Targa Resources, Inc. (TRGP)

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Targa Resources Corporation (TRGP)

Q4 2012 Earnings Call

February 14, 2013 11:00 AM ET


Chris McEwan – IR

Joe Bob Perkins – CEO

Matt Meloy – SVP, CFO and Treasurer

Michael Heim – President and COO


Bradley Olsen – Tudor Pickering Holt

John Edwards – Credit Suisse

Michael Blum – Wells Fargo

Jeff Magnum [ph] – Robert W. Baird

Helen Ryoo – Barclays

Darren Horowitz – Raymond James

Selman Akyol – Stifel Nicolaus



Good day, ladies and gentlemen, and welcome to the Targa Resources Year-End 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode and later we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions). As a reminder, this call is being recorded.

I would now like to introduce your host for today’s conference, Chris McEwan.

Chris McEwan

Thank you, operator. I’d like to welcome everyone to our fourth quarter and full year 2012 investor call for both Targa Resources Corp and Targa Resources Partners LP. Before we get started, I would like to mention that Targa Resources Corp., TRC, or the Company and Targa Resources Partners LP, Targa Resources Partners or the Partnership have published their joint earnings release which is available on our website [ph] www.taragaresources.com. We will also be posting an updated investor presentation to the website after the call.

Speaking on the call today will be Joe Bob Perkins, Chief Executive Officer; and Matt Meloy, Chief Financial Officer. Joe Bob and Matt are going to be comparing the fourth quarter and full year 2012 results to prior period results as well as providing additional color on our results, business performance, and other matters of interest.

I would like to remind you that any statements made during this call might include the Company’s or the Partnership’s expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provisions of the Securities Acts of 1933 and 1934. Please note that actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings, including the Partnership’s annual report on Form 10-K for the year ended December 31, 2011, and quarterly reports on Form 10-Q.

With that, I’ll turn it over to Joe Bob Perkins.

Joe Bob Perkins

Thanks, Chris. Welcome and thanks to everyone for participating. Besides Matt and myself there are several other members of the management team who will be available to assist in the Q&A session. For today’s call I’ll start off with a high-level review of performance and highlights. I will then turn it over to Matt to review the Partnership’s consolidated financial results, its segment results and other financial matters for the Partnership. Matt will also review key financial matters related to Targa Resources Corp. Following Matt’s comments, I’ll provide some concluding remarks and then we’ll take your questions.

We’re really pleased to announce that 2012 was a record year for Targa on many fronts. Record adjusted EBITDA, $515 million. Record distributable cash flow of $354 million. Over $540 million of organic growth CapEx. 13% distribution growth at the Partnership and a 36% dividend growth at TRC. The underlying fundamentals of our business are strong as we were able to achieve full year 2012 EBITDA within our initial guidance range despite 25% lower NGL prices than our guidance assumptions, despite an $8 million impact from Hurricane Isaac and despite $6 million worth of transaction-related expenses for the Bakken Shale Midstream acquisition. These results included record-operating margin for our logistics and marketing division which was up 29% compared to 2011 driven by higher fractionation fees, record LPG export services volume which benefits both our logistics assets and our marketing and distribution segments.

Contribution from our petroleum logistics terminals that we acquired in 2011 and increased trading fees resulting from benzene trading project placed in service early in 2012, a very good year for the logistics and marketing division. We also saw continued strong producer activity across our Field Gathering and Processing segment despite the fall in NGL prices. Natural gas plant inlet volumes for our Field Gathering and Processing segment increased 12% with volumes up in all four business units, North Texas, Sand Hills, SAOU, and Versado.

As you are probably aware, activity in our three Permian Basin business units, like much of the Permian Basin is very high; driven by oil prices and improved technology. We are also pleased to announce the closing of our strategic acquisition of Midstream assets serving producers in the Bakken Shale. This $950 million acquisition closed at the end of the day on December 31 and it had no impact on our results of operations for 2012 other than the transaction cost related to the acquisition. Going forward, we will be calling this business Targa Badlands and results will be reported in our Field Gathering and Processing segment.

We’ve only owned this business for 45 days but our people are working hard with the assistance of a very good transition services agreement in members of the Saddle Butte team to continue the construction projects, meet customer needs, further commercialize the facilities and integrate the businesses. This new acquisition will provide us with additional business diversity, scale and long-term growth.

Badlands expands the target footprint into one of the fastest growing crude oil basins in the world where we will handle crude oil, natural gas, and NGLs while adding rapidly growing fee-based EBITDA. We are excited about the long-term growth outlook for these assets and expect to invest $250 million in 2013 to bring us additional fee-based accretion in 2014 and beyond. As mentioned previously, we spent a record $540 million of organic growth CapEx in 2012. And importantly, we placed in service projects totaling approximately $200 million of growth capital during the year of 2012.

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