Targa Resources, Inc.

Good day, and thank you for standing by. Welcome to the Target Resources Corp. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After 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 may be recorded, and if you require any further assistance, please press star 0. I want to hand the conference over to your speaker today, Mr. Sanjay Ladd, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Victor. Good morning and welcome to the second quarter 2021 earnings call for Tarver Resources Corp. The second quarter earnings release along with the second quarter earnings supplement presentation for Tarver Resources that accompany our call are available on our website at tarverresources.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 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. Discussion of factors that could cause actual results to differ please refer to our latest FPC file. 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 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, Sanjay, and good morning, everyone. We're excited to announce another great quarter at Targa as our overall business continued to perform well, led by our position in the Permian Basin and our integrated NGL business. As we continue to execute on our key strategic priorities, we are very pleased with our positioning. Taking into consideration our first half performance and the strength in our business outlook for the second half of this year, coupled with stronger commodity price fundamentals, we are increasing our estimated 2021 EBITDA to be between 1.9 and 2 billion. 2021 EBITDA is now estimated to be 19 percent higher than last year based on the midpoint of our new guidance range. Our prioritization of free cash flow for debt reductions mean we reduced our debt balance by 780 million in the first half of the year, and our consolidated leverage was 3.8 times at the end of the second quarter. within our target range of three to four times and well ahead of schedule due to our strong performance. This provides us greater flexibility and bolsters Targa's financial position. We now expect to end the year at about 3.5 times leverage with a strong balance sheet and well positioned to repurchase the DEBCO interest in the first quarter of next year. We are also very proud of the efforts of our target employees over a difficult last year and a half. Our employees have continued to perform exceptionally well for our customers and have done so with a continued focus on safety, and we are very thankful for their efforts. Let's now turn to our operational performance and business outlook. Starting in the Permian, second quarter system volumes rebounded quickly following the major winter storm During the first quarter, our system inlet volumes increased 15 percent sequentially. We now expect our 2021 Permian inlet volumes to increase to the high end of our previously disclosed 5 to 10 percent growth over 2020. Our Permian Midland system ran above nameplate capacity for much of the second quarter, and we're pleased to announce our new 200 million cubic feet per day high plant is mechanically complete and expected to begin full operations in early September. A special thanks to our operations and engineering teams for safely bringing online Heim well over a month ahead of schedule and under budget. We expect Heim to commence operations highly utilized, and given our outlook for continued production growth, we announced this morning our plans to move forward with the construction of our new 250 million cubic feet per day legacy plant, which is expected to begin operations during the fourth quarter of 2022. Even with the addition of legacy, there is no change to our 2021 net growth capital spending estimate of between $350 million to $450 million. Our current year spend on legacy is estimated to be about $70 million. In Permian, Delaware, completions and activity levels have continued to ramp, and we currently have adequate processing capacity to accommodate our anticipated near to medium-term growth. The stronger outlook across our Permian Basin footprint coupled with our new plant announcement will continue to drive incremental volumes through our downstream businesses. Moving on to the Badlands, we saw sequential increases to our gas and crude volumes during the second quarter. Producers are completing wells and we continue to have positive producer dialogue. Turning to our central region, gas inlet volumes during the second quarter also rebounded from the winter storm and increased 8% sequentially. While the system continues to largely be in decline, we are currently seeing a modest uptick in completions and activity, which could mitigate some of the decline. Shifting to our logistics and transportation segment, overall system volumes during the second quarter meaningfully rebounded from the effects of prior quarter's major winter storm. Our Grand Prix pipeline continues to perform very well, with total deliveries into Mont Bellevue increasing 14% sequentially. During the second quarter, we transported a record 392,000 barrels per day, and we expect volumes to ramp through the balance of the year. We also achieved record fractionation volumes at our Montmelville complex, averaging about 644,000 barrels per day during the second quarter, representing an 18% sequential increase. In our LPG export services business at Galena Park, second quarter volumes sequentially increased 20%, averaging 10.3 million barrels per month. While we remain highly contracted, the current higher NGL prices are causing reduced short-term demand for spot opportunities. However, overall, the long-term fundamentals remain strong for LPG exports and the current strength in propane prices is still a net positive for Target. Looking ahead, With our leverage already in the target range and on track to be even lower by year end, we expect to be in a position to return incremental capital to our shareholders in 2022 after re-purchasing the DevCo joint venture interest. We have the ability to return capital to shareholders in a number of different ways through additional dividends, share repurchases, repayment of preferred equity, and or continuing to reduce debt. We are currently evaluating, along with our board, the best way to deliver value to shareholders while maintaining our long-term financial flexibility. We will prioritize a strong balance sheet that keeps Target in strong financial position across downside scenarios. We expect to articulate more details in February with our 2022 outlook and capital plan for the year. Target continues to benefit from the strength of our business and our talented employees, and we remain very well positioned for the long term. With that, I will now turn the call over to Jen.

Thanks, Matt. Target's adjusted EBITDA for the second quarter was $460 million, as second quarter volumes across our integrated Permian gathering and processing and logistics and transportation systems meaningfully rebounded from the effects of the winter storm experienced during the first quarter. Second quarter EBITDA was sequentially lower, predominantly due to storm-related benefits and seasonal opportunities in our marketing businesses realized during the first quarter, and from higher OpEx from additional volumes moving through our systems and higher G&A. Through the first half of 2020, sorry, through the first half of 2021, Target has generated free cash flow of $593 million versus $171 million over the same time period in 2020. and significantly hedge for 2021 and continue to add hedges for this year and beyond, while still benefiting from higher prices across our unhedged equity volume exposure and prices above C4s. You can find our usual hedge disclosures in our quarterly earnings supplement presentation. As Matt mentioned, we are increasing our full year estimated 2021 adjusted EBITDA to be between $1.9 billion to $2 billion. Our updated financial estimates assume full-year 2021 WTI crude oil prices average $65 per barrel, NGL prices average $0.70 per gallon, and Henry Hub and Waha natural gas prices average $3.20 and $3.10 per mm BTU. The biggest drivers of our continued performance relative to previous expectations for 2021 are commodity prices, particularly as we benefit from prices above before, also higher volumes and continued cost management relative to expectations. Inclusive of expected spending this year for the newly announced Legacy Plant, our 2021 net growth CapEx estimate remains unchanged at between $350 million and $450 million, and we now estimate net maintenance CapEx to be lower at approximately $120 million. Our continued strong performance means we expect to end 2021 with consolidated leverage around 3.5 times. This puts us in excellent position to repurchase our DESCO interest in the first quarter of 2022 while still maintaining consolidated leverage within our target of three to four times. Looking forward, we believe that existing in the lower half of our target consolidated leverage ratio range provides for more flexibility. which is why we are continuing to prioritize free cash flow for debt reduction, particularly in advance of our Desco repurchase. As we look forward, our balance sheet is well positioned. We have an excellent liquidity position with no near-term debt maturities. Also, in early June, Fitch issued their inaugural ratings for CARGA and assigned us with a BB plus rating. We really appreciate the amount of work that the Fitch team invested to provide that initial rating. We are now rated by the three leading agencies and are continuing our dialogue with each related to our trajectory towards investment grade, which remains a priority for TARGET. Shifting to our focus around sustainability and ESG, we continue to advance our efforts and internal initiatives in this area, and we plan to publish our next sustainability report in the fall. In closing, on behalf of all management, we say thank you to our talented TARGET team for all that they do. And with that, I will turn the call back over to Sanjay.

Thanks, Jen. We currently ask that you limit to one question and one follow-up for the Q&A lineup if you have additional questions. Victor, will you please open the lines for Q&A?

Of course. As a reminder, to ask a question, you will need to press star 1 on your telephone. And to withdraw your question, just press the pound key. Once again, that's star 1 for questions. One more for questions. Our first question comes from , from UBS. You may begin.

Hi. Good morning, everyone. Maybe to start off a little bit, just wanted to chat about your guidance. You know, obviously, it was taken up today, and you sort of cited the fact that you expect to be at the higher end of the volume range or volume growth range. Just kind of curious, there's been a lot of discussion around increased activity, specifically in the Delaware. I'm curious if that's around your assets and that's what's driving the guidance increase, or is there a potential that if this activity in the Delaware continues to increase that we could actually see an even higher exit rate for TARGA, you know, when you close out the year? Just kind of curious what was baked in.

Sure. Hey, good morning, Schneer. Yeah, we are seeing, you know, stronger volumes. You know, we've went to the high end of our range. I'd say it's you know, in both the Midland and the Delaware, we are seeing, you know, I'd say higher activity. But it's really the dynamic we talked about last call, I'd say, is still, you know, for the most part there, which is the larger producers are really staying within what they told us. But the smaller and some of the private guys we are seeing ramp up more. You've seen a steady increase in the rig count, but not a huge spike up. So I think we're just seeing You know, just continued, you know, strong activity, you know, across the board for our producers. Pat, is there anything else, you know, you'd want to add to that?

I'd just say that we're seeing activity in both basins. Obviously, legacy plant announcement, we're seeing continued strong growth on the Midland side of the basin. We have seen more activity in the Delaware basin, but delineated just as Matt described. the big guys staying kind of on the programs and more little guy activity. So both sides are growing.

Cool. Definitely appreciate the color there. And then maybe to follow up, you know, in terms of the whole simplification approach, I mean, you've been pretty consistent in saying that this is really a 22 event. I think in your prepared remarks today you talked about, Dev code probably happening in one queue. I imagine you have to give notice, and you'll let us know that ahead of time. And if I remember correctly, your PREF steps down in March as well, too, which is another component to that. But at the same time, you're kind of in this interesting position today where you can actually write that you're going to be at three and a half times leverage by the end of this year. Does that increase your flexibility to be a little bit more opportunistic around buybacks? or right now everything's parked to take out the DEVCO and maybe work on the PREF later in next year?

Yeah, I'll start, Jen, and then if you want to add in. You know, we did say, you know, we are targeting, you know, 3.5 through year end, and that does assume that we're prioritizing our free cash flow to go towards debt reduction. That is our, you know, base case plan is to get there, and that just puts us in good position to be able to, take out the DEVCO in the first part of next year. We do have a share buyback authorized, but what you've seen us do this year for the first part is prioritize that free cash flow towards debt reduction. That's my expectation that we'll continue to do that while still having the ability to do share repurchases. And then we're taking a hard look at that with our board and we'll kind of lay out what the 2022 capital plan is in February for our free cash flow.

All I'd add, Shner, is that I think the flexibility of our outperformance, the flexibility as a result of our outperformance this year positions us really nicely to be able to take out the Devcos in the first quarter and still have our leverage within that long-term target range, which is great. And then as we think about the PREP, we've got a lot of optionality there. It steps down to 105 in mid-March, but that's something that we also could look at taking over a number of quarters in order to maintain that balance sheet flexibility that we've worked so hard to get.

Great. So it sounds like a lot of flexibility here and the outperformance and guidance increase sort of positions you to have a lot of options. Is that kind of the takeaway, guys?

That's right.

Yes, that's right.

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

Okay. Thank you.

Our next question will come from the line of John McKay from Goldman Sachs. You may begin.

Hey, everyone. Good morning. Thanks for the time. Maybe for our first one, I'll just circle back on Schnur's first question on Permian volumes. So I'm thinking if we look at where you guys sit right now, you know, you're kind of at the top end of the range or close for the growth guidance, even if you're kind of flat for the next couple of quarters. Just curious to balance that against your comments of, you know, activity overall picking up and, you know, whether or not that's just some conservatism or you see anything else going on.

Yeah, sure. You know, we typically see, especially on the Midland side, a lot of growth as we get into the second quarter and into the third quarter. So some of it is seasonal. We see a lot of activity. We see that continuing, and sometimes it feels like the activity is more rateable, but the volumes tend to grow more in the second and third quarter, and we are seeing that this year, I think, which is part of that. So while we do expect some growth, you know, as we kind of continue through the back half of the year and into 2022, it may not be at the same rate that we kind of experienced the last few months. Pat, anything?

No, I agree. We're lumpy in the second, third quarters, but we do expect growth through the end of the year. Probably not as lumpy as what we've seen over the last six months.

Okay. That's fair. Thank you. And then just on CapEx, the first half was lower than we expected. Looks like the heimplants coming in, you know, sooner than expected. You guys reduced the maintenance time guidance, but not the growth guidance. I'm just curious on kind of, you know, what else is kind of filling out that second half of the year spending and, you know, is that because of more activity we're seeing more WellConnects and that can kind of, you know, give us a read on 22 or anything else going on in there?

I think the biggest piece, John, is the announcement of the legacy plan. So as Matt mentioned in his scripted remarks, that moves essentially $70 million of spending to into this year that we otherwise were probably likely going to spend next year. And so when you think about where we are year-to-date, we spent, call it, around $150 million, and then we now have that additional $70 million. So the remainder of our expected spending is for additional gathering and lines and compressions to support the continued growth of our gathering and processing footprint, and then some small downstream projects that are consistent with what we've been forecasting previously.

Okay, thanks. I guess just to clarify that, so the legacy plant, that is still the same one you guys were, I guess, evaluating last quarter, and now it's just kind of formally in the budget. Is that the right way to think about it?

That's right. It's formally board approved now, and the spending has begun on it.

Great. All right. Thanks for your time. Appreciate it.

Okay, thank you.

Our next question comes from Michael Bloom from Wells Fargo. You may begin.

Thanks. Good morning, everyone. I wanted to just clarify, just looking at sequentially the marketing margins were down. Is that just due to the absence of URI opportunities, or is there something else going on with NGL marketing that just wanted to make sure I understood that?

It's really two pieces, Michael, and we talked a little bit about this on our first quarter earnings call that within the first quarter, On the marketing side, we benefited from both the winter storm and then there were also some benefits from contango opportunities that we entered into in the sort of early in the second quarter and late in the first quarter of 2020.

Got it. And then I want to ask about LPG exports. You know, you mentioned, you know, perhaps some fewer spot opportunities, but in light of just how high propane prices are, Do you think in the second half of the year you're going to see actual cargo cancellations? It just seems like something's got to give.

Yeah, Michael, this is Scott. I would first point to the fact that our export performance was strong in the second quarter, a nice recovery from what we saw in the first quarter, which was impacted by the February winter storm. Certainly, as you pointed to of late and really throughout this year, the increased price on both propane and butane here in the U.S. versus global pricing has impacted some opportunities for spot. So I think when you look at it, the international market is choosing at times to look other places as opposed to U.S. Gulf Coast for exports. And at times, quite frankly, Target may choose to not participate at certain pricing levels. So as a result of that, I think spot opportunities may be impacted. As Matt pointed out, though, higher prices here on propane in the U.S. help us in other areas of our integrated platform, so we benefit from that. We have not experienced any cancellations to this point, but again, the fundamentals with inventories here in the U.S., about 20 million barrels behind this time last year, that supports propane prices, which could have an impact on spot opportunities. We're well-contracted, and should we see cancellations, obviously we collect a cancellation fee as a result of that.

Understood. Thank you. Okay. Thanks, Mike.

Our next questioner will come from the line of Jeremy Tonette from J.P. Morgan. You may begin.

Hi. Good morning. Hi. Good morning. I just want to start off on the credit side here, and... We get to similar numbers, you guys being around three and a half times levered at the end of the year, delevering rapidly into next year, $2 billion being of quite notable size and scale. I'm just kind of curious why the agencies, I guess, haven't been moving a bit quicker towards IG here. I mean, it seems like you check all the boxes, those metrics, that leverage is actually better than all the other C-Corp peers. So am I missing something here, or is there something else for the agencies?

I think from their perspective, we're in a consistent dialogue with the agencies and we certainly, I think, share your view, Jeremy. I think part of what they're looking for is just continued sustainable performance and delivering on what we said we were going to do related to our deleveraging, related to our continued discipline around CapEx spending and the like. I believe that we already have incredibly strong metrics and I'm really proud of the organization for getting us in the position that we're in where we could end this year with leverage around three and a half times. I certainly agree with you and I hope that the rating agencies similarly will continue to assess our strong performance thus far this year and really over the last 18 months and will start to take positive credit action. All we can do is continue to stay in front of them, and I think that we have an excellent dialogue with all three agencies and appreciate the amount of time that they've been willing to spend with us over the last 18 months, too. So I do feel like it's just a matter of time.

Got it. Yeah, I just wanted to make sure they knew you at the lowest leverage of all C-Corp peers, because that kind of stood out to us. But maybe moving on here to... Carbon capture, it seems from the maps that we can tell, some of your processing plants in the Permian are kind of a stone's throw away from some CO2 plants. So I'm just kind of wondering, you know, is that something you see in the near future? If there's all this kind of ESG, green PE money out there, is there any reason not to invite them into a JV where they put up the capital, you guys put in the assets and kind of, you know, get something going together there that's positive ESG, doesn't cost a lot for Targa?

Yeah, Jeremy, we are... We're looking at carbon capture of our processing plants and evaluating what that project could look like. As we go through it, I agree with you. I don't know that there's going to be a shortage of capital is going to be the issue, just getting through some of the operational where we're going to sequester it and permitting and some other things that we're working hard on. You know, and you also said in the near term. I think this is also, it is going to take a while, right, for us to figure if we have a viable project here or not. I'd say we're making good progress. You know, as we kind of learn more, I'm becoming increasingly optimistic that there's potential to do something here, but it's still going to take some time.

Got it. So hopefully if the Railroad Commission gets primacy there, that things can kind of move a bit quicker. But great to hear things are going in that direction. So I'll leave it there. Thank you. Okay. Thanks, Jeremy.

Our next question comes from Tristan Richardson from Truist Securities. You may begin.

Hey, good morning, guys. Appreciate all the comments. Just a a follow-up to an earlier question on capital. In 2022, you know, obviously you guys make very clear priorities in 22 around leverage and devco consolidation and cost of capital management. But just thinking, you know, if we've got a very short list of identified projects and really only half of the legacy plans spend in 2022, you know, even on the back of increased completion activity, Should we think capital could come in further next year than even kind of where you've talked about what the guidance is today for 2021?

Tristan, this is Jen. I think ultimately it will depend on activity levels. We're certainly continuing to see good growth around our systems, particularly on both the Midland side and also the Delaware side and the Permian. So we certainly expect continued spending on gathering lines, compressions, plus we'll have the remaining spending of the legacy plant, and then we'll be having to likely think about the right timing for the next plant in the Midland Basin, just depending on how forecasts look. So I think right now we're not in position to give 2022 cap estimates, but I think that my expectation would be that it would be more similar to this year versus we'd see a material drop off year over year.

That's helpful. And then just Secondly, I'm just curious thoughts on sort of hedging philosophy in 2022. I mean, I think this time a year ago, the world was very different and you guys were very intentional on taking out equity links, just taking it out of the question for 2021, but just thinking in a somewhat more normal world, thoughts on equity links, particularly against the past several years of big shift to a much more fee-based model.

Yeah. You know, As far as our hedging goes, I mean, we are going to want to stay, you know, we call it programmatic hedging. You know, our target is 75% year one, 50% year two, and then 25% year three. I see us continuing to execute kind of along that, you know, programmatic amount and be somewhere around those ranges. But you're right, with our leverage lower and with more fee-based, you know, we would have some opportunity, you know, to even go inside of that. But I think right now where we are is kind of sticking with that 75, 50, 25 is – you know, approach that's worked for us and something we're likely to, you know, kind of hover around for a while.

Great. Matt, thank you.

Okay. Thank you.

All right. Next question comes from Spiro Dennis from Credit Suisse. You may begin.

Hey, morning team. Two quick follows from me. First one on capital return and kind of tying it back to Jeremy's question around investment grade. It sounds like you guys are on a path there. It's all about execution. Just curious in your discussions with the agencies. Have they provided any sort of guide rails for you as you sort of formulate that plan to return capital? And then also kind of imagine you've been, you know, getting feedback from investors as you go through this process. So curious what so far has kind of resonated with you as you formulate that plan.

I think clearly our existing investors, potential investors, and then the rating agencies are some of the important constituents where we have to take their points of view into consideration as we work with the boards through this fall, really, to then be in position to articulate what our go-forward strategy on capital allocation will be that, again, as Matt said, we expect to articulate in February's Bureau. So I'd say that it's an evolving dialogue. I'd say that we're getting a lot of advice, and I'd say that that advice is varied, as one would expect, just depending on what type of investor we're talking to, or certainly the rating agencies want to see more credit positive decision making versus the alternative. So those are all very important voices and we are certainly listening to them and providing our board with that feedback and that's an important part of the evolving conversation at TARGA.

Great. Thanks for that, Jen. Second question just on asset sales. Obviously not in a position where you need to do anything, but I know at one point you had contemplated selling some non-core assets last year. It seems like the M&A market has dramatically improved. Valuations seem to be coming back. Assets are changing hands. I'm just curious where that stands and if there's any interest there.

I think you'll continue to see us be opportunistic, spare us the expenses. We think there's an asset or assets that makes sense for somebody else to own if they have a lower cost of capital for other reasons, and that's something that we'll consider. But as you said in your opening part of the question, the great part of this is we've got a lot of flexibility and we don't need to do anything. So that means that the bar and the threshold for us willing to sell assets is higher than it certainly was before when we needed to sell assets in order to be able to finance our growth capital.

That's all I had. Thanks for the time, Tim.

Okay. Thank you.

Our next question comes from Keith Stanley from Wolf Research. You may begin.

Hi, good morning. I wanted to clarify one thing on return of capital for next year. You listed options of buybacks, dividends, and buying in the preferred equity. So I guess how do you compare buying in the PREFs versus the other alternatives? And you talked a little bit about maybe buying it in gradually. Is it fair to say you have a more patient tone on the pace of taking out the PREFs than perhaps in past quarters?

I think from our perspective, the TRC press is a material amount of capital that we need to deploy in order to be able to redeem it. As we look at it, it is higher cost to us at 9.5%, but we also have a lot of flexibility in terms of the amount of time that we have that we want to redeem it. I think you are hearing from us that our base case assumption right now is that there really isn't a driving reason to have to take it out in the first quarter in mid-March when it steps down to 105. We can maintain and even enhance our balance sheet flexibility by being a little bit more deliberate with the TRC press and taking it out more slowly over time. And so that's the base case assumption that we're running, Keith. Of course, that can evolve as we move through this year and into next year as we have more flexibility with increasing free cash flow, but that's the current assumption that we're running.

Got it. Thanks. And second question, you've talked about increased activity in the Permian, and I feel like we've heard some mixed things this earnings season on that. And the one thing I'm wondering, just last year you had associated gas production meaningfully outpace oil. Are you seeing any changes in that dynamic, or do you think gas NGL production growth from here continues to outpace the oil production growth in the Permian?

No, we see it continuing. As you described, it's exactly right. And, you know, obviously the Delaware is a little more oily than the Midland side of the basin, depending upon where our overall volume growth could affect it a little bit, but absolutely more gassy.

Thank you.

Okay, thank you.

Our next question comes from Robert Mosca from Mizzou. You may begin.

Hi, everyone. Thanks for taking my question. One of them was already asked, but just curious, one of your GMP peers in the Bakken seems to be benefiting from rising gas oil ratios and assets there and in the Permian. We're just curious to hear whether longer term you expect to see a similar sort of GOR trajectory in the Permian as that basin matures or whether the Permian is a bit of a different animal in terms of underlying geology. Just curious to hear your thoughts.

Yeah, I mean, I think we are benefiting, you know, similarly to others. You see higher GOR go up. You have seen, you know, that help us out in the Permian, and you've seen our gas performance be even a little bit better than our crude here when you look at this quarter. So, you know, I think the higher GOR is a tailwind for us across multiple systems.

Okay, thanks. That's all from me.

Okay, thank you.

And once again, that's star one for questions. Our next question will come from Aino Sunil Sabal from Stateport Global. You may begin.

Yeah, hi. Good morning, everybody. A couple of questions for me. There has been a fair bit of industry discussion on I can recovery. I was just curious, you know, if you could talk about some trends that you are seeing on your systems and also kind of remind us with regard to your commercial contract with the customer's Is those decisions on ethane recovery made at the target level or is it primarily at the customers? You know, especially considering that it seems like, you know, you do have some FRAC capacity and also ability to expand Grand Prix.

Sure. Yeah. On ethane recovery, I'd say it varies across our systems for, you know, whether producers have elections or we make the election. So it varies by contract, by system. But for the most part, our assets are in recovery and kind of have been in recovery. So that's how most of our assets are operating. You did see if you look, you know, you saw an uptick in South Texas where it was in rejection. Now it's in recovery. So you saw an NGL uplift there. But for the most part, the other systems were really already in recovery.

Okay. Then second question was related to, you know, the margins in the logistics segment. So clearly, you know, there was a bit of a downtick there. I was just curious, you know, on the transportation and services sides, are you seeing any kind of movements in the rates or that part of the business is fairly steady and most of the dynamics or the changes are on the marketing side of things?

Yeah, so most of our volumes that are going downstream business, whether it's transportation or fractionation, are under long-term contracts. So there's not a whole lot of movement in terms of rates there for the volumes that are going through our assets. I think when you look at the unit margin, you look at the reported numbers, what Jen talked about was we had some marketing gains in the first quarter. So we had some outperformance due to the winter storm and some marketing gains, which kind of skewed the unit margins higher. But overall, just run rate business is performing well and are generally under long-term contracts.

Okay, got it. Thank you. Okay, thank you.

Once again, let's start one for questions. One more for questions. And I'm not showing any further questions in the queue at this moment.

Well, thanks to everyone for being on the call this morning, and we appreciate your interest and target resources. The IR team will be available for any follow-up questions you may have. Thank you, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.