Targa Resources, Inc. (TRGP)

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Targa Resources Corp. (TRGP)

Q1 2013 Results Earnings Call

May 3, 2013 11:00 AM ET

Executives

Chris McEwan - Director, Finance

Joe Bob Perkins - Chief Executive Officer

Matt Meloy - Chief Financial Officer

Analysts

Bradley Olsen - Tudor Pickering

Darren Horowitz - Raymond James

Steven Maresca - Morgan Stanley

TJ Shultz - RBC Capital Markets

Michael Blum - Wells Fargo

Louis Shamie - Zimmer Partners

Jeremy Tonet - J.P. Morgan

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Targa Resources First Quarter 2013 Earnings Webcast and Presentation. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator instructions)

As a reminder, today’s conference is being recorded. I would now like to introduce your host for today’s conference call, Mr. Chris McEwan. You may begin, sir.

Chris McEwan

Thank you, Operator. I’d like to welcome everyone to our first quarter 2013 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 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. Other management team members are available for the Q&A. Joe Bob and Matt are going to be comparing the first quarter 2013 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 Company’s and the Partnership’s annual report on Form 10-K for the year ended December 31, 2012, and quarterly reports on Form 10-Q.

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

Joe Bob Perkins

Thanks, Chris. Good morning and thanks to everyone for participating. For today's call I’ll start off with high level review performance highlights. We’ll then turn it over to Matt to review the Partnerships consolidated financial results, its segment results and other financial matters for the Partnership. Matt will also review key financial matters related Targa Resources Corp. Following Matt’s comments, I'll provide some concluding remarks and then we'll get to questions-and-answers.

Our reported first quarter adjusted EBITDA was $132 million, as compared to $145 million first quarter of last year, this was a 9% decrease in EBITDA compared to the first quarter last year. However, given the backdrop of approximately 30% lower NGL prices compared to the first quarter of 2013 versus 2012, the results show the long-term benefits of increasing fee-based margin contribution to our mix, the benefits of growth in our Field G&P and the growth in the export volume.

I should also point out that the first quarter NGL prices were just slightly lower than those assumed in our 2013 guidance. So the first quarter results are tracking our full year outlook just slight.

The fee-based Logistics Assets segment produced record quarterly operating margin of $56 million, up 31% compared to last year, primarily driven by higher fees for services across the segment, higher LSNG and benzene treating volume and increased LPG export activity which benefits both the Logistics Assets and Marketing and Distribution segments.

The strong results for Logistics Assets segment were achieved despite somewhat lower fractionation volumes caused by third-party ethane rejection and third-party pipeline curtailments. Those somewhat lower volumes were partially mitigated by fracker pay minimum volume commitments.

Marketing and Distribution increased compared to the first quarter of 2012, driven by the higher LPG export activity that I just mentioned, and by higher wholesale propane margins, that resulted both from colder winter this year and from logistics-related opportunities.

Continued strong producer activity in the Field Gathering and Processing segment led to increased volumes compared to the first quarter of 2012. This is also the first quarter that we are including results from Targa Badlands, our Bakken Shale crude oil and gas gathering operation. This business which is really a growth project and process as reported in our Field Gathering and Processing segment.

Badlands generates predominantly fee-based margin and is one of the key contributors to our multiyear forecasted increase in fee-based margin. I’ll give you some more color on Badlands later in the call.

Distributable cash flow for the quarter of approximately $86 million resulted in distribution coverage of approximately 0.9 times, based on our first quarter declared distribution of $69.75 or $2.79 on an annual basis.

Second quarter distribution coverage could be similar to or potentially somewhat lower than the first quarter due to historic seasonality in the downstream business. This coverage profile is consistent with the guidance we gave on the fourth quarter earnings call for distribution coverage to be approximately 0.9 times in the first half of ’13, given the impact of the highly visible high capital growth projects and the Badlands acquisition.

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