Targa Resources, Inc.

Good day ladies and gentlemen. Thank you for standing by and welcome to Target Resources Corp. First quarter 2019 earnings conference call. At this time all participants are on the listen only mode. Later we'll conduct a question and answer session and instructions will follow at that time. If you should require any assistance during call please press star then 0 on your touched on telephone for offering assistance. As reminded this conference is being recorded. I will now turn the conference over to our host, Sangia Le, Director of Investor Relations. Please go ahead sir.

Thank you Olivia. Good morning and welcome to the first quarter 2019 earnings call for Target Resources Corp. The first quarter earnings release for Target Resources Corp, Targa, TRC or the company along with the first quarter earnings supplement presentation are available on the investor section of our website at targetresources.com. In addition an updated investor presentation has also been posted to our website. Any statements made during this call that might include the company's expectations or predictions should be considered forward looking statements and are covered by the safe harbor provision of the securities act of 1933 and 1934. Please note that actual results could differ materially from those projected in any forward looking statements. For discussion of factors that could cause actual results to differ please refer to our recent SEC filings including the company's annual report on Form 10K for the year ended December 31, 2018 and subsequently filed reports with the SEC. Our speakers for the call today will be Jovon Perkins, Chief Executive Officer, Jen Neal, Chief Financial Officer and Matt Malloy, President. We will also have the following senior management team members available for Q&A. Pat McDonnie, President, Gathering and Processing, Scott Pryor, President, Logistics and Marketing and Bobby Marrero, Chief Commercial Officer. Jovon will begin today's call with a few strategic highlights followed by Jen who will discuss first quarter results and then Matt will provide an update on business outlook and capex outlook before we take your questions. I will now turn the call over to Jovon.

Thanks, Sanjay. Good morning. Thank you to everyone for joining our first quarter 2019 call. Before we get into our prepared remarks this morning I'd like to acknowledge the recent retirement of our friend Mike Heim, effective April 30th, consistent with the long-term succession planning of the management team and our board of directors. As Targa's founding Chief Operating Officer, Mike had been involved in almost every major acquisition or major project and helped create and develop our operations, engineering, ES&H and commercial functions. Mike's impact on Targa has been enormous and will endure as we continue to build on our position as a leading midstream company. Most recently Mike served on the executive team as Vice Chairman of our boards of directors and continued to provide oversight, wisdom, advice and counsel. On behalf of the Targa team we thank Mike for his role in founding this company and developing it into what it is today. It's been a privilege to work alongside Mike throughout Targa's 15-year history. We will miss him, but he will always be part of the Targa family legacy. So for this year we have continued to execute on our strategic priorities including closing on the sale of a 45% interest in our Badlands business, commencing operations on our Hobson plant in the Permian Midland and train six fractionator in Montbellevue and completing a new 20-inch pipeline from Montbellevue, our LPG export facility in Galena Park. Montbellevue 2, our LPG export facility in Galena Park. Excuse me. We also have several other projects underway coming online this year including our Grand Prix MGL Pipeline, 200 million cubic feet per day of incremental processing capacity in the Badlands and 500 million cubic feet per day of incremental processing capacity in the Permian. In total this means that about $3 billion of projects underway expected to come online this year, which will significantly strengthen our financial metrics over time as Targa moves to a self-funding model with increasing pre-cash flow. The natural trajectory of our capital spending relative to our cash flow is very positive, and we have continued to increase scrutiny with heightened discipline and prioritization on all future new capital projects so that we can continue to right-size our capital spend versus cash flow going forward. We will continue to pursue opportunities to align efficient capital spend with the activity levels of our customers and are rigorously prioritizing our capex backlog with a heightened focus around our core integrated strategy. This enhanced rigor around capital spending and strong expected cash flow growth positions Targa very well for the next several years. With that I'll now turn the call over to Jen to discuss Targa's results for the first quarter.

Thanks, Joe Bob. Good morning, everyone. Targa's reported quarterly adjusted EBITDA for the first quarter was $314 million, which was $62 million lower than the fourth quarter of 2018 largely as a result of the $43 million payment recognition in the fourth quarter for the crude and condensate splitter. In the GMP segment, net of hedge gains, first quarter gross margin was $4 million lower from weaker commodity prices. First quarter, NGL and Waha natural gas prices were the weakest average realized prices we have experienced since the first quarter of 2016. Operating expenses were $13 million higher from increased field labor in the GMP segment, primarily in the Permian where labor costs have been increasing. We have reduced operational risks by hiring in advance of our facilities coming online, which means we have higher operating expenses per unit until new facilities start up and utilization increases. Over time, we expect our operating expenses per unit to decline. On the positive side, sequential volumes were higher in the Permian, Badlands, South Oak, Coastal, and downstream in our frac business. Year over year, while volumes were significantly higher in our GMP and downstream businesses, positive business fundamentals were offset by lower commodity prices and higher operating and GNA expenses as headcount has increased significantly to appropriately staff our increased scale. From January 1, 2018 through the end of March, we have added about 400 employees representing a 20% increase in headcount, which is evidenced by higher operating expenses and GNA, but we expect our per unit OPEX and GNA metrics to improve over time as volumes continue to ramp. Turning to other finance-related matters, the final calculation of the earn-out payment for our Permian acquisition is $318 million, which will be paid this month. With respect to hedging, our percentage proceeds equity commodity positions are well hedged, and our updated hedge disclosures can be found in our investor presentation. On a debt compliance basis, pro forma for the $1.6 billion received in early April from the Badlands transaction, TRP's leverage ratio at the end of the first quarter was approximately 3.9 times versus a compliance covenant of 5.5 times. Our pro forma consolidated reported debt diva DAW ratio was approximately 4.9 times. As initially described on our call in February, our leverage metrics are expected to peak in the third quarter of 2019, and then will begin to decline as the EBITDAW contribution increases from projects placed in service throughout the year. Our 2019 net growth capex estimate for announced projects remains at approximately $2.3 billion, with about $780 million spent through the first quarter. Full year 2019 maintenance capex is still forecasted to be approximately $130 million. As previously announced, we closed on the sale of a 45% interest in our Badlands business and received $1.6 billion of cash proceeds in early April. Pro forma consolidated liquidity at the end of the first quarter was approximately $3.4 billion. The partial Badlands sale substantially satisfies our estimated equity needs for 2019, providing us with flexibility as we finish construction on the numerous key growth projects underway. Looking forward to the balance of the year, we affirm our previously provided financial and operational outlook for 2019, which assumes NGL composite barrel prices average $0.60 per gallon, crude oil prices average $54 per barrel, and Henry Hubb natural gas prices average $3 per MMBTU for the year. We also affirm our expectation that second quarter adjusted EBITDA will be the lowest quarter of 2019, predominantly attributable to the Badlands sale and the associated minimum quarterly distribution payable to our partner. Additionally, we anticipate EBITDA to meaningfully increase through the second half of the year, with target exiting 2019 with visibility to increasing dividend coverage and improving leverage metrics. With that, I will now turn the call over to Matt.

Thanks, Jen, and good morning, everyone. Commercial activity and production in many of our operating regions remain robust, and we expect activity levels to remain solid. In our Permian region, we expect continued production growth in 2019 across both the Midland and Delaware basins. In Permian Midland, we commence operations on our new 250 million cubic feet per day Hobson plant in late April, and the facility is already highly utilized. The next 250 million cubic feet per day Pembroke plant is expected to begin operations early in the third quarter. In Permian Delaware, a substantial portion of the new high-pressure pipeline running through the heart of the Delaware is operational, underpinned by our deal with the large investment-grade energy company. Additionally, our 250 million cubic feet per day Falcon plant remains on track to be completed in the fourth quarter of 2019, and a 250 million cubic feet per day Peregrine plant is expected to be complete in the second quarter of 2020. We have been focused on enhancing the surety of flow for residue gas takeaway from target plants in the Permian Basin since early last year. While we expect the residue gas landscape in the Permian to remain extremely tight until GCX begins operations in the fourth quarter of this year, we have secured adequate intrabasin and -of-basin pipeline takeaway capacity from target facilities, benefiting both our customer and target volumes. In the Badlands, our Little Missouri gas complex continues to operate at capacity, and our crude gathering business continues to perform very well. Due to very harsh winter weather conditions in North Dakota, we lost a few weeks of construction time on our Little Missouri 4 plant relative to previous expectations, and start-up has slipped into the early part of the third quarter of 2019. Turning to our downstream fractionation business, our facilities in Montbellevue continue to remain highly utilized during the first quarter. Our new 100,000 -per-day train-6 fractionator is in start-up and will be fully operational in May. And this is expected to quickly ramp and is backed by growing production from target facilities and long-term third-party contracts. We expect the fractionation market to remain tight through 2019. Construction continues on our two new 110,000 -per-day fractionation trains, trains 7 and 8. They are now expected to be online in the first quarter and the third quarter of 2020, respectively. We decided to slightly push the timing of train 8 into the third quarter of 2020 to optimize our construction schedule and realize some modest cost savings. We expect both frac trains to be highly utilized. Relative to the Williams Agreements we announced earlier this year, Williams recently exercised their initial option to acquire a 20 percent interest in our train 7 fractionator, which is an attractive arrangement for Targa and provides us with additional capital savings. Our Grand Prix NGL pipeline is on track to be fully operational in the third quarter of this year. The pipeline segment originating from the Permian is complete and is already transporting NGLs. In our LPG export business, we recently completed our new pipeline between Montbellevue and Galena Park. We are on track to complete the rebuild of Dock 2 in the third quarter of 2019. These projects will increase our LPG supply to our Dock, primarily enhancing our butane loading capabilities, which will increase our effective export capacity to up to 10 million barrels per month, depending upon mix of propane and butane demand, vessel size, and availability of supply, among other factors. As previously announced, the next phase of export expansion to increase our refrigeration capacity and load rates at our Galena Park facility is underway and will increase our effective capacity to approximately 11 to 15 million barrels per month in the third quarter of 2020. Construction on the Gulf Coast Express Residue Gas Pipeline, or GCX, continues, with the pipeline expected to be fully operational in the fourth quarter of 2019, which will provide some much needed residue gas takeaway from Waha and or the Midland Basin to Agua Dulce. Our ChannelView splitter is operational and is being tested and tuned by engineering, and we are working on long-term third-party contracts and commercialization of the asset. Turning to CAPEX, as Joe Bob noted, we are employing an increasingly top-down focused approach to control future CAPEX and prioritize future investments around our core strategy. Our core strategy focuses on aggregating supply from our premier GMP positions, directing NGLs to Grand Prix and to our downstream fractionation complex in Montvelvieux, and having the associated spec product supply for our LPG export facilities in Galena Park maximizing participation across Targa's integrated value chain. There is enhanced scrutiny in the evaluation of new projects, and the hurdle is even higher for any new projects outside our core strategy. Targa is on the cusp of bringing into service a number of highly strategic projects over the near term, and we will have caught up on critical infrastructure investments that transform Targa into an integrated midstream service provider, which will result in significant moderation of future CAPEX beginning in 2020. The long-term outlook for Targa is compelling, and our focus remains on executing on our strategic priorities to increase longer-term shareholder value. So with that, we'll open the line for questions.

Ladies and gentlemen, at this time if you have a question, please press the start and the number one key on your touchtone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. To prevent any background noise, please place your line on mute once your question has been stated. One moment for our first question.

And

our first question coming from the line of Michael Bloom with Wells Fargo. He'll ask now.

Hi, good morning. Good morning. So I guess it's probably your comments on capital discipline. That's probably a good lead-in to a question I'm sure you're expecting, which is, of course, your partner Pioneer has made public that they're going to be selling their interest in the plants that you majority own. I think you just talk about your thought process in terms of, obviously, those are core to your overall footprint, but in terms of just thinking about balancing that versus remaining capital discipline.

Thanks, Michael. And I know that some listeners went straight from their call to our call. We obviously haven't been able to go through their call in detail. But our answer is like the answers in previous quarters, is that Pioneer is a great partner and an important customer. And the West Tech system is on top of some very attractive and basin acreage. And it's integrated with our other Permian operations. For Targa, as you mentioned in our scripted comments and remarks, we are very focused internally on project execution and increased scrutiny of new organic growth systems. We're very focused on those opportunities, not speaking specifically to this M&A transaction possibility, but across all of them. Stepping into any M&A process right now is a much higher bar than it's ever been for Targa. The Permian Basin opportunities have been shown to us for many years, and we haven't done one since the Outrigger acquisition. You would have to say a higher bar and a much lower probability of us doing any M&A transactions right now. If that didn't come across in the prepared remarks, it should have.

Great. Thanks. Then second question is, as FracSex comes on, would you expect that to ramp up very quickly in terms of utilization, or do you think that's going to be kind of a multi-quarter deal? Thanks.

Yeah. Michael, this is Matt. I'll take that, and then Scott, kick it over to you if you want to fill in. So we have really been running over our capacity, or we've been receiving NGLs kind of over our Frac capacity. So we have built some inventory. So when Train 6 comes up, we will be, you know, first step will be working off our inventory. But once we work that off, we see kind of getting back to being fully utilized very quickly after we've worked off that inventory, because we're already receiving Y grade in excess of what we can handle in Bellevue right now. So the outlook for Train 6 is very good, which is why we're eager to get Train 7 on in the first part of 2020.

Great. Thank

you. This is Scott, and I would just add that, you know, as we said in our remarks, Train 6 will be operational in May this month, and we would continue to see tightness throughout the balance of 2019. As we stated, first quarter of 20, Train 7 will come online. We expect that one also to be highly utilized as we continue to see a ramp up in growth, not only from our target plants and facilities, but as well as third-party activity with the contracts that we've already initiated or executed on.

Thank you. Our next question coming from the line of Jeremy Tone with JPMorgan. Hi,

good morning. Just wanted to start off with Grand Prix, is wondering if you could provide a little bit more color with regards to your expectations for how fast volumes could ramp and how much exactly of the pipeline is online now or will be soon?

Yeah, hey Jeremy, this is Matt. You know, we previously gave guidance for 250,000 barrels at some point in 2020. We feel, you know, very good about that volume number. Right now we are moving a significant amount of barrels on Grand Prix. We talked about, you know, providing that number, but I think the first number you'll see is when we actually just report Grand Prix in the third quarter for what volumes we're receiving into Bellevue, because what we're moving right now is really only a fraction of what we'll have the ability to move once we're connected all the way to Bellevue. Right now we're complete from really on the farthest west piece of Grand Prix all the way into North Texas, and we've got most of the line or a lot of the line complete up into Oklahoma and the Oklahoma extension. So we're still working on that piece. That'll be done here shortly. And then it's the Bellevue piece from North Texas into Montbellevue, which we expect to be completed in the third quarter.

That's helpful, thanks. And there seems to be some M&A activity among Permian EMPs, notably Anadarko there and possibly others following suit. I'm just wondering if you see these developments impacting Target in any way?

You know, I'd start with we have good relationships with all the parties involved in that process. So we don't really want to get into what the potential outcome could be there. We have a really good position out in the Permian with our existing customers, have good relationships with them, and we see a lot of growth on the Target system really regardless of how that plays out.

Great. Just a small last one. G&A ticked up a little bit. You said you're a larger organization now. Is this kind of a good run rate to think about going forward?

Jeremy, this is Jen. I think that G&A is actually going to trend lower when we think about the rest of this year, at least based on our current forecast. We had some reclasses in the third and fourth quarter that ticked G&A a little bit higher, and it makes it a little bit difficult to compare apples to oranges. I said on our fourth quarter earnings call that the fourth quarter was a fine run rate. We're not that far from that number here in the first quarter, but we do expect G&A may be a little bit lower as we move through the balance of the year. But we are certainly a much larger organization, and we are placing a lot of assets in service.

That's helpful. Thanks for taking my question. Okay, thanks.

Thanks, Jeremy.

And our next question coming from the line of near interest unit with UBS, Elon Snellpen.

Hi, good morning, everyone. Just to, I guess, return to the CapEx question, kind of in your prepared remarks, you mentioned increased scrutiny on spend and a substantial decrease in CapEx for 2020. Is there a level you're comfortable giving us in terms of context of what substantial reduction in CapEx? Is it something like a billion dollars less? And also maybe if you can talk about or expand on the scrutiny itself, is it about raising return hurdles? Is it about slowing down the pace to match cash flows? Just more color around the process as well.

Shnare, this is Jen. I think that if you look at the recent projects that we've announced as we move through time, I think they highlight that we have had increased scrutiny across our organization where we're looking for opportunities that really meet sort of the core strengths of our organization. The large investment-grade energy company deal in the Delaware is an example. The Williams deal is also an example for both transportation and fractionation, and having those volumes available for export. So I think that we continue to scrutinize our project list, and the bar for getting new projects approved continues to get higher. They have to compete for capital internally. And if there's a project that only touches one part of our value chain versus those that touch multiple parts, then typically it's the deals that touch multiple parts that we're more interested in at this point in time for us. So I think we've got a lot of visibility to strengthening metrics, increasing coverage, reducing leverage, improved leverage metrics when we get into the back half of this year and then into 2020 and beyond. And so we really think about it as right-sizing our capital. So relative to that increasing EBITDA, we want to be self-funding, and we want to have positive free cash flow over a sustained period of time. But we're not comfortable at this point putting another line in the sand that says, this is what CAPEX will be, and we're not going to go above it, particularly as we're in April or we're in May now of 2019, and forecasting capital out beyond 2020 or 2021 is difficult to do.

Okay. And just to sort of extend that a little bit, and I think Matt touched on this in the prepared remarks, some of the in-service delays was due to some slippage and so forth, but there also seemed to be some comments around about managing spend and so forth and some cost savings. Can you sort of expand on that? Is that part of this scrutiny as well too?

Yes, this is Matt here. I would say on the margin, yes. When you saw the Badlands, a little Missouri slip that was weather-related, you saw Pembroke slip a little bit, that was more just getting that project done. Hobson is so highly utilized, believe me, we want Pembroke on kind of as fast as we can, but that slipped a little bit. It's just a tight labor market out there and there's challenges and kind of the hot, hot Permian. But for Train 8, as we looked at the construction schedule, we said, look, we could move this from the end of Q2, put it into Q3, save a little bit on overtime, and still be okay from an NGL receipt and inventory build situation. So we looked at our forecast and said, you know, we think we can move it a little bit and have some modest cost savings. It's not a lot of cost savings, but it slows down the capital spend a little bit to get some time value of money, and then you get a little bit of savings from saving on overtime and the like.

Are there other potential opportunities you're looking at where you can slip a couple of in-service states to save some money and match capex spend, or is that kind of, this is the end of the review?

Yeah, when you look at the remaining projects that we have, you know, we're going to need the Falcon and Peregrine plants to come online very quickly. And then a lot of our other projects will already, really already be online, right? The Hobson, Pembroke, Grand Prix, we need all those to come online, you know, as soon as possible. So when you look at our, that's a pretty long way through our project backlog. So there's not nearly as much as there is going forward in 2020 and beyond as there is kind of right now.

Fair enough. And one final question. The LPG export ARB is pretty wide right now and has been for the last couple of months. Have you been able to lock in any incremental contracts to sort of, you know, add on to your contract base that you already have on the LPG export terminals and the expansions?

Sure. This is Matt here. I'll start and then take it over to Scott if he wants to fill in some more. So, you know, for this year we are highly contracted for this year. And with the restrictions and delays on the Houston Ship Channel, we are trying to catch up on our contracted customers' needs, you know, right now. And I think we'll be doing that, you know, through this second quarter. So could there be some opportunities for us to do that potentially? But we're really trying to catch up on our customers' volumes right now. Scott, anything you want to

add? No, I'd say that's absolutely correct. Certainly the challenges that we've seen along the Houston Ship Channel with the unexpected closure as a result of the fire and the subsequent contamination within the channel caused some challenges for us. So we're very much focused on our term contracts. I would also add that we're very focused on renewing our contracts with existing customers, as well as adding long-term contracts that fill in relative to the expansions that we've announced. As we said, we've got a new pipeline that's operational now from Mount Bellevue all the way to Galena Park. And in addition to the improvement of DOC 2 that comes online in the third quarter, all provide incremental upside for us as those projects come online. And then additionally, as we said before on the last earnings call on this one, just reiterating that, the additive of refrigeration units that will come online during next year, during the middle part, the third quarter of next year, also provides us incremental capacity. So our focus is on long-term contracts. Our focus is on being very competitive with our fee structure to ensure that we've got growth across those expanded projects.

And so the contract environment is improving for those long-term contracts, or you really haven't touched

on that? The environment is improving and we feel very confident about the projects that we're bringing online. And given the fact that we're going to see continued growth from our gas processing in and through our assets to include Grand Prix Pipeline, our expanding fractionation, we know that those will be steered toward our Galena Park facility for export purposes.

All right, perfect. Thank you very much, guys. We really appreciate the call.

Thanks, Ray. Okay,

thanks.

Our next question coming from the line of Farotones with Credit Suisse. Your line is now open.

Hey, good morning, everyone. Just on the splitter and commercializing it, can you talk a little bit more about the constraints, I guess, that have been happening so far and if you'd expect to have that complete maybe by this quarter?

Sure, I'll start and again, Scott, you can fill in. You know, we have had some constraints. At first, it was the termination of the VTOL contract where we were moving their product out of our tanks and really beginning to commercialize that asset for ourselves, moving our product in and getting that facility up and running. As soon as we were getting that up and running, then we had the Houston Ship Channel where Carpenter's Bayou was shut down. We were unable to move the product out via barge, so we had limited ability to run that facility. So now with all those constraints behind us, we are getting that facility up and running, working on purchasing the supply, aggregating it into the tanks, and making products, tweaking the facility to try and get the products as high a value as we can and move those out. So we're still working through that process. We're still learning as we go on this, and I think we're going to continue to do so on that facility.

Great. And then just as we think about guidance for the year, I realize it's only the first quarter, but it sounds like maybe a few unexpected hiccups early on, but it sounds like maybe some of the base business is going pretty well. Just curious, as we stand here now so far, do you feel like the first quarter has been on budget, and maybe what are some of the tailwinds you think they could sort of offset as we go forward throughout the year?

Spiro, this is Jen. I think the first quarter performance was consistent with what our expectations were, as you rightly point out, with some pluses and minuses. Minuses would be NGL prices, Waha natural gas prices. As we said in our scripted marks, those were the lowest realized prices that we've had for a quarter since the first quarter of 2016. But I think that the year is shaping up consistent with our expectations, and that's why we affirmed our guidance. And so we'll get through this second quarter where EBITDA will be the lowest for the year as a result of the Badlands transaction and the MQD payable to GSO Blackstone. And then we'll move into the third quarter and the fourth quarter when some very important projects will come online for us and we'll be contributing to rapidly increasing EBITDA, which will help with coverage and leverage. So I think there are always pluses and minuses, and that's why it's always difficult putting out any sort of forecast, but the year is shaping up relatively consistent with what our expectations have been.

Great. Last quick one from me. I think Delaware volumes skewed a little bit lower than we had expected. Just curious if there were any sort of one-time items or timing issues to call out there.

Yeah, sure. This is Matt. There were a couple of issues. Sandhills was taken down for maintenance for part of March, which impacted the volumes. Our Sandhills volumes are getting aggregated in the Permian Delaware, so that was down in March. And then we've also been experiencing higher H2S volumes from some of our customers out there. And so as we're treating out in the field and hitting some limits on permitting and other things, it's kind of reduced the growth and, you know, yeah, I guess I'd say really just kind of reduced the growth out there because of the H2S. Yes, voted.

Got it. All right. Appreciate the color. We have an acid gas facility that will be completed later in this year that will solve some of that. Right. So we're adding an API well at Wildcat.

Right. Okay. Appreciate that color. Thanks, everyone.

Our next question coming from Delana of Colton Bean with Tudor Pickering Holt. Delana is helping.

Morning. So just to follow up on the discussion, right-sizing the capital program and maybe adjusting project time. Jenny had mentioned 2020 plus with a bit more time to digest some of the changes we saw to upstream capital spend in Q1. Is there any change to how you're thinking about the timing of those preliminary three Permian plants that were that were guided to in that 2020 to 2021 time frame?

I think the additional Permian plants are an example of where we're taking a really hard look at timing to make sure that we're spending our capital prudently and to make sure that those facilities will come online to meet the needs of our producers. So I won't speak to whether they moved into or out of that forecast. I'll just speak to that it's largely going to be dependent on producer activity levels not only through this year but into next year. And that's really what will ultimately guide the decision and timing around when those plants need to be online and when we'll need to break ground on them.

Perfect. And just on the in-service of Gulf Coast Express, Eniki noted Q4, they're helping to temporarily alleviate some of the basin constraints. Can you clarify how much of TARG is current and maybe future natural gas equity volumes will be able to reach the Gulf Coast markets after GCX starts up?

We haven't quantified that. You know, we have a 25 percent equity interest in the pipe. We do have a significant MVC and ability to move volumes, you know, down into the, I would say into the Gulf Coast market, but we haven't given specifics on that. But it's a substantial piece of our total, you know, gas, both target gas and our producer's gas that will have access to the Gulf Coast markets.

It's one of the reasons we like GCX because it got us to those Gulf Coast markets. Got it. I appreciate the time.

Thank you. Okay, thanks.

Our next question coming from the line of Tim Snyder with Citi, Alana Smalen.

Hey, good morning, guys. Just a quick question. You said some of the volumes on the export facility slipped from Q1 into Q2 given the fire and whatnot. Can you be a bit more specific in terms of what that actually means on the volume side?

Yeah, Tim, this is Scott. I would say that we expect our second quarter to be a good quarter as well with the volumes that are moving across the dock. When you think about the slippage, most of that was term contracts that we had. And as Matt indicated, we'll be playing catch-up for some period of the second quarter. But we expect the volumes to be good during the second quarter as well. And if you look at the runway that we've had across several quarters, quarter in, quarter out, we've had a good high utilization of the facility, which is indicative of the fact that we're predominantly contracted at the dock today. And when you think about the challenges that we've had with the outages on the channel, we're recovering from that. I will say, and I want people to hear this, we worked very closely with the Coast Guard. We worked very closely with the EPA as they were going through the recovery process on the channel. And I think it's also a very strong indicator of just how nimble and flexible the channel it can be and how quickly it can recover from situations like we saw during that fire and the subsequent contamination. So we worked very well with the local authorities. And it's a testament to just really how flexible the Houston Ship Channel can be in times like that.

A quick follow-up on that. I guess there was a couple of industry reports out. I guess you guys had some issues with a loading arm early on in April. Has that been fixed at this point?

This is Scott again. We did have some challenges with a loading arm, but we are recovering from that as well. Recognize that we've got multiple docks. We've got multiple pipes and facilities out to our docks. So even though there may be times of challenges if we've got a loading arm situation, we can recover from that very quickly as well.

And the last one for me. So one of your competitors came out and said, made some comments around pretty aggressively trying to beef up competition a bit on the LPG export side, keep new entrants out and whatnot. I know that necessarily doesn't apply to you on the new entrance side, but I'm just trying to figure out how you guys are looking at the domestic competition versus potential international demand growth and how that kind of balances. As I know you said, I think on margin you're pretty constructive incremental contracting, but any details you could offer here would be helpful.

I would just say that again, when you look at the production of coming from upstream as an industry, these barrels are going to be pointed toward export docks, existing docks today. I think the market is going to be very competitive for that with the existing players out there. I think that when you look at potential expansions, it's going to mostly come from the existing players that are leveraging their integrated platform that they have today. And basically that's part of the reason why you see very strategic projects on our part, an additive of a new pipeline, refurbishment of our dock, added refrigeration. It's a lot easier for us to add incremental capacity with an existing facility. So it's going to be very competitive and we will play what role we need to play to ensure that we've got good continuity to our docks and flow assurance.

All right. Thank you guys. Okay. Thank you. Thanks, Dan.

Our next question coming from the line of TJ Schultz with RBC, Ulan Snellen.

Great. Thanks. Good morning. Just first regarding the labor and the Permian and hiring ahead of facilities coming online, are you expecting that to remain tight for the foreseeable future? How far in advance are you hiring and kind of when should we expect to see improvements on a per unit basis?

Yeah, I'd say it's our expectation that it is going to remain pretty tight out there in the Permian, even with maybe some moderation of growth expectations on the producer side, there's still going to be incremental processing plants, incremental facilities, incremental pipelines going in. So I think it's our expectation that that does remain tight, maybe not as tight as we would have forecasted 12 months ago, but it's still going to be pretty tight. I think you'll start to see the unit margins improve as we really move through this year. The large investment grade company that we've talked about is kind of starting to ramp and it's going to increase as we move through the year. There's going to be large volume expectations out in the Delaware largely because of that contract, but also other producer contracts as well. So we have Falcon coming on. We have Peregrine coming on. So I think as volumes ramp, you'll really start to see those unit margins come down some over time. And it's really even beyond 2020, right? So then it's 2020 and 2021 and thereafter. Oh, and also the AGI well that Joe Bob mentioned earlier that's coming on here over the summer, there's relatively high OPEX for field treating on some of the H2Fs. When that gets in this summer, we should see that improve our OPEX over time as well.

Okay, got it. Just second question would be in the Eagle Ford, the primary producer into Raptors going through some strategic reviews, just current expectations on commitments into the system there and then outside that JV maybe just general expectations in the Eagle Ford as volume trends as some new producers have bought into the play. Just any general color there.

Thanks. Sure. I'd say our near-term expectations have been reduced. When we look at our internal forecast and our volumes for South Texas, I think you've seen volumes come down and our expectations are lower than they were a year ago or so. I think over time there's good rock. There's an opportunity for growth in and around that asset at some point. But in the near term, there's going to be some pressure on those volumes.

Thank you. Thanks Matt.

Okay, thanks.

Our next question coming from the line of Crystal with Barclays.

Hey guys, good morning. I guess just quickly for me, now that your partner on the Westex system is out formally with the sale process, I'm just curious to hear if that opens up any opportunity for you guys to, or I guess gives you an ability to renegotiate any of the commercial terms on that system, whether that be fee renegotiation or maybe directing some of the liquid volumes back onto your system.

Appreciate the question. Without an M&A transaction, it's unlikely we would talk about any negotiations that were going on. And Pioneer is free to have those same sort of discussions, and we're in constant contact with them. Very good partner, terrific producer customer, and it's not appropriate for us to talk about commercial contracts and terms or definitely not potential renegotiations of commercial contracts or terms.

Okay, understood. Thank you. Okay, thanks.

Our next question coming from the line of Nilan Shafani with BMO Capital Markets. Nilan, smell open.

Thank you and good morning. My first question is for Jen, follow-up on the guidance question. Jen, where do you ultimately see EBITDA landing relative to guidance midpoint this year, and more importantly, can you provide any thoughts on where you ultimately see TARG achieving its target leverage and coverage metrics?

I think we're going to let our affirmation of guidance remain as sort of the standalone guidance point out there, Danilo. So if you look at where we are in terms of operational metrics related to that guidance, we're on track. And so it feels a little early, a little premature to say where we think we're going to shake out. As we said a little bit on the call earlier, there have been some pluses and minuses already through the first four months of the year. Expect there to continue to be as we move forward. And ultimately, we do have some exposure to commodity prices. Looking forward to having Grand Prix, additional frax online so that the commodity price exposure decreases as we move past 2019 through time. But that is material to our guidance and our outlook for this year. And so ultimately, we'll have to see where everything shakes out.

Understood. Understood. Second question, I know that you no longer have Gatbeck's earmark for Whistler, but do you have any insights as to when this project could potentially reach FID? Thank you.

We know that those parties are working on that process to commercialize it. As we said before, that project has strategic value for us. We want more residue to get built from the Permian and the Gulf Coast markets. So we are lending our support for that project. But we'll wait for those parties that are going to have an equity interest to kind of give an update on project status there.

Should we expect you to have some contracts on the pipeline as well?

I think that's one of the ways that we could support the project.

Got it. Those are my questions. Thank you.

Okay.

Thanks. Our next question coming from the line of Dennis Coleman with Bank of America. Hi,

and thanks for taking my question. Quite a lot of conversation here about the new capital allocation process and how you think about the strategic nature of assets. Given sort of the rethink on that, does it bring a rethink on potential asset sales into the picture as well? Obviously you've done quite a lot there, but maybe a different way to think about what you own in the portfolio?

Dennis, this is Jen. Firstly, I wouldn't say that it's a new process. I think that we spend a lot of time scrutinizing our capital projects. We just haven't spent as much time talking about it with our investors and potential investors as we would have liked earlier. That's what we're trying to do is really provide you with a lot more clarity on how we are seeing the world and thinking about the world relative to growth capital spending as we move through time. We have been successful with some asset sales. We're constantly looking across the portfolio to see if it makes sense to sell any assets and or if it makes sense to enter into additional joint ventures. That hasn't changed, but we don't have any active processes underway right now like we did when we disclosed the Badlands process, for example, or prior to that, the petroleum logistics sale. We have nothing sort of actively underway at this time.

Okay, thank you. Then just maybe this is a little bit obvious with the cadence of the projects coming on stream, and we'll see this here more in the first half. But the capex, obviously 35% of the budget spent in the first quarter. I guess maybe should we think about similar amount in the second quarter and then winding down from there into 2020 that you've talked about the lower spend?

I think directionally that's right, Dennis, without giving you sort of an exact dollar amount for expectations for the second quarter. We've got both our quarterly capex plus the outrigger payment this quarter and then absolutely we'd expect that to trend down as we move through time beyond this quarter.

Okay, that's it for me. Thank you. Okay, thank you.

At this time I am showing no further questions. I would like to turn the call back over to Sanjil Ed for closing remarks.

Thanks to everyone that was on the call this morning, and we appreciate your interest in Targa resources. I will be available over the course of the day for any follow-up questions you may have. Thanks and have a great day.

Please, Sanjil, thank you for your participation in today's conference. This concludes the program, and you may now disconnect.