Targa Resources, Inc. (TRGP)

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Targa Resources Partners LP (TRGP)

Q3 2013 Earnings Conference Call

November 5, 2013 10:00 AM ET

Executives

Jennifer Kneale – Director - Finance

Matthew J. Meloy – Senior Vice President, Chief Financial Officer and Treasurer

Joe Bob Perkins – Chief Executive Officer

Vincent Di Cosimo – Vice President, Products & Crude, Storage & Terminaling

Analysts

James Jampel – HITE Hedge Asset Management LLC

Stephen Maresca – Morgan Stanley

Presentation

Jennifer Kneale

Welcome to 13th Investor and Analyst presentation 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 TRP or the partnership have published their joint earnings release which is available on our website at www.targaresources.com. We also posted an updated Investor presentation on our website which we will be using today. So please access the presentation via webcast or through our website, so you can follow along.

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 Q&A. Matt will cover the first part of today’s presentation which includes a review of our third quarter 2013 results, as well our financial and operational guidance for 2014.

Following Matt discussion of third quarter 2013 results and 2014 guidance, we will begin our 2013 investor and analyst presentation, which will include an update from Matt and Joe Bob on the partnerships business operations and a Q&A session with the following Targa executives and officers available to participate. We’ve got Mike Heim, our President and COO; Hunter Battle, VP of Logistics and Marketing Assets; Scott Pryor, VP Liquids Marketing and Trade; Vincent DiCosimo, VP Petroleum Logistics; Danny Middlebrooks, VP Gas Supply and Development Badlands and SAOU; Clark White, VP Permian and North Texas, Rene Joyce, Executive Chairman; Jeff McParland, President Finance and Administration; and Jim Whalen.

Pursuant to the disclosures on slide two of the posted investor presentation, I would like to remind you that any statements made during this call that 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, 2012 and quarterly reports on Form 10-Q.

With that, I will turn it over to Matt Meloy.

Matthew J. Meloy

Thanks Jen. Welcome and thanks everyone for joining us today including those who are with us in Houston and those participating by via the webcast. As Jen mentioned I will start off with a review of and commentary on the third quarter 2013 and we will than move into financial and operational guidance for 2014. For those of you on the webcast I will be starting with slide five.

Starting on slide five, the top graph. This is a record quarter for Targa as our third quarter adjusted EBITDA of a $156 million is the highest reported quarter ever and was 34% higher than the same time period last year. The increase was driven by higher volumes in natural gas and condensate prices and our gathering and processing division and higher fractionation volumes and fees and increased exports in our Logistics and Marketing Division. Our overall results show the benefits of diversity and increasing fee-based margin contributions. Fee-based margins exceeded 50% for the third straight quarter.

Moving to the bottom graph, the operating margin was $200 million for the quarter, which is 24% higher than Q3 2012. Logistics and Marketing Division produced quarterly operating margin of $103 million, up 36% compared to the third quarter of last year, primarily driven by higher fractionation volumes, fractionation revenue at CBF along with increased LPG export and storage activity at our integrated Galena Park and Mont Belvieu facilities. We are pleased to announce that the first phase of our LPG export expansion at Galena Park and Mont Belvieu was completed earlier than expected and we began testing and commissioning in September. The expansion increases our export capacity to over 2 million barrels from 1 million to 1.5 million barrels a month to 3.5 million to 4 million barrels a month.

In connection with start-up and commissioning of the export expansion, we loaded low ethane propane on one mid-sized vessel and two VLGCs in September. The Gathering and Processing division produced quarterly operating margin of $92 million, up 28% compared to the third quarter of 2012. As the combination of volume increases and higher natural gas and condensate prices more than offset the impact of a fire at the Saunders gas processing plant in the Versado system and a slight decline in NGL prices in the third quarter of 2013 versus the third quarter of 2012.

Moving to page six, starting with the top graph, we saw increased activity across our Field Gathering and Processing divisions in third quarter over third quarter of 2012 had volume increases in both our field and coastal segments. Plant natural gas inlet volumes in our Field Gathering and Processing segment increased by 17% in the third quarter of 2013 versus same period last year led by a 30% increase at SAOU, a 26% increase in North Texas and the addition of the volumes from Badlands which was acquired at year-end 2012. This is the third quarter that we are reporting volumes from our Badlands systems. And Crude oil gathered increased by 37% to 52,400 barrels a day in the third quarter versus 38,300 barrels a day in the second quarter.

You will note on this chart that NGL production shown by the triangle symbols also increased for both segments. And the graph also makes a point that not all inlet volumes are created equal but our Field segment having much more NGL production than our Coastal segment even with significantly less inlet volumes. On the bottom graph, same page, the increase in volumes coupled with higher natural gas and condensate prices resulted in a 28% increase in gathering and processing operating margins. These increases were partially offset by slightly lower NGL prices, higher operating expenses due to additional compression and maintenance costs associated with system expansion and the addition of Badlands as well as the fire at the Saunders plant.

On September 5, we experienced a fire at our Saunders gas processing facility in Lea, New Mexico. Saunders is the smallest gas processing plant in the Versado system. Repairs have been underway since the fire and the plant is expected to be operational by year-end. The net impact of the fire for Q3 was approximately $3 million net reduction in margin for the Field Gathering and Processing segment, approximately 50% in loss processing margin and about 50% in cost of our insurance deductible.

Moving now to page seven, starting with the top graph. The fractionation volumes increased by 8% in the third quarter of 2013 versus the same time period last year, CBF Train 4 was operational during the quarter and we were able to work through some of the inventory build-up that occurred during the second quarter as a result of maintenance and inspection turnaround at CBF Trains 1, 2, and 3. As previously mentioned, in September we began testing and commissioning our LPG export expansion at Galena Park. The increased capacity of the facility contributed export volumes averaging 1.7 million barrels a month in the third quarter, a 77% increase versus second quarter 2012 average volumes of about 1 million barrels a month. Treating volumes were substantially lower in the third quarter 2013 due to facility impact associated with the start-up of our LPG export expansion.

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