Q1 2024 Earnings Summary
- Strong and consistent growth in the Permian Basin: Targa Resources is experiencing robust producer activity across all its areas, including the Delaware, Central, and Midland Basins. The company expects continued volume growth throughout 2024, supported by infrastructure investments and strong relationships with producers.
- Strategic investments in organic growth projects: Targa is focused on investing in high-return organic projects such as the Pembrook II processing plant and Train 11 fractionator. These projects, along with increased compression facilities, position the company for continued success in the short, medium, and long term.
- Shift towards fee-based contracts and shareholder returns: The company has successfully implemented more fee floors and fee-based volume growth in its gathering and processing business, providing stability in a low commodity price environment. Additionally, Targa is committed to returning capital to shareholders through increased dividends and opportunistic share repurchases, demonstrating strong conviction in their outlook and financial strength.
- Operational constraints, including the fire at the Greenwood plant, and tight Permian residue gas market, may lead to weaker Q2 EBITDA and limit volume growth.
- Rising operating expenses and seasonality are expected to result in weaker second quarter performance, potentially impacting profitability.
- Non-Permian assets are underperforming due to weaker gas prices, leading to lower volumes and limited growth opportunities outside the Permian.
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Guidance Outlook
Q: Are you tracking towards higher or lower end of guidance?
A: It's early in the year, but performance has been strong, and volumes are expected to ramp up in both the Delaware and Midland Basins, though potential constraints exist. We feel good about our outlook going forward. -
2025 CapEx Confidence
Q: How firm is the $1.4 billion CapEx for 2025?
A: We're confident the $1.4 billion figure is relatively sticky. Major downstream projects like Daytona, Train 11, and an export project are already accounted for. Any changes would depend on field activity levels, but overall, we feel good about this number for next year. -
Permian Gas Pipeline Need
Q: When is a new Permian gas pipeline needed?
A: We agree that 2026 is when another full pipeline out of the basin is needed. Generally, it takes 24 months from FID to completion. We're confident a pipeline will reach FID before the end of this year to address the 2026 needs. -
Upstream Growth Drivers
Q: Is upstream growth from all producers or select few?
A: Growth is consistent across all our producers, with robust activity across the Delaware, Central, and Midland Basins. It's strong, steady activity not specific to any area or producer. -
Capital Return Targets
Q: Will you reach the 40–50% payout target this year?
A: Repurchases are opportunistic, and we aim to return increasing capital to shareholders. However, in 2024 we may not reach the 40–50% target due to high growth capital spending this year, but we'll see how the rest of the year shapes up. -
Impact of Low Waha Prices
Q: Is there a meaningful impact from low Waha prices?
A: Weak Waha prices have pluses and minuses for us. There's some negative impact due to commodity sensitivity, but also positives from gas marketing opportunities. Overall, we'd prefer higher Waha prices but are planning for these fluctuations. -
Fee Growth in G&P Segment
Q: What drove higher fees in the G&P segment?
A: Higher fees resulted from more fee-based volume growth and fee floor growth in our gathering and processing business. Our commercial team successfully added fee floors into key contracts in Q4 2023, allowing us to announce new processing plants despite low commodity prices. -
Permian Volume Outlook
Q: Is second-half growth in Permian still on track?
A: We're seeing consistent, strong growth throughout the entire year across our systems. Producers are performing well, and we're putting infrastructure in place to handle continued growth. -
Nighttime Transits Benefit
Q: How much do nighttime transits add to capacity?
A: Nighttime transits have improved our operating rates by significantly above 10%, allowing higher utilization of our refrigeration units. This is likely the new normal. -
Propane Market Views
Q: What are your views on propane given high production and storage?
A: We've seen increased production and similar inventories year-over-year, leading to high utilization levels of exports. Expansion projects, including a small one we announced, will help meet global demand, and we anticipate continued high exports.
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