Targa Resources Corp. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report; quarterly results are not clearly provided in the filing text summarized here. Targa is a North American midstream company operating Gathering and Processing and Logistics and Transportation businesses.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $20.930 billion | $16.950 billion |
| Income from operations | $1.729 billion | $864.8 million |
| Net income attributable to Targa | $1.196 billion | $71.2 million |
| Net income attributable to common shareholders | $896.8 million | Loss of $16.1 million |
| Basic / diluted EPS | $3.95 / $3.88 | Loss of $0.07 / $0.07 |
| Net cash from operating activities | $2.381 billion | $2.303 billion |
| Adjusted EBITDA | $2.901 billion | $2.052 billion |
| Distributable cash flow | $2.279 billion | $1.541 billion |
| Adjusted free cash flow | $1.102 billion | $1.134 billion |
Revenue increased 23%, reflecting higher commodity prices and volumes. Commodity sales rose 22% and midstream service fees rose 38%. Operating income doubled; adjusted EBITDA increased 41%. Common-shareholder earnings include $215.5 million of deemed preferred dividends and a $53.2 million charge related to repurchasing noncontrolling interests. Adjusted EBITDA, distributable cash flow and adjusted free cash flow are non-GAAP measures.
Segment adjusted operating margin was $2.593 billion for Gathering and Processing, up 44%, and $1.757 billion for Logistics and Transportation, up 14%. Field natural-gas inlet throughput increased 23% to 5,511 MMcf/d; NGL production increased 23% to 678.3 MBbl/d. Downstream pipeline transportation and fractionation volumes grew, while LPG export margin declined, primarily due to higher fuel and power costs.
Cash, debt and capital allocation
- Year-end cash and cash equivalents were $219.0 million. Investing activities used $4.150 billion, mainly for the Delaware Basin and South Texas acquisitions and capital projects. Financing activities provided $1.829 billion.
- Year-end debt obligations were reported as $11.536 billion, including $800 million drawn under the receivables securitization facility, $1.5 billion under the term loan, and borrowings under the revolver and commercial paper program. The filing also cites total indebtedness of $11.610 billion excluding specified discounts and issuance costs; verify the debt definitions and reconciliation.
- Variable-rate borrowings were approximately $3.6 billion; a 100-basis-point rate increase would raise estimated annual interest expense by $36 million. Net interest expense was $446.1 million, versus $387.9 million in 2021.
- At February 17, 2023, reported total liquidity was $2.492 billion. Targa said liquidity was sufficient for anticipated requirements for at least the next 12 months. The $800 million securitization facility was fully drawn at year-end and had no availability then.
- Net growth capital expenditures were $1.177 billion in 2022; maintenance capital expenditures were $168.1 million. Common dividends increased to $0.35 per share quarterly ($1.40 annualized). Targa repurchased $224.8 million of common stock during 2022 and redeemed all Series A Preferred for approximately $973 million, including accrued dividends.
Material changes, outlook and unusual items
- Targa acquired Lucid Energy Delaware for approximately $3.5 billion in July 2022, adding about 1,050 miles of pipelines and 1.4 Bcf/d of processing capacity. It acquired Southcross for approximately $202 million in April.
- Targa sold its 25% interest in Gulf Coast Express Pipeline for $857 million and recorded a $435.9 million gain. It also repurchased Stonepeak’s interests in development joint ventures for $926.3 million. In January 2023, it acquired the remaining 25% of Grand Prix for approximately $1.05 billion and reported owning the pipeline outright.
- 2022 net income benefited from the GCX sale gain and the absence of the $452.3 million long-lived-asset impairment recorded in 2021. It was reduced by $49.6 million of financing losses, including debt-extinguishment costs, and higher income tax expense.
- For 2023, management estimated net growth capital expenditures of $1.8–$1.9 billion for announced projects and maintenance capital expenditures of approximately $175 million. Projects include processing plants, Mont Belvieu fractionation Train 9 and the Daytona NGL Pipeline. Management expects continued results to depend on commodity prices, throughput, contract mix, hedging, operating costs, capital markets and regulation.
- Other planned expansions include reactivating Gulf Coast Fractionators, expected in early 2024. The filing’s project schedules are estimates, not guarantees of completion or returns.
Risks and contingencies
- Key business risks include commodity-price and volume volatility, natural production declines, customer and counterparty credit exposure, competition, inflation, rising interest rates, and the ability to finance and complete growth projects.
- Environmental, climate and methane rules, pipeline-safety requirements, permitting challenges and possible restrictions on customers’ drilling could raise costs or reduce demand and throughput. Severe weather, operational incidents, cyberattacks and insurance availability also pose risks.
- Targa retained liability in the Vitol dispute after selling the related Channelview assets. A Texas trial court awarded Vitol $129 million plus interest and $10.5 million in damages; the appeals court upheld the $129 million award but removed the additional damages. Targa’s petition for review was pending before the Texas Supreme Court; stated interest through year-end 2022 was approximately $42.6 million if accrued.
- The IRS was auditing certain subsidiaries’ 2019 and 2020 partnership tax years; the filing said management did not anticipate material changes. The IRS completed its review of the CARES Act NOL carryback without exceptions, and a further Badlands audit notice was received in January 2023.
- Targa reported compliance with debt covenants at year-end. Its senior unsecured debt ratings were BBB- from Fitch and S&P and Baa3 from Moody’s. A downgrade below investment grade by both Moody’s and S&P could require collateral posting under derivative agreements.
Most important facts for investors to verify
- Reconcile reported debt and liquidity figures, including commercial paper, revolver support, the fully drawn securitization facility, finance leases and the post-year-end Grand Prix financing.
- Assess whether the $1.8–$1.9 billion 2023 growth-capex plan, project schedules and expected returns remain achievable amid cost, permitting and execution risks.
- Review the Vitol litigation status, potential exposure and related accounting treatment; the filing does not establish the final outcome.
- Separate recurring operating performance from commodity-price effects, hedge results, the GCX gain, acquisition impacts and preferred-stock redemption charges.
- Confirm the effect of acquisition accounting and controls: management and the auditor excluded the Delaware Basin Acquisition from the 2022 internal-control assessment; it represented approximately 10% of year-end assets and 2% of 2022 revenue. The auditor gave an unqualified opinion on the financial statements and internal controls within the stated scope.