Targa Resources, Inc.

Thank you for standing by and welcome to the TARGA Resources Corp. Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in the 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 keypad. Please be advised that if you need further assistance, you may press star 0. I would now like to hand the conference over to your speaker today, Sanjay Ladd, Vice President of Finance and Investment Relations. Thank you. Please go ahead.

Thanks, Sherry. Good morning and welcome to the fourth quarter 2020 earnings call for Targa Resources Corp. The fourth quarter earnings release along with the fourth quarter earnings supplement presentation for Targa Resources that accompany our call are available on our website at targaresources.com. in the investor section. In addition, an updated investor presentation has also been posted to our website. Statements made during this call that might include TARGO 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 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. And with that, I'll now turn the call over to Matt.

Thanks, Sanjay, and good morning. 2020 had its ups and downs, but it ended up being a really good year for TARGA. Record EBITDA, record volumes, but the thing I'm most proud of is how our TARGA team responded to the numerous challenges throughout the year, including COVID-19. And now, with the recent cold weather that affected Texas and many other states, 2021 has arrived with its own challenges. Our employees have done a tremendous job working in very difficult conditions, many without power, heat, and water in their home. So I'd like to thank Target employees for all their hard work and dedication. We are exceptionally proud of our Target team who managed through these extreme conditions and continue to operate our facilities safely. The most recent the most recent winter storm impacted both our gathering and processing and downstream operations. Over the trailing 10 days, we experienced, on average, a 50% reduction across our GMP and downstream system volumes. Volumes are continuing to ramp, and current rates have since returned to around 90% of pre-severe weather levels. This overall event is still relatively short-term in nature, and we are comfortable with the full year 2021 guidance that we published last week. Our long-term business outlook continues to be strong. Let's now turn to 2020 highlights. Our overall business performed very well, led by our position in the Permian Basin and our integrated NGL platform. Full year 2020 adjusted EBITDA of $1.64 billion exceeded the top end of our guidance range, and was within our initial range presented in early 2020. We believe that our key strategic efforts around recontracting to add fees and gathering and processing, reducing growth capital spending, identifying opportunities to reduce operating and G&A expenses, reducing our dividend, and focusing on integrated opportunities position us for a successful 2021 and beyond. In 2020, we completed several major projects on time and on budget, including two processing plants in the Permian, two fractionation trains in Mont Bellevue, the phased expansion of our LPG export capabilities, and the extension of our Grand Prix pipeline into central Oklahoma. These expansions positioned Target to benefit from increasing operating leverage moving forward. Our total net growth capital spending for 2020 was about $600 million, which was about $100 million below the bottom end of our range, driven by the high grading of growth opportunities and a huge effort by our engineers and operators to be creative and capital efficient. In 2020, increasing EBITDA and reduced growth capital spending resulted in improving leverage metrics, and we exited 2020 with reported leverage of 4.7 times, a meaningful reduction from the 5.5 times leverage to end Higher EBITDA and lower growth capex also provided additional flexibility to be opportunistic throughout the year, which resulted in us buying back publicly traded notes, common equity, and a small piece of the TRC preferred shares, all at very attractive prices. Looking ahead, we estimate full year 2021 adjusted EBITDA to be between $1.65 billion, $1.675 billion, and and $1.775 billion. Net growth capital spending in 2021 will be significantly lower, which we estimate to be between $350 and $450 million, positioning us to generate increasing free cash flow after dividend to continue to reduce leverage. We expect to end 2021 with reported leverage of around 4.25 times. This guidance is inclusive of our limited exposure from some of the recent government actions around activity on federal lands, with less than 5 percent of Targa's Permian volumes currently from affected areas. Let's now turn to our operational performance and business outlook. Starting in the Permian, during 2020, our systems across the Midlands and Delaware Basin demonstrated significant resiliency despite reduced activity levels and temporary shut-ins, which impacted the industry. Targa's 2020 Permian inlet volumes increased 19% over 2019, and we expect to benefit from this positive momentum as we move through 2021. During the fourth quarter, we took a number of our plants in the Permian Midland down for maintenance, and this has allowed for improved NGL recoveries across our system. We are seeing increasing activity levels across both our Midland and Delaware footprints, For 2021, we expect our average total Permian inlet volumes to increase between 5% and 10% over 2020. With our Permian Midland system running close to capacity, our new 200 million cubic feet per day heimplant will be much needed and remains on track to begin operations during the fourth quarter of 2021. And we currently have adequate processing capacity in Permian, Delaware to accommodate our anticipated growth in 2021. The supply growth from our Permian GMP systems will continue to drive increasing volumes through our Grand Prix pipeline and our fractionation complex in Mont Belvieu, in addition to incremental supply available to move across our LPG export facility. Moving on to the Badlands, our gas volumes during the fourth quarter sequentially increased 4%, and our crude volumes were flat relative to the third quarter. We are seeing Activity levels and completions increase across our system, which is a positive sign. Turning to our central region, which continues to largely be in decline, gas inlet volumes in the fourth quarter declined 5% over the third quarter. We continue to have some shut-in volumes in South Oak, which we expect to come back online in the first half of 2021. Overall, we expect volumes across our central systems to be lower in 2021 relative to 2020. For 2021, we estimate the volume growth in our Permian region to offset anticipated declines across our central regions and estimate our total field GMP inlet volumes in 2021 to be flat year over year. 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 65% fee-based, And overall, we estimate about 85% fee-based margin across all of TARGA for 2021. The financial performance of our GMP segment is now more driven by volume throughput and fees as opposed to direct commodity prices, which was evidenced in our 2020 results. With the fee floor arrangements we have in place, we will continue to benefit as prices rise. Shifting to our logistics and transportation segment, Our Grand Prix pipeline continues to perform very well. Fourth quarter throughput volumes on Grand Prix sequentially increased 18%, driven by increasing NGL production from Targa's Permian plants, including our new Gateway plant. Our Grand Prix extension into central Oklahoma began operations at the end of the fourth quarter. We expect strong performance on Grand Prix to continue throughout 2021 and estimate deliveries into Mont Bellevue to increase 25% or more over 2020 average throughput. At our fractionation complex in Mont Bellevue, fourth quarter fractionation volumes remained strong and also benefited from working down inventory we built as a result of our scheduled maintenance and upgrades performed during the third quarter at our facilities. Our LPG export services business at Galena Park continued to perform well. as we moved a target record 11.3 million barrels per month during the fourth quarter, benefiting from a full quarter of our recently completed phase expansion, in addition to capturing some short-term volumes during the fourth quarter driven by strong fundamentals, and the outlook for full 2021 remains strong. In the past, we have talked about capacity at our export facility to be about 15 million barrels per month. Now that we've gone through a full quarter of operations following our expansion and to appropriately manage expectations going forward, we think that our effective working capacity at Galena Park is about 12.5 million barrels per month. There is potential to exceed that for a given month if we load more butanes, but we think that up to 12.5 million barrels per month is a better representation of our overall working capacity. As we look forward, we are in a position where we expect to have the ability to capture growth opportunities 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 and increasing free cash flow after dividends available to reduce debt and further strengthen our financial position. With our premier integrated asset position and our talented employees, Target is well positioned for the longer term. With that, I will now turn the call over to Jen.