Targa Resources, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Target Resources Corporation second quarter 2019 earnings webcast and presentation. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press start and zero on your touchstone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Sanjay Lad, Director of Investor Relations. Sir, please go ahead.

Thank you, Tom. Good morning and welcome to the second quarter 2019 earnings call for Targa Resources Corp. The second quarter earnings release for Targa Resources Corp., Targa, TRC, or the company is along with the second quarter earnings supplement presentation are available on the investor section of our website at targoresources.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 statement. 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 10-K for the year ended December 31st, 2018, and subsequently filed reports with you. Our speakers for the call today will be Joe Bob Perkins, Chief Executive Officer, Matt Malloy, President, and Jen Neal, Chief Financial Officer. We will also have the following senior management team members available for the Q&A session. Pat McDonnie, President, Gathering and Processing, Scott Pryor, President, Logistics and Marketing, and Bobby Mararo, Chief Commercial Officer. Joe Bob will begin today's call with a few strategic highlights, followed by Matt, who will provide an update on business outlook, And then Jen will discuss second quarter results before we take your questions. Before I turn the call over to Joe Bob, I'd like to bring your attention to an update to our company website. We recently introduced a new page to our company website presenting our initial sustainability disclosures. We highlight our framework of policies, practices, and systems in the areas of safety, environmental, social, and governance, complemented by our focus towards continuous improvement in these areas. We plan to continue to progress our disclosures in these areas as we move forward. And with that, I'll now turn the call over to Joe Bob.

Thanks, Sanjay. Good morning, everyone. Before we get into our prepared remarks this morning, I want to take a moment to mention our recently announced planned executive succession and management transition. As described in the press release, effective March 1, 2020, Matt will become the chief executive officer and will be elected to the board of directors. At the same time, I will become executive chairman of the board and will remain as a member of the management team. And Jim Whalen, our current executive chairman, will retire from the management team and will continue to serve on the board of directors. These changes early next year will continue the succession and transition in leadership long contemplated and developed under TARGET's ongoing management succession plan, of course, developed with and approved by TARGET's Board of Directors. Matt is ready for and largely already performing his next role, and I look forward to continuing to work with him, the executive team, and TARGET's Board of Directors as executive chairmen. On behalf of the entire TARGET team, I want to take this opportunity to thank Jim Whalen for his dedicated service and invaluable contributions on the management team. And as a member of our board across TARGET's history, it is a privilege to work alongside Jim. Although it's hard for me to imagine Jim not being a part of the management team, we expect to continue to benefit from his wisdom as a readily accessible and highly interested board member. Taking off the prepared remarks, it continues to be a special time at Targa with multiple important growth projects recently online. And we look forward to increasing cash flow contributions from these highly strategic assets now online. Especially important is our Grand Prix NGL pipeline, which just started flowing NGLs all the way to Montbellevue. We announced that we were building Grand Prix more than two years ago, and it's the largest and clearly most strategic single project in Targa's history, now having the pipeline in service, is the realization of our integrated vision and a lot of hard work by many Targa people. Thank you to everyone who's been involved in this key project for Targa. It really underpins our excitement about the near term and longer term for our company. With our premier assets, and customer reputation in both our gathering and processing business and our downstream NGL business, with the Grand Prix pipeline further integrating those businesses, and with talented leadership and employees, TARGA is exceedingly well positioned for the future. With that, I'll now turn it over to Matt.

Thanks, Joe, Bob, and good morning. It is certainly an exciting time at TARGA. begin to benefit from the cash flows associated with our significant investment cycle. These projects are coming online at a good time when the outlook for commercial activity and production in many of our operating regions remains robust. Since the end of the first quarter, we have had the busiest and most productive period in Target's history in terms of bringing on an aggregate growth value of about 3 billion of projects online, including Grand Prix Pipeline, Fractionation Train 6, Hobson Plant, Little Missouri 4 Plant, and the Pembroke Plant. Grand Prix has commenced full operations and has consistently flowed between 150,000 and 170,000 barrels per day, first filling the pipeline and now flowing into Mount Bellevue. We expect these volumes to increase to approximately 200,000 barrels per day in September, then further increase throughout the rest of the year as short-term third-party transport Arrangements continue to roll off and as additional GMP facilities come online. Overall, Grand Prix came online with about two months of delay versus our initial announcement timing provided over two years ago and about 10% over budget. Most of the delay and cost overrun was related to this year's construction of the 30-inch line in East Texas that flows into Montbelly. This delay and related cost overrun was largely caused by longer permitting timing, as well as weather-related construction delays, primarily for much heavier-than-normal rainfall at critical times. Even with the increased overall cost for Grand Prix, our estimated returns are significantly higher than when we announced the project, as we have continued to add significant long-term acreage contracts and T&F contracts, further strengthening the volume outlook for Grand Prix going forward. Moving to our gathering and processing business and beginning in the Badlands, we recently commenced operations of our new 200 million cubic feet per day Little Missouri 4 plant, providing much needed relief given our system has been operating at capacity. The plant is expected to quickly ramp through the balance of this year as incremental NGL takeaway capacity from the basin comes online. The final cost associated with LM4 was roughly $30 million higher than originally estimated, as a result of the shift in project timing. But again, given the strong outlook for volumes, we estimate our returns are at least as good as when we announced the project. Moving to the Permian, we are seeing volumes from the Midland Basin even above our expectations so far this year. We commenced operations of our new 250 million cubic feet per day Hobson plant in late April, and the facility is already operating at capacity. Our next 250 million cubic feet per day Pembroke plant is starting up and is expected to be highly utilized. Given the volume growth that we are seeing across the Midland Basin, we are moving forward with our next new 250 million cubic feet per day plant named Gateway and anticipate it will be online in the fourth quarter of 2020. Capital associated with the Gateway plant was previously included in our initial 2019 net growth CapEx guidance. And as we go forward, we expect our integrated NGL business will generate higher returns than we have experienced in the past as the NGLs from new plants will largely be transported down Grand Prix and to our Mont Bellevue Fractionation Complex. In the Delaware, we remain on track to complete our 250 million cubic feet per day Falcon plant in the fourth quarter of 2019 and the 250 million cubic feet per day Paragon plant is expected to be complete in the second quarter of 2020. While our Permian residue gas exposure is substantially hedged in 2019, weak Waha natural gas pricing during the second quarter weighed on our realized natural gas prices for those volumes unhedged. Fortunately, we are seeing the residue gas landscape in the Permian Basin improve with the Gulf Coast Express pipeline on track to begin full operations by the end of the third quarter. Turning to our downstream business, our fractionation facilities in Mont Bellevue continue to remain highly utilized during the second quarter. Our new Train 6 fractionator, which commenced operations in May, quickly ramped to capacity. Construction continues on Trains 7 and 8, which are expected to be online late first quarter and late third quarter of 2020, respectively. We expect both frack trains to be highly utilized at startup based on our expectation of rapidly growing NGO volumes from Grand Prix and contracted third parties. In our LPG export business, we are on track to complete the rebuild of Dock 2 at the end of the third quarter of this year. Our next phase of export expansion at our Galena Park facility remains on track as well. and will increase our effective capacity to approximately 11 to 15 million barrels per month in the third quarter of 2020. We remain focused and executing on our strategic priorities to increase longer term shareholder value. I want to recognize our talented and dedicated employees across the company who continue to safely operate our infrastructure facilities every day. With the completion of Grand Prix, Combined with completion of a number of gathering and processing and downstream expansion projects year-to-date, the trajectory of our CapEx spend will substantially moderate, and we expect 2020 net growth CapEx to be meaningfully lower than 2019. Additionally, we continue to thoroughly evaluate and highly scrutinize all future new capital projects to align capital spend with available cash flow going forward. With that, I will now turn the call over to Jen to discuss Targa's results for the second quarter.

Thanks, Matt. Good morning, everyone. Targa's reported quarterly adjusted EBITDA for the second quarter was $307 million, which was about $7 million lower than the first quarter of 2019 as a result of the sale of the 45% interest in the Badlands, which closed April 3rd. Overall strong fundamentals for Targa's gathering and processing in downstream businesses were led by higher sequential volumes in the Permian region, higher fractionation volumes and LPG export volumes, would have resulted in higher sequential adjusted EBITDA if not for the Badlands sale. In the GMP segment, operating margin contribution from higher sequential inlet volumes, led by our Permian Midland and Permian Delaware regions, was offset by the impact of lower NGL and natural gas prices. NGL prices troughed to historic lows during the second quarter. net of realized hedge gains second quarter gross margin was only about $3 million higher than the first quarter as a result of those prices. In our logistics and marketing segment, operating margins sequentially increased due to higher volumes from the startup of Train 6, higher marketing opportunities, which contributed roughly $10 million in the second quarter and which I would characterize as more one-time in nature, and higher LPG export volumes, in addition to pipeline transportation margin from the startup portions of the Grand Prix. Our GMP and downstream operating expenses increased in the second quarter over the first quarter from additional assets and system expansions, primarily in the Permian, where labor costs have been increasing, and also from a reclass of certain GNA expenses to operating expense. Our GNA decreased in the second quarter versus the first quarter. Looking forward, we are very focused on managing our operating and GNA expenses and expect to begin to see our per-unit operating expenses decrease over time as utilization of recently completed projects increases, and we benefit from a new AGI well at our wildcat facility in 20 Delaware, which should reduce chemical costs that have been increasing to treat sour gas. While there have been obvious pluses and minuses year to date, our full year adjusted EBITDA guidance range of $1.3 billion to $1.4 billion remains unchanged. Some of the larger headwinds that we have faced so far this year include lower NGL and Waha prices, the shift in Grand Prix completion to August, the shift in the Little Missouri 4 plant completion in the Bakken to August, lower South Texas inlet volumes, and higher operating expenses, particularly in GMP. On the positive side, some of the pluses have been higher frac volumes and marketing opportunities and higher Permian inlet volumes. I would also like to point out that our non-controlling interest cutback is increasing, and expected to continue to increase given the ramp-up in Train 6 and Grand Prix, which is a deduction for partnership ownership interest to align with targets reported adjusted EBITDA. Turning to hedging, our percent of proceeds equity commodity positions are well hedged as we continue to execute additional hedges to increase cash flow stability, particularly for the back half of 2019. Our updated hedge disclosures can be found in our investor presentations. On a debt compliance basis, TRP's leverage ratio at the end of the second quarter was approximately 4.4 times versus a compliance covenant of 5.5 times. We continue to expect our compliance leverage to peak in the third quarter and then begin to come down rapidly. In early June, we executed an amendment to our TRP credit facility to utilize greater benefits via EBITDA contribution from our projects in progress but not yet in service, which successfully increased our flexibility and also resulted in lower compliance leverage, which reduces our borrowing costs as it puts TRP in a lower pricing tier. Our consolidated reported debt to EBITDA ratio was approximately 5.3 times. Our 2019 net growth capex estimate for announced projects is now expected to be approximately $2.4 billion, which represents a 4% increase compared to our initial estimates. we have spent about $1.4 billion of net growth CapEx through the first half of this year. As Matt described earlier, project costs associated with both Grand Prix and LM4 were higher than initially estimated. Additionally, over the last 12 months, we have seen labor costs move higher and now forecast that a new 250 million cubic feet per day Permian plant costs approximately $160 million. We continue to remain highly focused on our capital spend and are working diligently across the organization to manage CapEx for 2019 and all future new capital projects. Our full-year 2019 maintenance CapEx forecast remains unchanged at approximately $130 million. No common equity has been issued year-to-date, and based on current market conditions, our expectation is we may not need to issue any equity into the foreseeable future as we benefit from increasing cash flow and lower leverage from our projects now in service. Looking forward to the second half of this year, we expect adjusted EBITDA and dividend coverage to be highest during the fourth quarter, as we benefit from a full quarter contribution from a number of recently completed growth projects, providing Target with significant momentum towards improving metrics as we exit 2019. The trajectory of our capital spending relative to our cash flow is improving, and we are spending a lot of time employing an enhanced, top-down, focused approach to control future CapEx and prioritize future investments around our core strategy, which is to maximize participation across Target's integrated value chain. We are at a key inflection point, moving past the second quarter, where our spending peaked as a result of our strategic growth CapEx program and the final permanent earn-out payment, and with our EBITDA at its lowest point of the year as a result of the Badlands partial interest sale. Now moving through the third quarter, where we benefit from some partial quarter contributions from key assets and lower growth capital spending, and then moving to the fourth quarter, when we will demonstrate rapidly increasing EBITDA and dividend coverage with lower growth capital spending and improving leverage metrics. With that, I would like to turn it back to Matt for a few closing comments.

Thanks, Jen. We have accomplished a lot, and we still have a lot of work ahead of us. So I want to thank all the TARGA employees who have been working very hard to complete the important strategic projects that have recently come online. And thank you to all of the operations and support organization employees that have prepared for and are now handling the new facilities and the volumes. This is an exciting time at TARGA. Great projects coming online and a strong outlook ahead. So with that, operator, please open the line for questions.

Sure. Thank you. Ladies and gentlemen, if you have questions at this time, please press the star, then the number one key on your touchstone telephone. Again, the star, then the number one key on your touchstone telephone. If your question has been answered or wish to remove yourself from the queue, please press the pound key. We'll pause for just a moment. Our first question comes from the line of Spiro Dennis from Credit Suisse. Your line is open.

Hey, good morning, everyone. Maybe just starting with CapEx. Hey, Matt. Starting with CapEx, very encouraging comments around that, and it sounds like we've essentially hit the peak here. I know sometimes some of your peers maybe talk to shadow backlogs, and you guys have held pretty firm to that $1.8 billion of CapEx across 2020 and 2021, which does assume things go down from here. Anything sizable in the backlog that you're working on now that could increase that spend in 2020 and As we get closer to 2020, any sense you can give us in terms of what percentage that $1.8 billion could hit?

Sure. Yeah, we are, you know, obviously working, you know, very hard to keep, you know, 2019 CapEx. We actually worked very hard to keep it at the 2.3, but with the cost overruns, it moved to 2.4. You know, as we look out, The kind of capital that we've been describing is, you know, adding additional fractionation trains, which we've announced train 7 and 8. That's obviously going to be capital that's spent next year. Adding additional processing plants, adding the Gateway plant. You know, we've got the Falcon plant out in the Delaware, the Peregrine plant. I'd say as we look out kind of over the near term, what we see in terms of capital spending is more normal capital spending associated with our core integrated strategy, which is gathering and processing, largely going to be in the Permian Basin, and then additional fractionation and export. Those projects are, for the most part, already announced and included in what we're planning for 2020. Great.

That's helpful. And just to follow up on Grand Prix and thinking about the ramp up there, How should we think about filling that pipeline up from here? I guess more specifically, what processing plants are going to be connected into that, and do you benefit from NGL coming off of some of the third-party pipelines onto Grand Prix?

Yeah, exactly. We're going to benefit from really both of those items going forward. One, we'll have shorter-term transportation agreements that we had to enter into to move NGLs while Grand Prix was being built. So those are going to continue to roll off. So we'll be able to continue to just move volumes off other pipes onto Grand Prix. But we're also going to benefit from our new gathering and processing plants being put in place, as most of those NGLs are going to be pointed towards Grand Prix and then into our fractionation and export. So we'll be benefiting really from the full value chain as new processing plants get put online.

Great. Appreciate all that, Keller. Thanks, everyone. All right. Thank you.

Our next question comes from the line of Shner Gershini from UBS. Your line is open.

Good morning, everyone. Maybe to start off, first of all, I just want to offer my congratulations to both Joe, Bob, and Matt on your new roles.

Thank you. Appreciate it.

Just in terms of a couple quick questions, maybe to follow up on Spiro's question here, just starting with CapEx, when you talk about a meaningful reduction in CapEx for 2020, are we talking in the neighborhood of greater than 50%? Because the numbers are kind of split over two years. Is it more 2020 versus 2019? And then you also talked about some cost overruns, but also last fall, You talked about moving some of the in-service dates of some of your facilities to capture some labor cost benefits. Is it too early to see some of those benefits? Just wondering if you can talk about those trends.

Sure. This is Jen. I think that from our perspective, it's premature to roll out 2020 direct sort of CapEx guidance as we did in February 4, 2019. What we provided last November was meant to be really instructive. It was a point-in-time forecast that really, I think, directionally demonstrates that at that point in time, what we felt like our CapEx budget would be reduced to over 2020 and 2021. We're very much focused on reducing CapEx on a go-forward basis, certainly expect 2020 to be substantially, absolutely substantially lower than 2019. But we do think just that there's a lot changing. Think about everything that's changed as we've moved through this year, that it is a little premature for us to come out with a direct sort of hard and fast number that we'll certainly be holding ourselves to in 2020.

And the cost trends in terms of starting projects later, you talked about capturing some benefits on that.

I think you've seen that we shifted some FRAC timing, so the timing of Train 8, which we shifted on our last earnings call. You see with the announcement of the Gateway plant that really on the Midland Basin side, volumes have exceeded our expectations. And so while we expected that we would be moving forward with that plant this year, maybe a little bit sooner than expected with the announcement today. And so I think that when we look out across our portfolio of future sort of capital projects, to Matt's point, it feels like it's going to be very much across the core value chain. I think it will be hopefully easy for you to forecast when we'll be adding plants and fracks just as a result of the volume growth that you're seeing across target because of the integrated value chain. That means that as we bring on new plants, those volumes will have to go to new fracks. And so it'll, I think, be easy for you to forecast the associated spending and timing of when we'll need new facilities.

I think, Chenier, you've also described the ongoing discipline that the team is using. Yes, pushing the frack trains out a little bit, which saves some labor costs. And yes, we announced a gateway that is right about on time, not pushing it out because the volumes are causing it. That's the discipline framework that the management team is using.

No, that makes sense and I appreciate that follow-up there, Joe Bob. Just with the new assets coming online, you know, a lot of them are fee-based in nature. Can you give us a sense of, you know, where your commodity exposure sort of ends up as a result, like, you know, from the to and from type of scenario? And are there any opportunities to further reduce exposure, either by selling some assets or restructuring some contracts?

I think this year we forecast about 75% of our operating margin to be fee-based, and when we think about the assets that have been placed in service, such as Grand Prix, additional frack trains, the plants out in the Delaware. Certainly, we're moving to a more fee-based model, and that, I think, will become very obvious in our results, really beginning in the fourth quarter and then going forward. I think that we are continuing to look across our portfolio of assets to figure out where there are opportunities to move less away from commodity price-exposed contracts and more to fee-based contracts, and we'll be continuing to do that. But that's really a practice that we've had within TARGO going on for years now. And so that will continue. I think that when you think about the complexion of our assets and contracts in the Midland Basin, where we've got largely a lot of our POP exposure, we are trying to make those contracts more fee-based, or at least have more fee-based elements there. And I expect that will continue, but that's a slow process. And so You know, I would expect that our fee-based margin will increase going forward 2020 over 19, 21 over 2020, et cetera, but it won't be sort of a monumental one-time shift that gets us to, you know, largely entirely fee-based.

That makes sense. Final question, the export ARB for LPG has been extremely wide. Obviously, you have a new facility coming online. Have you been able to use the wide nature of the spread right now to leg into some more longer-term contracts to more permanently capture some of that spread?

Yeah, I'll turn it over to Scott to handle that one.

Yeah, basically we've seen through the first quarter and second quarter there was some tightness in the export market. Some of that was related to some challenges that the Houston Ship Channel was facing due to some fires and some issues that they had. So We were playing a little bit of catch-up during the second quarter, but now that we have kind of cleared that opportunity, we are excited to see the revampment of our Dock 2, which will come online during the third quarter of this year, and then, of course, our refrigeration unit that comes online in the third quarter of next year. So though we've had limited opportunities to match up the larger ARB that was present at times, We do think that given the opportunities with the expansion of projects that we've got underway, the de-bottleneck projects that we have gone under over the last several quarters to include assets added at our Bellevue facility to de-bottleneck butane as well as our pipeline down to Galena Park. These will provide further opportunities for us to participate when those ARB opportunities are present. We're very comfortable where we are on our term contract basis. and look forward to when that presents itself in the future.

Perfect. Thank you very much, guys. Really appreciate the call today.

Okay. Thank you.

Our next question comes from the line of Colton Ying from Tudor Pickering Holt. Your line is open.

Morning. So not to belabor the discussion of the capital program, but I think in that 2020 and 2021 forecast, there was an assumption around three potential Permian plants, With Gateway being slated for Q420, does that imply that there would be two plants in 21, or should we think that maybe one of those plants can move into 2022?

We're still working through timing. Both the Midland Basin and on the Permian side, we've already got two announced that have yet to come on out on the Delaware side of things. They're potentially another plant in that timeframe out in the Delaware, potentially. I'd say there could be easily potentially another plant on the midland side. So I think that's still a reasonable estimate, having three plants come online in that timeframe. But as Jen talked about, we're still really working through going over producer volume forecasts, moving that into our forecast and trying to stage the plants at the correct timing.

Got it. And that's helpful. And then just With Gulf Coast Express starting up in about a month and a half, can you clarify for us what sort of uplift that has on your commodity margins? So understanding that you have the equity interest, but when you look at your POP NAF gas exposure, what does that do for you as you enter Q4?

Yeah. I mean, really for us, having GCX online, we're going to benefit much like the producers are going to benefit, which is higher Waha prices out in the Permian. So we are – you saw our realizations relatively low. Producers had the same. you know, effect here recently. Prices are still low. So we are, you know, greatly looking forward to GCX coming online, and we'll see higher Waha prices, which will benefit us on the equity side of our volumes.

And would effectively 100% of your equity volumes be covered by GCX, or should we still assume that there's a little bit of in-base in there?

Yeah, so it'll be a mix. It's not necessarily going to be all transported down GCX But our equity volumes will benefit, even if they're not moving down GCX, just from the uplift in Waha prices from GCX. Got it. Appreciate the time.

Thank you.

Okay, thank you.

Our next question comes from the line of Keith Stanley from Wolf Research. Your line is open.

Hi, good morning. Hey, good morning. I wanted to clarify first, just with the good second quarter here, that you feel good on the EBITDA guidance for the year, even using current commodity assumptions over the balance of the year?

We reaffirmed our guidance for the year, and we thought, you know, the first half of the year is completed. And now as we move through the third quarter with Grand Prix coming online, we didn't think that it made sense for us to change our guidance. We're not expecting to change our annual guidance on a quarterly basis anyway. So, I think we detailed some of the headwinds that we have faced as we move through the year, and we've got some of the tailwinds as well. And now with Grand Prix Online, feel very, very good about a fourth quarter contribution of Grand Prix to our EBITDA, increasing cash flow from other assets as utilization increases. So, really are just reaffirming what is out there.

Okay. And one follow-up on LPG export. So, Will you have 10 million barrels per month of capacity in the fourth quarter, and are there any bottlenecks to sort of filling that and ramping that higher pretty quickly in the fourth quarter on exports? And I just want to clarify, it sounds like you have a little bit more exposure to the ARBs once these expansions come online. Just in the earlier question, I wanted to make sure I heard that right. Thank you.

Well, what I would say is, again, we were highly utilized during the second quarter. We moved about 7 million barrels per month during the second quarter, somewhere around 231,000 barrels a day. Our focus continues to be to complement our export business as it relates to our overall platform. Our GMP business that feeds into Grand Prix, that feeds in and through our storage, through our fractionation business, and then all the way down to our dock to Galena Park for exports. As I said earlier, the projects that we took underway to de-bottleneck the facility, a lot of those projects were geared more toward butane, our ability to export butane at higher volumes. So, depending upon what the mixture is of propanes and butanes will kind of dictate whether or not we're hitting, you know, the 9 million or 10 million barrels of export volumes during the fourth quarter. Once we enhance that even more with the refrigeration unit in the third quarter of next year, that provides us even further opportunities. So we were highly utilized. Most of that was related to term business. So I would not say that we're exposed to what the ARB is because we've got fee-based related contracts that are going to flow in and through our business And so the volumes have to move offshore when you think about incremental volumes of production of propane and butane.

Thank you.

Our next question comes from the line of Tristan Richardson from SunTrust. Your line is open.

Hey, good morning, guys. Now that you've got substantially more visibility on Grand Prix and Train 6 and GCX tracking the schedule, the plans to update the multi-year outlook with that enhanced visibility now?

I think that from our perspective, we have left the long-term outlook slide in our materials largely because we find it instructive, particularly with those that are less familiar with TARGA when we have an opportunity to talk about our growth capital program that's been underway that now many of those assets are online around. It's an easy slide to point to. I don't think that we see it as necessary for us to continue to update a multi-year outlook. I mean, if you think about all the pluses and minuses that I've even gone through today around what's happened in 2019, that's just a difficult endeavor to undertake in putting out a multi-term outlook. outlook every quarter. And so I think, Tristan, right now we're thinking that we will put out typical 2020 guidance around our normal timeframe, which would be in February, which is when we have the optimal amount of information from producers to really, I think, effectively predict not only EBITDA but capital for 2020. And that's really, I think, the tactic that we'll most likely take.

Very helpful. Thank you. And then just on the capital deployment, you guys have been very vocal, very clear with us that your assumption for substantially lower capex next year, and when we think about governors of that, I mean, is that a stronger governor than sort of your return hurdle metrics and criteria? I mean, in other words, if something came along that was very strategic and very compelling, you know, is it that substantially lower sort of comment that drives or is it more sort of how complementary a project might be?

Yeah, so good question. I mean, it is difficult as we're going through and allocating capital and trying to allocate the capital to the highest return projects. I think, as Jen said, we are looking at it top down and saying we're trying to move towards that free cash flow so we don't need to issue any more equity and go towards free cash flow. So that is our starting point. And then we look at what's the best use and how do we balance the capital between investing in gathering and processing projects and other projects and downstream. Our focus has been and really will continue to be what is along the core value chain, where we can earn margin on the gathering and processing side on transportation, fractionation, and export. So those are the lenses that we're using. as we think about growth capital into 2020, but we're starting with what financial metrics are we going to try and hit in 2020, what are reasonable targets that we can hit to move towards that free cash flow as soon as possible.

And I think that the Williams project that we announced earlier this year really highlights how we're thinking about the world of capital. So that's a project that's incredibly strategic for us in terms of additional volumes on Grand Prix to our fractionation, but we approached it, as did Williams, in what we both viewed as the most capital-efficient way possible to get a very attractive deal done for both sides, but, again, in a capital-efficient manner.

Makes sense. Thank you guys very much. Okay. Thank you.

Our next question comes from the line of Jeremy Bone from J.P. Morgan. Your line is open.

Good morning, guys. Thanks for taking my question. This is Rahul on for Jeremy. With 1H19 in the books, could you update us on your second half outlook versus the initial expectations and provide us your latest thoughts on what you're seeing in terms of producer equity and what it could mean for the exit rate?

Yeah, sure. I think, as we said in the prepared comments, and I'll just kind of reiterate, maybe expand a little bit on those, we saw really good volumes on the GMP side across our permanent business. So we saw good growth in the Midland side, really good growth sequentially on the Delaware side. So I think as we look in the back half of the year, we'd expect that strength to continue as we're bringing on, you know, Pembroke will be bringing on additional facilities here as we can start up on that plant. We'll have Falcon coming on. So I think our outlook for the back half of the year on the Permian side is continued strong growth, even exceeding our previous guidance potentially there. So I think we see really good growth on that side. And that's going to bode well for us on the Grand Prix volumes, as most of those volumes are headed towards Grand Prix into our fractionation and export.

Got you. That's helpful, Keller. And just going back to Grand Prix for a second, considering all the gives and takes on the pipe as it ramps and as the short-term contracts roll off, like, Are you guys in a position to hit the 250,000 barrels per day by mid-2020 target you guys stated before?

Yeah, so our previous guidance there was 250,000 barrels at some point in 2020. We aren't officially, you know, changing that, although sitting here giving you guidance that we're going to be at, you know, 200,000 or so in September, I'd say we feel really good about hitting that. And I feel good about hitting that, you know, kind of earlier in the year versus maybe the previous guidance we gave was later in the year, right? So as we're moving forward in time, feeling better about those volumes, our volume expectations kind of continue to increase on Grand Prix volumes.

Sounds good. That helps. And then, like, just a housekeeping question. On the NCI, I think, which picked up notably, you guys did talk about, in the prepared remarks at FRAC6 and Grand Prix ramps, it could step up. Like, is there any good indication of how we should look at it in the back half of the year?

I'd suggest that you follow up with Sanjay. Obviously, the other ownerships are disclosed related to, you know, Blackstone owning a 25% interest in Grand Prix, as well as the DEVCOs that are in place. But we can walk you through all the steps associated with where that ought to increase just in terms of making sure that you're modeling our partnerships accurately and how that impacts the NCI cutback.

Sounds good. Thanks for taking my questions, guys. Okay.

Thank you. Our next question comes from the line of Danilo Jovain from BMO Capital Markets. Your line is open.

Good morning and thank you. Some producers in the Permian are talking about, you know, capital distance and so forth that pertains to lower volume outlook going forward. But that's, of course, so crude. Is it fair to say that because of the higher GORs, you still see pretty solid growth even into 2020? And understanding that you don't give any guidance for 2020, but do you still see a sort of solid volumetric outlook out of the premieres?

Yeah, I'm going to turn it over to Pat to add. I would say we expect continued growth in the Permian in 2020. The outlook there is still very good. Pat, anything you want to say?

Yeah, I would echo that. I mean, when we look at our core customers, their balance sheet, their available capital to put to the drill bit, we feel really, really good about their continued activity level. As a matter of fact, we have line of sight on what they're doing the next 6, 12, and 18 months. So it would be a huge surprise and a huge commodity price drop to alter that drilling schedule. We feel really, really good about our core producers and what our volumes are going to look like.

Thank you for that. And I guess as a follow-up, do you see GCX sort of immediately helping to mitigate any flaring issues that you're seeing out of the Permian?

Well, there's flaring issues for a number of reasons. A lot of the flaring issues... tend to be even more local and could be related to the quality of gas, whether it's H2S and others. So GCX may provide some relief to that. I wouldn't expect it to alleviate all of it because things are flared for different reasons. I think with us, everyone who's producing gas out there, it's going to be a welcome addition to capacity because, as you know, LAHA prices are hovering around around zero. So we need that capacity online, and we're going to benefit – producers are going to benefit.

Thank you. Last question for me, and I appreciate the update in the press release on the regular earn-out. Obviously, there's DEFCO payments to be made 2023 and beyond and so forth, but with respect to the Bakken sale, are there any payments that you guys would have to make as well at the end of that deal, or is that – simply confined to the higher cadence of distribution in the early years that ultimately converts down to that 45% as we discussed previously.

It would be the latter, Danilo. So there are no obligations for us to make any payments at any point in time beyond the minimum quarterly distribution and then what Blackstone would be entitled to as a result of their 45% interest.

Okay. Thanks for that update, Jen.

Thank you.

And our next question comes from the line of Chris Tillett from Barclays. Your line is open.

Hi, guys. Good morning. I guess just first for me, I appreciate all the colors so far on Grand Prix. It looks like based on, you know, what you're expecting today, maybe the volumes out of your own processing plants that will be feeding into the pipe are on track for maybe even better than what we expected when you, you know, first announced the project, but you also have a number of third parties on that pipe as well. Can you maybe just give us an update on how those volumes are trending relative to maybe your original expectations and whether or not there are any MVCs behind those?

Sure. So it's a mix. So we have multiple third party, I'd say third party dedications, multiple third party MVCs on that pipe. Depending on the producer, You know, we have seen, I would say, volumes coming on not as fast as early indications when we were contracting that pipe, which is not unusual when you're getting forecasts from customers. But overall, the outlook in some of the cases catches up or even exceeds as you move forward in time. But, again, it's a diverse customer base. We have many customers, and it's a mix. So our volumes are – going even above expectations. And then for an aggregate, we've added more contracts than we estimated. So even if those contracts are slightly under the volume forecast they gave us, there's still more third party than we originally anticipated when we announced Grand Prix.

Okay. Appreciate that. Thank you. And then next from you, I guess. Now that you have the full NGL pipeline, you have more of an integrated value chain than you did even just a year or two ago. I guess we kind of thought of it as the lack of the pipeline was the hole in the value chain in that part of your business. So should we think about the way that you operate commercially going forward? Will that be any different? I guess maybe what I mean by that is should we look for you guys to take more advantage of some marketing opportunities, contingo in the NGL price, anything like that?

I'd say we think it makes us more competitive. So when we're talking to the larger producers, we're able to offer the integrated suite of not only gathering and processing, but be able to handle the liquids all the way to the dock and even through export. So I think it makes us more competitive having the pipeline there. Yeah, anything, Pat, you want to add to that?

Yeah, I think once we announced Grand Prix and we were sitting down with some of the larger production opportunity, capture opportunities in Delaware Basin, the fact that we were going to have Grand Prix going forward, that we would have that fully integrated platform significantly added to our success in landing some of those big dedications and capturing some of those larger opportunities. And quite frankly, that continues to be that way going forward. We're known as a very reliable GNP unit. We keep people's oil coming out of the ground. And now the NGL interruptions, et cetera, that we were afforded via having to rely on third parties, we now have the ability to get around that. So it's just another kind of added piece that our reliability and how we perform and provide service for our customers is enhanced that much further. So we feel really good about that, and we are using it, and we will continue to use it.

Okay, thank you. That's all from me.

Okay, thank you. And that concludes our question and answer session. I would like to turn it back to Sanjay Ladd for any further comments.

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

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may now disconnect.