Targa Resources, Inc.

Thank you for standing by. My name is Tina and I will be your conference operator today. At this time, I would like to welcome everyone to the Taga Resources Corporation third quarter 2025 earnings webcast and presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star one again. Thank you. It is now my pleasure to turn the call over to Tristan Richardson, Investor Relations and Fundamentals. Please go ahead.

Thanks, Tina. Good morning, and welcome to the third quarter 2025 earnings call for Targa Resources Corp. The third quarter earnings release and a supplement presentation that accompany our call are available on our website at targaresources.com. Additionally, an updated investor presentation has also been posted to our website. Statements made during this call that might include Targa's 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 a 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, Bobby Marrero, Chief Commercial Officer, and Ben Branstetter, Senior Vice President, Downstream. I'll now turn the call over to Matt.

Thanks, Tristan, and good morning. We had another outstanding quarter with record-adjusted EBITDA driven by record volumes across our footprint. With three quarters completed, we now expect our full year 2025 adjusted EBITDA will be around the top end of our previously provided guidance range. Our Permian volumes grew more than 340 million cubic feet per day and nearly 700 million cubic feet per day compared to this time last year. Our Permian growth is driving additional NGO volumes through our integrated system as NGO volumes increased about 180,000 barrels per day compared to this time last year. Incrementally, the customer success we achieved in 2024 has started to show up in our volumes, some this year, but really adding to our longer-term confidence of continued Permian volume growth. Our customer success has continued as our commercial team has added to our leading Permian GMP position with acreage dedications from new and existing customers in and around our footprint, further bolstering our long-term growth outlook. To accommodate this continued volume growth from our customers, in September we announced several new growth projects, including our Speedway NGL transportation expansion, the Yeti gas processing plant in Texas in the Permian, Delaware, and Buffalo Run, an expansion of our Permian natural gas pipeline system. And today we announced our next gas processing plant, Copperhead, in New Mexico in the Permian, Delaware. Our previously announced Forza natural gas pipeline in the Delaware had a successful open season, and we are moving ahead with that project. We continue to expect meaningful long-term growth in Permian gas and NGL volumes across our footprint. Our conviction is supported by multiple factors, including the bottom-up forecast from our existing producer customers, our continued commercial success, and the continued industry trend of rising gas-to-oil ratios. We have a lot of projects in progress, which means growth capital is elevated in 2025 and 2026, and these attractive investments will drive significant increases in adjusted EBITDA. Our chunkier downstream projects are set to come online in 2027. Both the Speedway NGL line and our larger LPG export expansion have sufficient capacity to handle our growing volumes for many years. Once these projects are online, we expect our downstream capital spending will be significantly lower for years to come, driving a substantial increase in free cash flow. And this expected increase in free cash flow will be durable, meaning even if we are in a stronger growth environment, driving elevated spending on the GMP side, our downstream spending should still be modest. So in late 2027, our downstream NGL capital is expected to be significantly lower than today's, and our adjusted EBITDA is expected to be much higher than today's. This results in a strong and growing free cash flow profile for years. This is what our team is working towards every day. Execute our large capital projects in the near term while continuing to invest in high return projects leading to Targa's next transformation. a large investment-grade integrated NGL infrastructure company that provides industry-leading growth and generates significant free cash flow year after year. This is a value proposition we are excited to be a part of. This is our focus, and as we look out over the medium and long term, we expect to be in a unique position to grow adjusted EBITDA, grow common dividends per share, reduce share count, generate significant and growing free cash flow, and do this all with a strong investment-grade balance sheet. Before I turn the call over to Jen to go over our operations in more detail, I would like to thank the Target team for their continued commitment to safety and execution and for consistently delivering reliable, high-quality service to our customers.

Thanks, Matt. Let's talk about our operational results in more detail. Starting in the Permian, our natural gas inlet volumes averaged a record 6.6 billion cubic feet per day in the third quarter, representing an increase of 11% versus a year ago and strong sequential growth. In October, our Permian volumes were impacted by some producer shut-ins from low commodity prices and storms, but these volumes are now largely back online, which we have taken into account in the updated color that we expect to be around the top end of our guidance range for adjusted EBITDA. The second half ramp that we were forecasting at the beginning of the year has materialized, And we see at least 10% growth in our Permian volumes for 2025. And based on the visibility that we have today, we see 2026 as another year of strong, low double-digit growth. In the Permian Midland, our Pembroke II plant came online during the third quarter and is running at high utilization. And in Permian, Delaware, our Bull Moose II plant commenced operations recently in October. We expect our processing infrastructure currently under construction will be much needed at startup and our projects are on track with previously provided timelines. Largely driven by requests from our customers, we are continuing to build out our intra-basin residue capabilities in the Permian, which will help us manage tightness and natural gas egress from the basin until the next wave of takeaway comes online in 2026. The Bull Run extension in the Delaware is expected to begin operations in the first quarter of 2027, and Buffalo Run, our midland residue expansion, is expected to be completed in stages and fully complete in early 2028. Our newly announced FORZA pipeline, a 36-mile interstate natural gas pipeline to serve growing natural gas production in the Delaware Basin in New Mexico, is expected to be in service in mid-2028, subject to receipt of necessary regulatory approvals. As demonstrated over the last number of years, We've taken a deliberate approach to enhance flow assurance and do an excellent job of managing takeaway for our customers, ensuring we have access to a wide portfolio of markets. The Blackcomb and Traverse pipelines, where we have a 17.5% equity interest, are currently under construction, and Blackcomb remains on track for the third quarter of 2026 and Traverse for 2027. Shifting to our logistics and transportation segment, Targa's NGL pipeline transportation volumes averaged a record 1.02 million barrels per day. Our fractionation volumes ramped sharply in the third quarter, averaging a record 1.13 million barrels per day following the completion of planned maintenance at a portion of our fractionation facilities during part of the first and second quarters of the year. Our LPG export loadings averaged 12.5 million barrels per month during the third quarter. Given the anticipated growth in our Permian GMP business and corresponding announced plan additions, the outlook for NGL supply growth in our system remains strong, and we have a number of key projects currently underway. In the Permian, our Delaware Express NGL pipeline expansion remains on track to be complete in the second quarter of 2026. Our next fractionator in Mont Bellevue, Train 11, is expected to be complete in the second quarter of 2026, and Train 12 remains on track for the first quarter of 2027. Our LPG export expansion, which will increase our loading capacity to approximately 19 million barrels per month, remains on track for the third quarter of 2027. Speedway, which will transport NGLs from the Permian to Mont Bellevue with an initial capacity of 500,000 barrels per day, is expected to begin operations in the third quarter of 2027. Our existing NGO transportation system is running full, and with five Permian plants under construction, we will be leveraging third-party transportation ahead of Speedway coming online. This positions us to aggregate significant baseload volumes that we can transition to our NGO transportation system when Speedway begins operations, meaningfully de-risking the project. Our existing contracts with our best-in-class customer base that allowed us to fill Grand Prix in six years will continue to drive the volume growth that will fill Speedway. We are well positioned operationally for the near, medium and long term and believe that our leading customer service driven well head to water strategy puts us in excellent position to continue to execute for our customers and for our shareholders. Our strategy is unchanged as we execute the same core projects with strong returns along our integrated value chain in the same core areas where we have been building Target for years. I will now turn the call over to Will to discuss our third quarter results, outlook, and capital allocation. Will?

Thanks, Jen. Target's reported adjusted EBITDA for the third quarter was $1.275 billion, a 19% increase from a year ago and a 10% increase sequentially. The sequential increase in adjusted EBITDA was attributable primarily to record Permian, NGL transportation, and fractionation volumes generating higher margin across our GNP and L&T segments. Given the strength of our 2025 performance, we now estimate full year 2025 adjusted EBITDA to be around the top end of our $4.65 billion to $4.85 billion range. At the end of the third quarter, We had $2.3 billion of available liquidity, and our pro forma consolidated leverage ratio was approximately 3.6 times, comfortably within our long-term leverage ratio target range of three to four times. As we provided in September, we estimate net growth capital spending for 2025 to be approximately $3.3 billion, and we continue to estimate 2025 net maintenance capital spending of $250 million. We announced today we intend to recommend to Targa's Board of Directors to increase our annual common dividend to $5 per common share. This incremental $1 per share equates to a 25% increase to the 2025 level. If approved, it would be effective for the first quarter of 2026 and payable in May 2026. We remain active in our opportunistic cap share repurchase program as part of our all of the above capital allocation strategy. During the third quarter, we repurchased $156 million in common shares, bringing year-to-date repurchases to $642 million, including purchases made subsequent to the end of the third quarter. We are in excellent financial shape with a strong and flexible balance sheet, and we are well-positioned to continue to create value for our shareholders. And with that, I will turn the call back to Tristan.

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

Thank you. And our first question comes from the line of Jeremy Toney with JP Morgan. Please go ahead.

Hi, good morning. Hey, good morning, Jeremy. Thanks for the updates here. I was just curious with you guys trending towards the top end of the guide here, just wondering how things have unfolded versus original expectations. more wells coming onto the system or is this better productivity per well or what factors would you say are driving this upside versus original expectations?

Good morning, Jeremy. This is Jen. For 2025, when we gave our guidance back in February, our biggest caution was that it was predicated on a big back half volume ramp based on the best available information that we had from our producers at the time. I think those volumes have largely materialized consistent to better than our expectations. than we initially forecasted, and that's what's driving record Permian NGL transportation and fractionation volumes and providing us with meaningful tailwinds. Then we've also seen a fair bit of volatility across the year, which has provided us with some incremental natural gas and NGL marketing opportunities. We don't typically forecast those when we give guidance, so the fact that we're outperforming a little bit relative to the fact that we really didn't have anything material in our guidance is also a little bit of a tailwind this year. But I'd say that producers are largely performing on track to a little bit better than expectations. We have not seen a material change or shift in activity levels on our systems. And I think that's really supporting the strength of performance that we've seen really across this year. But in particular, you saw a big ramp Q3 relative to Q2. You saw a big ramp Q2 relative to Q1. And then as we look forward to 2026, it just really puts us in a good position ending this year as well.

Got it. That's helpful. Thank you for that. And appreciate the commentary with regards to 2026 with a low double-digit growth there. Not to get too far ahead of ourselves here, but some of your key producers have put out kind of long-dated, you know, looks into what the growth would look like in the Permian. And so, just wondering, you know, what sense, you know, that provides for you as far as kind of a more of a medium-term look as far as how you think things could unfold for growth?

Yeah. Hey, Jeremy. This is Matt. You know, I think we have, you know, the best-in-class footprint in the Permian across both the Midland and the Delaware with really active, high-quality producers. And so when we look out, not only in 2026, but in 2027 and beyond, we get, you know, bottoms-up forecasts from our producers. And I think that really underpins the confidence we have about continuing to grow even with, you know, kind of a flat to even modestly declining rig count. You know, our producers are giving us, you know, they're well-scheduled and it gives us a lot of confidence as we, you know, get into 26 and looking at our locations and longer-term growth plans. You know, it really kind of underpins our multi-year outlook.

Got it. That's very helpful. I'll leave it there. Thank you.

Okay. Thanks, Jeremy.

Our next question comes from the line of Spiro down in Swiss City. Please go ahead.

Thanks, Everett. Morning, team. First question, I want to start with operational leverage. And maybe Matt, go back to your comments just around that pre-cash flow inflection that's coming. I guess on my math, I think I've got another one to two more processing plant announcements before you need another frack. Speedway, of course, has plenty of headroom here, we think. But in terms of the rest of the system, any other expansions to kind of have on our radar as you keep adding these processing plants? Or does it feel like we're finally heading to that period where you could benefit from some of the whites based on the system?

Yeah, good, good question. And that is, as we kind of look out over the next couple of years, we do see that we're calling, you know, really a transformation as we get into the back half of 27 once speedway comes on, once our larger scale LPG export comes on, the downstream spending should be relatively modest and really at that point only include rateable fracks and that'll be dependent upon how our GMP is growing between now and 27 and as we're looking out into 28, 29. So as you're thinking about multi-year model, you know, we've announced trains 11 and 12. Those are progressing well. We're evaluating train 13 and when we'll need to announce that and when that one's going to come on. For the downstream spending, I think once Speedway and our export comes on, it's really going to be rateable fracks through our system. And so when you look out in the back half of 27 with significantly higher EBITDA, even if we're in a strong growth environment on the GMP side, just the fact that we have significantly higher EBITDA and lower downstream spending is going to put us in a really good position to have a free cash flow profile for years to come.

Great. That's helpful. Second question, maybe just going to intra-basin residue gas. Seeing you lean into that part of the market a little bit more, so just wondering, can you walk us through maybe what that opportunity set looks like and how big that could be, and if we should expect the same kind of 5x, 6x return profile that we see across the rest of the business?

Spiro, this is Bobby. The way we work on these things is in coordination with the producers on everything, and when you look at what drive that asset, that infrastructure investment for us. It's coordinated with our producers on where we can add reliability, where we can add redundancy to our plants, and then where we can make a really good fee in pushing gas through those pipes. At the end of the day, if that basin is grown and you've seen gas take away be more problematic from an individual pipe that is under, that is getting worked on at some point in time, and it affects a plant, we end up being able to move gas around the basin and put it into other available capacity, which both our producers and the producers we market for, the producers that market their own gas in, the ones we market gas for, look for that optionality in the portfolio. And so ultimately, we've been building these little stubs for a little while. We just announced the kind of complete picture recently. And it's all been underwritten by volumes that are flowing on our system that both we market and our big customers that market their own gas market. And when I think about what the investment multiple is, it's really a high-quality return relative to everything we do. So it smells a lot like all of our other reports that we put out on ROIC. So I think it fits in really well with just deploying capital in spots where we have flowing volumes and customers that want it, and it's similar returns to the rest of our business.

Great call, Bobby. Thanks for that. I'll leave it there. Thanks, everyone.

Our next question is from the line of Teresa Chen with Barclays.

Please go ahead.

Good morning. Thank you for taking my questions. You know, we have experienced this challenging environment for some time at this point, marked by bearish sentiment on liquid prices and broader macro uncertainty. You've delivered strong results and even guided towards the upper end of your annual guidance range, which underscores the solid momentum that you're seeing. But at the same time, your recent project announcements have drawn scrutiny. with some questioning why you didn't leverage or why you didn't choose to lever third-party NGL infrastructure for longer versus investing now to increase capacity across your own system. Could you explain the rationale behind this decision and provide additional context supporting your strategy?

Good morning, Theresa. This is Jen. I think that we really do try to be very much capital efficient across the portfolio. And what we've tried to do is essentially drop breadcrumbs as we've gone through the last couple of years and as we've added processing additions, continued to have commercial success that's been in addition to the foundational millions of acres already dedicated to us that was going to drive a lot of incremental growth on our system. dropped breadcrumbs that Grand Prix was filling quickly, and we were trying very much to be capital efficient around it. We've talked about the fact that we've done third-party offload deals, and that's part of what you'll see in 2026. We'll have some more offload fees than we've had before. But part of what we're doing there is not that dissimilar to what we did with Grand Prix, which was we de-risked the investment by at the time that the project will come online with Speedway. We will have already flowing volumes that we can move onto our pipeline. At the end of the day, we are in the business of providing the best in class operational support for our producer customers. And we think we do that really well from the wellhead all the way to the water. And an important part of that is being able to operate our assets, being able to leverage our integrated footprint, being able to provide our producers with flexibility and fungibility and redundancy. And at the end of the day, be able to completely de-risk our enterprise and best position target to create value for our shareholders. And that's part of what we believe we're doing here. We've got five plants that are in progress. That's going to be a lot of incremental NGLs that we will need to move on our system. And what we will do is we will utilize third party transportation for a period of time that we're comfortable with. And then again, we will base load our next investment with those already flowing volumes. And then we'll have operating leverage to accommodate the growth from there. And we just believe that that combination puts us in the best position again, to both deliver for our customers and also to deliver for our shareholders.

Excellent. Thank you. And a follow-up question on the intra-basin residue strategy. This clearly has become a key area of investment. Where do you anticipate the next bottlenecks to be within the Permian?

This is Bobby. When I think about the bottlenecks in the Permian, it kind of goes to times of interruptions on long-haul pipes but when I think about take away on residue in particular you may be asking about more than residue but it's obviously extremely tight right now with where basis is gone every time there's a bottle and a long-haul pipe but we're excited about the end of 26 with two pipes coming online and material capacity but we've been growing fast and I think those pipes will be not only needed but well utilized when they come online so

Thank you.

Okay, thank you.

Our next question comes from the line of Keith Stanley with Wolf Research. Please go ahead.

Hi, good morning. So you're pointing to around the top end of the guidance range for the year, which at the exact top end would imply EBITDA is down in Q4 versus Q3. Are there any headwinds to be aware of? You cited some of the October shut-ins. How to think about Q4 growth relative to Q3?

Good morning, Keith. This is Jen. I'd say that I think we tend to be a conservative bunch, so I'll start with that. And I'd say that we feel really good about setting another year of record EBITDA in 2025. I think a little bit of the conservatism is born out of the fact that we've got two months to go in the year. We did see some shut-ins from lower commodity prices in October, which we haven't really seen before. There's continued maintenance on a number of natural gas pipes out of the Permian expected for November. And so a little bit it's going to be what are the implications of that. Now what's great is we've got a little bit of a natural offset where to the extent we've got weakness in Waha pricing, we're able to leverage our extensive footprint to benefit on the marketing side. But it's a little bit of just some conservatism as we go through the next couple of months, which may be choppy. I think the key point is we are really well positioned, and it's probably likelier that we're above the top end of the range than below the top end of the range, but with that conservatism, just felt comfortable saying that we thought we'd be around the top end.

Got it. Thanks for that, Collar. Other question just on the FRAC volume. So Q3 was obviously up, I think it was 17% quarter over quarter. Should we think of that as a good run rate from here, or did you have a lot of unfracked inventory from the maintenance work earlier in the year that boosted Q3?

Sure, yeah. This is Ben. You're right. We did have a turnaround in the first and second quarters that really impacted us to essentially a frack down in terms of available frack capacity. And with the fracks fully back online in the third quarter and the turnaround going well, we were essentially full. And I'd just say We're very much looking forward to Train 11 and Train 12 coming online, and those will come on highly utilized.

Thank you. All right. Thank you. Thanks Keith.

Our next question comes from the line of Michael Blum with Wells Fargo. Please go ahead.

Thanks. Good morning everyone. Hey Michael. Can you discuss the decision to increase the dividend 25% next year versus leaning more heavily into buybacks? I imagine you haven't been too thrilled with the recent stock price performance given the strong underlying performance of the business. So just want to get your thoughts how you're weighing between dividends and buybacks.

Yeah. Hey, Michael. You know, we've kind of talked about doing all the above approach. And when we just look out at our forecast over multiple years, we have a lot of room to meaningfully increase the dividend. So it is a little bit more art than science. You know, we talk to our board and say, what is a good balanced approach to increasing the dividend and also being able to have a strong balance sheet to be opportunistic with share repurchases. You've seen us, you know, pretty active so far this year on share repurchases. I think that's going to continue to be You know, the framework going forward is we plan to be opportunistic with our share repurchases. It'll bounce around from quarter to quarter and year to year, but I think that'll be part of our return to capital. So, you know, I really think we can do both. I think the dividend growth that we're providing is still something we can look at over multiple years and continue to grow it even from here. And I think that's just supported by our underlying, you know, fundamentals in our business of growing EBITDA and, you know, free cash flow generation going forward.

Okay, makes sense. Thanks for that. And then I just wanted to ask on LPG exports, would you say volumes for this quarter were basically seasonally in line with your expectations? And can you give us an update on end market demand and specifically where you might be seeing areas of strength or weakness across different regions? Thanks.

Hey Michael, this is Scott. I would say that, you know, typically throughout the year, At times, the second and third quarter volumes dip a little bit relative to what we see in the fourth quarter and the first quarter of each year. Fundamentally, nothing has changed on the export front. We continue to be highly contracted. The demand is growing really across the globe. There is also some seasonality as it relates to the kind of the product mix relative to propane and butane. But we continue to add contracts. We got some We will get some benefit in the fourth quarter with the small ball banking project that is now online that gives us a lot of flexibility and provides some reliability to our export facility. But really when you look at our export project that we've got coming online in the third quarter of 2027, that's related to expected global demand that is going to continue to grow across various regions. We're going to see increased production from our upstream. with the number of plants that we've got coming online, obviously Grand Prix and Speedway Pipeline providing products to our fractionation footprint, which is growing. And then the product itself will just be priced to move across our export dock and provide a lot of operating leverage that we will have going forward. So again, the fundamentals have not changed. The demand is continuing to grow and we'll be a broad participant across various regions across the globe.

Thank you. All right. Thanks, Michael.

And your next question comes from the line of Manav Gupta with UBS. Please go ahead. Good morning.

I wanted to ask you about the Permian sour gas opportunity. You guys were the first mover. You are the biggest processor of Permian sour gas. But, you know, as your returns have been very good, some others are trying to now chase. And I'm just trying to understand the competitive advantage over there and the growth and opportunity that you see in the Dano. That's that region of Eddie and Lee in terms of Permian sour gas. What are you seeing out there? If you could talk a little bit about that.

Yeah, I think, you know, what we said on the last call is that we implemented our sour gas strategy many years ago. We saw the need. We saw the economic benefit of... you know, a few of the benches in the Delaware specifically that had sour gas, mainly H2S and CO2, that, again, were economic benches that weren't getting developed because of the lack of sour gas infrastructure. So, again, a long time ago, we started investing in sour gas treating facilities. We began tying up acreage as sour gas began to get developed. So we were really a front runner in front of a lot of other people and were able to get a lot of acreage tied up. We continue to see the development now of those benches. So our sour gas production continues to grow. Certainly other people have stepped into that realm because they've been, frankly, unable to participate. the growth in those benches without that capability so I'd say we were first mover we're well positioned we've tied up a lot of acreage and we're seeing the benefit of that strategy unfold and continue to unfold over coming years yeah and I just add on to that too I mean we have a system that has fungibility and redundancy really unlike any systems around I mean our Red Hill system is

can handle sour gas. Our bull moose wildcat complex can handle sour gas, and we have a 30-inch wet gas line between those that can move volumes in between, and we have multiple AGI wells at several different facilities across Targa. So we offer a service to our producer customers that's really unmatched.

Thank you so much for that. My quick follow-up is on the Forza project. I think you mentioned you had a successful open season. Our understanding is it's a lower capex project, so the returns would be very attractive. Could you talk a little bit about this particular project? Thank you.

Good morning, Manav. I mean, Forza is a 36-mile pipeline interstate, so it will allow us to move volumes from New Mexico down into Texas to more liquid markets. I'd say that it's a project that we're excited about, really driven by producer interest. It's in addition to the other projects that we have underway that are really just focused on how can we continue to provide the best services to our customers that allows us to aggregate volumes in different places and then move them to the best markets on behalf of our producers. So I think returns, as Bobby articulated earlier around our broad residue strategy, are very much commiserate with how we invest across the rest of our portfolio. But what we like about this strategy is it's largely taking existing volumes plus some of the growth we have from some of our new plants that are in progress and underway, and really leverage all of that additional volume to, again, provide more flexibility to our producer customers. And at the end of the day, it's really that best-in-class service that we think is what differentiates us relative to others.

Thank you so much.

All right, thank you.

Next question comes from the line of AJ O'Donnell with TPH. Please go ahead.

Hey, morning everyone. I wanted to go back to maybe a follow-on to something that Spiro asked earlier in the call, just about lumpier downstream projects and just overall CapEx. You know, looking at the Speedway project, just curious on, you know, given your volumes have been trending, you know, above estimates and continue to perform pretty well, at what point in time do you think you would anticipate needing to you know, expand the pipe to the full million per day design capacity and, you know, if it was sanctioned, is that something that you would pursue the capacity all at once or could it be a phased approach?

Yeah, no, good, good question that that'd be a good capex project for us to underrate for sure a great project because, you know, the Most of the capital goes into getting that initial capacity to move from 500,000 barrels up to a million. It's really just putting on pump stations. And so as we see volume growth, it would be a fraction. of the capital, you know, compared to the initial capacity. So we'd be able to highly economically just layer on some pump stations to go from 500,000 to a million. And I think we'll just do that kind of ratably over time as opposed to announce we're going to go from 500 to a million. It's likely we'll stage them in over time as volumes ramp. Very much like we did with Grand Prix. Yeah, very much like Grand Prix, right.

Okay, I appreciate that. And then maybe if I could just shift to the mid-con. I think we've seen some commentary from producers and one of your peers specifically talk about activity moving to gassier areas of the basin. Just curious what you guys have seen on your system and how, if at all, that's impacted your thoughts on your central region platform.

This is Pat. What I would say is that we have seen some levels of activity that we hadn't seen over the last two to three years. I wouldn't say there's a huge surge in activity. Certainly, some of our key producers are starting to poke around and do a little bit more. Our Coma assets, our South Oak assets is what we call them, we're seeing increased activity and opportunity. Do we see it as a huge growth opportunity in the short term? No. Over time, if gas prices get a little stronger, certainly I think that becomes an opportunity. Obviously we have plant capacity, so our capital investment, our ability to get returns on that is very favorable. So I would say there is an increase in activity. It's not huge. Hopefully it grows over the coming years and we're well situated to take advantage of that.

Okay. Thank you, everyone. All right. Thank you.

Your next question comes from the line of John McKay with Goldman Sachs. Please go ahead.

Hey, all. Thanks for your time. Just one quick one for me, kind of sticking on permanent activity levels and the macro. Earlier this year, we kind of had a couple conversations about how you'd expect the Midland versus the Delaware to ramp. Just curious kind of where that sits now, what you're hearing from your customer sets on either side, and whether or not that view, I guess, before that kind of Midland plans would ramp quickly, Delaware could take some time, whether that's shifted at all. Thanks.

Yeah, I mean, we've seen, as Jen said, we've seen really good growth across our footprint this year, more or less in line with our expectations. And I think even as we look out into 26, it's kind of progressing as we had thought. I think what you're seeing now is a little bit, and you saw it this quarter, a little bit stronger growth rate in the Delaware. So as we're kind of moving out, I think we're going to see good, strong growth in really both sides of the basin, both Midland and the Delaware. But you're seeing a little bit more strength in the Delaware. So, you know, I think both of them are going to be needed at startup. We have had the benefit of just with our expansive system on the Midland side, when you bring up a plant at deep pressures and you end up getting some flush production, that fills it up. I think we're starting to see as we're building out our Delaware, it's starting to look more like that. So I think we're really optimistic on all the plants going in to be highly utilized.

I'll actually ask a second one. As you look across the basin, certain pockets are getting more mature than others. Are you starting to see kind of big swings in GORs kind of from one region to another? And maybe just a broader comment on kind of how you'd expect that to progress from here.

I wouldn't say that we're seeing broad swings or big swings in GORs across the footprint. I mean, a little bit is producer by producer and area by area dependent. But I'd say that what we continue to see is a broad theme of increasing GORs which were certainly a beneficiary. And we're not really seeing any changes to that. If anything, it's just continuing to strengthen.

All right. Thank you very much.

Your next question comes from the line of Jeanann Salisbury with Bank of America. Please go ahead.

Hi. Good morning. Just one for me. You all mentioned on the last call that processing plant costs had risen. I think you gave a new range of 225 to 275 million. I think you said at the time it was partly for more sour gas in the mix as well as tariffs, but I guess my question is if the cost escalation is causing any change to your margin expectations or if you can pass most of that through.

Yeah, so I think that range that we gave is still a pretty good range. I think the sour end, you're probably in the 250, maybe a little bit more for sour plants. And you're probably in the low end of that range if you're putting in a sweet plant, depending on how much treating you want to put in. But it's somewhere around that range. Capital costs aren't a direct pass back to the producers. There are some fuel and operating costs that do get passed back. But the capital costs, those are borne by Targa and it just goes into our overall rates that we're charging and how competitive we are for new volumes in the Permian. So we've still had a lot of commercial success. We're still earning good returns through our integrated system. So I still see us being highly competitive at those capital costs.

Great. I'll leave it there. Thanks.

Thank you.

Our next question comes from the line of Jason Gabelman with TD Cohen. Please go ahead.

Yeah. Hey, morning. Thanks for taking my question. I want to ask about the competitive dynamics in the Permian Basin. You mentioned you secured additional acreage dedications over the past quarter. And I'm wondering, given kind of less producers growing other basins obviously, other oil basins not growing. How's the competitive landscape for going after that Permian acreage? Is it becoming more competitive there and are you seeing some of the fees that you're able to extract shrinking or are you able to leverage some of your competitive advantages to maintain a premium on the fees? Thanks.

Jason, this is Jen. I'd say that it's always competitive. It's always been competitive. It's likely to continue to always be competitive. I think that our business model is to execute the difficult elements of the gathering and processing business and do that really, really well and create a lot of fungibility, redundancy, reliability for our producer customers. And I think that that's part of what separates us. We've talked a little bit about our sour gas strategy and how we've been sort of a big first mover in that over many, many years. So now we've got more than a two and a half BCF a day capacity on the sour side, seven AGI wells, really well positioned to not only service our existing customers, but to the extent that there are any customers that aren't getting the service that they otherwise need, we can sometimes step in and help as well. So I think that from our perspective, it really starts with the assets and the systems that we've built out, and then that wellhead to water value proposition that we're able to provide, I do think we just do it very well. We've been doing this for a long time. We take it very seriously. We invest on behalf of our producers across cycles. We try to make sure that we are exceptional partners to our producers, really work well alongside of them. Again, I think that's part of the flexibility that we offer. And then we've just got some inherent advantages because of the size of our system and the vastness of our system that we're able to step out into areas to the extent it makes sense. more easily sometimes than others or we're able to utilize the fact that we've got more than 40 plants interconnected, many of them interconnected to again help our producers where they may need it. So I really think it's what we already have in place and then just a continued strong commercial effort by what I think is the best commercial team in the business to go and continue to identify ways to both work with our existing customers and do more business with them And then, of course, continue to chase new opportunities, too. And that's part of what you're seeing. We're not resting on our laurels that we already have millions of acres dedicated to the target in the Permian or in other areas. We're continuing to chase new business because we think we can do a really good job of helping our producer customers. And we believe we offer a differentiated service. And so we'll continue to chase that. And again, are having good commercial success that at the end of the day, ends up being additive to that really strong foundation of dedicated contracts that we already have in place.

Great. That's a really helpful color. Thanks for that answer. And then my other question, just kind of following on to what Gina just asked, impact from tariffs and kind of more broadly how you feel about that $1.6 billion cost for the Speedway pipe. Is that kind of fully baked or Do you have perhaps some contingency baked in there? Or is there potential for tariffs to further increase that cost? Thanks.

Jason, this is Jen again. I think we feel really good about it. Our engineering team, our supply team did an exceptional job of procuring pipe long before we made the announcement that we were moving forward fully with the project publicly. And so I think that that means that We are in really good position to deliver hopefully under budget to any of our folks that are listening. But at the end of the day, feel good about the budget that we put out there. We always do have some contingency in all of the projects that we move forward with. And then I think our team does a really good job of trying to ultimately beat that and not use that contingency. So similar to all of our projects, we just have a really strong team that's working day in and day out to try to outperform relative to the expectations that they've provided us with. And we feel really good about the Speedway project.

All right. I'll leave it there. Thanks. Thank you. All right. Thank you.

Our next question comes from the line of Sunil Sebal with Seaport Global Securities. Please go ahead.

Hi. Good morning. So I think last year your team had given a kind of a longer term steady state capex number of 1.7 billion. I was curious, you know, where does that number stand today with the growth in the portfolio that we've seen?

This is Jen. I think the frameworks that we provided back in February 2020-2024 are very much still helpful. And I think that if you tried to mark to market, which of course we haven't done publicly, but if you just looked at some of the pieces, one, we've seen some costs a little bit higher, right? We've just been received a couple of questions around tariffs. And so you've got costs that are a little bit higher. We, of course, have a much bigger footprint today than we did when we published that back in February of 2024. But we're not talking about meaningfully higher. You could call it modestly higher. And then the other additives are when we came out with that framework, we didn't have residue spending and we didn't have CCUS spending included in that. And again, we've got some modest projects underway on both fronts there. So I'd say that it's very much still helpful. I think that particularly when you think about what Matt talked about, which is a much higher EBITDA base now, even if the capital is a little bit higher than what we put out back in February 2024, it just highlights that across environments, we have a very robust, very strong and strengthening free cash flow profile.

Yeah, and just to add on to that too, the framework we put out was multi-year average. So kind of baked into that $1.7 billion capital number was an average spending for downstream. We're going to be above average here kind of through Speedway coming on. And then once Speedway comes on, we'll be less than that average. So it'll be a little bit higher in the short term, and then the medium term will be below. And then it will really just be dependent on the GMP side of things.

Okay, thanks for that. And then seems like there has been some growing interest among the data center community to tap on to the Permian gas. I was curious, is that something that has kind of crossed your interest and if you have any thoughts on that?

This is Jen, Sunil. I just say that we're having a ton of conversations with a lot of people. From our perspective, given our position in the Permian and the amount of natural gas that we aggregate and transport every day, We're well positioned to help supply the increasing demand for natural gas and the tailwinds of incremental demand for power generation for data centers alongside the doubling of LNG capacity in the U.S. Those are all really good for Targa. And we've got a lot of conversations underway about how we can help customers all the way along the value chain.

Got it. Thanks. All right. Thank you.

Our final question comes from the line of Brendan Bingham with Scotiabank. Please go ahead.

Hey, good morning. Thanks for taking the questions here. I just wanted to maybe go to the NGL's outlook. You announced a plant for 2027 today, not long after announcing the prior one. So is it just possible that maybe some of those illustrative plants outlined in the slides starting in 2028 could be pulled forward into earlier years or is maybe there a way to, instead of a one to two a year cadence, that might shift to two to three for a little bit, just trying to figure out some of the potential upside to that, call it medium, longer-term outlook.

Brendan, this is Jen. Ultimately, the medium and longer-term outlook will be supported by activity from our producers, both on all the contracts that we already have in place and then our commercial execution going forward. I think what you saw us talk about last fall was that We were needing to accelerate some plants because of that incremental commercial success that we've had. I think we've heard us talk today about continued commercial success. But ultimately, over the medium to long term, are we continuing to talk about low double-digit growth? Are we talking about high single-digit growth? Ultimately, that's what will drive the gathering and processing spending, both for gathering lines, compression, as well as plants, and dictate the cadence of plant ads that we need to think about going forward.

Okay, that makes sense. And then just maybe shifting over to the free cash flow inflection, call it late 27 into 28. And just how we can maybe think about the payout target of 40 to 50% and how that might shape up through that point. And then if maybe we're, you know, understanding it's a multi-year outlook and it's an average but just if there might be some catch-up that could happen once that free cash flow inflection hits, if the payout ratio might be a little bit below over the next couple of years in light of the anticipated spending profile?

Yeah, you know, as we outlined, that 40% to 50% return of capital through a combination of growing dividend and opportunistic share repurchases, you're right, it's over multiple years. So there could be some years we're on the low end or even lower than it, and some years we're on the high end and above it. I think once we get into that back half of 27 when Speedway and our export project are completed, we're going to be in a really good position to be deciding what to do with all the free cash flow. I think you'll see continued dividend increases. I think you'll see continued opportunistic share repurchases. And we've kind of talked about it years ago. We talked about being at the lower end of our leverage ratio range. I think giving ourselves a little more flexibility and perhaps lowering our leverage ratio a bit is also something You know, our primary focus will be continuing to invest in the business. So organic growth, returning capital to shareholders, and reducing leverage, I think we'll be in good position to do all of those things.

Great. Thank you very much. Okay. Thank you.

And with no further questions in queue, I will now hand the call back to Tristan Richardson for closing remarks.

Great. Thanks to everyone for joining the call this morning, and we appreciate your interest in Target Resources.

Thank you again for joining us today. This does complete today's conference call. You may now disconnect.