Targa Resources (NYSE: TRGP) reported Q4 Revenue for the quarter at $4.24 billion versus the consensus estimate of $3.79 billion.

OUTLOOK

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.

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