Current Report


  

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):

August 3, 2017

TARGA RESOURCES CORP.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

 

 

Delaware

(State or other jurisdiction

of incorporation or organization)

 

001-34991

(Commission

File Number)

 

20-3701075

(IRS Employer

Identification No.)

 

1000 Louisiana, Suite 4300

Houston, TX 77002

(Address of principal executive office and Zip Code)

 

(713) 584-1000

(Registrants’ telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging Growth Company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

   

 

Item 2.02

 

Results of Operations and Financial Condition.

 

On August 3, 2017, Targa Resources Corp. (the “Company”) issued a press release regarding its financial results for the three months ended June 30, 2017. A conference call to discuss these results is scheduled for 11:00 a.m. Eastern time (10:00 a.m. Central time) on Thursday, August 3, 2017. The conference call will be webcast live and a replay of the webcast will be available through the Investors section of the Company’s web site


( http://www.targaresources.com ). A copy of the earnings press release is furnished as Exhibit 99.1 to this report, which is hereby incorporated by reference into this Item 2.02.

 

The press release and accompanying schedules and/or the conference call discussions include the non-generally accepted accounting principles (“non-GAAP”) financial measures of distributable cash flow, gross margin, operating margin and adjusted EBITDA. The press release provides reconciliations of these non-GAAP financial measures to their most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net cash provided by operating activities, net income (loss) or any other GAAP measure of liquidity or financial performance.

 

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any filing under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.

 

 

Item 9.01

 

Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit

 

 

Number

 

Description

Exhibit 99.1

 

Targa Resources Corp. Press Release dated August 3, 2017.

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Targa Resources Corp.

 

 

Date: August 3, 2017

By:

/s/ Matthew J. Meloy

 

 

Matthew J. Meloy

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

EXHIBIT INDEX

 

Exhibit

 

 

Number

 

Description

Exhibit 99.1

 

Targa Resources Corp. Press Release dated August 3, 2017.

 

 

 

Exhibit 99.1

 

 

 

Targa Resources Corp. Reports

Second Quarter 2017 Financial Results

 

HOUSTON – August 3, 2017 - Targa Resources Corp. (NYSE: TRGP) (“TRC”, the “Company” or “Targa”) today reported second quarter 2017 results.

 

Second Quarter 2017 Financial Results

 

Second quarter 2017 net income attributable to Targa Resources Corp. was $57.6 million compared to a net loss of ($23.2) million for the second quarter of 2016.

 

The Company reported earnings before interest, income taxes, depreciation and amortization, and other non-cash items (“Adjusted EBITDA”) of $257.9 million for the second quarter of 2017 compared to $257.1 million for the second quarter of 2016 (see the section of this release entitled “Targa Resources Corp. - Non-GAAP Financial Measures” for a discussion of Adjusted EBITDA, distributable cash flow, gross margin and operating margin, and reconciliations of such measures to their most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”)).

 

“Our second quarter financial results were in-line with our expectations, and we are confident that our financial performance will meet or exceed our full year 2017 financial expectations,” said Joe Bob Perkins, Chief Executive Officer of the Company.  “A pivotal development during the quarter was our announcement to move forward with a 300 thousand barrel per day common carrier NGL Pipeline from the Permian Basin to Mont Belvieu (“Grand Prix”), which is expected to commence operation in the second quarter of 2019.  Grand Prix will connect our expansive and growing Permian Basin footprint to our downstream assets at Mont Belvieu.  Today, we have approximately 1.7 billion cubic feet per day of processing capacity in the Permian Basin, with another 710 million cubic feet per day under construction that will come online by the third quarter of 2018.  Our strong long-term outlook beyond 2017 is supported by our visibility around activity levels and projects coming online, including our Gathering and Processing projects, the addition of Grand Prix and other opportunities in our Downstream segment.”  

 

On July 19, 2017, TRC declared a quarterly dividend of $0.91 per share of its common stock for the three months ended June 30, 2017, or $3.64 per share on an annualized basis. Total cash dividends of approximately $196.2 million will be paid on August 15, 2017 on all outstanding shares of common stock to holders of record as of the close of business on August 1, 2017. Also on July 19, 2017, TRC declared a quarterly cash dividend of $23.75 per share of its Series A Preferred Stock.  Total cash dividends of approximately $22.9 million will be paid on August 14, 2017 on all outstanding shares of Series A Preferred Stock to holders of record as of the close of business on August 1, 2017.

 

The Company reported distributable cash flow for the second quarter of 2017 of $196.0 million compared to total common dividends to be paid of $196.2 million and total Series A Preferred Stock dividends to be paid of $22.9 million.

 

Second Quarter 2017 - Capitalization, Liquidity and Financing

 

Targa’s total consolidated debt as of June 30, 2017 was $4,437.6 million including $435.0 million outstanding under TRC’s $670.0 million senior secured revolving credit facility due 2020. The consolidated debt included $4,002.6 million of Targa Resource Partners LP (“TRP” or “the Partnership”) debt, net of $25.9 million of debt issuance costs, with no amounts outstanding under TRP’s $1.6 billion senior secured revolving credit facility due 2020, $250.0 million outstanding under TRP’s accounts receivable securitization facility and $3,778.5 million of outstanding TRP senior notes, net of unamortized premiums. In June 2017, the Partnership redeemed its outstanding 6⅜% Senior Notes due August 2022 (“6⅜% Senior Notes”), totaling $278.7 million in aggregate principal amount, at a price of 103.188% plus accrued interest through the redemption date.

 

As of June 30, 2017, TRC had available senior secured revolving credit facility capacity of $235.0 million. TRP had no borrowings outstanding under its $1.6 billion senior secured revolving credit facility and $20.4 million in outstanding letters of credit, resulting in available senior secured revolving credit facility capacity of $1,579.6 million at the Partnership. Total Targa consolidated liquidity as of June 30, 2017, including $98.7 million of cash, was approximately $1.9 billion.  

 

 


Exhibit 99.1

 

On June 1, 2017, TRC completed a public offering of 17,000,000 shares of its common stock at a price to the public of $46.10, providing net proceeds after underwriting discounts, commissions and other expenses of $777.3 million. Targa used the net proceeds from this public offering to fund a portion of the capital expenditures related to the construction of Grand Prix, repay outstanding borrowings under its credit facilities, redeem the Partnership’s 6⅜% Senior Notes, and for general corporate purposes .

 

2017 Forecasted Capital Expenditures Update

 

In May 2017, Targa announced plans to construct a new common carrier NGL pipeline, Grand Prix, which will transport volumes from the Permian Basin, and also from its North Texas system, to its fractionation and storage complex in the NGL market hub at Mont Belvieu. Grand Prix will be supported by Targa plant volumes and other third party customer commitments, and is expected to be in service in the second quarter of 2019. The initial capacity of the pipeline from the Permian Basin will be approximately 300 MBbl/d and will be expandable to 550 MBbl/d with the addition of pump stations. The total net growth capital expenditures for Grand Prix are expected to be approximately $1.3 billion, with approximately $330 million of spending in 2017.

 

Including spending related to Grand Prix and additional growth capital to support increasing activity levels around the Company’s assets, Targa now expects 2017 net growth capital expenditures for announced projects will be approximately $1,375.0 million, an increase from the previously disclosed $1,210.0 million.  Targa continues to expect that 2017 net maintenance capital expenditures will be approximately $110.0 million.

 

Conference Call

 

The Company will host a conference call for the investment community at 11:00 a.m. Eastern time (10:00 a.m. Central time) on August 3, 2017 to discuss second quarter 2017 results. The conference call can be accessed via webcast through the Events and Presentations section of Targa’s website at www.targaresources.com , by going directly to http://ir.targaresources.com/trc/events.cfm or by dialing 877-881-2598.  The conference ID number for the dial-in is 56475709. Please dial in ten minutes prior to the scheduled start time. A replay will be available approximately two hours following the completion of the webcast through the Investors section of the Company’s website. Presentation slides will also be available in the Events and Presentations section of the Company’s website, or directly at http://ir.targaresources.com/trc/events.cfm.

 

 


Exhibit 99.1

 

Targa Resources Corp. – Consolidated Financial Results of Operations

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

2016

 

 

 

2017 vs. 2016

 

 

 

2017

 

 

 

2016

 

 

 

2017 vs. 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions, except operating statistics and price amounts)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

$

 

1,623.8

 

 

$

 

1,312.9

 

 

$

 

310.9

 

 

 

24

%

 

$

 

3,481.7

 

 

$

 

2,484.0

 

 

$

 

997.7

 

 

 

40

%

Fees from midstream services

 

 

243.9

 

 

 

 

270.7

 

 

 

 

(26.8

)

 

 

(10

%)

 

 

 

498.6

 

 

 

 

542.0

 

 

 

 

(43.4

)

 

 

(8

%)

Total revenues

 

 

1,867.7

 

 

 

 

1,583.6

 

 

 

 

284.1

 

 

 

18

%

 

 

 

3,980.3

 

 

 

 

3,026.0

 

 

 

 

954.3

 

 

 

32

%

Product purchases

 

 

1,420.6

 

 

 

 

1,145.2

 

 

 

 

275.4

 

 

 

24

%

 

 

 

3,074.8

 

 

 

 

2,156.2

 

 

 

 

918.6

 

 

 

43

%

Gross margin (1)

 

 

447.1

 

 

 

 

438.4

 

 

 

 

8.7

 

 

 

2

%

 

 

 

905.5

 

 

 

 

869.8

 

 

 

 

35.7

 

 

 

4

%

Operating expenses

 

 

155.2

 

 

 

 

138.9

 

 

 

 

16.3

 

 

 

12

%

 

 

 

307.2

 

 

 

 

271.0

 

 

 

 

36.2

 

 

 

13

%

Operating margin (1)

 

 

291.9

 

 

 

 

299.5

 

 

 

 

(7.6

)

 

 

(3

%)

 

 

 

598.3

 

 

 

 

598.8

 

 

 

 

(0.5

)

 

 

 

Depreciation and amortization expense

 

 

203.4

 

 

 

 

186.1

 

 

 

 

17.3

 

 

 

9

%

 

 

 

394.6

 

 

 

 

379.6

 

 

 

 

15.0

 

 

 

4

%

General and administrative expense

 

 

51.0

 

 

 

 

47.0

 

 

 

 

4.0

 

 

 

9

%

 

 

 

99.6

 

 

 

 

92.2

 

 

 

 

7.4

 

 

 

8

%

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24.0

 

 

 

 

(24.0

)

 

 

(100

%)

Other operating (income) expense

 

 

0.3

 

 

 

 

0.1

 

 

 

 

0.2

 

 

 

200

%

 

 

 

16.5

 

 

 

 

1.1

 

 

 

 

15.4

 

 

NM

 

Income from operations

 

 

37.2

 

 

 

 

66.3

 

 

 

 

(29.1

)

 

 

(44

%)

 

 

 

87.6

 

 

 

 

101.9

 

 

 

 

(14.3

)

 

 

(14

%)

Interest expense, net

 

 

(62.1

)

 

 

 

(71.4

)

 

 

 

9.3

 

 

 

13

%

 

 

 

(125.1

)

 

 

 

(124.3

)

 

 

 

(0.8

)

 

 

1

%

Equity earnings (loss)

 

 

(4.2

)

 

 

 

(4.4

)

 

 

 

0.2

 

 

 

5

%

 

 

 

(16.8

)

 

 

 

(9.2

)

 

 

 

(7.6

)

 

 

83

%

Gain (loss) from financing activities

 

 

(10.7

)

 

 

 

(3.3

)

 

 

 

(7.4

)

 

 

224

%

 

 

 

(16.5

)

 

 

 

21.4

 

 

 

 

(37.9

)

 

 

(177

%)

Other income (expense), net

 

 

4.4

 

 

 

 

(0.1

)

 

 

 

4.5

 

 

NM

 

 

 

 

(4.0

)

 

 

 

(0.2

)

 

 

 

(3.8

)

 

NM

 

Income tax (expense) benefit

 

 

106.0

 

 

 

 

(1.7

)

 

 

 

107.7

 

 

NM

 

 

 

 

34.9

 

 

 

 

(4.8

)

 

 

 

39.7

 

 

NM

 

Net income (loss)

 

 

70.6

 

 

 

 

(14.6

)

 

 

 

85.2

 

 

NM

 

 

 

 

(39.9

)

 

 

 

(15.2

)

 

 

 

(24.7

)

 

 

163

%

Less: Net income attributable to noncontrolling interests

 

 

13.0

 

 

 

 

8.6

 

 

 

 

4.4

 

 

 

51

%

 

 

 

21.8

 

 

 

 

10.7

 

 

 

 

11.1

 

 

 

104

%

Net income (loss) attributable to Targa Resources Corp.

 

 

57.6

 

 

 

 

(23.2

)

 

 

 

80.8

 

 

NM

 

 

 

 

(61.7

)

 

 

 

(25.9

)

 

 

 

(35.8

)

 

 

138

%

Dividends on Series A preferred stock

 

 

22.9

 

 

 

 

22.9

 

 

 

 

 

 

 

 

 

 

 

45.8

 

 

 

 

26.7

 

 

 

 

19.1

 

 

 

72

%

Deemed dividends on Series A preferred stock

 

 

6.3

 

 

 

 

6.5

 

 

 

 

(0.2

)

 

 

(3

%)

 

 

 

12.5

 

 

 

 

6.5

 

 

 

 

6.0

 

 

 

92

%

Net income (loss) attributable to common shareholders

$

 

28.4

 

 

$

 

(52.6

)

 

$

 

81.0

 

 

 

154

%

 

$

 

(120.0

)

 

$

 

(59.1

)

 

$

 

(60.9

)

 

 

103

%

Financial and operating data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (1)

$

 

257.9

 

 

$

 

257.1

 

 

$

 

0.8

 

 

 

 

 

$

 

534.6

 

 

$

 

521.8

 

 

$

 

12.8

 

 

 

2

%

Distributable cash flow (1)

 

 

196.0

 

 

 

 

169.6

 

 

 

 

26.4

 

 

 

16

%

 

 

 

390.2

 

 

 

 

347.6

 

 

 

 

42.6

 

 

 

12

%

Capital expenditures

 

 

434.5

 

 

 

 

114.9

 

 

 

 

319.6

 

 

 

278

%

 

 

 

609.1

 

 

 

 

291.8

 

 

 

 

317.3

 

 

 

109

%

Business acquisition (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

987.1

 

 

 

 

 

 

 

 

987.1

 

 

 

 

Operating statistics: (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil gathered, Badlands, MBbl/d

 

 

112.5

 

 

 

 

105.2

 

 

 

 

7.3

 

 

 

7

%

 

 

 

113.0

 

 

 

 

106.6

 

 

 

 

6.4

 

 

 

6

%

Crude oil gathered, Permian, MBbl/d (4)

 

 

28.6

 

 

 

 

 

 

 

 

28.6

 

 

 

 

 

 

 

18.9

 

 

 

 

 

 

 

 

18.9

 

 

 

 

Plant natural gas inlet, MMcf/d  (5) (6)

 

 

3,391.2

 

 

 

 

3,511.4

 

 

 

 

(120.2

)

 

 

(3

%)

 

 

 

3,304.6

 

 

 

 

3,452.1

 

 

 

 

(147.5

)

 

 

(4

%)

Gross NGL production, MBbl/d

 

 

321.2

 

 

 

 

321.0

 

 

 

 

0.2

 

 

 

 

 

 

 

305.0

 

 

 

 

302.8

 

 

 

 

2.2

 

 

 

1

%

Export volumes, MBbl/d (7)

 

 

155.3

 

 

 

 

181.3

 

 

 

 

(26.0

)

 

 

(14

%)

 

 

 

186.2

 

 

 

 

181.2

 

 

 

 

5.0

 

 

 

3

%

Natural gas sales, BBtu/d  (6) (8)

 

 

1,957.3

 

 

 

 

1,958.4

 

 

 

 

(1.1

)

 

 

 

 

 

 

1,885.7

 

 

 

 

1,966.5

 

 

 

 

(80.8

)

 

 

(4

%)

NGL sales, MBbl/d (8)

 

 

473.9

 

 

 

 

516.8

 

 

 

 

(42.9

)

 

 

(8

%)

 

 

 

503.6

 

 

 

 

532.3

 

 

 

 

(28.7

)

 

 

(5

%)

Condensate sales, MBbl/d

 

 

12.1

 

 

 

 

11.4

 

 

 

 

0.7

 

 

 

6

%

 

 

 

11.5

 

 

 

 

10.4

 

 

 

 

1.1

 

 

 

11

%

 

(1)

Gross margin, operating margin, adjusted EBITDA, and distributable cash flow are non-GAAP financial measures and are discussed under “Targa Resources Corp. – Non-GAAP Financial Measures.”

(2)

Includes the preliminary acquisition date fair value of the potential earn-out payments of $416.3 million due in 2018 and 2019.

(3 )

These volume statistics are presented with the numerator as the total volume sold during the quarter and the denominator as the number of calendar days during the quarter.

(4 )

Includes operations from the Permian Acquisition for the period effective March 1, 2017. For the volume statistics presented, the numerator is the total volume sold during the period of our ownership while the denominator is the number of calendar days during the quarter.

( 5 )

Plant natural gas inlet represents the volume of natural gas passing through the meter located at the inlet of a natural gas processing plant, other than in Badlands, where it represents total wellhead gathered volume.

 


Exhibit 99.1

 

( 6 )

Plant natural gas inlet volumes include producer take-in-kind volumes, while natural gas sales exclude producer take-in-kind volumes.

( 7 )

Export volumes represent the quantity of NGL products delivered to third-party customers at the Company’s Galena Park Marine Terminal that are destined for international markets.

( 8 )

Includes the impact of intersegment eliminations.

NM      Due to a low denominator, the noted percentage change is disproportionately high and as a result, considered not meaningful.

 

Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

The increase in commodity sales was primarily due to higher commodity prices ($386.8 million) and higher petroleum products and condensate volumes ($13.7 million), partially offset by decreased NGL sales volumes ($77.0 million) and the impact of hedge settlements ($12.6 million). Fee-based and other revenues decreased primarily due to lower export fees and volumes, partially offset by higher crude gathering and gas processing fees.

 

The increase in product purchases was primarily due to the impact of higher commodity prices, partially offset by decreased volumes.

 

The higher gross margin in 2017 reflects increased segment margin results for Gathering and Processing, partially offset by decreased Logistics and Marketing segment margins. Operating margin decreased as the increases in operating expenses more than offset the increases in gross margin. Operating expenses increased compared to 2016 due to higher fuel and power and higher maintenance in the Logistics and Marketing segment and the impact of the Permian Acquisition and other plant and system expansions in the Gathering and Processing segment. See “Review of Segment Performance” for additional information regarding changes in operating margin and gross margin on a segment basis.

 

The increase in depreciation and amortization expense reflects the impact of the Permian Acquisition and other growth investments, partially offset by the impact of fully depreciated property assets and lower scheduled amortization on the Badlands intangibles.

 

General and administrative expense increased primarily due to higher compensation and benefits, partially offset by lower professional services.

 

Net interest expense decreased primarily due to the impact of lower average outstanding borrowings during 2017.

 

During 2017, the Company recorded a loss from financing activities of $10.7 million on the redemption of the outstanding 6⅜% Senior Notes, whereas in 2016 the Company recorded a loss of $3.3 million on open market debt repurchases.

 

The income tax benefit for the three months ended June 30, 2017 is the result of the difference between the annual effective tax rate used to calculate income tax (expense) benefit for the three months ended March 31, 2017 and the statutory rate used to calculate income tax (expense) benefit for the six months ended June 30, 2017. For additional discussion of the basis for the calculation of the income tax benefit for the six months ended June 30, 2017, see the income tax explanation under the Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016.

 

Net income attributable to noncontrolling interests was higher in 2017 due to increased earnings at our joint ventures as compared with 2016.

 

Preferred dividends represent both cash dividends related to the March 2016 Series A Preferred Stock offering and non-cash deemed dividends for the accretion of the preferred discount related to a beneficial conversion feature.

 

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

The increase in commodity sales was primarily due to higher commodity prices ($1,148.6 million) and higher petroleum products and condensate volumes ($18.3 million), partially offset by decreased NGL and natural gas sales volumes ($131.1 million) and the impact of hedge settlements ($38.1 million). Fee-based and other revenues decreased primarily due to lower export fees.

 

The increase in product purchases was primarily due to the impact of higher commodity prices, partially offset by decreased volumes.

 

The higher gross margin in 2017 reflects increased segment margin results for Gathering and Processing, partially offset by decreased Logistics and Marketing segment margins. Operating margin was relatively flat as compared to 2016 as the increases in gross margin were offset by the increases in operating expenses. Operating expenses increased compared to 2016 due to higher maintenance, higher fuel and power, and higher labor in the Logistics and Marketing segment and plant and system expansions. See “Review of Segment Performance” for additional information regarding changes in operating margin and gross margin on a segment basis.

 

 


Exhibit 99.1

 

The increase in depreciation and amortization expense reflects four months of operations from the Permian Acquisition in 2017 and the impact of other growth investments, primarily CBF Train 5 which went into service in the second quarter of 2016, partially offset by the impact of fully depreciated property assets and lower scheduled amortization on the Badlands intangibles.

 

General and administrative expense increased primarily due to higher compensation and benefits, partially offset by lower professional services.

 

The Company recognized an impairment of goodwill in the first quarter of 2016 of $24.0 million to finalize the 2015 provisional impairment of goodwill. The impairment charge related to goodwill acquired in the mergers with Atlas Energy L.P. and Atlas Pipeline Partners L.P. in 2015 (collectively, the “Atlas mergers”).

 

Other operating (income) expense in 2017 includes the loss due to the reduction in the carrying value of the Company’s ownership interest in the Venice Gathering System in connection with the April 4, 2017 sale.  

 

Net interest expense in 2017 was flat as compared with 2016. Higher non-cash interest expense related to the mandatorily redeemable preferred interests liability that is revalued quarterly at the estimated redemption value as of the reporting date was offset by lower average outstanding borrowings during 2017.

 

Higher equity losses in 2017 reflects a $12.0 million loss provision due to the impairment of the Company’s investment in the T2 EF Cogen joint venture, partially offset by increased equity earnings at Gulf Coast Fractionators.

 

During 2017, the Company recorded a loss from financing activities of $16.5 million on the redemption of the outstanding 6⅜% Senior Notes and the repayment of the outstanding balance on the Company’s senior secured term loan, whereas in 2016 the Company recorded a gain of $21.4 million on open market debt repurchases.

 

The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to ordinary income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. When calculating the annual estimated effective income tax rate for the six months ended June 30, 2017, the Company was subject to a loss limitation rule because the year-to-date ordinary loss exceeded the full-year expected ordinary loss. The tax benefit for that year-to-date ordinary loss was limited to the amount that would be recognized if the year-to-date ordinary loss were the anticipated ordinary loss for the full year.  This requires the Company to use its statutory rate of 37.3% rather than the annual estimated effective tax rate to calculate the benefit for the period.

 

Net income attributable to noncontrolling interests was higher in 2017 due to the February 2016 TRC/TRP Merger, which eliminated the noncontrolling interest associated with the third-party TRP common unit holders for a portion of the first quarter 2016, and the Company’s October 2016 acquisition of the 37% interest of Versado that they did not already own. Further, earnings at the Company’s joint ventures increased as compared with 2016.

 

Preferred dividends represent both cash dividends related to the March 2016 Series A Preferred Stock offering and non-cash deemed dividends for the accretion of the preferred discount related to a beneficial conversion feature. Preferred dividends increased as the Series A Preferred Stock was outstanding for two full quarters in 2017, as compared to a portion of 2016.

 

Review of Segment Performance

 

The following discussion of segment performance includes inter-segment activities. The Company views segment operating margin as an important performance measure of the core profitability of its operations. This measure is a key component of internal financial reporting and is reviewed for consistency and trend analysis. For a discussion of operating margin, see “Targa Resources Corp. - Non-GAAP Financial Measures - Operating Margin.” Segment operating financial results and operating statistics include the effects of intersegment transactions. These intersegment transactions have been eliminated from the consolidated presentation.

The Company operates in two primary segments: (i) Gathering and Processing; and (ii) Logistics and Marketing.

 

Gathering and Processing Segment

The Gathering and Processing segment includes assets used in the gathering of natural gas produced from oil and gas wells and processing this raw natural gas into merchantable natural gas by extracting NGLs and removing impurities; and assets used for crude oil gathering and terminaling. The Gathering and Processing segment's assets are located in the Permian Basin of West Texas and Southeast New Mexico; the Eagle Ford Shale in South Texas; the Barnett Shale in North Texas; the Anadarko, Ardmore, and Arkoma Basins in Oklahoma and South Central Kansas; the Williston Basin in North Dakota and in the onshore and near offshore regions of the Louisiana Gulf Coast and the Gulf of Mexico.

 


Exhibit 99.1

 

 

The following table provides summary data regarding results of operations of this segment for the periods indicated:

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

2017 vs. 2016

 

 

2017

 

 

2016

 

 

 

2017 vs. 2016

 

Gross margin

$

 

264.2

 

 

$

 

222.4

 

 

$

 

41.8

 

 

 

19

%

 

$

 

527.4

 

 

$

 

416.5

 

 

$

 

110.9

 

 

 

27

%

Operating expenses

 

 

90.7

 

 

 

 

83.3

 

 

 

 

7.4

 

 

 

9

%

 

 

 

176.3

 

 

 

 

161.8

 

 

 

 

14.5

 

 

 

9

%

Operating margin

$

 

173.5

 

 

$

 

139.1

 

 

$

 

34.4

 

 

 

25

%

 

$

 

351.1

 

 

$

 

254.7

 

 

$

 

96.4

 

 

 

38

%

Operating statistics (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plant natural gas inlet, MMcf/d (2),(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SAOU (4)

 

 

311.6

 

 

 

 

259.2

 

 

 

 

52.4

 

 

 

20

%

 

 

 

293.7

 

 

 

 

251.3

 

 

 

 

42.4

 

 

 

17

%

WestTX

 

 

541.6

 

 

 

 

481.4

 

 

 

 

60.2

 

 

 

13

%

 

 

 

526.5

 

 

 

 

464.7

 

 

 

 

61.8

 

 

 

13

%

Total Permian Midland

 

 

853.2

 

 

 

 

740.6

 

 

 

 

112.6

 

 

 

 

 

 

 

 

820.2

 

 

 

 

716.0

 

 

 

 

104.2

 

 

 

 

 

Sand Hills (4)

 

 

181.7

 

 

 

 

135.8

 

 

 

 

45.9

 

 

 

34

%

 

 

 

160.7

 

 

 

 

143.4

 

 

 

 

17.3

 

 

 

12

%

Versado

 

 

196.5

 

 

 

 

168.8

 

 

 

 

27.7

 

 

 

16

%

 

 

 

197.5

 

 

 

 

174.4

 

 

 

 

23.1

 

 

 

13

%

Total Permian Delaware

 

 

378.2

 

 

 

 

304.6

 

 

 

 

73.6

 

 

 

 

 

 

 

 

358.2

 

 

 

 

317.8

 

 

 

 

40.4

 

 

 

 

 

Total Permian

 

 

1,231.4

 

 

 

 

1,045.2

 

 

 

 

186.2

 

 

 

 

 

 

 

 

1,178.4

 

 

 

 

1,033.8

 

 

 

 

144.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX

 

 

222.6

 

 

 

 

265.4

 

 

 

 

(42.8

)

 

 

(16

%)

 

 

 

197.4

 

 

 

 

220.5

 

 

 

 

(23.1

)

 

 

(10

%)

North Texas

 

 

277.1

 

 

 

 

327.5

 

 

 

 

(50.4

)

 

 

(15

%)

 

 

 

279.8

 

 

 

 

327.5

 

 

 

 

(47.7

)

 

 

(15

%)

SouthOK

 

 

479.0

 

 

 

 

470.7

 

 

 

 

8.3

 

 

 

2

%

 

 

 

459.8

 

 

 

 

464.3

 

 

 

 

(4.5

)

 

 

(1

%)

WestOK

 

 

387.4

 

 

 

 

445.6

 

 

 

 

(58.2

)

 

 

(13

%)

 

 

 

390.3

 

 

 

 

466.3

 

 

 

 

(76.0

)

 

 

(16

%)

Total Central

 

 

1,366.1

 

 

 

 

1,509.2

 

 

 

 

(143.1

)

 

 

 

 

 

 

 

1,327.3

 

 

 

 

1,478.6

 

 

 

 

(151.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badlands (5)

 

 

52.2

 

 

 

 

51.2

 

 

 

 

1.0

 

 

 

2

%

 

 

 

49.1

 

 

 

 

52.5

 

 

 

 

(3.4

)

 

 

(6

%)

Total Field

 

 

2,649.7

 

 

 

 

2,605.6

 

 

 

 

44.1