Targa Resources, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Target Resources Corporation second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After this speaker 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today, Mr. Sanjay Ladd, Vice President of Finance and Investor Relations. Thank you. Please go ahead.

Thanks, LaShonna. Good morning and welcome to the second quarter 2020 earnings conference call for Target Resources Corp. The second quarter earnings release for Target Resources, along with the second 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. Statements made during this call that might include target 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 FDC filings. Our speakers for the call today will be Matt Malloy, Chief Executive Officer, and Jen Neal, Chief Financial Officer. Additionally, the following senior management team members will be available for the Q&A session. Pat McDonough, President, Gathering and Processing, Scott Pryor, President, Logistics and Transportation, and Bobby Mararo, Chief Commercial Officer. I will now turn the call over to Matt

Thanks, Sanjay. During the second quarter, we navigated the challenges and impacts related to COVID-19 extremely well across our organization. We remain highly focused on employee safety while efficiently operating our facilities, and we have experienced no material impact to our operations. I would like to extend a thank you to all our employees for their continuous efforts to keep their colleagues and families safe. We appreciate all that you do on behalf of the target team, including delivering and maintaining first-class service to our customers. We had a strong second quarter despite impacts from reduced demand and lower crude oil prices, which resulted in producers temporarily curtailing production and meaningfully reducing their activity levels. We have seen a quicker than anticipated rebound in prices, and related producer activity and forecasted activity for the remainder of 2020. Our overall Permian gathering and processing position performed well and our Midland system even showed sequential increase in the second quarter. This sets us up well for the second half of the year as we expect to benefit from stronger production across the Permian. We also benefited from our NGL storage position and the contango price structure which existed for much of the second quarter. We expect to see those benefits show up in our margin throughout the remainder of the year. We made significant progress on reducing costs across TARGA and expect to continue to benefit from these cost reduction measures. And our free cash flow profile is improving and should continue to improve going forward as our capital spending comes down and our cash flow remains strong. As we look forward, we are in a position where we expect to have the ability to capture growth volumes from the Permian without having to spend an incremental capex on Grand Prix, fractionation, or LPG export facilities. And we have excess processing capacity in the Delaware. This puts Target in a position to delever and generate strong returns going forward. Now, a bit more color on the shut-ins that occurred in the second quarter. On our previous earnings call, we estimated the potential impacts related to our producer customer shutting in production. We saw a trough in production across our GMP systems in May, and these declines were consistent with our estimates of about a 10% reduction in the Permian due to shut-ins. In the Permian, the impact was less pronounced across our Permian Midland system than our Permian Delaware system. We also experienced some declines in the Delaware due to some third-party onload gas coming off the system during the second quarter. Despite the temporary shut-in production and reduced activity levels, quarterly inlet volumes across our aggregate Permian footprint declined only 1% sequentially. We have seen almost all volumes on our Midland and Delaware systems that were temporarily shut-in come back online, and we are continuing to see our volumes in Permian Midland prove to be resilient. We are pleased to have our Gateway plant online ahead of schedule. Placing this asset in service early, even through the challenges presented by COVID-19, is outstanding performance by our target team. With Gateway online, we are currently processing volumes at higher levels than our March levels in the Permian Midlands. The addition of Gateway enhances our operational flexibility. to move volumes across our system from other plants that were running over nameplate. This allows us to enhance NGL recoveries and perform maintenance across our system footprint. Moving on to the badlands, during May we saw shut-in production impact our gas volumes by around 40%, which was at the high end of our previous estimate. Our gas volumes for July have since rebounded and are up significantly over the second quarter average. Across our Badlands crude system, we continue to have some production that remains shut in, but expect additional volumes to return as we continue to move through the third quarter. Turning to our central region, which has already largely been in decline, gas inlet volumes in the second quarter declined 15% sequentially, primarily driven by greater-than-expected shut-in production on our South Oak system, and we also had some onload gas expire. Despite the historically low commodity price environment, the durability of our GMP segment margin has strengthened as we have reduced our commodity exposure by adding fees and fee floors to our GMP contracts. The financial performance of our GMP segment is now more driven by volume throughput and fees as opposed to direct commodity prices, which is evidence in our year-to-date results and will serve us well going forward. With fee floors, we also will benefit as prices begin to rise. Shifting to our logistics and transportation segment, throughput volumes on our Grand Prix pipeline and at our Fractionation Complex in Montbellevue were slightly lower sequentially as a result of lower inlet volumes from production shut-ins and reduced activity across our GMP systems. But now, with most of the shut-in production back online, In the recent startup of our Gateway plant, we are currently seeing higher volumes through Grand Prix and our Fractionation assets. We remain on track to bring Fractrain 8 online later in the third quarter, as well as our Grand Prix extension into central Oklahoma in the first quarter of 2021, where it will connect with Williams' new Bluestem pipeline. Our LPG export services business at Galena Park continued to perform well during the second quarter, Sequentially, volumes during the second quarter were slightly lower as a result of scheduled downtime to tie in the phase expansion at our LPG export facility. We recently completed our Galena Park expansion in early August and expect our LPG export volumes to be higher in the second half of this year as we are highly contracted for the balance of the year and beyond. While the majority of shut-in production has returned and activity levels begin to pick back up, there remains a level of uncertainty for the second half of 2020 around the pace of demand and commodity price recovery due to COVID-19. However, our assets are performing very well, and given we are more than six months through the year and have more visibility today than we had back in March, April, or May, we are revising the bottom end of our estimated full year 2020 adjusted EBITDA range higher, and the updated range is now $1.5 to $1.625 billion. Spending related to our announced major capital project is largely complete and Target is well positioned to meaningfully benefit as business conditions strengthen, with our best-in-class Permian supply position driving increasing volumes to our integrated midstream system. We remain focused on continued capital and operating cost discipline, and combined with the strategic measures we executed earlier this year, we expect to generate positive free cash flow after dividends, in the second half of 2020, based on our revised full-year adjusted EBITDA estimate. While there may be some uncertainty in global commodity markets related to the coronavirus and other macro factors, there is strength in what we can see for Targa's core business, 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 second quarter and other finance-related matters.