Targa Resources Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report; the supplied filing text does not provide a complete Q4 income statement or cash-flow comparison.
Business context
Targa is a North American midstream company providing natural gas gathering and processing, crude oil gathering, and NGL transportation, fractionation, storage, terminaling and marketing. It reports Gathering and Processing and Logistics and Transportation segments. Its assets include a substantial Permian footprint and connected Gulf Coast infrastructure.
Financial performance and liquidity
Amounts below are in millions of dollars unless otherwise noted.
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $16,949.8 | $8,260.3 |
| Income (loss) from operations | $864.8 | $(1,303.7) |
| Net income (loss) | $422.1 | $(1,325.0) |
| Net income (loss) attributable to Targa | $71.2 | $(1,553.9) |
| Net income (loss) attributable to common shareholders | $(16.1) | $(1,684.8) |
| Net cash provided by operating activities | $2,302.9 | $1,744.5 |
| Cash outlays for capital projects | $505.1 | $951.6 |
- Revenue rose 105%, primarily reflecting higher commodity prices and increased NGL and natural gas volumes. Commodity sales increased 118%; midstream service fees increased 24%.
- Adjusted EBITDA, a non-GAAP measure, was $2,052.0, up 25%. Distributable cash flow was $1,541.4, up 31%, and adjusted free cash flow was $1,133.7, up 97%. The filing cautions these non-GAAP measures are not substitutes for GAAP results.
- Segment adjusted operating margin was $1,801.5 for Gathering and Processing (up 24%) and $1,537.3 for Logistics and Transportation (up 10%). “Other,” largely unrealized mark-to-market derivative activity, was $(115.9), versus $229.7 in 2020.
- Operating cash flow increased by $558.4, mainly as higher commodity prices increased customer collections. Investing activities used $473.2; financing activities used $1,914.0, including debt repayments and distributions to noncontrolling interests.
- At year-end, cash was $158.5 and debt obligations totaled $6,597.2, including $6,465.7 of senior unsecured notes and $150.0 outstanding under the receivables securitization facility. Interest expense, net, was $387.9. Most debt was fixed-rate; the filing reports no interest-rate hedges at year-end.
- As of February 18, 2022, reported total liquidity was $2,201.9, including cash, available New TRC Revolver capacity and securitization availability, less borrowings and letters of credit. Targa said it expected liquidity to cover anticipated needs for at least 12 months and reported compliance with debt covenants at December 31, 2021.
Material changes versus FY2020
- Results returned to GAAP profitability after FY2020’s large loss, although common shareholders still had a small net loss after Series A Preferred dividends.
- FY2021 included a $452.3 non-cash pre-tax impairment, mainly for certain South Texas gas processing facilities and gathering systems, compared with $2,442.8 of impairment in FY2020, which included a full impairment of Coastal operations.
- Gathering and Processing inlet volumes increased 2% to 4,470.3 MMcf/d, and NGL production increased 4% to 550.4 MBbl/d. Permian volumes grew, while Central and Coastal inlet volumes declined.
- Cash capital-project outlays fell from $951.6 to $505.1, mainly because several major projects entered service in 2020. The company reclassified certain fuel and power costs between expense lines beginning in 2021; prior periods were reclassified for comparison.
Outlook, commentary, risks and unusual items
- Management forecast 2022 net growth capital expenditures of $700–$800 and maintenance capital expenditures of approximately $150; future growth spending may vary with investment opportunities.
- Projects announced around the filing date included new 275 MMcf/d processing plants in Permian Midland, Permian Delaware and Permian Midland again, with expected start-ups in 2022 and 2023. The Heim plant, a relocated 200 MMcf/d plant, began operations in Q3 2021.
- In January 2022, Targa raised its common dividend to $0.35 per share quarterly, effective for Q4 2021 and payable in February 2022. It also repurchased its interests in development-company joint ventures for approximately $925 million. In February it agreed to sell its 25% GCX interest for approximately $857 million, with proceeds expected in Q2 2022.
- In February 2022, Targa replaced its former revolving facilities with a $2.75 billion revolver maturing in 2027, with an option to request up to $500 million in additional commitments. These are post-year-end developments, not FY2021 balance-sheet amounts.
- The February 2021 winter storm temporarily disrupted operations and reduced throughput; the company said facilities returned to full operation and volumes recovered, but potential customer, counterparty and regulatory effects remained uncertain. COVID-19 impacts also remained difficult to predict.
- A court awarded Vitol $129.0 plus interest and $10.5 in additional damages relating to the Channelview splitter dispute. Targa appealed; the appeal was pending, and Targa retained the related liabilities after selling the assets in 2020.
- Other significant risks include commodity prices and producer activity, customer and hedge-counterparty credit, substantial debt, project execution, severe weather, pipeline safety and integrity costs, environmental and climate regulation, and cybersecurity. The company estimated average annual pipeline integrity inspection costs of $5.8 for 2022–2024, excluding any resulting repairs.
Important facts for investors to verify
- Review the audited financial statements and segment disclosures, including how much of the revenue increase reflected commodity prices versus volumes and fee-based services.
- Assess the South Texas impairment assumptions and whether further contract, volume or asset impairments may arise.
- Confirm debt, revolver availability, securitization renewal and covenant headroom after the 2022 financing and joint-venture transactions.
- Track the Vitol appeal, potential exposure and any developments affecting the deferred $129.0 payment balance.
- Evaluate whether projected 2022 capital spending, dividend increases and the development-company repurchase are supported by realized cash flow and liquidity.
- Consider the effects of derivative settlements and mark-to-market changes: the year-end derivative position was a net liability of $316.7, and the filing states hedge results can differ from realized physical commodity prices.