Citing a persistently tight natural gas liquids (NGL) fractionation market, Targa Resources Inc. plans to build two new fractionation trains at Mont Belvieu, TX, management said Thursday.
Targa’s two new fractionation trains, which have a total cost of about $825 million, will have a capacity of 110,000 b/d each and are expected to begin operations in the first and second quarter of 2020, respectively.
“These additional projects aligned with our key strategic focus to continue to invest in attractive projects that leverage our existing infrastructure and further strengthen our competitive advantage, and to continue to identify and pursue additional opportunities to further integrate our existing asset base,” Targa CEO Joe Bob Perkins said on a call to discuss third quarter earnings.
All of Targa’s facilities at Mont Belvieu continue to operate at capacity, and the Houston-based midstream company continues to utilize its Lake Charles facility to enhance operational flexibility, management said. Targa also expects to bring its Train 6 fractionator online in early 2Q2019, slightly later than its original expected in-service target of 1Q2019.
“During this period of market tightness for fractionation services, we are continuing to provide flow assurance for our gathering and processing and downstream customers,” Targa President Matt Meloy said. “We expect frac market tightness to persist into 2020 and given the strong outlook for continued volume growth thereafter, we expect the frac market to remain strong going forward.”
Given the new project announcement, Targa now expects 2018 net growth capital expenditures (capex) will be about $2.4 billion, up from $2.2 billion, with about $1.9 billion spent through Sept. 30. The midstreamer estimates that 2018 net maintenance capex will be about $110 million, down from $120 million, with about $79 million spent through Sept. 30.
Targa plans to fund a portion of its growth capital program with net proceeds from the sale of its refined products and crude oil storage and terminalling facilities in Tacoma, WA, and Baltimore, MD, to an affiliate of ArcLight Capital Partners, LLC. The $160 million sale closed on Oct. 31.
The midstream company estimates that preliminary 2019 net growth capex for announced projects will be about $2 billion, with capex expected to decline significantly to $1.8 billion total for 2020 and 2021, which is inclusive of spending on three more gas processing plants and one additional fractionator after trains 7 and 8.
Targa’s 200 MMcf/d Johnson gas processing plant went into service in September and quickly reached high utilization, with two additional 250 MMcf/d plants scheduled to go online in 1Q2019 and 2Q2019, according to management.
“With continued strong production growth outlook in the Permian and Midland, we have been proactively ordering long lead items for the next plant,” Meloy said. “Each of these plants will be connected to our multi-plant multisystem Permian footprint with the majority of the NGL volumes flowing through Grand Prix and to our fractionators in Mont Belvieu.”
Construction on Targa’s Grand Prix NGL pipeline continues and the project remains on time and on budget, with the pipeline expected to be fully operational in 2Q2019 to support NGL takeaway from the Permian, southern Oklahoma and North Texas. “Our outlook for Grand Prix continues to strengthen, and we have begun ordering long lead items for the pipeline's perspective expansion, which we expect will increase capacity of the segment originating from the Permian to approximately 400,000 b/d and as early as 2020,” Meloy said.
Permian producer activity “remains robust”, with third quarter inlet volumes increasing 6% over the second quarter from growth in each of Targa’s Midland and Delaware systems. Permian crude oil volumes gathered in the third quarter were up 13% over the second quarter.
Meanwhile, construction continues on Targa’s 220 mile high-pressure rich gas additive system, which will run through the heart of the Delaware sub-basin. A significant portion of the pipeline will be complete by the end of 2018, with the remainder being completed in phases throughout 2019, Meloy said.
In the Badlands, Targa’s Little Missouri complex is operating at capacity and its 200 MMcf/d LM4 plant is expected online in 2Q2019 “as the timing of critical equipment availability pushed on site into the winter months,” Meloy said. Badlands' natural gas volumes increased 5% over the second quarter, while crude oil gathered volumes increased 16%, driven by strong production growth across the company’s dedicated acreage.
Targa management indicated it was looking to potentially sell a minority interest in its Badlands crude oil and gas gathering and processing asset and is working with a select small group of counterparties. Targa would continue to operate and commercialize the asset, according to Targa CFO Jennifer Kneale.
"Given the fee-based nature and long-term nature of our Badlands contract, the strong performance of the assets and the improving outlook in the Bakken, we believe that monetizing a minority interest portion of this asset provide significant potential benefit to Targa without sacrificing operation or strategic control of the assets."
In South Oklahoma, inlet volumes increased 3% over the second quarter as a result of continued growth in the Arkoma and South Central Oklahoma Oil Province regions. West Oklahoma inlet volumes increased 2% from increasing volumes from the Sooner Trend Anadarko Basin Canadian and Kingfisher Counties.
During the third quarter, South Texas inlet volumes decreased 12% as a result of flooding from a high-level of rainfall, although volumes have since returned to levels prior to the flooding, management said. Fractionation volumes increased 10% sequentially, averaging 455,000 b/d in the third quarter.
As for earnings, net loss attributable to Targa Resources Corp. for the third quarter was $23.7 million, compared to a net loss of $167.6 million in 3Q2017. Distributable cash flow for the quarter was $287.2 million, up from $186.6 million from a year ago.
“This is the strongest quarter in Targa’s history across multiple operational and financial dimensions, positioning us to exceed our full year 2018 financial guidance and providing Targa with positive momentum heading into 2019,” Perkins said.