Targa Resources, Inc. (TRGP)

TRGP 
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Targa Resources Corporation (TRGP)

Q1 2014 Earnings Conference Call

May 1, 2014 10:30 a.m. ET

Executives

Joe Bob Perkins - Chief Executive Officer

Matthew Meloy - Chief Financial Officer and Treasurer

Jennifer Kneale - Director, Finance

Analysts

Jerren Holder – Goldman Sachs

Ethan Bellamy – Robert W. Baird

T.J. Schultz – RBC Capital Markets

Chris Sighinolfi – Jefferies

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Targa Resources’ First Quarter 2014 Earnings Conference Call. 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, this call is being recorded.

I would now like to the conference over to Jen Kneale. You may begin.

Jennifer Kneale

Thank you, Operator. I'd like to welcome everyone to our first quarter 2014 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.targaresources.com. We will also be posting an updated Investor Presentation to the website later today.

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 2014 results to prior period results, as well as providing additional color on our results, business performance, and other matters of interest, including our revised 2014 financial outlook that was released on March 31, 2014.

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, 2013, and quarterly reports on Form 10-Q.

With that, I will turn it over to Joe Bob.

Joe Bob Perkins

Thanks, Jen. Welcome and thanks to everyone for participating. For today’s call, I’ll start off with a high level review of our record setting first quarter 2014 performance highlights, including discussing some of the factors that resulted in our reported quarterly results being higher than our preliminary results announced on March 31. We 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 we’ll include some additional color around our 2014 financial outlook and our outlook for growth capital projects and expenditures, then we’ll take your questions.

Our reported first quarter adjusted EBITDA was a record $232 million as compared to $132 million for the first quarter of last year, up $100 million rounded to the nearest million. This 75% increase was driven by record quarterly operating margin in the Logistics & Marketing division and record quarterly operating margin in the Field G&P segment. the Logistics & Marketing operating margin was 79% higher than the first quarter of 2013. Likewise, Field G&P operating margin was 75% higher in the first quarter 2014 versus the first quarter 2013. Our reported first quarter adjusted EBITDA was also higher than our preliminary release by more than our normal conservatism. Therefore a few comments on the increase. We typically have a number of pluses and minuses when numbers are reported for a quarter versus our preliminary estimates. However, for Q1 the adjustments were almost all positive as we benefited from business driven upward adjustments across most of our business units.

The following business units all had meaningful increases, averaging more than a $1 million per business unit, North Texas, SAOU, Badlands and Sand Hills, each within the Field G&P segment. LOU, Southwest Louisiana and VESCO, each within the coastal G&P segment, LAA and CBF, each in the logistics asset segment and NGL marketing, post-sale marketing and commercial transportation, each within the marketing and distribution segment. So the upward adjustment to final realized quarterly numbers is due to positive business drivers or multiple business units and maybe a bit of conservatism.

Let’s move to more performance highlights and discuss year-over-year results for the first quarter, starting with the Field Gathering and Processing segment, which produced operating margin of $94 million, which as previously mentioned was a record quarter representing that impressive increase at 75% versus the first quarter of 2013. We’re very pleased with our first quarter results, particularly given the impact of the severe cold weather that occurred throughout the quarter. Our margin increase was driven by the combination of a number of factors, including significantly higher year-over-year contribution from Badlands, higher commodity prices and an increased throughput volume across all our systems except for Versado. For some Saunders area, connections had just now returned to pre power levels. With the activity for the south part of Versado at highs versus recent years, we continue to expect that Versado volumes, like all other Field G&P volumes, to be higher or significantly higher in 2014 than in 2013.

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