Targa Resources, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Target Resources Corporation third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this 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 today, Mr. Sanjay Ladd. Thank you. Please go ahead.

Thank you, Michelle. Good morning and welcome to the third quarter 2020 earnings call for Targa Resources Corp. Third quarter earnings release for Targa Resources, along with a third quarter earnings supplement presentation, are available on the investor section of our website, our targaresources.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 SEC 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 also be 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'll now turn the call over to Matt.

Thanks, MJ. Before we get into quarterly results, I would like to say how proud we are of our employees who safely navigated through an active Gulf Coast hurricane season during the third quarter. While the overall financial impact to Targo was minimal, we had many employees impacted personally, and our heartfelt thoughts go out to them and their families. I am also proud of our collective efforts in continuing to respond to the challenges associated with COVID-19, and we'd like to thank all of our employees for their continued focus and diligence in managing our operations very successfully through an incredibly difficult year. Turning to our business results, we had a strong third quarter as we continue to benefit from the strength of our Permian footprint and our integrated asset position. Our strong operational performance combined with reduced capital spending and the significant progress on reducing costs are driving increasing free cash flow, which positions us to continue to execute on our long-term strategy of reducing leverage over time. 2020 has undoubtedly been a challenging year, but we believe that our key strategic efforts around our re-contracting and gathering and processing, reducing growth capital spending, identifying opportunities to reduce operating and G&A expenses, and focusing on integrated opportunities position us for a successful 2020 and beyond. Based on our strong performance with EBITDA projected to be at the high end and capital spending at the low end of our range, we saw an opportunity to put in place a $500 million share repurchase program and still continue to reduce leverage over time. We are always looking for opportunities around market dislocations, and we believe we have the financial strength and business profile to execute on both. Let's now discuss the business environment and our operational performance. Starting in the Permian, as a result of the quicker than anticipated rebound in prices and related producer activity across our Permian systems, our inlet volumes are on track to grow close to our initial 2020 plan, pointing to a strong 2020 exit and positioning us well going into next year. Our overall Permian volumes increased 9% compared to the second quarter, and our third quarter volumes grew 8% when compared to the first quarter average, while the overall basin experienced a 2% decline in associated gas production over this period. This points to the strength of our overall footprint in the Permian continuing to outperform basin-wide results. Our new Gateway plant commenced operations in early August, and the addition of this incremental processing capacity has allowed for improved NGL recoveries across our system. With Gateway already highly utilized, we are in need of additional capacity in the Midland Basin. With our continued focus on managing capital spending and our need for incremental capacity in Permian Midland to accommodate increasing production, we are moving our Longhorn plant from North Texas. We are also renaming the plant to the Heim plant after TARGA's founding chief operating officer, Mike Heim. This 200 million cubic feet per day plan is expected to begin operations during the fourth quarter of 2021 and is expected to cost approximately 90 million. The Heim plant will drive attractive returns for TARGA as a result of the significant capital savings combined with the incremental fee-based margin earned through our logistics and transportation assets. This type of spending is in line with our strategy going forward to focus our capital allocation on high-returning projects that leverage our integrated midstream platform. Moving on to the Badlands, our gas volumes rebounded during the third quarter and were up 23% over the second quarter. Across our Badlands crude system, volumes were down 7% sequentially as certain volumes remained temporarily shut in during the third quarter. However, we are seeing some incremental production volumes return in the fourth quarter. Turning to our central region, which continues to largely be in decline, gas inlet volumes in the third quarter declined 9% over the second quarter. We continue to have some shut-in volumes in South Oak, which we expect to come back online in 2021. Despite declines across our central regions, our third quarter total field GMP volumes increased 4% sequentially, led by our Permian region. The durability of our gathering and processing segment margin has strengthened as we have reduced our commodity exposure by adding fees and fee floors to our GMP contracts. Our Permian GMP business is now approximately 60% fee-based, which is a significant improvement from around 35% fee-based in 2018. And overall, we are about 80% fee-based across all of Targa. The financial performance of our GMP segment is now more driven by volume, throughput, and fees as opposed to direct commodity prices, which is evidenced in our year-to-date results and will serve us well going forward as we are more insulated from lower commodity price environments but would still continue to benefit when prices rise. Shifting to our logistics and transportation segment, our Grand Prix pipeline continues to perform very well. Third quarter throughput volumes on Grand Prix increased 18%, driven by increasing NGL production from Targa's Permian plants, including our new Gateway plant, and from our third-party customers. We completed the first phase of pump station additions on Grand Prix, increasing our transport capacity to approximately 400,000 barrels per day from the Permian Basin. At our fractionation complex in Mont Bellevue, third quarter fractionation volumes were impacted by scheduled maintenance and upgrades at our facilities. As a result of the scheduled maintenance, we expect higher volumes during the fourth quarter as we work off the associated inventory. Fract Train 8 commenced operations in Mont Bellevue in September, providing us with increased operational flexibility. Our Grand Prix extension into central Oklahoma is on track to be operational by the end of the fourth quarter, where it will connect with Williams' new bluestem pipeline. Our LPG export business at Galena Park continued to perform well as we moved a target record 9.5 million barrels per month during the third quarter. We expect our LPG export volumes to be higher in the fourth quarter, as we'll benefit from a full quarter contribution of our recently completed phased expansion. 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 much incremental capex on Grand Prix, fractionation, or LPG export facilities. This puts Target in a position to generate strong returns going forward as increasing free cash flow after dividends available to reduce debt and further strengthen our financial position. In September, we released our second annual sustainability report, which highlights TARGA's advancements in the areas of ESG and safety. With our premier integrated asset position and our talented employees, TARGA is well positioned for the longer term. With that, I will now turn the call over to Jen.