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Targa Expecting NatGas Gathering, Processing Volumes to Increase

Executives with Targa Resources Partners LP (NGLS) and general partner Targa Resources Corp. (TRGP), said that despite continuing low commodity prices, volumes at NGLS's field gathering and processing (FG&P) segment for 2015 should grow 3-5% over 4Q2014. They also are considering restarting an idled cryogenic processing plant in Texas.

On Tuesday, the Houston-based midstream company reported 2Q2015 net income attributable to NGLS totaled $45.8 million, compared with $108.8 million in 2Q2014. Adjusted earnings before interest, income taxes, depreciation and amortization and other noncash items, or EBITDA, totaled $303.2 million, versus $228.7 million.

During an earnings presentation on Tuesday, NGLS said that while onshore rig activity has decreased substantially across the United States, the company is still positioned in some of the best shale basins in the country. The partnership currently has about 8 Bcf/d of gross processing capacity, with 39 processing plants and more than 25,000 miles of natural gas and crude oil pipelines.

Gross natural gas liquid (NGL) production was 290,600 b/d in 2Q2015, an 86.4% increase from 2Q2014 (155,900 b/d). Crude oil gathering increased 26.7% year/year to 106,200 b/d in 2Q2015, while plant natural gas inlet volumes jumped by 66.9% to 3.53 Bcf/d. Export volumes were 164,300 b/d in 2Q2015, up 3.3% from 2Q2014.

NGLS said it plans to spend $700-900 million on capital expenditures (capex) in 2015, with $270 million devoted to downstream projects and $430-630 million in gathering and processing projects, including $125-250 for its Badlands Expansion Program in the Bakken Shale and $75-150 million earmarked for expansion programs in the Permian Basin.

CEO Joe Bob Perkins said that unless commodity prices improve, NGLS expects North Texas volumes will decline through the end of the year, but he expects continued growth in the Permian Basin, Badlands and South Oklahoma regions at FG&P. He added that while uncertainty prevails over commodity prices and activity levels, Targa expects its average FG&P volumes for 2015 to grow 3-5% over 4Q2014.

Perkins said predicting FG&P volumes for 2016 "continues to be more art than science. Producers have demonstrated a willingness to increase their pace of drilling in almost all of our areas, if crude prices improve to, for example, $60/bbl. However, our ability to predict 2016 prices and therefore producer expectations for those prices has not improved.

"But we generally feel a bit more optimistic about volumes than we did at the first of the year. That 3-5% volume growth [over] 4Q2014...puts Targa at a better 2016 beginning spot than we were expecting."

Perkins said Targa is working to connect its West Texas (WestTX) and SAOU systems in the Permian Basin later this year. WestTX includes more than 3,800 miles of gathering lines that serves five processing plants, while SAOU includes approximately 1,750 miles of gathering lines serving four plants.

"Along with a connection of WestTX and SAOU, we may also restart the idled 45 MMcf/d Benedum plant in Upton County, TX," Perkins said. "These projects do not require much capital. Given that we are operating at near capacity in the Permian Basin, the flexibility associated with connecting existing systems and existing plants and having an idled plant to restart is very valuable."

Tuesday's report on 2Q2015 represented the first complete quarter since Targa acquired two midstream units from Atlas Energy LP in February (see Daily GPI,Feb. 13).

In a note Wednesday, analysts with Tudor, Pickering, Holt & Co. (TPH) said they think "Targa is better positioned than most [gatherers and processors] on the volume front, but the current outlook is clouded by a second commodity price dip. Leverage to Midland volumes should help bridge declines on legacy system as Atlas assets connected with existing Targa facilities later this year…”

The TPH analysts added that "better than expected volumes were not enough to offset a roll of existing Atlas hedges in 2016, with security of distribution a question mark if we continue in the current environment..."

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