Targa Resources (TRGP) Reports Q1 Revenues Above Consensus

Targa Resources (NYSE: TRGP) reported Q1 revenue for the quarter came in at $3.63 billion versus the consensus estimate of $2.47 billion.

First Quarter 2021 - Sequential Quarter over Quarter Commentary

Targa reported first quarter 2021 Adjusted EBITDA of $515.7 million, representing an 18 percent increase over the fourth quarter 2020. The sequential increase in Adjusted EBITDA was primarily attributable to an aggregate benefit recognized from the severe winter storm in February 2021, lower operating and general and administrative expenses, and higher realized commodity prices. Targa estimates an aggregate benefit of approximately $30 million from the winter storm during the first quarter of 2021, which impacted both the Company’s Gathering and Processing (“G&P”) and Logistics and Transportation (“L&T”) segments. As previously disclosed, over a ten day period around the winter storm, Targa experienced on average an approximately 50 percent reduction across both its G&P and L&T system volumes. Overall system volumes quickly rebounded and returned to pre-storm levels later in the first quarter. In the G&P segment, the gross margin impact from the short-term operational disruption and impacts associated with the winter storm was offset by storm related benefits and higher realized commodity prices. The sequential increase in L&T segment gross margin was primarily due to higher marketing margin, partially offset by the short-term operational disruption and impacts associated with the winter storm. Lower sequential operating expenses were attributable to certain one-time maintenance expenses including hurricane damage repairs and integrity spending during the fourth quarter, while lower general and administrative expenses were largely attributable to higher compensation and legal costs recognized during the fourth quarter.

Beginning in the first quarter of 2021, Targa is reporting certain fuel and power costs previously included in Operating Expenses in Product Purchases and Fuel to better reflect the direct relationship of these costs to Targa’s revenue-generating activities and align with Targa’s evaluation of the performance of the business. Prior periods have been updated to reflect this change. For the G&P segment, the retrospective gross margin and operating expenses for the three months ended December 31, 2020 were $380.0 million and $116.1 million, respectively. For the L&T segment, the retrospective gross margin and operating expenses for the three months ended December 31, 2020 were $399.2 million and $77.2 million, respectively.

2021 Updated Financial Expectations

For full year 2021, taking into consideration Targa’s first quarter performance (including the $30 million of aggregate benefit related to the winter storm), strong business performance and continued focused around cost management, coupled with a stronger estimated commodity price outlook for the balance of 2021, Targa is increasing its estimated full year Adjusted EBITDA to be between $1,800 million and $1,900 million. Targa now estimates its year end 2021 consolidated leverage ratio to be around 4.0 times. Targa’s updated full year 2021 Adjusted EBITDA outlook assumes natural gas liquids (“NGL”) composite barrel prices average $0.60 per gallon, crude oil prices average $60 per barrel and Henry Hub and Waha natural gas prices average $2.75 and $2.65 per million British Thermal Units (“MMbtu”) for the year. Targa’s previously disclosed operational estimates across its G&P and L&T businesses for full year 2021 remain unchanged. Targa’s estimate for 2021 net growth capital expenditures remains unchanged at between $350 million and $450 million, based on announced projects and other identified spending, with approximately $61.0 million of net growth capital expenditures through the first quarter of 2021. The net maintenance capital expenditures estimate for 2021 also remains unchanged at approximately $130 million.

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