Targa's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Targa Resources Partners LP (NGLS)

Q2 2012 Results Earnings Call

August 6, 2012 10:30 AM ET


Joe Brass – Director, Finance

Joe Bob Perkins – Chief Executive Officer

Matt Meloy – Chief Financial Officer and Treasurer


Darren Horowitz – Raymond James

Gabe Moreen – Bank of America-Merrill Lynch

T.J. Schultz – RBC Capital Markets

Ethan Bellamy – Baird



Good day, ladies and gentlemen. And welcome to the Targa Resources Second Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions)

As a reminder, today’s call is being recorded. I’d now like to turn the conference over to your host, Mr. Joe Brass. Sir, you may begin.

Joe Brass

Thank you, Operator. I'd like to welcome everyone to our second quarter 2012 investor call for both Targa Resources Corp. and Targa Resources Partners LP.

Before we get started, I would like to mention that Targa Resources Corp., TRC or the company and Targa Resources Partners LP, Targa Resources Partners or the Partnership, have published their joint earnings release, which is available on our website, www.targaresources.com. We will also be posting an updated investor presentation to the website after the call.

Speaking on the call today will be Joe Bob Perkins, Chief Executive Officer; and Matt Meloy, Chief Financial Officer and Treasurer. Joe Bob and Matt are going to be comparing the second quarter 2012 results to prior period results, as well as providing additional color on our results, business performance and other matters of interest.

I would like to remind you that any statements made during this call that might include the company's or the Partnership's expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor's provision of the Securities Acts of 1933 and 1934.

Please note that 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 the Partnership's annual report on Form 10-K for the year ended December 31, 2011 and quarterly reports on Form 10-Q.

With that, I’ll turn it over to Joe Bob Perkins.

Joe Bob Perkins

Thanks, Joe. Good morning, and thanks to everyone for participating. Beside Matt and myself, the several other members of the management team, that will be available to assist in the Q&A session.

For today’s call, I’ll start-off with a high level review of performance and highlights. We will then turn it over to Matt to review the Partnership’s consolidated financial results, its segment results and other financial matters for the Partnership. Matt will also review key financial matters related to Targa Resources Corp. Following Matt’s comment, I’ll provide a few more remarks and then we’ll take your questions.

We had a pretty good quarter on most operational and commercial dimensions relative to 2011. On the positive side, Field G&P inlet was up almost 9%, led by significant increases at North Texas and SAOU. Fractionation volumes at CBF and LCF were up, and Marketing and Distribution volumes were also up.

These positives were offset by couple of factors, Coastal NGL volumes were up primarily due to planned and unplanned maintenance at VESCO and prices were significantly lower for the second quarter of this year, then for the second quarter last year.

Oil was down about 14% and NGL’s were down about 31%. But Targa benefited from our growth, our fee-based diversification and our hedging program. In that down 14% to 31% pricing environment, EBITDA was only down 5%, coming end at $123 million.

We noted in the June press release that the Partnership is expected to have excess distribution coverage for 2012 and 2013 based on our continued distribution growth rates, and a commodity price environment that was assuming $2.50 gas, $80 crude and $0.75 average NGL pricing, which included a $0.30 ethane and $0.80 propane assumption.

Since June, the NGL price environment has improved with ethane currently at about $0.38 per gallon and propane at approximately $0.88 per gallon. Even without this recent price improvement, management believes the Partnership is well-positioned for continued increases in distributions to our unitholders and that ongoing growth CapEx projects provide significant visibility for this outlook.

Our reported second quarter adjusted EBITDA of $123 million resulted in distributable cash flow of approximately $85 million. Distribution coverage was 1.15 times based on our second quarter declared distribution of $64.25 or $2.57 on an annual basis.

Consistent with our 2012 full year guidance given last fall, the Partnership’s second quarter distribution represents our 13% increase compared to the second quarter of 2011.

Moving to a brief business overview, of the increase volumes and decrease pricing that I just mentioned, our Field, Gathering and Processing segment reported the second quarter 2012 operating margin decrease of approximately 33%, compared to second quarter 2011. The hedges for Field G&P, which we report as other in our segment information reduced this operating margin decrease to about 15% or only $12 million.

Second quarter 2012 Coastal G&P segment operating margin decreased approximately 39% over second quarter 2011, primarily due to lower commodity prices and from lower NGL production due to planned and unplanned maintenance at VESCO. This maintenance has now been completed.

Partially offsetting the decrease was increase volumes of richer wellhead gas processed at LOU resulting from increase onshore Louisiana drilling in the Wilcox. Just as we saw volume improvements in Field G&P, Logistics and Marketing also experienced volume improvements driven by the same industry dynamics.

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