Targa Resources Corp. is leaving no stone unturned as it seeks to meet growing customer needs in markets like the Permian Basin of West Texas and southeastern New Mexico and the Bakken Shale of North Dakota, where existing bottlenecks and tightening infrastructure have sent some oil and natural gas producers to other, less constrained regions.
Targa’s second quarter Permian natural gas inlet volumes increased 8% sequentially from growth in each of its 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.
The Houston-based midstream operator recently brought online its 200 MMcf/d Joyce gas processing plant in the Midland sub-basin of the Permian. It also began operations at the 60 MMcf/d Oahu plant and at the 250 MMcf/d Wildcat plant to support the expected volume ramp-up in the Permian’s Delaware sub-basin.
At the Mont Belvieu natural gas liquids (NGL) fractionator near Houston, the midstream company’s Train 6 fractionator is expected to enter commercial operations early next year.
“When we think about projects beyond what has already been announced, the tightness in fractionation capacity at Mont Belvieu” and the outlook for natural gas liquids volume to Mont Belvieu on the U.S. Gulf Coast is accelerating customer demand, Targa President Matt Meloy said on a call last Thursday (Aug. 9) to discuss quarterly earnings.
Targa management indicated it aims to accelerate natural gas gathering and processing projects that are underway, and it continues to work on permitting additional fractionation as capacity at the Mont Belvieu facility is expected to remain tight through 2019.
In North Dakota, natural gas inlet volumes jumped 17% sequentially at the midstream operator’s Badlands gas processing complex, while crude oil gathered volumes increased 19% sequentially, driven by strong production growth in the basin.
In-service of the 200 MMcf/d LM4 plant at the Badlands’ Little Missouri facility “can’t come online fast enough,” said Meloy. There also 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.”
Additional tailwinds from the strengthening outlook for domestic crude production and NGL commodity prices also continue to drive the need for additional infrastructure, management said.
In addition to trying to speed up in-progress projects, Targa also 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.
As for takeaway constraints in the Permian and their potential impact on future growth, Targa CFO Jennifer Kneale said 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 that 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 along with other systems underway 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 in South Texas 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 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.
As for earnings, net income attributable to Targa Resources Corp. in 2Q2018 was $109.1 million, compared with $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.