Targa Resources Partners LP (NGLS)

Q3 2010 Earnings Call Transcript

November 4, 2010 12:00 pm ET

Executives

Anthony Riley – Senior Manager, Finance/IR

Jim Whalen – President, Finance and Administration

Jeff McParland – EVP and CFO

Analysts

Darren Horowitz – Raymond James & Associates

Yves Siegel – Credit Suisse

Presentation

Operator

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Previous Statements by NGLS
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Good day, ladies and gentlemen, and welcome to the Targa Resources Partners third quarter 2010 earnings conference call. (Operator instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Mr. Anthony Riley. Sir, you may begin.

Anthony Riley

Thank you, Operator. I'd like to welcome everyone to Targa Resources Partners LP third quarter 2010 investor call. Before we get started, I would like to mention that the partnership has published an earnings release, which is available on our website at TargaResources.com.

Speaking on the call today will be Jim Whalen, President, Finance and Administration, and Jeff McParland, Executive Vice President and Chief Financial Officer. Jim and Jeff are going to be comparing the third quarter of 2010 results to prior period results as well as providing additional color on our results, current performance, and other matters of interest.

Before we begin I would like to remind you that any statements made during this call that might include the Partnership's expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933-1934. Please note that the actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2009, and our quarterly reports on Form 10-Q for the quarters ended March 31, 2010 and June 30th, 2010.

One quick reminder before starting into the results. With the closing of the acquisition of the Downstream business in 2009 and the three transactions in 2010, and in accordance with the accounting treatments for entities under common control, the results of operations of the Partnership include the historical results of the aforementioned businesses

With that, I will turn it over to Jim Whalen.

Jim Whalen

Thanks, Anthony. Welcome, and thanks to everyone for participating in Targa Resource Partners Third Quarter 2010 Conference Call. I'm filling in for Rene today because he is out of the country at a Board meeting.

Besides Jeff and myself, there are several members of Management who will be available to assist in the Q&A session. By way of agenda, I will start off with a review of our key accomplishments and business highlights, followed by a segment performance overview for the quarter. I will then turn it over to Jeff to review our consolidated financial results and other financial matters. Following Jeff's comments, I will provide updates on some ongoing activities at the Partnership, and finally, we will take your questions.

One housekeeping item before we dive into the results. As you may know, TRII, or Targa Resources Investment, Inc., is in registration with the SEC, and therefore we cannot discuss or make comments with respect to the S-1 filing.

Turning now to the accomplishments and business segment performance, the Partnership had a successful third quarter 2010. We had a very productive quarter with respect to acquisitions at the Partnership. We are pleased to have closed the accretive Versado and VESCO transactions, which add scale and diversity to the Partnership's business mix. With the closing of VESCO, we completely the final drop-down transaction from the parent, our Targa Resources, Inc.

Third quarter inlet volumes for the Permian, SAOU and North Texas systems showed impressive year-over-year gains. The combined plant inlet volume for the two Gathering and Processing segments decreased approximately 3% compared to last year's third quarter, while fractionation volumes in the Logistics Asset segment were essentially flat to last year. In the Marketing and Distribution segment, operating margin was flat compared to last year.

Our solid financial performance results in distributable cash flow of $57.1 million, which corresponds to strong distribution coverage of over 1.2 times for the quarter. We recently announced another increase in our distribution for the third quarter, which will be paid on November 12th. We believe our recent distribution increases are supported by the underlying strength of our businesses.

In fact, as Rene stated in the earnings release, for the fourth quarter distribution, we plan to recommend an increase to the Board of Directors in the annualized cash distribution rate of $0.04 to $2.19 per common unit compared to the current rate of $2.15 per common unit. If approved, this increase represents an almost 6% increase over last year's fourth quarter distribution.

We also had successes in launching two new fee-based organic growth projects in the Downstream business, the previously mentioned benzene treating project for Marathon, and the recently announced expansion of Gulf Coast Fractionators, where we own a 38.8% interest. I'll talk more about those projects, and other recently approved capital expenditures, towards the end of the call.

Turning now to segment performance, in the Gathering and Processing segment, the third quarter 2010 plant natural gas inlet for fuel Gathering and Processing segment was 584 million cubic feet per day, a 1% increase compared to the same period in 2009. All fuel segment inlet volumes are up compared to last year except for Versado.

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