
|
)
|
|
$
|
2.8
|
|
|
$
|
-
|
|
|
$
|
2.8
|
|
5⅞% Senior Notes due 2026
|
|
|
7.3
|
|
|
|
(5.1
|
)
|
|
|
2.2
|
|
|
|
-
|
|
|
|
2.2
|
|
5⅜% Senior Notes due 2027
|
|
|
9.9
|
|
|
|
(7.7
|
)
|
|
|
2.2
|
|
|
|
(0.1
|
)
|
|
|
2.1
|
|
6½% Senior Notes due 2027
|
|
|
35.1
|
|
|
|
(27.1
|
)
|
|
|
8.0
|
|
|
|
(0.3
|
)
|
|
|
7.7
|
|
5% Senior Notes due 2028
|
|
|
30.1
|
|
|
|
(21.5
|
)
|
|
|
8.6
|
|
|
|
(0.2
|
)
|
|
|
8.4
|
|
6⅞% Senior Notes due 2029
|
|
|
60.2
|
|
|
|
(46.6
|
)
|
|
|
13.6
|
|
|
|
(0.6
|
)
|
|
|
13.0
|
|
5½% Senior Notes due 2030
|
|
|
12.0
|
|
|
|
(8.8
|
)
|
|
|
3.2
|
|
|
|
(0.1
|
)
|
|
|
3.1
|
|
|
|
$
|
162.7
|
|
|
$
|
(122.1
|
)
|
|
$
|
40.6
|
|
|
$
|
(1.3
|
)
|
|
$
|
39.3
|
|
We or the Partnership may retire or purchase various series of the Partnership’s outstanding debt through cash purchases and/or exchanges for other debt, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Contractual Obligations
The following table summarizes payment obligations for debt instruments after giving effect to the debt repurchases detailed above:
|
|
Payments Due By Period
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
1 Year
|
1-3 Years
|
3-5 Years
|
5 Years
|
|
|
|
(in millions)
|
|
Long-term debt obligations (1)
|
|
$
|
7,660.6
|
|
|
$
|
-
|
|
|
$
|
6.5
|
|
|
$
|
3,058.6
|
|
|
$
|
4,595.5
|
|
Interest on debt obligations (2)
|
|
|
2,643.8
|
|
|
|
406.8
|
|
|
|
817.9
|
|
|
|
648.3
|
|
|
|
770.8
|
|
|
|
$
|
10,304.4
|
|
|
$
|
406.8
|
|
|
$
|
824.4
|
|
|
$
|
3,706.9
|
|
|
$
|
5,366.3
|
|
|
|
(1)
|
Represents scheduled future maturities of consolidated debt obligations for the periods indicated.
|
|
|
|
(2)
|
|
Represents interest expense on debt obligations based on both fixed debt interest rates and prevailing March 31, 2020 rates for floating debt.
|
Subsequent Events
In April, the Partnership repurchased on the open market a portion of its outstanding senior notes as follows:
Debt Repurchased
|
|
Book Value
|
|
|
Payment
|
|
5⅛% Senior Notes due 2025
|
|
$
|
10.9
|
|
|
$
|
(9.3
|
)
|
5⅞% Senior Notes due 2026
|
|
|
29.5
|
|
|
|
(24.6
|
)
|
5⅜% Senior Notes due 2027
|
|
|
22.0
|
|
|
|
(18.9
|
)
|
6½% Senior Notes due 2027
|
|
|
9.7
|
|
|
|
(8.4
|
)
|
5% Senior Notes due 2028
|
|
|
19.5
|
|
|
|
(16.5
|
)
|
6⅞% Senior Notes due 2029
|
|
|
10.5
|
|
|
|
(8.7
|
)
|
5½% Senior Notes due 2030
|
|
|
38.4
|
|
|
|
(31.4
|
)
|
|
|
$
|
140.5
|
|
|
$
|
(117.8
|
)
|
On April 22, 2020, we amended the Partnership’s Securitization Facility to decrease the facility size from $400.0 million to $250.0 million to more closely align with expectations for borrowing capacity given current commodity prices and to extend the facility termination date to April 21, 2021.
16
Note 8 — Other Long-term Liabilities
Other long-term liabilities are comprised of deferred revenue, asset retirement obligations and operating lease liabilities.
Deferred Revenue
We have certain long-term contractual arrangements for which we have received consideration that we are not yet able to recognize as revenue. The resulting deferred revenue will be recognized once all conditions for revenue recognition have been met.
Deferred revenue as of March 31, 2020 and December 31, 2019, was $171.4 million and $172.0 million, respectively, which includes $129.0 million of payments received from Vitol Americas Corp. (“Vitol”) (formerly known as Noble Americas Corp.), a subsidiary of Vitol US Holding Co., in 2016, 2017, and 2018 as part of an agreement (the “Splitter Agreement”) related to the construction and operation of a crude oil and condensate splitter. In December 2018, Vitol elected to terminate the Splitter Agreement. The Splitter Agreement provides that the first three annual payments are ours if Vitol elects to terminate, which Vitol disputes. The timing of revenue recognition related to the Splitter Agreement deferred revenue is dependent on the outcome of current litigation with Vitol. Deferred revenue also includes nonmonetary consideration received in a 2015 amendment to a gas gathering and processing agreement and consideration received for other construction activities of facilities connected to our systems.
Note 9 – Preferred Stock
Preferred Stock Dividends
As of March 31, 2020, we have accrued cumulative preferred dividends of $22.9 million on our Series A Preferred Stock (“Series A Preferred”), which will be paid on May 14, 2020. During the three months ended March 31, 2020, we paid $22.9 million of dividends to preferred shareholders, and recorded deemed dividends of $9.0 million attributable to accretion of the preferred discount resulting from the beneficial conversion feature accounting. Such accretion is included in the book value of the Series A Preferred.
Note 10 — Common Stock and Related Matters
Common Stock Dividends
The following table details the dividends declared and/or paid by us to common shareholders for the three months ended March 31, 2020:
Three Months Ended
|
|
Date Paid or
To Be Paid
|
|
Total Common
Dividends Declared
|
|
|
Amount of Common
Dividends Paid or
To Be Paid
|
|
|
Accrued
Dividends (1)
|
|
|
Dividends Declared per Share of Common Stock
|
|
(In millions, except per share amounts)
|
|
March 31, 2020
|
|
May 15, 2020
|
$
|
|
23.7
|
|
$
|
|
23.3
|
|
$
|
|
0.4
|
|
$
|
|
0.10000
|
|
December 31, 2019
|
|
February 18, 2020
|
|
|
216.0
|
|
|
|
212.0
|
|
|
|
4.0
|
|
|
|
0.91000
|
|
(1)
|
Represents accrued dividends on restricted stock and restricted stock units that are payable upon vesting.
|
Note 11 — Partnership Units and Related Matters
Distributions
We are entitled to receive all Partnership distributions from available cash on the Partnership’s common units after payment of preferred unit distributions each quarter.
The following table details the distributions declared and paid by the Partnership for the three months ended March 31, 2020:
Three Months Ended
|
|
Date Paid or To Be Paid
|
|
Total Distributions
|
|
|
Distributions to
Targa Resources Corp.
|
|
March 31, 2020
|
|
May 13, 2020
|
$
|
|
53.1
|
|
$
|
|
50.3
|
|
December 31, 2019
|
|
February 13, 2020
|
|
|
241.9
|
|
|
|
239.1
|
|
17
Contributions
All capital contributions to the Partnership continue to be allocated 98% to the limited partner and 2% to the general partner; however, no units will be issued for those contributions. During the three months ended March 31, 2020, we did not make any contributions to the Partnership.
Preferred Units
The Partnership’s issued and outstanding Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (the “Preferred Units”) rank senior to the Partnership’s common units with respect to the distribution rights. Distributions on the Partnership’s 5,000,000 Preferred Units are cumulative from the date of original issue in October 2015 and are payable monthly in arrears on the 15th day of each month of each year, when, as and if declared by the board of directors of the Partnership’s general partner. Distributions on the Preferred Units are payable out of amounts legally available at a rate equal to 9.0% per annum. On and after November 1, 2020, distributions on the Preferred Units will accumulate at an annual floating rate equal to the one-month LIBOR plus a spread of 7.71%.
The Partnership paid $2.8 million of distributions to the holders of Preferred Units (“Preferred Unitholders”) for the three months ended March 31, 2020. The Preferred Units are reported as noncontrolling interests in our financial statements.
Subsequent Event
In April 2020, the board of directors of the general partner of the Partnership declared a cash distribution of $0.1875 per Preferred Unit, resulting in approximately $0.9 million in distributions that will be paid on May 15, 2020.
Note 12 — Earnings per Common Share
The following table sets forth a reconciliation of net income and weighted average shares outstanding (in millions) used in computing basic and diluted net income per common share:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$
|
(1,820.3
|
)
|
|
$
|
(24.7
|
)
|
Less: Net income attributable to noncontrolling interests
|
|
|
(82.5
|
)
|
|
|
14.2
|
|
Less: Dividends on preferred stock
|
|
|
31.9
|
|
|
|
30.8
|
|
Net income (loss) attributable to common shareholders for basic earnings per share
|
|
$
|
(1,769.7
|
)
|
|
$
|
(69.7
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
233.0
|
|
|
|
232.2
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available per common share - basic
|
|
$
|
(7.60
|
)
|
|
$
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
233.0
|
|
|
|
232.2
|
|
Weighted average shares outstanding - diluted
|
|
|
233.0
|
|
|
|
232.2
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available per common share - diluted
|
|
$
|
(7.60
|
)
|
|
$
|
(0.30
|
)
|
The following potential common stock equivalents are excluded from the determination of diluted earnings per share because the inclusion of such shares would have been anti-dilutive (in millions on a weighted-average basis):
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Unvested restricted stock awards
|
|
|
0.8
|
|
|
|
1.3
|
|
Series A Preferred Stock (1)
|
|
|
46.5
|
|
|
|
46.5
|
|
______________________________________________________________________________________________
(1)
|
The Series A Preferred has no mandatory redemption date, but is redeemable at our election in year six for a 10% premium to the liquidation preference and for a 5% premium to the liquidation preference in year seven thereafter. If the Series A Preferred is not redeemed by the end of year twelve, the investors have the right to convert the Series A Preferred into TRC common stock.
|
|
18
Note 13 — Derivative Instruments and Hedging Activities
The primary purposes of our commodity risk management activities are to manage our exposure to commodity price risk and reduce volatility in our operating cash flow due to fluctuations in commodity prices. We have entered into derivative instruments to hedge the commodity price risks associated with a portion of our expected (i) natural gas, NGL, and condensate equity volumes in our Gathering and Processing operations that result from percent-of-proceeds processing arrangements, (ii) future commodity purchases and sales in our Logistics and Transportation segment and (iii) natural gas transportation basis risk in our Logistics and Transportation segment. The hedge positions associated with (i) and (ii) above will move favorably in periods of falling commodity prices and unfavorably in periods of rising commodity prices and are designated as cash flow hedges for accounting purposes.
The hedges generally match the NGL product composition and the NGL delivery points of our physical equity volumes. Our natural gas hedges are a mixture of specific gas delivery points and Henry Hub. The NGL hedges may be transacted as specific NGL hedges or as baskets of ethane, propane, normal butane, isobutane and natural gasoline based upon our expected equity NGL composition. We believe this approach avoids uncorrelated risks resulting from employing hedges on crude oil or other petroleum products as “proxy” hedges of NGL prices. Our natural gas and NGL hedges are settled using published index prices for delivery at various locations.
We hedge a portion of our condensate equity volumes using crude oil hedges that are based on the NYMEX futures contracts for West Texas Intermediate light, sweet crude, which approximates the prices received for condensate. This exposes us to a market differential risk if the NYMEX futures do not move in exact parity with the sales price of our underlying condensate equity volumes.
We also enter into derivative instruments to help manage other short-term commodity-related business risks. We have not designated these derivatives as hedges and record changes in fair value and cash settlements to revenues.
At March 31, 2020, the notional volumes of our commodity derivative contracts were:
Commodity
|
Instrument
|
Unit
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Natural Gas
|
Swaps
|
MMBtu/d
|
|
167,230
|
|
|
165,121
|
|
|
86,100
|
|
|
20,000
|
|
|
-
|
|
Natural Gas
|
Basis Swaps
|
MMBtu/d
|
|
436,064
|
|
|
399,360
|
|
|
268,363
|
|
|
220,000
|
|
|
50,000
|
|
NGL
|
Swaps
|
Bbl/d
|
|
26,012
|
|
|
14,151
|
|
|
8,991
|
|
|
-
|
|
|
-
|
|
NGL
|
Futures
|
Bbl/d
|
|
15,527
|
|
|
3,521
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Condensate
|
Swaps
|
Bbl/d
|
|
6,390
|
|
|
4,204
|
|
|
1,610
|
|
|
-
|
|
|
-
|
|
Our derivative contracts are subject to netting arrangements that permit our contracting subsidiaries to net cash settle offsetting asset and liability positions with the same counterparty within the same Targa entity. We record derivative assets and liabilities on our Consolidated Balance Sheets on a gross basis, without considering the effect of master netting arrangements. The following schedules reflect the fair value of our derivative instruments and their location on our Consolidated Balance Sheets as well as pro forma reporting assuming that we reported derivatives subject to master netting agreements on a net basis:
|
|
|
|
Fair Value as of March 31, 2020
|
|
|
Fair Value as of December 31, 2019
|
|
|
|
Balance Sheet
|
|
Derivative
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Derivative
|
|
|
|
Location
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Current
|
|
$
|
190.9
|
|
|
$
|
15.6
|
|
|
$
|
102.1
|
|
|
$
|
11.6
|
|
|
|
Long-term
|
|
|
69.3
|
|
|
|
24.9
|
|
|
|
33.7
|
|
|
|
6.4
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
260.2
|
|
|
$
|
40.5
|
|
|
$
|
135.8
|
|
|
$
|
18.0
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Current
|
|
$
|
8.8
|
|
|
$
|
26.2
|
|
|
$
|
1.2
|
|
|
$
|
92.5
|
|
|
|
Long-term
|
|
|
12.9
|
|
|
|
5.3
|
|
|
|
1.8
|
|
|
|
34.4
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
$
|
21.7
|
|
|
$
|
31.5
|
|
|
$
|
3.0
|
|
|
$
|
126.9
|
|
Total current position
|
|
|
|
$
|
199.7
|
|
|
$
|
41.8
|
|
|
$
|
103.3
|
|
|
$
|
104.1
|
|
Total long-term position
|
|
|
|
|
82.2
|
|
|
|
30.2
|
|
|
|
35.5
|
|
|
|
40.8
|
|
Total derivatives
|
|
|
|
$
|
281.9
|
|
|
$
|
72.0
|
|
|
$
|
138.8
|
|
|
$
|
144.9
|
|
19
The pro forma impact of reporting derivatives on our Consolidated Balance Sheets on a net basis is as follows:
|
|
Gross Presentation
|
|
|
Pro Forma Net Presentation
|
|
March 31, 2020
|
Asset
|
|
|
Liability
|
|
|
Collateral
|
|
|
Asset
|
|
|
Liability
|
|
Current Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparties with offsetting positions or collateral
|
$
|
157.2
|
|
|
$
|
(41.8
|
)
|
|
$
|
(11.9
|
)
|
|
$
|
120.8
|
|
|
$
|
(17.3
|
)
|
|
Counterparties without offsetting positions - assets
|
|
42.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42.5
|
|
|
|
-
|
|
|
Counterparties without offsetting positions - liabilities
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
199.7
|
|
|
|
(41.8
|
)
|
|
|
(11.9
|
)
|
|
|
163.3
|
|
|
|
(17.3
|
)
|
Long Term Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparties with offsetting positions or collateral
|
|
61.4
|
|
|
|
(30.2
|
)
|
|
|
-
|
|
|
|
31.4
|
|
|
|
(0.2
|
)
|
|
Counterparties without offsetting positions - assets
|
|
20.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20.8
|
|
|
|
-
|
|
|
Counterparties without offsetting positions - liabilities
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
82.2
|
|
|
|
(30.2
|
)
|
|
|
-
|
|
|
|
52.2
|
|
|
|
(0.2
|
)
|
Total Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparties with offsetting positions or collateral
|
|
218.6
|
|
|
|
(72.0
|
)
|
|
|
(11.9
|
)
|
|
|
152.2
|
|
|
|
(17.5
|
)
|
|
Counterparties without offsetting positions - assets
|
|
63.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63.3
|
|
|
|
-
|
|
|
Counterparties without offsetting positions - liabilities
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
281.9
|
|
|
$
|
(72.0
|
)
|
|
$
|
(11.9
|
)
|
|
$
|
215.5
|
|
|
$
|
(17.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Presentation
|
|
|
Pro Forma Net Presentation
|
|
December 31, 2019
|
Asset
|
|
|
Liability
|
|
|
Collateral
|
|
|
Asset
|
|
|
Liability
|
|
Current Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparties with offsetting positions or collateral
|
$
|
99.8
|
|
|
$
|
(85.0
|
)
|
|
$
|
(4.9
|
)
|
|
$
|
56.0
|
|
|
$
|
(46.1
|
)
|
|
Counterparties without offsetting positions - assets
|
|
3.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.5
|
|
|
|
-
|
|
|
Counterparties without offsetting positions - liabilities
|
|
-
|
|
|
|
(19.1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(19.1
|
)
|
|
|
|
103.3
|
|
|
|
(104.1
|
)
|
|
|
(4.9
|
)
|
|
|
59.5
|
|
|
|
(65.2
|
)
|
Long Term Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparties with offsetting positions or collateral
|
|
33.3
|
|
|
|
(40.5
|
)
|
|
|
-
|
|
|
|
18.1
|
|
|
|
(25.3
|
)
|
|
Counterparties without offsetting positions - assets
|
|
2.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2.2
|
|
|
|
-
|
|
|
Counterparties without offsetting positions - liabilities
|
|
-
|
|
|
|
(0.3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.3
|
)
|
|
|
|
35.5
|
|
|
|
(40.8
|
)
|
|
|
-
|
|
|
|
20.3
|
|
|
|
(25.6
|
)
|
Total Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparties with offsetting positions or collateral
|
|
133.1
|
|
|
|
(125.5
|
)
|
|
|
(4.9
|
)
|
|
|
74.1
|
|
|
|
(71.4
|
)
|
|
Counterparties without offsetting positions - assets
|
|
5.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5.7
|
|
|
|
-
|
|
|
Counterparties without offsetting positions - liabilities
|
|
-
|
|
|
|
(19.4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(19.4
|
)
|
|
|
$
|
138.8
|
|
|
$
|
(144.9
|
)
|
|
$
|
(4.9
|
)
|
|
$
|
79.8
|
|
|
$
|
(90.8
|
)
|
Our payment obligations in connection with a majority of these hedging transactions are secured by a first priority lien in the collateral securing the TRP Revolver that ranks equal in right of payment with liens granted in favor of the Partnership’s senior secured lenders. Some of our hedges are futures contracts executed through brokers that clear the hedges through an exchange. We maintain a margin deposit with the brokers in an amount sufficient enough to cover the fair value of our open futures positions. The margin deposit is considered collateral, which is located within other current assets on our Consolidated Balance Sheets and is not offset against the fair value of our derivative instruments.
The fair value of our derivative instruments, depending on the type of instrument, was determined by the use of present value methods or standard option valuation models with assumptions about commodity prices based on those observed in underlying markets. The estimated fair value of our derivative instruments was a net asset of $209.9 million as of March 31, 2020. The estimated fair value is net of an adjustment for credit risk based on the default probabilities as indicated by market quotes for the counterparties’ credit default swap rates. The credit risk adjustment was immaterial for all periods presented. Our futures contracts that are cleared through an exchange are margined daily and do not require any credit adjustment.
The following tables reflect amounts recorded in Other comprehensive income (“OCI”) and amounts reclassified from OCI to revenue for the periods indicated:
|
|
Gain (Loss) Recognized in OCI on
Derivatives (Effective Portion)
|
|
Derivatives in Cash Flow
|
|
Three Months Ended March 31,
|
|
Hedging Relationships
|
|
2020
|
|
|
2019
|
|
Commodity contracts
|
|
$
|
158.9
|
|
|
$
|
(38.8
|
)
|
20
|
|
Gain (Loss) Reclassified from OCI into
Income (Effective Portion)
|
|
|
|
Three Months Ended March 31,
|
|
Location of Gain (Loss)
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
59.9
|
|
|
$
|
21.3
|
|
Based on valuations as of March 31, 2020, we expect to reclassify commodity hedge-related deferred gains of $218.3 million included in accumulated other comprehensive income into earnings before income taxes through the end of 2023, with $173.9 million of gains to be reclassified over the next twelve months.
Our consolidated earnings are also affected by the use of the mark-to-market method of accounting for derivative instruments that do not qualify for hedge accounting or that have not been designated as hedges. The changes in fair value of these instruments are recorded on the balance sheet and through earnings rather than being deferred until the anticipated transaction settles. The use of mark-to-market accounting for financial instruments can cause non-cash earnings volatility due to changes in the underlying commodity price indices. For the three months ended March 31, 2020, the unrealized mark-to-market gains are primarily attributable to favorable movements in natural gas forward basis prices.
|
|
Location of Gain
|
|
Gain (Loss) Recognized in Income on Derivatives
|
|
Derivatives Not Designated
|
|
Recognized in Income on
|
|
Three Months Ended March 31,
|
|
as Hedging Instruments
|
|
Derivatives
|
|
2020
|
|
|
2019
|
|
Commodity contracts
|
|
Revenue
|
|
$
|
100.0
|
|
|
$
|
(9.5
|
)
|
See Note 14 – Fair Value Measurements and Note 19 – Segment Information for additional disclosures related to derivative instruments and hedging activities.
Note 14 — Fair Value Measurements
Under GAAP, our Consolidated Balance Sheets reflect a mixture of measurement methods for financial assets and liabilities (“financial instruments”). Derivative financial instruments and contingent consideration related to business acquisitions are reported at fair value on our Consolidated Balance Sheets. Other financial instruments are reported at historical cost or amortized cost on our Consolidated Balance Sheets. The following are additional qualitative and quantitative disclosures regarding fair value measurements of financial instruments.
Fair Value of Derivative Financial Instruments
Our derivative instruments consist of financially settled commodity swaps, futures, option contracts and fixed-price forward commodity contracts with certain counterparties. We determine the fair value of our derivative contracts using present value methods or standard option valuation models with assumptions about commodity prices based on those observed in underlying markets. We have consistently applied these valuation techniques in all periods presented and we believe we have obtained the most accurate information available for the types of derivative contracts we hold.
The fair values of our derivative instruments are sensitive to changes in forward pricing on natural gas, NGLs and crude oil. The financial position of these derivatives at March 31, 2020, a net asset position of $209.9 million, reflects the present value, adjusted for counterparty credit risk, of the amount we expect to receive or pay in the future on our derivative contracts. If forward pricing on natural gas, NGLs and crude oil were to increase by 10%, the result would be a fair value reflecting a net asset of $121.9 million, ignoring an adjustment for counterparty credit risk. If forward pricing on natural gas, NGLs and crude oil were to decrease by 10%, the result would be a fair value reflecting a net asset of $298.0 million, ignoring an adjustment for counterparty credit risk.
Fair Value of Other Financial Instruments
Due to their cash or near-cash nature, the carrying value of other financial instruments included in working capital (i.e., cash and cash equivalents, accounts receivable, accounts payable) approximates their fair value. Long-term debt is primarily the other financial instrument for which carrying value could vary significantly from fair value. We determined the supplemental fair value disclosures for our long-term debt as follows:
|
•
|
The TRC Revolver, TRP Revolver, and the Partnership’s Securitization Facility are based on carrying value, which approximates fair value as their interest rates are based on prevailing market rates; and
|
|
•
|
The Partnership’s senior unsecured notes are based on quoted market prices derived from trades of the debt.
|
Contingent consideration liabilities related to business acquisitions are carried at fair value until the end of the related earn-out period.
21
Fair Value Hierarchy
We categorize the inputs to the fair value measurements of financial assets and liabilities at each balance sheet reporting date using a three-tier fair value hierarchy that prioritizes the significant inputs used in measuring fair value:
|
•
|
Level 1 – observable inputs such as quoted prices in active markets;
|
|
•
|
Level 2 – inputs other than quoted prices in active markets that we can directly or indirectly observe to the extent that the markets are liquid for the relevant settlement periods; and
|
|
•
|
Level 3 – unobservable inputs in which little or no market data exists, therefore we must develop our own assumptions.
|
The following table shows a breakdown by fair value hierarchy category for (1) financial instruments measurements included on our Consolidated Balance Sheets at fair value and (2) supplemental fair value disclosures for other financial instruments:
|
|
March 31, 2020
|
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
|
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Instruments Recorded on Our
Consolidated Balance Sheets at Fair Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets from commodity derivative contracts (1)
|
|
$
|
277.8
|
|
|
$
|
277.8
|
|
|
$
|
—
|
|
|
$
|
277.8
|
|
|
$
|
—
|
|
Liabilities from commodity derivative contracts (1)
|
|
|
67.9
|
|
|
|
67.9
|
|
|
|
—
|
|
|
|
67.9
|
|
|
|
—
|
|
TPL contingent consideration (2)
|
|
|
2.3
|
|
|
|
2.3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.3
|
|
Financial Instruments Recorded on Our
Consolidated Balance Sheets at Carrying Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
375.2
|
|
|
|
375.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
TRC Revolver
|
|
|
435.0
|
|
|
|
435.0
|
|
|
|
—
|
|
|
|
435.0
|
|
|
|
—
|
|
TRP Revolver
|
|
|
360.0
|
|
|
|
360.0
|
|
|
|
—
|
|
|
|
360.0
|
|
|
|
—
|
|
Partnership's Senior unsecured notes
|
|
|
6,865.8
|
|
|
|
5,742.7
|
|
|
|
—
|
|
|
|
5,742.7
|
|
|
|
—
|
|
Partnership's Securitization Facility
|
|
|
268.1
|
|
|
|
268.1
|
|
|
|
—
|
|
|
|
268.1
|
|
|
|
—
|
|
|
|
December 31, 2019
|
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
|
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Instruments Recorded on Our
Consolidated Balance Sheets at Fair Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets from commodity derivative contracts (1)
|
|
$
|
136.5
|
|
|
$
|
136.5
|
|
|
$
|
—
|
|
|
$
|
136.2
|
|
|
$
|
0.3
|
|
Liabilities from commodity derivative contracts (1)
|
|
|
142.6
|
|
|
|
142.6
|
|
|
|
—
|
|
|
|
142.0
|
|
|
|
0.6
|
|
TPL contingent consideration (2)
|
|
|
2.3
|
|
|
|
2.3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.3
|
|
Financial Instruments Recorded on Our
Consolidated Balance Sheets at Carrying Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
331.1
|
|
|
|
331.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
TRC Revolver
|
|
|
435.0
|
|
|
|
435.0
|
|
|
|
—
|
|
|
|
435.0
|
|
|
|
—
|
|
TRP Revolver
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Partnership's Senior unsecured notes
|
|
|
7,028.5
|
|
|
|
7,376.9
|
|
|
|
—
|
|
|
|
7,376.9
|
|
|
|
—
|
|
Partnership's Securitization Facility
|
|
|
370.0
|
|
|
|
370.0
|
|
|
|
—
|
|
|
|
370.0
|
|
|
|
—
|
|
(1)
|
The fair value of derivative contracts in this table is presented on a different basis than the Consolidated Balance Sheets presentation as disclosed in Note 13 –Derivative Instruments and Hedging Activities. The above fair values reflect the total value of each derivative contract taken as a whole, whereas the Consolidated Balance Sheets presentation is based on the individual maturity dates of estimated future settlements. As such, an individual contract could have both an asset and liability position when segregated into its current and long-term portions for Consolidated Balance Sheets classification purposes.
|
(2)
|
We have a contingent consideration liability for TPL’s previous acquisition of a gas gathering system and related assets, which is carried at fair value.
|
Additional Information Regarding Level 3 Fair Value Measurements Included on Our Consolidated Balance Sheets
We reported certain of our swaps and option contracts at fair value using Level 3 inputs due to such derivatives not having observable market prices or implied volatilities for substantially the full term of the derivative asset or liability. For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations whose contract length extends into unobservable periods.
The fair value of these swaps is determined using a discounted cash flow valuation technique based on a forward commodity basis curve. For these derivatives, the primary input to the valuation model is the forward commodity basis curve, which is based on observable or public data sources and extrapolated when observable prices are not available.
22
As of March 31, 2020, we had no commodity swap and option contracts categorized as Level 3. The significant unobservable inputs used in the fair value measurements of our Level 3 derivatives are (i) the forward natural gas liquids pricing curves, for which a significant portion of the derivative’s term is beyond available forward pricing and (ii) implied volatilities, which are unobservable as a result of inactive natural gas liquids options trading. The change in the fair value of Level 3 derivatives associated with a 10% change in the forward basis curve where prices are not observable is immaterial.
The fair value of the TPL contingent consideration was determined using a probability-based model measuring the likelihood of meeting certain volumetric measures. The inputs are not observable; therefore, the entire valuation of the contingent consideration is categorized in Level 3.
The following table summarizes the changes in fair value of our financial instruments classified as Level 3 in the fair value hierarchy:
|
|
|
Commodity
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
|
Contingent
|
|
|
|
|
Asset/(Liability)
|
|
|
Consideration
|
|
Balance, December 31, 2019
|
|
$
|
(0.3
|
)
|
|
$
|
(2.3
|
)
|
|
Transfers out of Level 3 (1)
|
|
|
0.3
|
|
|
|
—
|
|
Balance, March 31, 2020
|
|
$
|
—
|
|
|
$
|
(2.3
|
)
|
(1)
|
Transfers relate to long-term over-the-counter swaps for NGL products for which observable market prices became available for substantially their full term.
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Nonfinancial assets and liabilities, such as long-lived assets, are measured at fair value on a nonrecurring basis upon impairment. For the three months ended March 31, 2020, we recorded non-cash pre-tax impairments of $2,442.8 million. The impairment charge is primarily associated with the partial impairment of gas processing facilities and gathering systems associated with our Mid-Continent operations and full impairment of our Coastal operations. For disclosures related to valuation techniques, see Note 4 – Property, Plant and Equipment and Intangible Assets.
The techniques described above may produce a fair value calculation that may not be indicative or reflective of future fair values. Furthermore, while we believe our valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine fair value of certain financial and nonfinancial assets and liabilities could result in a different fair value measurement at the reporting date.
Note 15 – Contingencies
Legal Proceedings
We and the Partnership are parties to various legal, administrative and regulatory proceedings that have arisen in the ordinary course of our business. We and the Partnership are also parties to various proceedings with governmental environmental agencies, including but not limited to the U.S. Environmental Protection Agency, Texas Commission on Environmental Quality, Oklahoma Department of Environmental Quality, New Mexico Environment Department, Louisiana Department of Environmental Quality and North Dakota Department of Environmental Quality, which assert monetary sanctions for alleged violations of environmental regulations, including air emissions, discharges into the environment and reporting deficiencies, related to events that have arisen at certain of our facilities in the ordinary course of our business.
Note 16 – Revenue
Fixed consideration allocated to remaining performance obligations
The following table includes the estimated minimum revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period and is comprised of fixed consideration primarily attributable to contracts with minimum volume commitments and for which a guaranteed amount of revenue can be calculated. These contracts are comprised primarily of gathering and processing, fractionation, export, terminaling and storage agreements.
|
|
2020
|
|
|
2021
|
|
|
2022 and after
|
|
Fixed consideration to be recognized as of March 31, 2020
|
|
$
|
403.7
|
|
|
$
|
513.5
|
|
|
$
|
3,226.5
|
|
23
In accordance with the optional exemptions that we elected to apply, the amounts presented in the table above exclude variable consideration for which the allocation exception is met and consideration associated with performance obligations of short-term contracts. In addition, consideration from contracts for which we recognize revenue at the amount that we have the right to invoice for services performed is also excluded from the table above, with the exception of any fixed consideration attributable to such contracts. The nature of the performance obligations for which the consideration has been excluded is consistent with the performance obligations described within our revenue recognition accounting policy; the estimated remaining duration of such contracts primarily ranges from 1 to 19 years. In addition, variability exists in the consideration excluded due to the unknown quantity and composition of volumes to be serviced or sold as well as fluctuations in the market price of commodities to be received as consideration or sold over the applicable remaining contract terms. Such variability is resolved at the end of each future month or quarter.
For disclosures related to disaggregated revenue, see Note 19 – Segment Information.
Note 17 – Income Taxes
We regularly evaluate the realizable tax benefits of deferred tax assets and record a valuation allowance, if required, based on an estimate of the amount of deferred tax assets that we believe does not meet the more-likely-than-not criteria of being realized. Taxable income (which is impacted by volatility in commodity prices and other factors), can result in the recording of a valuation allowance against our deferred tax assets. We record a valuation allowance when our judgment is that our existing deferred tax assets are not, on a more-likely-than-not basis, recoverable in future years.
Based on the factors discussed in Note 4 – Property, Plant and Equipment and Intangible Assets, we established a valuation allowance of $251.4 million against a portion of our deferred tax assets during the three months ended March 31, 2020, primarily due to the tax consequences of the impairment of long-lived assets. We will continue to evaluate the need for a valuation allowance based on current and expected earnings and other factors and adjust accordingly.
Note 18 – Supplemental Cash Flow Information
|
Three Months Ended March 31,
|
|
|
2020
|
|
|
2019
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized interest (1)
|
$
|
|
113.3
|
|
|
$
|
|
66.1
|
|
Income taxes paid, net of refunds
|
|
|
(0.3
|
)
|
|
|
|
0.3
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
Impact of capital expenditure accruals on property, plant and equipment
|
$
|
|
(39.6
|
)
|
|
$
|
|
(38.8
|
)
|
Transfers from materials and supplies inventory to property, plant and equipment
|
|
|
1.7
|
|
|
|
|
1.1
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
Impact of accrued distributions on noncontrolling interests
|
$
|
|
(3.9
|
)
|
|
$
|
|
—
|
|
(1)
|
Interest capitalized on major projects was $12.3 million and $18.9 million for the three months ended March 31, 2020 and 2019.
|
Note 19 — Segment Information
We operate in two primary segments: (i) Gathering and Processing, and (ii) Logistics and Transportation (also referred to as the Downstream Business). Our reportable segments include operating segments that have been aggregated based on the nature of the products and services provided.
Our Gathering and Processing segment includes assets used in the gathering of natural gas produced from oil and gas wells and processing this raw natural gas into merchantable natural gas by extracting NGLs and removing impurities; and assets used for crude oil gathering and terminaling. 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.
Our 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 our other businesses. The associated assets are generally connected to and supplied in part by our Gathering and Processing segment and, except for pipelines and smaller terminals, are located predominantly in Mont Belvieu and Galena Park, Texas, and in Lake Charles, Louisiana.
24
Other contains the mark-to-market gains/losses related to derivative contracts that were not designated as cash flow hedges. Elimination of inter-segment transactions are reflected in the corporate and eliminations column.
Reportable segment information is shown in the following tables:
|
|
Three Months Ended March 31, 2020
|
|
|
|
Gathering and Processing
|
|
|
Logistics and Transportation
|
|
|
Other
|
|
|
Corporate
and
Eliminations
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of commodities
|
|
$
|
243.8
|
|
|
$
|
1,419.6
|
|
|
$
|
116.3
|
|
|
$
|
—
|
|
|
$
|
1,779.7
|
|
Fees from midstream services
|
|
|
118.2
|
|
|
|
151.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
269.2
|
|
|
|
|
362.0
|
|
|
|
1,570.6
|
|
|
|
116.3
|
|
|
|
—
|
|
|
|
2,048.9
|
|
Intersegment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of commodities
|
|
|
443.2
|
|
|
|
56.5
|
|
|
|
—
|
|
|
|
(499.7
|
)
|
|
|
—
|
|
Fees from midstream services
|
|
|
1.7
|
|
|
|
8.2
|
|
|
|
—
|
|
|
|
(9.9
|
)
|
|
|
—
|
|
|
|
|
444.9
|
|
|
|
64.7
|
|
|
|
—
|
|
|
|
(509.6
|
)
|
|
|
—
|
|
Revenues
|
|
$
|
806.9
|
|
|
$
|
1,635.3
|
|
|
$
|
116.3
|
|
|
$
|
(509.6
|
)
|
|
$
|
2,048.9
|
|
Operating margin
|
|
$
|
255.7
|
|
|
$
|
294.0
|
|
|
$
|
116.3
|
|
|
$
|
—
|
|
|
$
|
666.0
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (1)
|
|
$
|
9,403.7
|
|
|
$
|
6,347.7
|
|
|
$
|
16.3
|
|
|
$
|
259.1
|
|
|
$
|
16,026.8
|
|
Goodwill
|
|
$
|
45.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45.2
|
|
Capital expenditures
|
|
$
|
116.1
|
|
|
$
|
177.9
|
|
|
$
|
—
|
|
|
$
|
9.8
|
|
|
$
|
303.8
|
|
|
(1)
|
Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
Gathering and Processing
|
|
|
Logistics and Transportation
|
|
|
Other
|
|
|
Corporate
and
Eliminations
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of commodities
|
|
$
|
256.9
|
|
|
$
|
1,726.8
|
|
|
$
|
(7.2
|
)
|
|
$
|
—
|
|
|
$
|
1,976.5
|
|
Fees from midstream services
|
|
|
199.9
|
|
|
|
123.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
322.9
|
|
|
|
|
456.8
|
|
|
|
1,849.8
|
|
|
|
(7.2
|
)
|
|
|
—
|
|
|
|
2,299.4
|
|
Intersegment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of commodities
|
|
|
822.8
|
|
|
|
38.4
|
|
|
|
—
|
|
|
|
(861.2
|
)
|
|
|
—
|
|
Fees from midstream services
|
|
|
1.9
|
|
|
|
5.5
|
|
|
|
—
|
|
|
|
(7.4
|
)
|
|
|
—
|
|
|
|
|
824.7
|
|
|
|
43.9
|
|
|
|
—
|
|
|
|
(868.6
|
)
|
|
|
—
|
|
Revenues
|
|
$
|
1,281.5
|
|
|
$
|
1,893.7
|
|
|
$
|
(7.2
|
)
|
|
$
|
(868.6
|
)
|
|
$
|
2,299.4
|
|
Operating margin
|
|
$
|
238.3
|
|
|
$
|
152.1
|
|
|
$
|
(7.2
|
)
|
|
$
|
—
|
|
|
$
|
383.2
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (1)
|
|
$
|
11,798.2
|
|
|
$
|
5,644.9
|
|
|
$
|
3.6
|
|
|
$
|
122.5
|
|
|
$
|
17,569.2
|
|
Goodwill
|
|
$
|
46.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46.6
|
|
Capital expenditures
|
|
$
|
417.8
|
|
|
$
|
470.9
|
|
|
$
|
—
|
|
|
$
|
16.9
|
|
|
$
|
905.6
|
|
(1)
|
Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.
|
25
The following table shows our consolidated revenues disaggregated by product and service for the periods presented:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Sales of commodities:
|
|
|
|
|
|
|
|
|
Revenue recognized from contracts with customers:
|
|
|
|
|
|
|
|
|
Natural gas
|
|
$
|
273.3
|
|
|
$
|
411.3
|
|
NGL
|
|
|
1,161.0
|
|
|
|
1,396.6
|
|
Condensate and crude oil
|
|
|
135.7
|
|
|
|
137.7
|
|
Petroleum products
|
|
|
49.8
|
|
|
|
19.1
|
|
|
|
|
1,619.8
|
|
|
|
1,964.7
|
|
Non-customer revenue:
|
|
|
|
|
|
|
|
|
Derivative activities - Hedge
|
|
|
59.9
|
|
|
|
21.3
|
|
Derivative activities - Non-hedge (1)
|
|
|
100.0
|
|
|
|
(9.5
|
)
|
|
|
|
159.9
|
|
|
|
11.8
|
|
Total sales of commodities
|
|
|
1,779.7
|
|
|
|
1,976.5
|
|
|
|
|
|
|
|
|
|
|
Fees from midstream services:
|
|
|
|
|
|
|
|
|
Revenue recognized from contracts with customers:
|
|
|
|
|
|
|
|
|
Gathering and processing
|
|
|
115.9
|
|
|
|
194.5
|
|
NGL transportation, fractionation and services
|
|
|
40.6
|
|
|
|
36.2
|
|
Storage, terminaling and export
|
|
|
99.7
|
|
|
|
79.6
|
|
Other
|
|
|
13.0
|
|
|
|
12.6
|
|
Total fees from midstream services
|
|
|
269.2
|
|
|
|
322.9
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,048.9
|
|
|
$
|
2,299.4
|
|
(1)
|
Represents derivative activities that are not designated as hedging instruments under ASC 815.
|
The following table shows a reconciliation of reportable segment operating margin to income (loss) before income taxes for the periods presented:
|
Three Months Ended March 31,
|
|
|
2020
|
|
|
2019
|
|
Reconciliation of reportable segment operating
margin to income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
Gathering and Processing operating margin
|
$
|
|
255.7
|
|
|
$
|
|
238.3
|
|
Logistics and Transportation operating margin
|
|
|
294.0
|
|
|
|
|
152.1
|
|
Other operating margin
|
|
|
116.3
|
|
|
|
|
(7.2
|
)
|
Depreciation and amortization expense
|
|
|
(239.1
|
)
|
|
|
|
(237.4
|
)
|
General and administrative expense
|
|
|
(60.5
|
)
|
|
|
|
(81.1
|
)
|
Impairment of long-lived assets
|
|
|
(2,442.8
|
)
|
|
|
|
—
|
|
Interest expense, net
|
|
|
(98.0
|
)
|
|
|
|
(80.6
|
)
|
Equity earnings (loss)
|
|
|
20.6
|
|
|
|
|
2.8
|
|
Gain (loss) on sale or disposition of business and assets
|
|
|
(0.6
|
)
|
|
|
|
(3.2
|
)
|
Gain (loss) from financing activities
|
|
|
39.3
|
|
|
|
|
(1.4
|
)
|
Change in contingent considerations
|
|
|
—
|
|
|
|
|
(9.7
|
)
|
Other, net
|
|
|
(0.5
|
)
|
|
|
|
(0.2
|
)
|
Income (loss) before income taxes
|
$
|
|
(2,115.6
|
)
|
|
$
|
|
(27.6
|
)
|
26