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Targa Seeks to Speed Up Midstream Projects as Demand Outpaces Infrastructure in Key Markets

Targa Resources Corp. is aiming to accelerate natural gas gathering and processing projects that are already underway and continues to work on permitting additional fractionation as capacity at the Mont Belvieu facility on the Gulf Coast is expected to remain tight through 2019.

Additional tailwinds from the strengthening outlook for domestic crude production and natural gas liquids (NGL) commodity prices also continue to drive the need for additional infrastructure, management said during a call last week to discuss second quarter earnings.

Houston-based Targa recently brought online its 200 MMcf/d Joyce gas processing plant in the Midland sub-basin of the Permian Basin. It also began operations at the 60 MMcf/d Oahu plant and at the 250 MMcf/d Wildcat plant, which will support the expected volume ramp-up in the Permian’s Delaware sub-basin.

At Mont Belvieu, the midstream company’s Train 6 fractionator is expected to enter commercial operations in 1Q2019.

“When we think about projects beyond what has already been announced, the tightness in fractionation capacity at Mont Belvieu and the outlook for NGL volume to Mont Belvieu is accelerating customer demand,” Targa President Matt Meloy said.

In order to facilitate future demand growth, Targa has begun ordering “long lead time” items in order to best position itself to move quickly through construction once it has permits in hand. The midstream operator also continues to enhance connectivity to its petrochemical customers’ abilities and is “well-positioned to capture an increasing share of this demand growth as new petrochemical facilities move towards diversifying their connectivity to supply,” Meloy said.

Second quarter Permian natural gas inlet volumes increased 8% sequentially from growth in each of Targa’s Midland and Delaware systems, while crude oil volumes gathered during the period were up 35% from the first quarter. Fractionation volumes increased by 6% sequentially, averaging 412,000 b/d in the second quarter.

As for takeaway constraints in the Permian and their potential impact on future growth, Targa CFO Jennifer Kneale said that while the company does expect to see some impacts that will vary by producer, it still expects to see strong growth in 2018 and 2019.

Citing the company’s diverse set of producers, Kneale said each of them is evaluating the different takeaway constraints a little bit differently. “There's oil, NGL, residue...there's different constraints, and different producers have different options depending on their portfolio of production.”

Some producers who have a good footprint in other basins are adding rigs in areas like the Bakken Shale instead of adding a rig in the Permian, she said. “That's something that we're going to have to kind of work out as we go through time.”

Earlier this month, Targa announced plans to lead the development of the 2 Bcf/d Whistler Pipeline Project, which if sanctioned could help deliver up to 7 Bcf/d to Gulf Coast markets and beyond. Whistler, proposed as a 42-inch diameter pipeline that would run 450 miles, would transport gas from the Waha hub in West Texas to NextEra’s Agua Dulce market hub near Corpus Christi. From Agua Dulce, a 30-inch diameter pipeline would run 170 miles south and terminate in Wharton County, southwest of Houston.

The company said a letter of intent is in place for the joint venture project with MPLX LP and NextEra Energy Pipeline Holdings LLC, a subsidiary of NextEra Energy Resources LLC, as well as WhiteWater Midstream LLC, which is a portfolio company of Denham Capital Management and Ridgemont Energy Partners.

Targa is also extending its Grand Prix NGL pipeline that’s currently under construction into southern Oklahoma. The system, which was announced last year, would connect the Permian and the company’s North Texas gathering system to its fractionation and storage complex at the NGL market hub at Mont Belvieu.

Elsewhere across Targa’s asset base, natural gas inlet volumes jumped 17% sequentially at the midstream operator’s Badlands gas processing complex in North Dakota, while second-quarter crude oil gathered volumes increased 19% sequentially, driven by strong production growth in the basin.

In-service of the company’s 200 MMcf/d LM4 plant at the Badlands’ Little Missouri facility “can’t come online fast enough”, and Meloy said there is a need for additional processing capacity in the region “not just by us but by others, so we're working to put that in place. I think our expectations for filling up that facility really just continues to improve as we go through time.”

As for earnings, net income attributable to Targa Resources Corp. in 2Q2018 was $109.1 million, compared to $57.6 million for 2Q2017. Operating expenses for the quarter were $170.5 million, up from $155.2 million in 2Q2017. Distributable cash flow in 2Q2018 was $225.1 million, a gain of $29.1 million from 2Q2017.

Targa management indicated its current 2018 net growth capital expenditure (capex) estimate remains unchanged at approximately $2.2 billion, with slightly more than $1 billion spent through June 30. Full-year 2018 net maintenance capex is projected to be approximately $120 million, with $46 million spent through the second quarter.

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