Targa Resources Corp. Q3 FY2025 earnings call

• Permian Operations: Record natural gas inlet volumes in the third quarter, a 11% increase year-over-year. Pembrook II plant came online and is running at high utilization, and Bull Moose II plant commenced operations. Projects like Bull Run Extension, Buffalo Run expansion, and Forza pipeline are in progress.
• Logistics and Transportation: Strong outlook for NGL supply growth with key projects like Delaware Express NGL Pipeline expansion, Train 11 and 12 completion, and LPG export expansion on track.
• Financials: Record adjusted EBITDA in the third quarter, with full year 2025 adjusted EBITDA expected at the top end of the $4.65 billion to $4.85 billion guidance range. Liquidity stood at $2.3 billion at the end of the third quarter, and pro forma consolidated leverage ratio was ~3.6x.

Permian: Volumes grew over 340 million cubic feet per day more than last year, with NGL volumes up approximately 180,000 barrels per day. Adjusted EBITDA is driven by record volumes across the Permian footprint. Logistics and Transportation: NGL pipeline transportation volumes averaged a record 1.02 million barrels per day, fractionation volumes averaged a record 1.13 million barrels per day, and LPG export loadings averaged 12.5 million barrels per month during the third quarter.

• Full year 2025 adjusted EBITDA is expected to be around the top end of the previously provided guidance range.
• 2025 net growth capital spending is estimated at approximately $3.3 billion, and net maintenance capital spending is estimated at $250 million.
• Intend to recommend increasing the annual common dividend to $5 per common share, effective for the first quarter of 2026.

• Potential impact of commodity price fluctuations and producer shut-ins as seen in October.
• Uncertainties related to regulatory approvals for projects such as the Forza pipeline.
• Volatility in natural gas prices and market conditions affecting volumes and margins.

Q: Was just curious with you guys trending towards the top end of the guide here. Just wondering how things have unfolded versus original expectations. Is this more wells coming on to the system? Or is this better productivity per well? Or what factors would you say are driving this upside versus original expectations?

A: 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. And 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 the producer is 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.

Q: First question, I want to start with operational leverage, and maybe Matt go back to your comments just around that free cash flow inflection that's coming. I guess on my math, I think I've got another 1 to 2 more processing plant announcements before you need another frac. 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 white space on the system?

A: Yes. Good question. And that is, as we kind of look out over the next couple of years, we do see that we're calling 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 ratable fracs and that led to be dependent upon how our G&P is growing between now and '27 and as we're looking out into '28, '29. So as you're thinking about multiyear model, 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 is going to come on. But for the downstream spending, I think on Speedway and our export comes on, it's really going to be ratable fracs 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 rent on the G&P 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.