Targa Resources, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the TARGAR Resources first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to take the conference over to Sanjay Ladd, Senior Director of Finance and Director of Relations. Thank you. Please go ahead, Sanjay.

Thank you, Bridget. Good morning and welcome to the first quarter 2020 earnings call for Targa Resources Corp. The first quarter earnings release for Targa Resources, along with the first quarter earnings supplement presentation, are available on the investor section of our website at targaresources.com. In addition, an updated investor presentation has also been posted to our website. A reminder that statements made during this call that might include Targa Resources expectations or predictions should be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in forward-looking statements. For discussion of factors that could cause actual results to differ, please refer to our latest SEC filings. Our speakers for the call today will be Matt Malloy, Chief Executive Officer, and Jen Neal, Chief Financial Officer. We will also have the following senior management team members available for Q&A. Pat McDonough, President, Gathering and Processing. Scott Pryor, President, Logistics and Transportation. And Bobby Mararo, Chief Commercial Officer. And with that, I will now turn the call over to Matt.

Thanks, Sanjay. Good morning, and thank you to everyone for joining. On behalf of the TARGET team, we hope that you and your families are doing well and staying safe. The first quarter results show that our assets continued to perform well with solid operational and financial performance in the first quarter. We had $428 million of adjusted EBITDA, 32 percent growth in Permian volumes, 37 percent growth in Fractionation volumes, and 26 percent growth in Export volumes versus last year, despite significantly lower commodity prices. Our continued efforts to reduce commodity exposure Across our GMP business, by adding fees and fee floors allowed us to generate higher operating margin even as prices fell significantly. The financial performance of our GMP segment is now more driven by volume throughput and fees as opposed to direct commodity prices, which will serve us well going forward. With some of our fee-based contracts through our fee floor structure, we will also benefit as prices begin to rise. Now moving on to the impacts of COVID-19. When it became clear that the pandemic was a significant risk to our employees and their families, we moved quickly to make sure that we took care of our employees, our facilities, and our customers. We swiftly implemented important safety measures, including providing our employees with protective equipment, and we are currently pleased with the minimal direct impact that the virus has had on our employees. I'd now like to thank all of our employees. We are especially proud of our frontline employees in the field who continue to safely and effectively operate our facilities every day. And thanks to our other employees who are operating at a high level of effectiveness, working remotely to ensure continued first-class service to our customers. Our industry continues to navigate through an unprecedented period as a result of COVID-19. the low demand and low crude oil price environments driving producers to meaningfully reduce their activity levels and even curtail current production. Given this lower volume outlook and increased uncertainty about business fundamentals, we moved quickly and decisively as an organization to take some key actions to protect our balance sheet and position Targa to be successful over the long term. On March 18th, we announced to the market a 90% reduction in Targa's common dividend payout, This reduction provides approximately $755 million of additional annual direct cash flow, resulting in significant free cash flow available to reduce debt. Additionally, we also announced meaningful reductions to our 2020 and 2021 net growth capital spending estimates. Since then, we have further reduced our 2020 net growth CapEx estimate to a range that is now between $700 and $800 million, which now represents a 40% reduction at the midpoint relative to our initial 2020 guidance. We continue to identify and execute other measures to best position TARGA over the long term given lower expected growth and related business activity. In aggregate, we now expect our estimated 2020 operating and general and administrative expenses to be lower by at least $100 million versus prior expectations. Some of the additional measures that we have taken include reductions of compensation, benefits, and our workforce across the TARGA organization, including TARGA executive management reduced their 2020 salaries by 10 to 15 percent, resulting in a reduction to their expected total cash compensation of approximately 40 percent compared to last year and based on our current forecast. TARGA's board of directors reduced their 2020 cash compensation by 10 percent, We reduced our workforce by 8% in late April, and we further eliminated new open positions expected in the growth environment of our initial 2020 budget. We are also highly focused on tightly managing every line item in our operating and G&A expense budgets and are currently estimating significantly lower utilities, chemicals, lube oils, and ad valorem taxes, among others. We will continue to be focused on capital and operating cost discipline as we work through the current environment. Turning to our business segments, let's talk about the production that we're currently seeing across our gathering and processing systems. We continue to have a lot of discussions with our producers regarding their plans for near-term production, and those discussions remain very fluid. We have seen shut-ins of older wells and shut-ins of newer wells. Each producer is driven by different factors unique to their economic interests and their outlook. We have experienced shut-ins across each of our gathering and processing regions for the month of April, but only to a small degree so far. For example, our volumes in the Permian in April were approximately flat to the first quarter, so we have not seen a material impact from shut-ins yet. We do, however, expect more volumes to be shut-in for May. And while there is still significant uncertainty, given our latest producer discussions and given what we're seeing on our systems today, beginning in May, we are estimating shut-in volumes of approximately 10% across our aggregate Permian region. In our central region, we are also estimating shut-in volumes of approximately 10%. And in the Badlands, we estimate about 30% to 40% of gas, and approximately 20% of crude oil to be shut-ins. These shut-ins will result in lower NGL supply through Grand Prix and through our fractionation trains in Mont Belvieu. However, as a potential economic mitigant, Targa has one of the leading NGL storage positions in Mont Belvieu. This storage position is highly valuable in this environment and allows us an opportunity to benefit from the dynamics in the NGL markets. And our LPG export business at Galena Park continues to perform well, and we remain on track to complete the expansion of our export facility at Galena Park in the third quarter. We remain highly contracted for the rest of the year. It was only a few months ago that we reported a record fourth quarter and full year 2019 earnings and discussed our strong business outlook. And as we've already discussed since then, business fundamentals have changed drastically. We believe that TARGA is well positioned to navigate through this period of weak market fundamentals, even in an environment with protracted producer shut-ins. We have a strong liquidity position and have taken actions to protect our balance sheet and preserve our financial flexibility, generating free cash flow after dividends to reduce debt looking forward. The world continues to work through the impacts of this COVID-19, creating significant variability around expectations for demand for commodities. As you may have read in our press release this morning, given the uncertainties in this environment, we are updating our full year 2020 adjusted EBITDA estimate to $1.4 billion to $1.625 billion and withdrawing our previously disclosed full year 2020 operational expectations. We would like to share what we see as a reasonable range of expected outcomes detailed downside cases that we ran internally. For example, we ran a downside case which assumed 30% production shut-ins for the remainder of the year in the Permian Basin, and in that scenario, we believe we would generate somewhere around $1.4 billion a full year 2020 adjusted EBITDA. Based on recent producer dialogue, we currently don't expect that negative production case to occur. but rather some lesser amount of volume shut-ins for a duration of a couple to several months. So we believe an expectation of full year 2020 adjusted EBITDA of around $1.4 to $1.625 billion, depending on production levels, covers a reasonable range of potential outcomes. But remember, our results are driven by our producer customers across our GMP operating regions, and there remains significant uncertainty about around the potential extent and duration of estimated shut-ins. Lastly, despite the uncertainty of the current environment, based on the strength of our premier integrated asset position and our employees, TARGA is poised to benefit when business fundamentals improve, positioning us exceptionally well for the longer term. With that, I will now turn the call over to Jen to discuss TARGA's results for the first quarter and other finance-related matters.