Targa Resources Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. Targa is a North American midstream company operating Gathering and Processing and Logistics and Transportation businesses. Amounts below are in millions of dollars unless otherwise stated.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Total revenue | $4,562.4 | $4,520.5 | Up 1%; commodity sales declined 2%, while midstream service fees increased 23% to $609.4. |
| Income from operations | $639.4 | $836.7 | Down 24%. |
| Net income | $332.6 | $555.2 | Down 40%. |
| Net income attributable to Targa | $275.2 | $497.0 | Down 45%. |
| Net income attributable to common shareholders | $275.2 | $6.3 | 2023 was reduced by a $490.7 premium on repurchase of noncontrolling interests. |
| Diluted EPS | $1.22 | $0.03 | The prior-year comparison is distorted by the 2023 repurchase premium. |
| Adjusted EBITDA | $966.2 | $940.6 | Up 3%; non-GAAP measure. |
| Operating cash flow | $876.4 | $1,169.8 | Down $293.4. |
| Adjusted free cash flow | $2.8 | $314.0 | Down sharply, principally reflecting higher growth capital spending; non-GAAP measure. |
| Cash capital outlays | $669.8 | $475.7 | Higher spending on Permian and Mont Belvieu projects. |
| Total debt obligations at March 31 | $13,056.0 | $12,953.9 at year-end | Includes $546.1 current and $12,509.9 long-term debt. |
| Cash and total liquidity at March 31 | $109.9 cash; $2,567.4 total liquidity | — | Liquidity includes available borrowing capacity under credit and securitization facilities. |
Adjusted EBITDA increased despite lower GAAP operating income. Higher midstream fees and volumes supported results, while interest expense rose to $228.6 from $168.0, including $54.9 of cumulative interest related to the Vitol litigation. Operating cash flow fell, while growth capital spending increased. The filing reports a net liability of $26.9 for derivative positions at March 31; results include $31.9 of losses from non-hedge derivative activity, compared with $178.0 of gains in Q1 2023.
Material changes and segment trends
- Gathering and Processing adjusted operating margin increased 3% to $744.5. Total plant natural gas inlet volumes grew 7% to 7,103.5 MMcf/d, led by Permian growth; lower prices and weaker Central-region volumes partly offset the gains.
- Logistics and Transportation adjusted operating margin increased 3% to $622.1. NGL pipeline transportation volumes rose 34%, fractionation volumes 5%, and export volumes 18%. Higher pipeline, fractionation and export margins were partly offset by lower marketing margin.
- Commodity sales were affected by lower natural gas and NGL prices and unfavorable hedge impacts, partly offset by higher NGL and natural gas volumes. Average realized natural gas and NGL prices declined 43% and 8%, respectively; condensate prices rose 16%.
- Operating expenses increased 8%, reflecting higher rental and labor costs, activity and system expansions; depreciation and amortization increased 5%.
- Cash dividends paid to common shareholders were $116.6. In April, Targa declared a $0.75-per-share quarterly dividend, or $3.00 annualized, effective for Q1 2024. The company repurchased 1.19 million shares for $123.7 during the quarter; $646.4 remained under its $1.0 billion authorization at March 31.
Outlook, risks and contingencies
- Targa estimated 2024 net growth capital expenditures of $2.3–$2.5 billion for announced projects and maintenance capital expenditures of approximately $225 million. Management said expected operating cash flow, available borrowing capacity and other financing sources should fund operations, capital needs, debt obligations and dividends for at least the next 12 months, absent disruptive events.
- Projects under development include Permian processing plants, the Daytona NGL Pipeline and Mont Belvieu fractionation capacity. The filing gives expected in-service timing through 2026; schedules and spending may change. The Pembrook II plant and Train 11 were announced in May 2024, after quarter-end.
- The Texas Supreme Court denied rehearing in the Vitol case on April 19, 2024. Targa retained the $129.0 million repayment obligation and recorded $54.9 million of cumulative interest expense for the quarter. The $129.0 million was reclassified to accrued liabilities as of March 31. The trial court’s additional $10.5 million award for crude losses and demurrage had been removed on appeal.
- A separate winter-storm contract judgment of approximately $6.9 million, before prejudgment interest, is being appealed. For two other winter-storm cases, management estimated a possible aggregate loss range of $0–$10 million. A New Mexico air-permit matter could result in a penalty exceeding $0.3 million; management did not expect related expenditures to be material.
- Key risks include commodity price and volume volatility, interest rates, counterparty and customer credit, project execution, permitting and environmental regulation, and access to capital markets. A 100-basis-point increase in variable borrowing rates would increase annual interest expense by an estimated $13.6 million. Targa reported covenant compliance and effective disclosure controls at quarter-end.
The filing does not provide a clear full-year earnings or EBITDA guidance figure. Management cautions that quarterly results are not necessarily indicative of full-year results.
Important facts for investors to verify
- How much of the year-over-year change in earnings and cash flow reflects underlying operations versus commodity prices, hedge accounting and the Vitol interest charge.
- Whether projected growth and maintenance capital spending, project timing and expected returns remain on plan.
- Debt maturities, variable-rate exposure and the availability and cost of refinancing; total liquidity is not the same as cash on hand.
- Final outcomes and cash requirements for the Vitol matter and the other disclosed legal and environmental contingencies.
- Whether operating volumes, fee growth and the higher dividend remain supported by cash generation after capital expenditures and debt service.