Targa Resources Corp. Q3 FY2024 earnings call

• Permian Position: New plants coming online, with plans to move forward with next 2 Permian plants due to higher anticipated growth. Enhancing sour gas treating in the Delaware Basin with investments in front-end treating and AGI infrastructure, including a new 800 million cubic feet per day sour gas treater and injection well coming online in early 2025. Utilizing and enhancing infrastructure for CO2 sequestration in the Permian, accruing 45Q tax credits in Q4 2024.
• Operational Results: Permian natural gas inlet volumes averaged 6 Bcf/day in Q3, up 5% Q/Q and 18% Y/Y. NGL transportation and fractionation volumes hit records. Downstream assets like Daytona, Train 9, Train 10, and GCF are highly utilized.
• Capital Allocation: YTD, $650 million of common shares repurchased at a weighted average price of $121.50. Expect to recommend increasing the 2025 annual common dividend to $4 per share (33% increase over 2024). Strong investment-grade balance sheet across all 3 agencies.

Gathering and Processing: Reported adjusted EBITDA for the third quarter was a record $1.07 billion, a 9% increase over the second quarter. Permian natural gas inlet volumes averaged a record 6 billion cubic feet per day during Q3, a 5% increase Q/Q and 18% Y/Y. Adjusted operating margin was a quarterly record of $788 million. Logistics and Transportation: NGL pipeline transportation volumes averaged a record 829,000 barrels per day, and fractionation volumes averaged a record 954,000 barrels per day in Q3. Adjusted operating margin was a quarterly record of $717 million. Revenue contribution: G&P and Logistics/Transportation segments are key drivers, with Permian growth significantly contributing to both segments' financial performance.

• Full year 2024 adjusted EBITDA expected to beat the high end of the previously provided range, with over $500 million Y/Y growth. 2025 dividend expected to increase to $4/share, a 33% increase from 2024. Growth capital spending may increase due to higher-than-expected Permian growth, with details on 2025 growth capital spending to be provided in February.

• Commodity price volatility could impact financial results. Delays in plant operations or infrastructure build-outs. Competition in the LPG export market affecting volumes and pricing. Risks associated with sour gas treating infrastructure build-out, including challenges in handling H2S and CO2.

Q: Congratulations on the fundamental growth and the accelerated pace of growth over the near term. I was curious, as we look to 2025 CapEx and general capital allocation plans, can you provide more color on how long do you expect this accelerated growth to endure? And B, how high could CapEx go to in 2025?

A: Matt Meloy responded that growth in Gathering and Processing has accelerated, with plant timing accelerating due to higher volumes. Capital spending plans for 2025 are still being planned, with details to be provided in February regarding G&P spending, plant timing, and downstream implications.

Q: Looking at the downstream throughput across your doc, clearly seeing an uptick following a partial downtime in third quarter and fourth quarter looks extremely robust. Can you just provide a forward outlook on how you expect this to trend? How much of it at this point do you think it's going to be seasonal versus just the relentless supply push of molecules across your docs through the integrated NGL value chain?

A: Scott Pryor stated that third quarter was a rebound from second quarter, with fourth quarter expected to be strong as refrigeration capacity is full. Anticipates fourth quarter volumes to be complementary or exceed Q3, with continued demand for propane and butane and utilization of various docs. Trend to continue into 2025 with more vessels coming online.