Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record quarterly adjusted EBITDA of $984 million, a 2% increase over the first quarter.
- Record volumes in the Permian Basin, driving significant growth in NGL transportation and fractionation volumes.
- Successful execution of $355 million in common share repurchases, reflecting strong performance and outlook.
- Participation in a joint venture for the Blackcomb pipeline, enhancing natural gas transportation from the Permian Basin.
- Strong balance sheet with $1.6 billion of available liquidity and a consolidated net leverage ratio of 3.6x.
Negative Points
- Hurricane Beryl impacted volumes temporarily, though the effect on the third quarter is expected to be minimal.
- Increased growth capital spending estimate for 2024 to approximately $2.7 billion, up from previous forecasts.
- Operational challenges due to a tight gas market in the Permian, impacting recoveries and efficiencies.
- Required 10-year inspection at Galena Park reduced LPG export loading capacity in the second half of June through late July.
- Higher-than-anticipated Permian volumes necessitate additional growth capital investment, impacting free cash flow.
Q & A Highlights
Q: Hi, good morning. Good morning. I just wanted to touch on the guidance raise here a little bit. Especially the free cash flow inflection and just wanted to understand that a little bit better, whether that is absolute dollars or rate of change or just any other, I guess, way you could bracket what that means?
A: Yes. Jeremy. Yes, we raised our guidance for this year. It's really underpinned by the strength and the volume that we've seen not only so far this year, but also just our expectations for the back half of the year and then leading into 2025. Producers just really continue to have high levels of activity across our system, and we received numerous I think, kind of revisions to the short, medium-term outlook from our producers across our system. So that let us feel really good about the EBITDA this year. And positioned us well going into 2025 and strong activity in 2025. So when you look at our overall EBITDA growth that we expect, coupled with the CapEx moving from $1.4 billion to $1.7 billion, we see a similar -- really similar dollar amount of free cash flow to what we saw when we gave kind of the original outlook back in February of this year.
Q: Got it. That's helpful. And then looking across, it seems like the implied GPM across the processing fleet stepped up quite nicely in 2Q. Just wondering how much of that was tied to better ethane extraction economics in the quarter? How sustainable is the volume uplift in downstream? Just trying to understand that better, particularly, I guess, with Daytona tracking well, it seems?
A: Yes. I don't think we've seen anything really fundamentally different from the production side. We had higher recoveries in the second quarter relative to the first quarter. Is what drove the higher recovery GPM. I think the underlying volumes are similar. Pat, any? No, they are. I mean we had some periods of ethane rejection in the first quarter. That, coupled with some weather issues at times, and we've been in full recovery during the second quarter. Very tight gas market in the Permian in the second quarter. And so that's another reason that you saw our recoveries improve.
Q: Got it. And just the last part with Daytona, if that's tracking early, any impact there, I guess?
A: Yes, Jeremy, this is Scott. The construction on Daytona has gone very well. When you enter into construction of a long-haul pipeline of this size and at this distance, you would anticipate once you get in the construction phase that you might have delays relative to weather or just in general construction delays. But for us, quarter in and quarter out, we've seen improvements. The Targa team has done an excellent job installing that pipe. And I would not be surprised if it actually comes online sometime during this quarter, the third quarter of this year. So very pleased with the time line.
Q: Thanks, operator. Hi, everybody. First part is just a 2-part question on volume growth. I think as we headed into the year, the messaging for you all was that maybe Targa will start to sort of reflect basin growth kind of more broadly, but it seems like you're sort of back in that mode or you're growing at an accelerated pace. Maybe one, can you just touch on the dynamics there? What's going on in your system that's driving that accelerated growth versus the base on average? How long does that last? And then as we think beyond the near term, maybe just thinking around cadence between the next frac and maybe even pipeline expansion in Europe, if this keeps up?
A: Yes, sure. I'll start, and then Pat, you can hop in. I mean, we've, over the last several years, have really outperformed the basin. Our team has done a really good job at servicing our existing customers, but also having commercial success really across the Delaware and the Midland. We also have our assets, well, we have a wide -- kind of a wide area that we cover. We are in the best spots of the Midland, and we're in the best spots and most active spots in the Delaware as well. So I think we benefit from that. We've seen this year continued strong activity from producers, but we've also seen revisions from our producers of the forecast they've given us. And the level of volumes that they're expecting to come across our system for 2024 and 2025. I'd say this year, we've seen more positive revisions than we have in other years. So we've just benefited more from that. Maybe just goes to Targa's overall positioning and strong producer activity. You have anything to add to that? I think the key components there, Matt, are exactly what you said. Large footprint, fungible system underpinned by millions of acres of dedication on both the Delaware and Midland side of the basin, and that's with producers that are committed to growing the Permian Basin production outlook. So when I look at the Midland system, it's pretty easy, right? We've been there for a long time. We've had that system. It is on the core, the core of the best rock in the basin. And then with the Lucid acquisition we did a couple of years ago now, that allowed us to get that same type of position in the Delaware Basin, where we are in the core of the core, covering the best rock, a great group of producers, again, underpinned by multimillion acre dedications with producers, again, that are committed to developing and growing their production in the Permian. And I think the one thing we left out in all of that is we continue to have commercial success. We've had a lot of commercial success early in the Midland Basin and recently in the Delaware Basin that is additive to that footprint that we've already had in place for a good period of time.
Q: Got it. And as you think about the cadence for that next frac pipeline expansion, is that still kind of far enough out? Or does that seem like that's accelerating too?
A: Spiro, this is Scott again. I'll first start on the pipeline side of things. Certainly, with Daytona coming online, likely during this quarter, that gives us a lot of operational leverage as it relates to the volumes coming out of the west from the Permian along those two lines. So we've got the Grand Prix line, the original West line, we've got Daytona and with a lot of operational leverage with that. Then that ties into our trunk line that feeds into Mont Belvieu, where we've got some operational leverage as well. So we feel really good about where we are positioned there. I will say that with the cadence of the plants that Pat and his team have been successful at executing on and we look at the volume growth that we have. We've actually done some third-party contracts out there given the number of announcements you've seen on Y-grade pipelines coming out of the Permian, we feel as though there's a little bit of overcapacity,
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
