Targa Resources Corp. Reports Second Quarter 2023 Financial Results
Second quarter 2023 net income attributable to
Highlights
- Continue to estimate 2023 adjusted EBITDA(1) between
$3.5 billion and$3.7 billion - Repurchased
$149 million of common stock during the second quarter and$201 million for the six months endedJune 30, 2023 at a weighted average price of$71.49 - Announced two new Permian gas plants to meet the infrastructure needs of producers, with no change to 2023 growth capital expenditure estimate of
$2.0 billion to$2.2 billion - Reported record Permian natural gas inlet volumes during the second quarter
- Reported record NGL pipeline transportation volumes during the second quarter
- Reported record NGL fractionation volumes during the second quarter
The Company reported adjusted earnings before interest, income taxes, depreciation and amortization, and other non-cash items (“adjusted EBITDA”) of
On
Targa repurchased 2,088,062 shares of its common stock during the second quarter of 2023 at a weighted average per share price of
Second Quarter 2023 -
Targa reported second quarter 2023 adjusted EBITDA of
Capitalization and Liquidity
The Company’s total consolidated debt as of
Total consolidated liquidity as of
Growth Projects Update
During the second quarter, Targa commenced full operations at its new 275 million cubic feet per day (“MMcf/d”) Legacy II plant in Permian Midland and commenced operations at its new 275 MMcf/d Midway plant in Permian Delaware.
In Permian Midland, construction continues on Targa’s 275 MMcf/d Greenwood plant. In Permian Delaware, Targa continues to advance its 275 MMcf/d Wildcat II and 230 MMcf/d Roadrunner II plants. In its L&T segment, construction continues on Targa’s 120 thousand barrel per day (“MBbl/d”) Train 9 fractionator and its 120 MBbl/d Train 10 fractionator in
In
2023 Outlook
While commodity prices are lower than the assumptions underlying Targa’s previously disclosed full year financial estimates for 2023, there is no change to Targa’s expectation to generate full year adjusted EBITDA between
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
(1) Adjusted EBITDA is a non-GAAP financial measure and is discussed under “Non-GAAP Financial Measures.”
| Three Months Ended |
Six Months Ended |
||||||||||||||||||||||
| 2023 | 2022 | 2023 vs. 2022 | 2023 | 2022 | 2023 vs. 2022 | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Sales of commodities | $ | 2,914.6 | $ | 5,624.2 | $ | (2,709.6 | ) | (48 | %) | $ | 6,939.7 | $ | 10,190.3 | $ | (3,250.6 | ) | (32 | %) | |||||
| Fees from midstream services | 489.1 | 431.6 | 57.5 | 13 | % | 984.5 | 824.6 | 159.9 | 19 | % | |||||||||||||
| Total revenues | 3,403.7 | 6,055.8 | (2,652.1 | ) | (44 | %) | 7,924.2 | 11,014.9 | (3,090.7 | ) | (28 | %) | |||||||||||
| Product purchases and fuel | 2,068.9 | 5,047.3 | (2,978.4 | ) | (59 | %) | 5,088.0 | 9,251.5 | (4,163.5 | ) | (45 | %) | |||||||||||
| Operating expenses | 272.6 | 215.8 | 56.8 | 26 | % | 530.7 | 399.3 | 131.4 | 33 | % | |||||||||||||
| Depreciation and amortization expense | 332.1 | 269.9 | 62.2 | 23 | % | 656.9 | 479.0 | 177.9 | 37 | % | |||||||||||||
| General and administrative expense | 81.0 | 71.0 | 10.0 | 14 | % | 163.4 | 138.0 | 25.4 | 18 | % | |||||||||||||
| Other operating (income) expense | — | (0.1 | ) | 0.1 | 100 | % | (0.6 | ) | (0.6 | ) | — | — | |||||||||||
| Income (loss) from operations | 649.1 | 451.9 | 197.2 | 44 | % | 1,485.8 | 747.7 | 738.1 | 99 | % | |||||||||||||
| Interest expense, net | (166.6 | ) | (81.2 | ) | (85.4 | ) | 105 | % | (334.7 | ) | (174.7 | ) | (160.0 | ) | 92 | % | |||||||
| Equity earnings (loss) | 3.4 | 1.4 | 2.0 | 143 | % | 3.2 | 7.0 | (3.8 | ) | (54 | %) | ||||||||||||
| Gain (loss) from financing activities | — | (33.8 | ) | 33.8 | 100 | % | — | (49.6 | ) | 49.6 | 100 | % | |||||||||||
| Gain (loss) from sale of equity method investment | — | 435.9 | (435.9 | ) | (100 | %) | — | 435.9 | (435.9 | ) | (100 | %) | |||||||||||
| Other, net | (2.0 | ) | 0.5 | (2.5 | ) | NM | (4.9 | ) | — | (4.9 | ) | (100 | %) | ||||||||||
| Income tax (expense) benefit | (96.4 | ) | (87.1 | ) | (9.3 | ) | 11 | % | (206.7 | ) | (110.1 | ) | (96.6 | ) | 88 | % | |||||||
| Net income (loss) | 387.5 | 687.6 | (300.1 | ) | (44 | %) | 942.7 | 856.2 | 86.5 | 10 | % | ||||||||||||
| Less: Net income (loss) attributable to noncontrolling interests | 58.2 | 91.2 | (33.0 | ) | (36 | %) | 116.4 | 171.8 | (55.4 | ) | (32 | %) | |||||||||||
| Net income (loss) attributable to |
329.3 | 596.4 | (267.1 | ) | (45 | %) | 826.3 | 684.4 | 141.9 | 21 | % | ||||||||||||
| Premium on repurchase of noncontrolling interests, net of tax | — | — | — | — | 490.7 | 53.1 | 437.6 | NM | |||||||||||||||
| Dividends on Series A Preferred Stock | — | 8.2 | (8.2 | ) | (100 | %) | — | 30.0 | (30.0 | ) | (100 | %) | |||||||||||
| Deemed dividends on Series A Preferred Stock | — | 215.5 | (215.5 | ) | (100 | %) | — | 215.5 | (215.5 | ) | (100 | %) | |||||||||||
| Net income (loss) attributable to common shareholders | $ | 329.3 | $ | 372.7 | $ | (43.4 | ) | (12 | %) | $ | 335.6 | $ | 385.8 | $ | (50.2 | ) | (13 | %) | |||||
| Financial data: | |||||||||||||||||||||||
| Adjusted EBITDA (1) | $ | 789.1 | $ | 666.4 | $ | 122.7 | 18 | % | $ | 1,729.7 | $ | 1,292.1 | $ | 437.6 | 34 | % | |||||||
| Distributable cash flow (1) | 575.8 | 533.4 | 42.4 | 8 | % | 1,305.2 | 1,028.2 | 277.0 | 27 | % | |||||||||||||
| Adjusted free cash flow (1) | (3.7 | ) | 334.1 | (337.8 | ) | (101 | %) | 310.3 | 707.5 | (397.2 | ) | (56 | %) | ||||||||||
_________________________
| (1) | Adjusted EBITDA, distributable cash flow and adjusted free cash flow are non-GAAP financial measures and are discussed under “Non-GAAP Financial Measures.” |
| NM | Due to a low denominator, the noted percentage change is disproportionately high and as a result, considered not meaningful. |
Three Months Ended
The decrease in commodity sales reflects lower NGL, natural gas and condensate prices (
The increase in fees from midstream services is primarily due to higher gas gathering and processing fees including the impact of the acquisition of certain assets in the
The decrease in product purchases and fuel reflects lower NGL, natural gas and condensate prices, partially offset by higher natural gas, condensate and NGL volumes.
The increase in operating expenses is primarily due to increased activity and system expansions, the acquisition of certain assets in the
See “—Review of Segment Performance” for additional information on a segment basis.
The increase in depreciation and amortization expense is primarily due to the acquisition of certain assets in the
The increase in general and administrative expense is primarily due to higher compensation and benefits, insurance costs and professional fees.
The increase in interest expense, net is due to higher net borrowings primarily for the acquisition of certain assets in the
During 2022, the Partnership redeemed its 5.875% Senior Notes due 2026 (the “5.875% Notes”) resulting in a net loss from financing activities.
During 2022, the Company completed the sale of
The increase in income tax expense is primarily due to a smaller release of the valuation allowance in 2023 compared to 2022, partially offset by a decrease in pre-tax book income.
The decrease in net income (loss) attributable to noncontrolling interests is primarily due to the Grand Prix Transaction and lower earnings allocated to the Company’s joint venture partner in WestTX.
The decrease in dividends on Series A Preferred Stock (“Series A Preferred”) is due to the full redemption of all of the Company’s issued and outstanding shares of Series A Preferred in
Six Months Ended
The decrease in commodity sales reflects lower NGL, natural gas and condensate prices (
The increase in fees from midstream services is primarily due to higher gas gathering and processing fees including the impact of the acquisition of certain assets in the
The decrease in product purchases and fuel reflects lower NGL, natural gas and condensate prices, partially offset by higher NGL, natural gas and condensate volumes.
The increase in operating expenses is primarily due to increased activity and system expansions, the acquisition of certain assets in the
See “—Review of Segment Performance” for additional information on a segment basis.
The increase in depreciation and amortization expense is primarily due to the acquisition of certain assets in the
The increase in general and administrative expense is primarily due to higher compensation and benefits, insurance costs and professional fees.
The increase in interest expense, net is due to higher net borrowings primarily for the acquisition of certain assets in the
During 2022, the Company terminated the previous TRGP senior secured revolving credit facility and the Partnership’s senior secured revolving credit facility. In addition, the Partnership redeemed its 5.375% Senior Notes due 2027 and 5.875% Notes. These transactions resulted in a net loss from financing activities.
During 2022, the Company completed the GCX Sale resulting in a gain from sale of an equity method investment.
The increase in income tax expense is primarily due to an increase in pre-tax book income and a smaller release of the valuation allowance in 2023 compared to 2022.
The decrease in net income (loss) attributable to noncontrolling interests is primarily due to the Grand Prix Transaction and lower earnings allocated to the Company’s joint venture partner in WestTX, the
The premium on repurchase of noncontrolling interests, net of tax is due to the Grand Prix Transaction in 2023 and the purchase of all of Stonepeak Infrastructure Partners’ interests in the Company’s development company joint ventures in 2022.
The decrease in dividends on Series A Preferred is due to the full redemption of all of the Company’s issued and outstanding shares of Series A Preferred in
Review of Segment Performance
The following discussion of segment performance includes inter-segment activities. The Company views segment operating margin and adjusted operating margin as important performance measures of the core profitability of its operations. These measures are key components of internal financial reporting and are reviewed for consistency and trend analysis. For a discussion of adjusted operating margin, see “Non-GAAP Financial Measures ― Adjusted Operating Margin.” Segment operating financial results and operating statistics include the effects of intersegment transactions. These intersegment transactions have been eliminated from the consolidated presentation.
The Company operates in two primary segments: (i) Gathering and Processing; and (ii) Logistics and Transportation.
Gathering and Processing Segment
The Gathering and Processing segment includes assets used in the gathering and/or purchase and sale of natural gas produced from oil and gas wells, removing impurities and processing this raw natural gas into merchantable natural gas by extracting NGLs; and assets used for the gathering and terminaling and/or purchase and sale of crude oil. The Gathering and Processing segment’s assets are located in the
The following table provides summary data regarding results of operations of this segment for the periods indicated:
| Three Months Ended |
Six Months Ended |
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| 2023 | 2022 | 2023 vs. 2022 | 2023 | 2022 | 2023 vs. 2022 | ||||||||||||||||||
| (In millions, except operating statistics and price amounts) | |||||||||||||||||||||||
| Operating margin | $ | 502.5 | $ | 474.7 | $ | 27.8 | 6 | % | $ | 1,040.9 | $ | 872.3 | $ | 168.6 | 19 | % | |||||||
| Operating expenses | 189.8 | 141.4 | 48.4 | 34 | % | 371.2 | 258.0 | 113.2 | 44 | % | |||||||||||||
| Adjusted operating margin | $ | 692.3 | $ | 616.1 | $ | 76.2 | 12 | % | $ | 1,412.1 | $ | 1,130.3 | $ | 281.8 | 25 | % | |||||||
| Operating statistics (1): | |||||||||||||||||||||||
| Plant natural gas inlet, MMcf/d (2) (3) | |||||||||||||||||||||||
| Permian Midland (4) | 2,504.3 | 2,132.0 | 372.3 | 17 | % | 2,426.9 | 2,103.7 | 323.2 | 15 | % | |||||||||||||
| Permian |
2,560.8 | 993.3 | 1,567.5 | 158 | % | 2,528.1 | 985.1 | 1,543.0 | 157 | % | |||||||||||||
| Total Permian | 5,065.1 | 3,125.3 | 1,939.8 | 62 | % | 4,955.0 | 3,088.8 | 1,866.2 | 60 | % | |||||||||||||
| SouthTX (6) | 371.0 | 271.2 | 99.8 | 37 | % | 363.5 | 216.9 | 146.6 | 68 | % | |||||||||||||
| 208.0 | 175.3 | 32.7 | 19 | % | 201.8 | 175.3 | 26.5 | 15 | % | ||||||||||||||
| SouthOK (6) | 395.0 | 460.4 | (65.4 | ) | (14 | %) | 389.5 | 434.0 | (44.5 | ) | (10 | %) | |||||||||||
| WestOK | 211.0 | 212.0 | (1.0 | ) | — | 207.6 | 207.2 | 0.4 | — | ||||||||||||||
| Total Central | 1,185.0 | 1,118.9 | 66.1 | 6 | % | 1,162.4 | 1,033.4 | 129.0 | 12 | % | |||||||||||||
| Badlands (6) (7) | 128.9 | 129.4 | (0.5 | ) | — | 130.3 | 127.2 | 3.1 | 2 | % | |||||||||||||
| Total Field | 6,379.0 | 4,373.6 | 2,005.4 | 46 | % | 6,247.7 | 4,249.4 | 1,998.3 | 47 | % | |||||||||||||
| Coastal | 552.1 | 553.6 | (1.5 | ) | — | 530.7 | 577.7 | (47.0 | ) | (8 | %) | ||||||||||||
| Total | 6,931.1 | 4,927.2 | 2,003.9 | 41 | % | 6,778.4 | 4,827.1 | 1,951.3 | 40 | % | |||||||||||||
| NGL production, MBbl/d (3) | |||||||||||||||||||||||
| Permian Midland (4) | 363.6 | 310.6 | 53.0 | 17 | % | 349.4 | 305.7 | 43.7 | 14 | % | |||||||||||||
| Permian |
367.9 | 135.8 | 232.1 | 171 | % | 355.4 | 132.8 | 222.6 | 168 | % | |||||||||||||
| Total Permian | 731.5 | 446.4 | 285.1 | 64 | % | 704.8 | 438.5 | 266.3 | 61 | % | |||||||||||||
| SouthTX (6) | 45.6 | 33.5 | 12.1 | 36 | % | 42.0 | 26.9 | 15.1 | 56 | % | |||||||||||||
| 24.3 | 19.6 | 4.7 | 24 | % | 23.7 | 19.4 | 4.3 | 22 | % | ||||||||||||||
| SouthOK (6) | 47.3 | 55.8 | (8.5 | ) | (15 | %) | 43.1 | 53.1 | (10.0 | ) | (19 | %) | |||||||||||
| WestOK | 12.5 | 16.6 | (4.1 | ) | (25 | %) | 12.8 | 15.8 | (3.0 | ) | (19 | %) | |||||||||||
| Total Central | 129.7 | 125.5 | 4.2 | 3 | % | 121.6 | 115.2 | 6.4 | 6 | % | |||||||||||||
| Badlands (6) | 15.6 | 14.7 | 0.9 | 6 | % | 15.5 | 14.7 | 0.8 | 5 | % | |||||||||||||
| Total Field | 876.8 | 586.6 | 290.2 | 49 | % | 841.9 | 568.4 | 273.5 | 48 | % | |||||||||||||
| Coastal | 36.8 | 36.7 | 0.1 | — | 36.5 | 36.9 | (0.4 | ) | (1 | %) | |||||||||||||
| Total | 913.6 | 623.3 | 290.3 | 47 | % | 878.4 | 605.3 | 273.1 | 45 | % | |||||||||||||
| Crude oil, Badlands, MBbl/d | 104.7 | 111.8 | (7.1 | ) | (6 | %) | 107.7 | 117.2 | (9.5 | ) | (8 | %) | |||||||||||
| Crude oil, Permian, MBbl/d | 29.4 | 28.8 | 0.6 | 2 | % | 27.5 | 29.7 | (2.2 | ) | (7 | %) | ||||||||||||
| Natural gas sales, BBtu/d (3) | 2,672.6 | 2,277.1 | 395.5 | 17 | % | 2,622.8 | 2,202.1 | 420.7 | 19 | % | |||||||||||||
| NGL sales, MBbl/d (3) | 493.8 | 440.4 | 53.4 | 12 | % | 476.6 | 432.7 | 43.9 | 10 | % | |||||||||||||
| Condensate sales, MBbl/d | 24.0 | 15.7 | 8.3 | 53 | % | 21.9 | 15.0 | 6.9 | 46 | % | |||||||||||||
| Average realized prices (8): | |||||||||||||||||||||||
| Natural gas, $/MMBtu | 1.29 | 6.12 | (4.83 | ) | (79 | %) | 1.94 | 5.15 | (3.21 | ) | (62 | %) | |||||||||||
| NGL, $/gal | 0.41 | 0.89 | (0.48 | ) | (54 | %) | 0.47 | 0.84 | (0.37 | ) | (44 | %) | |||||||||||
| Condensate, $/Bbl | 69.52 | 103.10 | (33.58 | ) | (33 | %) | 68.09 | 90.06 | (21.97 | ) | (24 | %) | |||||||||||
_________________________
| (1) | Segment operating statistics include the effect of intersegment amounts, which have been eliminated from the consolidated presentation. For all volume statistics presented, the numerator is the total volume sold during the period and the denominator is the number of calendar days during the period. |
| (2) | Plant natural gas inlet represents the Company’s undivided interest in the volume of natural gas passing through the meter located at the inlet of a natural gas processing plant, other than Badlands. |
| (3) | Plant natural gas inlet volumes and gross NGL production volumes include producer take-in-kind volumes, while natural gas sales and NGL sales exclude producer take-in-kind volumes. |
| (4) | Permian Midland includes operations in WestTX, of which the Company owns a 72.8% undivided interest, and other plants that are owned 100% by the Company. Operating results for the WestTX undivided interest assets are presented on a pro-rata net basis in the Company’s reported financials. |
| (5) | Includes operations from the acquisition of certain assets in the |
| (6) | Operations include facilities that are not wholly owned by the Company. SouthTX operating statistics include the impact of the acquisition of certain assets in |
| (7) | Badlands natural gas inlet represents the total wellhead volume and includes the Targa volumes processed at the Little Missouri 4 plant. |
| (8) | Average realized prices, net of fees, include the effect of realized commodity hedge gain/loss attributable to the Company’s equity volumes. The price is calculated using total commodity sales plus the hedge gain/loss as the numerator and total sales volume as the denominator, net of fees. |
The following table presents the realized commodity hedge gain (loss) attributable to the Company’s equity volumes that are included in the adjusted operating margin of the Gathering and Processing segment:
| Three Months Ended |
Three Months Ended |
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| (In millions, except volumetric data and price amounts) | |||||||||||||||||||
| Volume Settled |
Price Spread (1) |
Gain (Loss) |
Volume Settled |
Price Spread (1) |
Gain (Loss) |
||||||||||||||
| Natural gas (BBtu) | 15.3 | $ | 1.73 | $ | 26.4 | 16.7 | $ | (3.29 | ) | $ | (54.9 | ) | |||||||
| NGL (MMgal) | 164.9 | 0.11 | 17.7 | 164.4 | (0.47 | ) | (77.9 | ) | |||||||||||
| Crude oil (MBbl) | 0.6 | (3.67 | ) | (2.2 | ) | 0.5 | (51.00 | ) | (25.5 | ) | |||||||||
| $ | 41.9 | $ | (158.3 | ) | |||||||||||||||
| Six Months Ended |
Six Months Ended |
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| (In millions, except volumetric data and price amounts) | |||||||||||||||||||
| Volume Settled |
Price Spread (1) |
Gain (Loss) |
Volume Settled |
Price Spread (1) |
Gain (Loss) |
||||||||||||||
| Natural gas (BBtu) | 35.0 | $ | 1.51 | $ | 52.9 | 34.2 | $ | (2.52 | ) | $ | (86.1 | ) | |||||||
| NGL (MMgal) | 349.0 | 0.08 | 27.2 | 334.8 | (0.47 | ) | (155.8 | ) | |||||||||||
| Crude oil (MBbl) | 1.2 | (4.17 | ) | (5.0 | ) | 1.0 | (45.20 | ) | (45.2 | ) | |||||||||
| $ | 75.1 | $ | (287.1 | ) | |||||||||||||||
_________________________
| (1) | The price spread is the differential between the contracted derivative instrument pricing and the price of the corresponding settled commodity transaction. |
Three Months Ended
The increase in adjusted operating margin was due to higher natural gas inlet volumes and higher fees resulting in increased margin predominantly in the Permian, partially offset by lower commodity prices. The increase in natural gas inlet volumes in the Permian was attributable to the acquisition of certain assets in the
The increase in operating expenses was predominantly due to the acquisition of certain assets in the
Six Months Ended
The increase in adjusted operating margin was due to higher natural gas inlet volumes and higher fees resulting in increased margin predominantly in the Permian, partially offset by lower commodity prices. The increase in natural gas inlet volumes in the Permian was attributable to the acquisition of certain assets in the
The increase in operating expenses was predominantly due to the acquisition of certain assets in
Logistics and Transportation Segment
The Logistics and Transportation segment includes the activities and assets necessary to convert mixed NGLs into NGL products and also includes other assets and value-added services such as transporting, storing, fractionating, terminaling, and marketing of NGLs and NGL products, including services to LPG exporters and certain natural gas supply and marketing activities in support of the Company’s other businesses. The Logistics and Transportation segment also includes Grand Prix NGL Pipeline, which connects the Company’s gathering and processing positions in the
The following table provides summary data regarding results of operations of this segment for the periods indicated:
| Three Months Ended |
Six Months Ended |
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| 2023 | 2022 | 2023 vs. 2022 | 2023 | 2022 | 2023 vs. 2022 | ||||||||||||||||||
| (In millions, except operating statistics) | |||||||||||||||||||||||
| Operating margin | $ | 408.0 | $ | 322.3 | $ | 85.7 | 27 | % | $ | 937.1 | $ | 674.5 | $ | 262.6 | 39 | % | |||||||
| Operating expenses | 82.5 | 74.4 | 8.1 | 11 | % | 159.0 | 141.3 | 17.7 | 13 | % | |||||||||||||
| Adjusted operating margin | $ | 490.5 | $ | 396.7 | $ | 93.8 | 24 | % | $ | 1,096.1 | $ | 815.8 | $ | 280.3 | 34 | % | |||||||
| Operating statistics MBbl/d (1): | |||||||||||||||||||||||
| NGL pipeline transportation volumes (2) | 620.7 | 492.3 | 128.4 | 26 | % | 579.0 | 476.1 | 102.9 | 22 | % | |||||||||||||
| Fractionation volumes | 794.4 | 737.2 | 57.2 | 8 | % | 776.7 | 720.1 | 56.6 | 8 | % | |||||||||||||
| Export volumes (3) | 303.2 | 342.6 | (39.4 | ) | (12 | %) | 338.1 | 341.7 | (3.6 | ) | (1 | %) | |||||||||||
| NGL sales | 947.0 | 906.9 | 40.1 | 4 | % | 977.1 | 890.0 | 87.1 | 10 | % | |||||||||||||
_________________________
| (1) | Segment operating statistics include intersegment amounts, which have been eliminated from the consolidated presentation. For all volume statistics presented, the numerator is the total volume sold during the period and the denominator is the number of calendar days during the period. |
| (2) | Represents the total quantity of mixed NGLs that earn a transportation margin. |
| (3) | Export volumes represent the quantity of NGL products delivered to third-party customers at the Company’s |
Three Months Ended
The increase in adjusted operating margin was due to higher pipeline transportation and fractionation margin and higher marketing margin, partially offset by lower LPG export margin. Pipeline transportation and fractionation volumes benefited from higher supply volumes primarily from the Company’s Permian Gathering and Processing systems and higher fees. Marketing margin increased due to greater optimization opportunities. LPG export margin decreased due to lower volumes.
The increase in operating expenses was primarily due to higher equipment rentals and higher compensation and benefits.
Six Months Ended
The increase in adjusted operating margin was due to higher marketing margin, higher pipeline transportation and fractionation margin and higher LPG export margin. Marketing margin increased due to greater optimization opportunities. Pipeline transportation and fractionation volumes benefited from higher supply volumes primarily from the Company’s Permian Gathering and Processing systems and higher fees. LPG export margin increased primarily due to lower fuel and power costs.
The increase in operating expenses was due to higher compensation and benefits, higher taxes and higher equipment rentals.
Other
| Three Months Ended |
Six Months Ended |
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| 2023 | 2022 | 2023 vs. 2022 | 2023 | 2022 | 2023 vs. 2022 | ||||||||||||||
| (In millions) | |||||||||||||||||||
| Operating margin | $ | 151.9 | $ | (4.5 | ) | $ | 156.4 | $ | 327.7 | $ | (182.7 | ) | $ | 510.4 | |||||
| Adjusted operating margin | $ | 151.9 | $ | (4.5 | ) | $ | 156.4 | $ | 327.7 | $ | (182.7 | ) | $ | 510.4 | |||||
Other contains the results of commodity derivative activity mark-to-market gains/losses related to derivative contracts that were not designated as cash flow hedges. The Company has entered into derivative instruments to hedge the commodity price associated with a portion of the Company’s future commodity purchases and sales and natural gas transportation basis risk within the Company’s Logistics and Transportation segment.
About
Targa is a FORTUNE 500 company and is included in the S&P 500.
For more information, please visit the Company’s website at www.targaresources.com.
Non-GAAP Financial Measures
This press release includes the Company’s non-GAAP financial measures: adjusted EBITDA, distributable cash flow, adjusted free cash flow and adjusted operating margin (segment). The following tables provide reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures.
The Company utilizes non-GAAP measures to analyze the Company’s performance. Adjusted EBITDA, distributable cash flow, adjusted free cash flow and adjusted operating margin (segment) are non-GAAP measures. The GAAP measures most directly comparable to these non-GAAP measures are income (loss) from operations, Net income (loss) attributable to
Adjusted Operating Margin
The Company defines adjusted operating margin for the Company’s segments as revenues less product purchases and fuel. It is impacted by volumes and commodity prices as well as by the Company’s contract mix and commodity hedging program.
Gathering and Processing adjusted operating margin consists primarily of:
- service fees related to natural gas and crude oil gathering, treating and processing; and
- revenues from the sale of natural gas, condensate, crude oil and NGLs less producer settlements, fuel and transport and the Company’s equity volume hedge settlements.
Logistics and Transportation adjusted operating margin consists primarily of:
- service fees (including the pass-through of energy costs included in certain fee rates);
- system product gains and losses; and
- NGL and natural gas sales, less NGL and natural gas purchases, fuel, third-party transportation costs and the net inventory change.
The adjusted operating margin impacts of mark-to-market hedge unrealized changes in fair value are reported in Other.
Adjusted operating margin for the Company’s segments provides useful information to investors because it is used as a supplemental financial measure by management and by external users of the Company’s financial statements, including investors and commercial banks, to assess:
- the financial performance of the Company’s assets without regard to financing methods, capital structure or historical cost basis;
- the Company’s operating performance and return on capital as compared to other companies in the midstream energy sector, without regard to financing or capital structure; and
- the viability of capital expenditure projects and acquisitions and the overall rates of return on alternative investment opportunities.
Management reviews adjusted operating margin and operating margin for the Company’s segments monthly as a core internal management process. The Company believes that investors benefit from having access to the same financial measures that management uses in evaluating the Company’s operating results. The reconciliation of the Company’s adjusted operating margin to the most directly comparable GAAP measure is presented under “Review of Segment Performance.”
Adjusted EBITDA
The Company defines adjusted EBITDA as Net income (loss) attributable to
Distributable Cash Flow and Adjusted Free Cash Flow
The Company defines distributable cash flow as adjusted EBITDA less cash interest expense on debt obligations, cash tax (expense) benefit and maintenance capital expenditures (net of any reimbursements of project costs). The Company defines adjusted free cash flow as distributable cash flow less growth capital expenditures, net of contributions from noncontrolling interest and net contributions to investments in unconsolidated affiliates. Distributable cash flow and adjusted free cash flow are performance measures used by the Company and by external users of the Company’s financial statements, such as investors, commercial banks and research analysts, to assess the Company’s ability to generate cash earnings (after servicing the Company’s debt and funding capital expenditures) to be used for corporate purposes, such as payment of dividends, retirement of debt or redemption of other financing arrangements.
The following table presents a reconciliation of Net income (loss) attributable to
| Three Months Ended |
Six Months Ended |
||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||
| (In millions) | |||||||||||||||
| Reconciliation of Net income (loss) attributable to |
|||||||||||||||
| Net income (loss) attributable to |
$ | 329.3 | $ | 596.4 | $ | 826.3 | $ | 684.4 | |||||||
| Interest (income) expense, net | 166.6 | 81.2 | 334.7 | 174.7 | |||||||||||
| Income tax expense (benefit) | 96.4 | 87.1 | 206.7 | 110.1 | |||||||||||
| Depreciation and amortization expense | 332.1 | 269.9 | 656.9 | 479.0 | |||||||||||
| (Gain) loss on sale or disposition of assets | (1.7 | ) | (0.6 | ) | (3.2 | ) | (1.6 | ) | |||||||
| Write-down of assets | 1.7 | 0.5 | 2.6 | 1.0 | |||||||||||
| (Gain) loss from financing activities (1) | — | 33.8 | — | 49.6 | |||||||||||
| (Gain) loss from sale of equity method investment | — | (435.9 | ) | — | (435.9 | ) | |||||||||
| Equity (earnings) loss | (3.4 | ) | (1.4 | ) | (3.2 | ) | (7.0 | ) | |||||||
| Distributions from unconsolidated affiliates and preferred partner interests, net | 6.2 | 6.8 | 8.8 | 19.3 | |||||||||||
| Compensation on equity grants | 15.0 | 13.8 | 30.0 | 27.3 | |||||||||||
| Risk management activities | (151.9 | ) | 4.5 | (327.7 | ) | 182.7 | |||||||||
| Noncontrolling interests adjustments (2) | (1.2 | ) | 10.3 | (2.2 | ) | 8.5 | |||||||||
| Adjusted EBITDA | $ | 789.1 | $ | 666.4 | $ | 1,729.7 | $ | 1,292.1 | |||||||
| Interest expense on debt obligations (3) | (163.6 | ) | (90.7 | ) | (328.8 | ) | (182.2 | ) | |||||||
| Maintenance capital expenditures, net (4) | (46.2 | ) | (39.7 | ) | (88.0 | ) | (77.4 | ) | |||||||
| Cash taxes | (3.5 | ) | (2.6 | ) | (7.7 | ) | (4.3 | ) | |||||||
| Distributable Cash Flow | $ | 575.8 | $ | 533.4 | $ | 1,305.2 | $ | 1,028.2 | |||||||
| Growth capital expenditures, net (4) | (579.5 | ) | (199.3 | ) | (994.9 | ) | (320.7 | ) | |||||||
| Adjusted Free Cash Flow | $ | (3.7 | ) | $ | 334.1 | $ | 310.3 | $ | 707.5 | ||||||
_________________________
| (1) | Gains or losses on debt repurchases or early debt extinguishments. |
| (2) | Noncontrolling interest portion of depreciation and amortization expense. |
| (3) | Excludes amortization of interest expense. |
| (4) | Represents capital expenditures, net of contributions from noncontrolling interests and includes net contributions to investments in unconsolidated affiliates. |
The following table presents a reconciliation of estimated net income of the Company to estimated adjusted EBITDA for 2023:
| 2023E | |||
| (In millions) | |||
| Reconciliation of Estimated Net Income Attributable to |
|||
| Estimated Adjusted EBITDA | |||
| Net income attributable to |
$ | 1,440.0 | |
| Interest expense, net | 700.0 | ||
| Income tax expense | 400.0 | ||
| Depreciation and amortization expense | 1,320.0 | ||
| Equity earnings | (10.0 | ) | |
| Distributions from unconsolidated affiliates | 25.0 | ||
| Compensation on equity grants | 60.0 | ||
| Risk management and other | (330.0 | ) | |
| Noncontrolling interests adjustments (1) | (5.0 | ) | |
| Estimated Adjusted EBITDA | $ | 3,600.0 | |
_________________________
| (1) | Noncontrolling interest portion of depreciation and amortization expense. |
Regulation FD Disclosures
We use any of the following to comply with our disclosure obligations under Regulation FD: press releases,
Forward-Looking Statements
Certain statements in this release are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, are forward-looking statements, including statements regarding our projected financial performance and capital spending. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties, factors and risks, many of which are outside the Company’s control, which could cause results to differ materially from those expected by management of the Company. Such risks and uncertainties include, but are not limited to, weather, political, economic and market conditions, including a decline in the price and market demand for natural gas, natural gas liquids and crude oil, the impact of pandemics or any other public health crises, commodity price volatility due to ongoing or new global conflicts, actions by the
Contact the Company’s investor relations department by email at InvestorRelations@targaresources.com or by phone at (713) 584-1133.
Vice President, Finance & Investor Relations
Chief Financial Officer
Source: Targa Resources Corp.