Targa Resources Corp. (NYSE: TRGP) (“TRGP,” the “Company” or “Targa”) today reported fourth quarter and full year 2023 results.
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Fourth quarter 2023 net income attributable to Targa Resources Corp. was $299.6 million compared to $318.0 million for the fourth quarter of 2022. For full year 2023, net income attributable to Targa Resources Corp. was a record $1,345.9 million compared to $1,195.5 million for 2022.
Highlights
- Record full year adjusted EBITDA(1) for 2023 of $3,530.0 million, a 22% increase over 2022
- Record full year 2023 Permian, NGL transportation, fractionation, and LPG export volumes
- Record full year 2023 common share repurchases of $373.7 million
- Exiting 2023 with ~90% of Gathering and Processing (“G&P”) volumes fee or fee-floor based
- Record quarterly adjusted EBITDA(1) for the fourth quarter of $959.9 million, a 14% sequential increase
- Record Permian, NGL transportation, fractionation, and LPG export volumes during the fourth quarter
- Completed its new 275 million cubic feet per day (“MMcf/d”) Wildcat II plant in Permian Delaware
- Estimate 2024 adjusted EBITDA between $3.7 billion and $3.9 billion, an 8% increase over 2023
- Estimate 2024 net growth capital expenditures of $2.3 billion to $2.5 billion
- Continue to expect an annual common dividend per share of $3.00 in 2024, a 50% increase to 2023
- Current estimate is ~$1.4 billion of net growth capital expenditures in 2025, which would drive a meaningful increase in adjusted free cash flow(1) in 2025
Targa’s record operational and financial results in 2023 despite a significantly lower commodity price environment demonstrates the resiliency of its diversified operations and growing fee based midstream businesses.
The Company reported adjusted earnings before interest, income taxes, depreciation and amortization, and other non-cash items (“adjusted EBITDA”) of $959.9 million for the fourth quarter of 2023 compared to $840.4 million for the fourth quarter of 2022. For the full year 2023, the Company reported adjusted EBITDA of $3,530.0 million compared to $2,901.1 million for the full year 2022.
The Company reported distributable cash flow and adjusted free cash flow for the fourth quarter of 2023 of $709.7 million and $73.7 million, respectively. For the full year 2023, the Company reported distributable cash flow and adjusted free cash flow of $2,617.2 million and $392.7 million, respectively.
On January 18, 2024, the Company declared a quarterly cash dividend of $0.50 per common share for the fourth quarter of 2023, or $2.00 per common share on an annualized basis. Total cash dividends of approximately $112 million will be paid on February 15, 2024 on all outstanding shares of common stock to holders of record as of the close of business on January 31, 2024. The expected higher annual common dividend of $3.00 per share for 2024 should begin quarterly payments with the first quarter payment in May of 2024.
Targa repurchased 475,040 shares of its common stock during the fourth quarter of 2023 at a weighted average per share price of $85.52 for a total net cost of $40.6 million. For the year ended December 31, 2023, Targa repurchased 4,870,559 shares of its common stock at a weighted average price of $76.72 for a total net cost of $373.7 million. There was $770.1 million remaining under the Company’s $1.0 billion common share repurchase program as of December 31, 2023.
Fourth Quarter 2023 – Sequential Quarter over Quarter Commentary
Targa reported fourth quarter adjusted EBITDA of $959.9 million, representing a 14 percent increase compared to the third quarter of 2023. The sequential increase in adjusted EBITDA was attributable to higher volumes across Targa’s G&P and Logistics and Transportation (“L&T”) systems. In the G&P segment, higher sequential adjusted operating margin was attributable to record Permian natural gas inlet volumes and higher fees. In the L&T segment, record NGL pipeline transportation, fractionation, and LPG export volumes and higher marketing margin drove the sequential increase in segment adjusted operating margin. Increasing NGL pipeline transportation and fractionation volumes were attributable to higher supply volumes from Targa’s Permian G&P systems and third parties. LPG export volumes benefited from Targa’s system expansion completed in late third quarter of 2023 and improved market conditions, while marketing margin was higher due to increased seasonal optimization opportunities.
Capitalization and Liquidity
The Company’s total consolidated debt as of December 31, 2023 was $12,953.9 million, net of $90.8 million of debt issuance costs and $29.5 million of unamortized discount, with $11,534.4 million of outstanding senior notes, $500.0 million outstanding under the Company’s $1.5 billion term loan facility, $175.0 million outstanding under the Commercial Paper Program, $575.0 million outstanding under the Securitization Facility, and $289.8 million of finance lease liabilities.
Total consolidated liquidity as of December 31, 2023 was approximately $2.7 billion, including $2.6 billion available under the TRGP Revolver, $141.7 million of cash and $25.0 million available under the Securitization Facility.
Financing Update
In November 2023, Targa completed an underwritten public offering of (i) $1.0 billion in aggregate principal amount of its 6.150% Senior Notes due 2029 (the “2023 6.150% Notes”) and (ii) $1.0 billion in aggregate principal amount of its 6.500% Senior Notes due 2034 (the “November 2023 6.500% Notes”), resulting in net proceeds of approximately $2.0 billion. Targa used a portion of the net proceeds to repay $1.0 billion in borrowings under the Term Loan Facility and the remaining net proceeds for general corporate purposes, including to repay borrowings under the Commercial Paper Program.
Growth Projects Update
Late in the fourth quarter, Targa commenced operations at its new 275 MMcf/d Wildcat II plant in Permian Delaware ahead of schedule and on-budget. Construction continues on its 275 MMcf/d Greenwood II plant in Permian Midland, and its 230 MMcf/d Roadrunner II and 275 MMcf/d Bull Moose plants in Permian Delaware. In its L&T segment, construction continues on Targa’s 120 thousand barrels per day (“MBbl/d”) Train 9 fractionator and its 120 MBbl/d Train 10 fractionator in Mont Belvieu, Texas, its Daytona NGL Pipeline and Targa continues to make progress on the reactivation of Gulf Coast Fractionators (“GCF”). Targa remains on-track to complete these expansions as previously disclosed.
In response to increasing production and to meet the infrastructure needs of its customers, Targa has commenced spending on long-lead time items for its next gas plants in the Permian Basin and its next fractionator in Mont Belvieu (“Train 11”).
2024 Outlook and Capital Return Expectations
Targa’s 2024 operational and financial expectations assume Waha natural gas prices average $1.80 per million British Thermal Units (“MMbtu”), natural gas liquids (“NGL”) composite barrel prices average $0.65 per gallon, and crude oil prices average $75 per barrel.
For 2024, Targa estimates full year adjusted EBITDA to be between $3.7 billion and $3.9 billion, with the midpoint of the range representing an 8 percent increase over full year 2023 adjusted EBITDA. Targa expects to continue to benefit from meaningful growth across its Permian G&P footprint, which is expected to drive record Permian, NGL pipeline transportation, fractionation, and LPG export volumes in 2024 relative to the records set in 2023. Organic growth capital projects coming online in 2024, including two Permian G&P plants, two fractionators and the Daytona NGL Pipeline, are expected to be highly utilized at start-up, supporting increasing adjusted EBITDA in 2024 and beyond. Additionally, Targa continued to make significant progress in adding fees and fee floors to its G&P contracts and exits 2023 with approximately 90 percent of G&P volumes fee or fee-floor based, providing cash flow stability and protection against further downward movements in commodity prices.
Targa’s estimate for 2024 net growth capital expenditures is between $2.3 billion to $2.5 billion and includes spending on long-lead time items for its next gas plants in the Permian Basin and Train 11. Net maintenance capital expenditures for 2024 are estimated to be approximately $225 million.
For the first quarter of 2024, Targa intends to recommend to its Board of Directors an increase to its common dividend to $0.75 per common share or $3.00 per common share annualized. The recommended common dividend per share increase, if approved, would be effective for the first quarter of 2024 and payable in May 2024. Beyond 2024, Targa expects to be in position to continue to meaningfully increase the capital returned to shareholders through increasing common dividends per share and opportunistic repurchases of its common stock.
Positioning in 2025
For 2025, Targa estimates a meaningful step down in net growth capital expenditures versus 2023 and 2024 as the Company’s large downstream fractionation and NGL pipeline transportation expansions will be complete by the first quarter of 2025.
Assuming continued production growth in the Permian Basin consistent with consensus expectations and other key assumptions, Targa’s current estimate is approximately $1.4 billion of net growth capital expenditures in 2025. Given the key major projects in progress that will be placed in service in 2024 and early 2025, Targa expects a significant increase in adjusted EBITDA in 2025 relative to 2024. The combination of decreasing growth capital spending and increasing adjusted EBITDA is expected to result in the generation of meaningful adjusted free cash flow and a consolidated leverage ratio comfortably within Targa’s long-term leverage ratio target range of 3 to 4 times. This would mean Targa is well positioned to continue to provide its shareholders with a meaningful increase in capital returned to shareholders through increasing common dividends per share and continued common share repurchases.
An earnings supplement presentation and an updated investor presentation are available under Events and Presentations in the Investors section of the Company’s website at www.targaresources.com/investors/events.
Conference Call
The Company will host a conference call for the investment community at 11:00 a.m. Eastern time (10:00 a.m. Central time) on February 15, 2024 to discuss its fourth quarter results. The conference call can be accessed via webcast under Events and Presentations in the Investors section of the Company’s website at www.targaresources.com/investors/events, or by going directly to https://edge.media-server.com/mmc/p/koukwuoq. A webcast replay will be available at the link above approximately two hours after the conclusion of the event.
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