Targa Resources, Inc. (TRGP)

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Targa Resources Corporation (TRGP)

Q4 2013 Earnings Conference Call

February 13, 2014 10:00 AM ET

Executives

Jen Kneale - Director, Finance

Joe Bob Perkins - CEO

Matt Meloy - SVP, CFO and Treasurer

Analyst

Darren Horowitz - Raymond James

Brad Olsen - Tudor, Pickering, Holt

T.J. Schultz - RBC Capital Markets

Ethan Bellamy - Robert W. Baird

Norman Kramer - Kramer Investments

Michael Blum - Wells Fargo Securities

Jon Yoder - Goldman Sachs

John Edwards - Credit Suisse

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Targa Resources’ Fourth Quarter 2013 Earnings Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct the 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 Jen Kneale, Director of Finance. Please go ahead.

Jen Kneale

Thank you, operator. I'd like to welcome everyone to our fourth quarter and full year 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 would 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 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 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 provision 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 Joe Bob Perkins.

Joe Bob Perkins

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

We’re pleased to announce that 2013 was a record year for Targa on multiple fronts; record adjusted EBITDA of $629 million; record Logistics & Marketing division operating margin of $424 million, driven by key organic growth projects that came online during the year; record Field Gathering & Processing volumes; record distributable cash flow of $440 million; and of course increased distributions for TRP and increased dividends for TRC.

We placed over $1 billion of projects in service in 2013, largely supported by fee-based contracts. This impactful level of strategic CapEx was combined with a unique strategic acquisition of the Badlands properties, which we closed at the end of 2012.

Yes, 2013 was the transformative year we predicted. The underlying fundamentals of our business are very strong and 2013 EBITDA was on the strong side of our guidance. We’re pleased that we ended 2013 with a very strong fourth quarter driven by; first, higher than expected contributions from key organic growth projects that came online in the second half of the year, particularly fractionation and export projects at Mont Belvieu and Galena Park.

Demand for propane and butane exports was very robust in Q4. In the first phase of our export expansion project came online in September for Q4 operations. Our new facilities performed very well, exceeding our expectations; second, full year contribution and increasing quarter-over-quarter contribution from our Badlands operations in North Dakota; third, increasing Field Gathering & Processing volume growth year-over-year as producers kept the pedal to the floor, continuing to develop acreage across our basins of operations; and fourth, higher NGL and natural gas prices in Q4 that helped offset the operations impacts of very cold weather in the quarter and helped offset some of the lower prices realized during the first part of the year.

And with those positive drivers, our record year was accomplished despite the impacts of the fire at our Saunders plant that reduced Versado volumes and an incident to the third-party NGL pipeline from our VESCO facility that impacted VESCO performance earlier in the year. The additional export and fractionation capabilities drove another year of record operating margin for our Logistics & Marketing division, up 39% compared to 2012. This was driven by, daily LPG export volumes that more than doubled as a result of the September completion of phase one of our expansion, coupled with increased export volumes through improved operational efficiency at Galena Park and Mont Belvieu in the first three quarters of the year.

We also saw continued strong producer activity across all areas of our Field Gathering & Processing segment. Volumes were up in North Texas, Sand Hills and SAOU and they would have been up at Versado except for that temporary negative impact of the Saunders fire. We also benefited from contributions from the Badlands assets in 2013.

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