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Targa Planning Permian NatGas Midstream Plants, Mont Belvieu Fractionation Train

Targa Resources Corp. is planning to build two 250 MMcf/d cryogenic natural gas processing plants to support increasing production in the Permian Basin’s Midland sub-basin, and a 100,000 b/d fractionation train in Mont Belvieu, TX.

The first processing plant is expected to begin operations in 1Q2019 and the second in 3Q2019, Targa said. The fractionation train, which would cost an estimated $350 million, is also expected to begin operations in 1Q2019.

Targa would fund all required brine, storage and other infrastructure to support the operations of the fractionation train, which would be owned and funded by development joint ventures (DevCo JVs) with Stonepeak Infrastructure Partners.

The newly announced JVs also own Targa's 25% interest in the Gulf Coast Express Pipeline (GCX) and a 20% interest in the Grand Prix Pipeline. Targa said it controls the management, day-to-day construction and operation of the Grand Prix Pipeline and the planned fractionation train in Mont Belvieu.

In October GCX, designed to carry 1.92 Bcf/d from the Permian Basin to the Texas Gulf Coast,added Targa as a third partner, joining Kinder Morgan Inc. and DCP Midstream LP. Targa and DCP Midstream tentatively agreed to commit gas volumes to the project, including volumes provided by Pioneer Natural Resources Co., a joint owner in Targa's WestTX Permian gas system and one of the largest producers in the Permian.

The proposed Grand Prix pipeline would have 300,000 b/d of transport capacity from the Permian, expandable to 550,000 b/d. Targa has said Grand Prix would be supported by its production volumes and other third-party customers, with in-service expected in 2Q2019.

Pro forma for the DevCo JVs and inclusive of the two new Midland plants and the fractionation assets in Mont Belvieu,Targa's 2018 estimated net growth capital expenditures for announced projects is about $1.6 billion.

"This is a transformational investment cycle for Targa,” as it expands its gathering and processing footprint further “with new gas processing plants underway in the Permian, Bakken and Arkoma Woodford, announce additional fractionation in Mont Belvieu, and link our upstream assets further downstream with the Grand Prix and GCX pipelines," said CEO Joe Bob Perkins.

Targa is scheduled to report its 4Q2017 financial results Feb. 15.

Stonepeak owns an 80% interest in the JVs that hold the GCX interest and Targa's next fractionation train, and a 95% interest in the JV that holds the Grand Prix Interest, with Targa retaining the remaining interests. The JVs have about $220 million of assets.

Stonepeak committed $960 million, including $190 million to be distributed to Targa to reimburse it for capital spent to date; Targa committed to fund $150 million related to its share of the JVs' future capital costs.

"The DevCo JVs significantly reduce Targa's equity funding needs for 2018 and 2019, and proceeds from Stonepeak's initial contribution will be used to reduce Targa's current debt," Targa said.

Under the terms of the DevCo JV agreements, Targa has an option to acquire all or part (in $100 million increments) of Stonepeak’s interests for a four-year period beginning on the earlier of the date that all three projects have commenced commercial operations or January 1, 2020. The purchase price payable for such partial or full interests is based on a predetermined fixed return or multiple on invested capital, including distributions received by Stonepeak from the DevCo JVs.  Targa will control the management of the DevCo JVs unless and until Targa declines to exercise its option to acquire Stonepeak’s interests. There will be no dilution associated with the DevCo JVs for Targa’s existing shareholders during the construction period, and if Targa elects to exercise its option to acquire all or part of the DevCo JV interests, significant upside associated with the three included DevCo JV projects will be for the benefit of Targa and its shareholders.

Last month Targa and MPLX LP said they plan to expand the Centrahoma Processing LLC JV that serves producers working in Oklahoma's Arkoma Woodford Basin. Targa and MPLX plan to build a 150 MMcf/d cryogenic natural gas processing plant, to be named Hickory Hills, in Hughes County, which could begin operations in late 2018. 

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