Targa Resources, Inc.

Good day and thank you for standing by. Welcome to the Target Resource Corps First Quarter 2025 earnings conference call. At this time all participants are on a listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during this session you only need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tristan Richardson, Vice President Investor Relations and Fundamentals. Please go ahead.

Thanks Michelle. Good morning and welcome to the first quarter 2025 earnings call for Target Resources Corps. The first quarter earnings release along with the first quarter supplement presentation that accompany our call are available on our website at targetresources.com in the investors section. In addition an updated investor presentation has also been posted to our website. Statements made during this call that might include target's expectations or predictions should be considered forward-looking statements within the meaning of the section 21 of the Securities Exchange Act of 1934. Actual results could differ materially from those projected and 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, Jen Neal, President, and Will Byers, Chief Financial Officer. Additionally, members of Target Senior Management will be available for Q&A including Pat McDonnie, President, Gathering and Processing, Scott Pryor, President, Logistics and Transportation, and Bobby Marrero, Chief Commercial Officer. I'll now turn the call over to Matt.

Thanks Tristan and good morning everyone. We have spent the last many years positioning Target to be successful across changing environments and to be a beneficiary of market volatility and are proud of our execution across the first four months of the year. We reported record quarterly adjusted EBITDA despite our volumes being impacted by several winter weather events and as we look across the balance of 2025 we feel very good about our outlook. We stepped into global market volatility to opportunistically repurchase nearly $215 million worth of common shares so far this year. We have and will continue to manage the evolving global tariff impacts and have done an excellent job of purchasing steel in advance to limit our potential exposure on capital projects underway. Just as Target spent the last many years strengthening our positioning the rest of the energy value chain has done the same meaning the industry we believe is largely well positioned to manage through any environment with much stronger balance sheets and financial flexibility. We have seen the forward crude price curve shift lower and our customers are not indicating material changes to their drilling programs for 2025 and 2026 which means we continue to expect meaningful volume growth going forward. In lower commodity price environments producers typically focus on drilling their highest returning wells which if you take 2020 as an example meant rigs left the Permian Basin last and ultimately helped drive record volumes for Targa as we grew volumes in the Permian despite significant impacts from COVID. Since 2020 we have built an excellent footprint across the Delaware basin to complement our Midland Basin footprint and believe that our best in class producer customers have the most resilient underlying drilling inventory. Our core value proposition of increasing adjusted EBITDA and increasing common dividend per share and declining share count is unchanged. We believe that our integrated asset footprint largest position in the Permian and strong financial position more than 90% fee based investment grade rating and leverage ratio at the midpoint of our long-term Target range will allow us to continue to generate attractive returns and return an increasing amount of capital to our shareholders. Before I turn the call over to Jen to discuss operations in more detail I would like to thank the Target team for their continued focus on safety and execution even while navigating some difficult winter weather in the first quarter while continuing to provide best in class service and reliability to our customers.

Thanks Matt. Good morning everyone. Let's talk about our operational results in more detail. Starting in the Permian our natural gas inlet volumes averaged over 6 billion cubic feet per day during the first quarter an 11% increase from a year ago. Our Permian volumes were down about 1% from last quarter as we were impacted by several winter weather events. As expected Permian volumes have rebounded meaningfully and are trending approximately 200 million cubic feet per day higher than the first quarter. We are also forecasting a lot of well completions for the balance of this quarter and beyond which supports our expectation of significantly higher back half volumes. In Permian Midland our Pembroke 2 plant is now expected to come online in the third quarter of 2025. Our East Pembroke and East Driver plants remain on track to begin operations in the second quarter and third quarter of 2026. In Permian Delaware our Bull Moose 2 and Falcon 2 plants remain on track to begin operations in the first quarter and second quarter of 2026 supporting both continued underlying organic growth and the new commercial opportunities that we executed in 2026. We continue to invest in our Permian Intrabasin and Long-haul Residue Gas Takeaway and FID of the recently announced Traverse Pipeline project will continue to provide flow assurance and access to important markets for our customers. Shifting to our logistics and transportation segment, TARGAs NGL pipeline transportation volumes averaged 844,000 barrels per day and fractionation volumes averaged 980,000 barrels per day during the first quarter impacted by winter weather events that reduced volumes from our GMP assets. We also had a planned turnaround at trains 1 through 3 at our CBF Fractionation Complex in Montbellevue across much of the first quarter and into April. Similar to what we are seeing in GMP, NGL volumes across both transportation and Fractionation have rebounded. Given the anticipated growth in our Permian GMP business and corresponding announced plan additions, our outlook for NGL supply growth remains strong. Our Delaware Express NGL transportation pipeline remains on track for completion in the third quarter of 2026. Our GCF Fractionator was reactivated in the first quarter and our next Fractionators in Montbellevue, trains 11 and 12 remain on track for the third quarter of and the first quarter of 2027. Turning to our LPG export business at Galena Park, our loadings averaged 13.4 million barrels per month during the first quarter. While we had a few days of fog in the first quarter, our docks were effectively full and we are seeing continued strength in part of loading. The demand for LPGs globally remains strong and we are well positioned with long-term contracts in place. American supply is cost-advantaged and we believe that growth in US supply will continue to be important to serve global demand. Our LPG export de-bottleneck expansion is expected to be in service in the fourth quarter and we remain on track with our larger LPG export expansion which will increase our loading capacity to 19 million barrels per month to be online in the third quarter of 2027. To build on Matt's earlier comments on our navigation of an evolving market of global tariffs, we see a low single-digit percentage potential impact to budgeted project costs across our announced projects underway which would fit well within our contingency for our projects. We are also doing a great job of managing our operating costs and procurement of materials that support our -to-day operations. We are well positioned operationally and believe that our well head to water strategy driven by activity in the Permian Basin will continue to put us in excellent position to execute for our shareholders. I will now turn the call over to Will to discuss our first quarter results, outlook and capital allocation. Will?

Thanks Jen. Targa's reported adjusted EBITDA for the first quarter was 1.179 billion dollars, a 22 percent increase from a year ago. The increase was attributable primarily to higher Permian volumes which drove higher volumes and margin across our integrated NGL system into 100 percent ownership of our Badlands assets. Our adjusted EBITDA increased five percent sequentially and was driven by the Badlands transaction and higher marketing margin. As Matt mentioned, we continue to estimate full year 2025 adjusted EBITDA to be in a range of 4.65 billion to 4.85 billion dollars. In February, we successfully completed a two billion offering comprised of 5.55 percent notes due 2035 and 6.125 percent notes due 2055. We used the net proceeds from the debt issuance to fund the repurchase of all of the outstanding preferred equity in Targa Badlands LLC and for general corporate purposes including to repay borrowings under our commercial paper program. At the end of the first quarter, we had 2.7 billion of available liquidity and our pro forma consolidated leverage ratio was approximately 3.6 times, well within our long-term leverage ratio target range of three to four times. We continue to expect net growth capital spending for 2025 in a range of 2.6 to 2.8 billion dollars and continue to estimate 2025 net maintenance capital spending of 250 million dollars. Shifting to capital allocation, our focus is more of the same from Targa. Maintain our strong investment grade balance sheet, continue to invest in high returning integrated projects and return an increasing amount of capital to our shareholders. We continue to deliver on our share repurchase program. We opportunistically repurchase 125 million in common shares at an average price of $191.86 per share during the first quarter and subsequently to quarter end, we repurchase an incremental 89 million at an average price of $167.28 per share. We also declared a 33% increase to our common dividend for the first quarter of 2025 relative to 2024. We are in excellent financial position with a strong and flexible balance sheet and will continue to try to identify the different levers that we can use to best position targets to create value for our shareholders. And with that, I will turn the call back over to Tristan.

Thanks Will. For the Q&A session, we ask that you limit to one question and one follow-up and re-enter the queue if you have additional questions. Michelle?

Thank you and as a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for our first question. Our first question comes from the line of Jeremy Tonette with JPMorgan. Your line is open. Please go ahead.

Hi, good morning. Hey, good morning Jeremy. With oil price volatility, there's a lot of concern the market with regards to producer activity and you touched on this during your call comments, but I was wondering if you could expand a bit more just with regards to how Targa differs from others as far as your customers who you're levered to versus maybe others, your position in the Permian relative to others, maybe just if you could dive in a little bit more and how you see that could differentiate Targa in the current environment.

Sure Jeremy, this is Jen. I think, you know, when we think about 2025, we feel really good about where we are at this point in the year with the one quarter under our belt, where volumes are trending right now in April, the expected activity going forward with additional well completions expected, and really where we expect to then exit 2025. We're of course in the midst of a lot of conversations with our producers as we consistently are, and what we're hearing so far is really that we've got producers with multi-year drilling programs in place and we expect there to be significant resiliency. I think that our differentiating factors are several. We've got the best GMP footprint across the Midland Basin and the Delaware Basin, and that's supported by what we believe to be the best rock across both of those areas, the best producers that are very well capitalized, very strong, excellent balance sheets, and really a view that they are going to drill through cycles with that multi-year drilling program approach in place. And so I think we feel really very differentiated, and that's part of what's driven our outperformance. If you go back and you look at 2020, I think that's really where you saw the differentiation of our Midland Basin footprint, where despite the impacts of COVID, we grew volumes. Since then, we've now acquired what we believe to be the best in class Delaware footprint, so we've really got the basin, I think, covered, and hopefully we'll continue to provide excellent customer service to our producers that will put us in really good stead going forward.

Got it. That's helpful. Thank you for that. And then as it relates to CapEx, I was wondering if you might be able to elaborate a bit more the direction of CapEx 26 relative to 25, and just wondering on the potential interplay with buybacks and just how that all mixes together for

CapEx 26. What's the potential for CapEx 26, and how do we get that to the market? What's the potential for CapEx 26 for CapEx 26, and how do we get that to the market? And then I'll just start with Jeremy. I think that from our perspective, strong and flexible balance sheet is paramount to everything that we do. It allows us to continue to invest in the business, and then it allows us to pull different levers as opportunities present themselves. And you could see from our perspective that first quarter, and in particular April, presented some of those opportunities, given we were blacked out for half of April, shows that we are pretty active there in the first half of the month. I think as we look forward into 2026, we've got a number of growth capital projects underway that we believe will be much needed. Part of our 2026 spending on projects, particularly on the GMP side, is for new processing plants that are supporting not only our organic base, but also the contracts we entered into in the fourth quarter of 2024. And we think that those are going to be well positioned projects that will be well utilized. Ultimately, what will change the cadence of growth capital spend in 2026 and beyond is activity levels. And I think that we've put out a pretty good blueprint, both through our track record in 2020 and 2021, when we rationalized spending quite significantly. And then also with the more illustrative or hypothetical framework that we published last February. And really, it's that activity levels around the needs for gathering and compression that could drive spending lower or higher, depending where activity levels end up. And then, of course, we'll have to think about the cadence of next project as. But with the projects that we're adding across gathering and processing, Delaware Express on the NGO transportation side, our next two fracks, and then our LPG export, the bottlenecking later this year and the next major expansion, we're going to be sitting in a really good spot from an operating leverage position across the footprint as well.

Got it. That's very helpful. I'll leave it there. Thanks. All right. Thanks, Jeremy.

Thank you. One moment for our next question. Our next question comes from the line of Sapiro Donis with Citi. Your line is open. Please go ahead.

Thank you, operator. Morning team. Matt, why don't you go back to your comments about being able to benefit from volatilities? Clearly, sort of proven that in the past. I think last call even noted about $100 million of optimization in the year that you didn't really count on. And so I guess you'd have to argue this year, potentially even more opportunities for that, just given the volatility. So, curious, if you start to see that manifest itself anywhere and if that's something that probably could offset some of the commodity impact?

Yeah, sure. No, good question. We are seeing with our growing footprint on the gas marketing side and the NGL marketing side, just as we're moving more and more volumes through our processing plants and into Bellevue and into different markets, we're just seeing more opportunities to monetize some of our positions. So, last year was a good year for us. I would say this first quarter, it was a good quarter for us. It kind of beat our expectations in terms of our marketing. We benefited more on the gas marketing side but also saw strong NGL marketing as well. But it wasn't to the magnitude I'd say we saw last year necessarily. I think if you kind of look quarter to quarter, we were maybe up around $10 million or so, first quarter to what we kind of pointed to last quarter. So it was some of the sequential beat, just as we see more opportunities, but it was also just good underlying business fundamentals as well.

Got it. Good to hear. Second question, maybe just going to commodity. Maybe just remind us where you are relative to your fee floors and how you're thinking about the hedging strategy from here.

Yeah, I mean, when we provided our guidance, I'd say where we sit now, WAH has been very volatile. It's been bouncing around zero. It's a little higher than that. Now, we are below our fee floors across our GMP footprint. So that's really unchanged from where we were at the beginning of the year. And our hedging strategy has really not changed too much. The length, the remaining length that we do have, we've hedged 90% of it through 2026. So we've really taken a lot of the commodity price delta out of our operating results, which is why you see even with WAH at zero or close to it, we're setting records in terms of EBITDA. You rewind five years ago, that would have had a much more punitive impact on us, even with our hedging program. So we've done a good job from changing our contracts, but also hedging the unprotected fee floor volumes as well.

Great caller. I'll leave it there. Thank you, Dave.

Okay. Thank you.

Thank you. And one moment for our next question. Our next question is going to come from the line of Michael Blum with Wells Fargo. Your line is open. Please go ahead.

Thanks. Good morning, everyone. So it seems like you're not seeing any change in LPG export activity levels, which is pretty consistent with what your peers are saying. But I'm wondering if you're seeing any change in the destination of where those cargos are going versus historical patterns. And do you see any scenario where LPG exports kind of don't move off the docks in the US?

Hey, Michael, this is Scott. I would say fair to say that we have not seen any material change in our activity level at our dock as we've moved through not only through the first quarter, but through the second quarter. As Matt mentioned in our comments, we had a very long delay, so it was not quite as robust as what we saw in the fourth quarter. But again, materially speaking, we are fully contracted not only through the second quarter, but through the balance of this year and beyond. I would say that we are hearing that some of the destinations are changing relative to folks doing cargo switching on the water, if you will. So the international market, the waterborne market is very nimble when it starts looking at vessels that are on the water. Some of those have been moved from China over to Japan or Korea and then backfield from Saudi towns or from other areas. So generally speaking, I would say yes, some of the transits have changed, but the overall demand has not changed into those specific regions, predominantly to the Far East. We are hopeful, much like what we saw with ethane, that ethane was excluded from the tariffs for imports into China. We know that there are a variety of discussions that are going on that perhaps LPG could be excluded. We don't have that today, but again, it is a very fluid marketplace that is trying to evaluate what it needs to do. The market has the supply in the US. It is growing. Demand is growing worldwide, and I think the market is very capable of figuring out how to get product to where it needs to be from a supply demand perspective, and price will adjust, predominantly on the commodity base side of things and not so much on the terminal fee side.

Okay, great. Now that's very helpful. Then just had maybe a different way to ask a question on buybacks. Just as we go into what seems like a more volatile macro backdrop, just wanted to get your take on how you're thinking about buybacks. Would you be more cautious trying to protect the balance sheet, or at this point should we think of buybacks as part of the rateable program of capital return?

Yeah, good question, Michael. I think as we think about buybacks, we've intentionally positioned that as an opportunistic buyback program. As Will pointed out, our balance sheet is 3.6 times that the EBITDA. We're in really good shape, see good EBITDA growth. We're in good financial position to see where we see dislocations or weakness to be able to opportunistically repurchase. That's what you saw us do in April. We moved in in early April when there was a dislocation, and we purchased more. I don't know what that's going to look like as we go forward, but it's really our same posture. I see it continuing to be active, buying back our shares, and just we'll see what happens in the market, see what volatility is there. We think buying back shares will be a portion of the way we return capital to our shareholders. Thank you. Okay, thank you.

Thank you. One moment for our next question. Our next question is going to come from the line of Manav Gupta with UBS. Your line is open. Please go ahead.

Good morning. I just wanted to go back to the decision of moving forward with the traverse pipeline. Help us understand the demand here, and also how do you see this partnership with MPLX and Enbridge evolving over a period of time? Ask that second part of that. This is Bobby. Ask the second part of that question again. How do you see the partnership with MPLX and Enbridge developing over a period of time?

Got it. I'm not going to comment on the partnership coming together and how they're going to work together, but at the end of the day, there's a lot of demand growth, a lot of supply growth going down south Texas, same thing in the KD market. We were excited to see that pipeline go FID. It was in the plan when Black Home was launched, but it was contingent around, obviously, enough demand going into that pipe going south. The commercialization of that pipe has gone really well. We're really excited about it going with Black Home landing down in Agua Dulce and the amount of supply going down there. The LNG demand is coming online over time. We are excited to see those two markets, demand centers and supply centers getting connected with a big-inch pipe. I think it'll be good for Target. It'll be good for the producers. It'll be good for the markets coming down there.

Perfect. My quick follow-up here is with the macro uncertainty, the valuations have come in. If Target sees the right opportunity, would you be open to small-scale bolt-on deals? You have a very attractive line of organic growth projects, but would you be open to small bolt-on deals if they meet your threshold return criteria?

Yeah, sure. On the M&A question, I think our posture really remains unchanged to what it has been. We have a really good footprint and a lot of really attractive organic growth opportunities, which is going to be our primary focus. If there are opportunities to supplement our organic growth with bolt-ons, I think we'll continue to look at that. Just as we have over the last several years, I would say the bar remains high. We have a lot of good opportunities and growth opportunities in front of us, but yeah, we'll continue to look for bolt-ons. If there's something that makes sense, then we'll evaluate those.

Thank you so much.

Okay, thank you.

Thank you. One moment for our next question. Our next question comes from a line of Keith Stanley with Wolf Research. Your line is open. Please go ahead.

Hi, good morning. So last quarter, you said you thought permian volume growth on your system would likely be even stronger in 2026 than 2025. Obviously, the macros changed since then. What I'm curious about is you've pointed to a lot of commercial agreements and new plans starting up with commitments next year. Should we think of that as potentially providing some protection if the macro stays weak and helps to lock in some growth next year if activity slows?

Keith, this is Jen. I think that what you're hearing from us is that so far this year is largely shaping up with expectations and we're excited about the growth that we expect this year. I think when we think about 2026, what we're hearing from our major producer customers so far is that drilling programs are unchanged. Now, clearly, there's going to be a lot of conversations between now and the end of year and into Q1 of 2026 in producer boardrooms, but I think what we're saying is that we're really well positioned because we're going to have a lot of growth this year and that's going to result in us exiting 2025 at hopefully a pretty attractive cadence of growth that will help support into 2026. And then when we're talking about those commercial agreements that we signed in the fourth quarter of 2024, the point we're really trying to make is that those are really additive to the base growth that we were otherwise expecting for 2026 and part of 2025. So I think, yes, those help further support growth that we otherwise wouldn't have had if we hadn't entered into those agreements.

Great. Thanks. And second one, just the Q1 results were, they're pretty solid given the volumes were down and down meaningfully in the case of FRAC, so implies a pretty good pickup in unit margins across the board. Any color you can on that and if you're expecting continued stronger margins throughout the year?

Hey, Keith, this is Will. You know, there were several factors that drove the stronger results, but if you're looking on the GMP side, it was a little bit of contract mix and customer activity, you know, different people were off for different periods of time and we had some higher margin contracts that delivered better margin as primary contributors.

Okay. Thank you. Okay. Thanks, Keith.

Thank you. One moment for our next question. Our next question comes from the line of Teresa Chen with Barclays. Your line is open. Please go ahead.

Morning. There seems to be a bifurcation in the commentary from producers in terms of certain ones being more willing to be responsive to the uncertainty in the macro. Totally hear you, on no material changes thus far. Just curious on your asset, sorry, customer composition at this point, what percent is public versus private, majors or large independence versus smaller players, and then color around there, please.

Morning, Teresa. I don't think we're going to get into the sort of nitty-gritty specifics of how we want to break down our producer customers, but I will say that certainly from our perspective, we're working with the biggest, the best, most highly capitalized or most well-capitalized producers across the Permian, and that's part of what gives us a lot of confidence as we look forward as they continue to execute on their multi-year drilling programs. I think that is something that as a result of consolidation across the Permian over the last many years, you've really seen the majors become more meaningful players across the basin, and that's where we've got a lot of exposure along with the large independence. And so that's part of what's giving us, I think, at least a lot of comfort right now that when we think about the next several years, we're sitting in a really good spot, but it really starts with the rock that our producers are sitting on and the inventory that our producers have, and ultimately that's what we think is going to put all of us in a good position going forward. But certainly for us, we believe that we are working with high-class producers, really strong positions that they are sitting on across the basin, both Midland side and Delaware side, and I think that's part of what differentiates Targa relative to some others.

Fair enough, and on the LPG export side of things, if there's not a carve-out for LPGs amid the ongoing trade war, can you talk about how this impacts the competitive landscape as some of your competitors have been very open about their brownfield and semi-greenfield economics, and especially in light of new entrants into this part of the Valley Chain towards the end of the decade?

Hey, Theresa, this is Scott. Yeah, as we talked about on our last earnings call, we talked about our brownfield project and how it will be very competitive in terms of the additions that it provides to our overall export capabilities as that comes online in the third quarter of 2027. When we look at the competitive landscape out there, really for us, it starts back to the wellhead. The wellhead obviously provides us a lot of opportunity for us to add gas processing plants, which as we walk through the lineup that we've got relative to the timing of plants that are coming online, the addition of our Fractrain 11 and 12 in 2026 and 2027 respectively, all of that provides additional volume for us. For us, it's really homegrown NGLs that are coming from the Permian Basin predominantly that are feeding into our pipelines, that are feeding into our Fractionation Facility and then ultimately down to our docks at the facility. Yes, there's more expansions that are coming online, but again, we view it from the perspective of this is volumes that are coming off of our platform and we want to keep them on the platform to feed across our export dock.

Thank you. Okay, thank you.

Thank you. One moment as we move on to our next question. Our next question is going to come from the line of John McKay with Goldman Sachs. Your line is open. Please go ahead.

Hey, Jamie, thanks for the time. I wanted to go back on a couple things. Just first, appreciate the comments on kind of outer year capex flexibility, but if we go back to the numbers you framed up a year and a bit ago about being able to go down to 300 million of capex in a kind of flatter Permian environment, I guess given the bigger downstream projects you're working on right now, like effectively, when would you be able to get to kind of down to 300, let's say if the macro does start to soften? Is that on the table for 26? Is that 28? Just frame up that kind of downside protection for us, please.

Yeah, sure. No, that's a, you know, as you think about our capex, it's really finishing up those larger downstream projects, which we see completing. And so it's Fractionation, you know, trains 11 and 12 and our export. And so those will be largely complete into 26 in the early part of 27. So if we are in an environment where, again, that, you know, if natural gas volumes are flat, it means crude oil declining. And it was in that kind of environment, we said we think to stay flat, it would be roughly about 300 million or so of capital to keep flat. So it's really after our downstream projects, our major projects are online that we would then, if we're in that environment, step down to that level.

All right, got it. Thank you. And then maybe just circling back, I think, was a question Keith was asking, they'll just ask in a different way. For the next set of plants coming online, you've seen them come online, you know, pretty full in the past. I guess, is there anything you can frame up for us on how to think about these ramping as they come online? And then particularly, again, if we're in a softer macro environment, slower production growth environment, what that ramp could look like? Do you get some help from, I don't know, volumes currently being offloaded to a third party, anything like that you can frame up?

Sure, I'll start and I've got, you know, Pat and Jen can jump in here. But, you know, what we've seen, I'll talk about Midland and then Delaware. On the Midland side, whenever we've brought on plants, they've been pretty full pretty quickly. That system really communicates well and we're able to depressure the system, bring on, when we bring on additional capacity and it fills up relatively quickly. And I think that will be our expectation for our next plants across the Midland. You know, Delaware, we're working on enhancing the communication between all of our different facilities. We're laying additional lines and we're improving that. That one's probably a little bit more discreet and it will depend a bit more just on the overall production growth we have between now and kind of through 26 when those plants come on. So, we still see those as highly utilized, much needed, but perhaps a little bit more, we call it kind of white space on the Delaware side of things compared to the Midland. And it, of course, will depend on what our producers say they want to do and into 26 drilling plants and into 27. All right, that's clear. Appreciate it. Thank you.

Thank you.

Thank you. One moment for our next question. Our next question is going to come from a line of AJ O'Donnell with TPH. Your line is open. Please go ahead.

Morning, everyone. Just wondering if I could start with the Pembroke 2 getting pulled forward. Just wondering if that is at all like kind of somewhat changed your outlook on volume expectations for the year and if it has, was that pull forward more customer driven or would you say it was more on your end with construction just finishing ahead of schedule?

Good morning, AJ. This is Jen. I'd say it's more the latter. I'd say that our engineers do a really good job of forecasting when they expect projects to be online, but we also have a pretty good track record of being able to move projects forward a month or even a quarter as we get closer to nearing that date when they're expected online. This was just frankly, we've been able to get it done a little bit more quickly than we previously forecasted.

Okay. Then maybe just one more question on the macro. I'm trying to figure out how you guys would anticipate Permian production trending, say fundamentals deteriorate a little bit more and we have 50 to 55 WTI for a sustained period of time or maybe ask differently in a flat oil environment, what do you think Permian gas production would do on an annual basis?

Yeah, this is Pat. With increasing GORs, I've seen different numbers and our peers have stated different numbers, but I think there's 2 to 3% growth in gas over a flat crude oil environment. It's probably a pretty good baseline and certainly I've heard higher numbers. If you're flat on crude oil with current gas volumes, is that somewhere between 800 million a day to 1.2 BCF a day growth in gas? That's kind of the range that I think you land in. Obviously, as Jen alluded to earlier, we feel like a lot of what's getting drilled is going to get drilled on target acreage. We feel like that we're going to capture a larger percentage of whatever does get drilled and be in a good position for continued growth.

Great. Appreciate the detail. Thank you.

Okay, thank you.

Thank you. In one moment for our next question. Our next question comes from the line of Sunu Sibyl with Seaport Global. Your line is open. Please go ahead.

Yes, hi. Good morning, everybody. Thanks for the color on the call. I just wanted to start off on the hedging position. I think you said you're hedged through 26. Have you layered on additional hedges in the recent few months?

Sunil, this is Jen. I'd say that we're always continuing to add hedges. I think that we took a point of view previously when we stepped it up to be more than 90% hedge or at least 90% hedge through 2026 that was partially driven by a view of natural gas prices that we had. We've been continuing to add hedges since then, and we'll continue to add hedges going forward. I'd say that we are very disciplined around our hedging program and are more apt to add hedges than think about reducing our hedge exposure. Then of course, we have a lot of protections in place from our fee floors as well. When we talk about our hedging program, we're generally not talking about a whole lot of margin that has exposure there, but hedges do allow us to even protect that piece of margin that does have that exposure.

Okay. Then going back to the volume question a little bit, I hear that your producers have not changed their production plans. What is your sense in terms of talking to them at what kind of crude oil prices do you think there will be a response from their side in terms of change of drilling plans?

I think that every producer is different, Sunil, and ultimately that's part of what are going to be a whole lot of board discussions for each and every producer. I think that so far we've frankly seen a mixed bag. We saw one smaller producer that added a rig, and we've seen one smaller producer that pushed some completions. In terms of the larger producers that would really be the needle movers on target systems, we're just hearing that they've got multi-year drilling programs underway, and there's no changes at this point in time. I think each and every producer will evaluate their individual situation, their individual acreage, their individual contracts for services and other items that really impact their economics as well, and then make the best decisions for them. We're well positioned with assets that we have in place to service all our producer customers, and we believe that our assets will be well utilized, and so think that we're sitting in a really good spot. But ultimately I think a lot is going to continue to shake out. I think that's what it feels like every day we've got a little bit of a changing environment here. So who's to say where we'll end up when we finish this year, but I think that we've got really strong producers that are moving volumes onto our system. They're in an excellent position from a balance sheet perspective, and that's part of what gives us a lot of confidence going forward in some level of continued activity.

Okay, thanks for that.

Thank you. Thank you, and I would now hand the conference back over to Tristan Richardson for further remarks.

Thanks, Michelle, and thanks to everyone for joining the call this morning, and we appreciate your interest and target resources.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.