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):

November 2, 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 November 2, 2017, Targa Resources Corp. (the “Company”) issued a press release regarding its financial results for the three months ended September 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, November 2, 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 November 2, 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: November 2, 2017

By:

/s/ Matthew J. Meloy

 

 

Matthew J. Meloy

 

 

Executive Vice President and Chief Financial Officer

 

Exhibit 99.1

 

 

 

Targa Resources Corp. Reports

Third Quarter 2017 Financial Results

 

HOUSTON – November 2, 2017 - Targa Resources Corp. (NYSE: TRGP) (“TRC”, the “Company” or “Targa”) today reported third quarter 2017 results.

 

Third Quarter 2017 Financial Results

 

Third quarter 2017 net loss attributable to Targa Resources Corp. was ($167.6) million compared to a net loss of ($10.7) million for the third quarter of 2016.  The third quarter of 2017 included a pre-tax non-cash loss of $378.0 million from the impairment of property, plant and equipment related to TRC’s North Texas operations and included a pre-tax non-cash gain of $126.8 million from a reduction in fair value of contingent consideration.

 

The Company reported earnings before interest, income taxes, depreciation and amortization, and other non-cash items (“Adjusted EBITDA”) of $276.5 million for the third quarter of 2017 compared to $245.3 million for the third 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”)).

 

“We are pleased with our performance during the third quarter and remain on-track to meet or exceed our full year 2017 operational and financial expectations,” said Joe Bob Perkins, Chief Executive Officer of the Company. “We continue to focus on executing our strategic priorities, and as we look forward to 2018 and beyond, are excited about the strength of Targa’s long-term outlook. Increasing system volumes in our Gathering and Processing and Downstream segments, combined with our attractive growth program underway, provide line of sight into visible and significant growth in Adjusted EBITDA.”

 

On October 18, 2017, TRC declared a quarterly dividend of $0.91 per share of its common stock for the three months ended September 30, 2017, or $3.64 per share on an annualized basis. Total cash dividends of approximately $196.2 million will be paid on November 15, 2017 on all outstanding shares of common stock to holders of record as of the close of business on November 1, 2017. Also on October 18, 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 November 14, 2017 on all outstanding shares of Series A Preferred Stock to holders of record as of the close of business on November 1, 2017.

 

The Company reported distributable cash flow for the third quarter of 2017 of $186.6 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.

 

Third Quarter 2017 - Capitalization, Liquidity and Financing

 

The Company’s total consolidated debt as of September 30, 2017 was $4,897.0 million including $435.0 million outstanding under TRC’s $670.0 million senior secured revolving credit facility due 2020. The consolidated debt included $4,462.0 million of Targa Resource Partners LP (“TRP” or “the Partnership”) debt, net of $24.6 million of debt issuance costs, with $430.0 million outstanding under TRP’s $1.6 billion senior secured revolving credit facility due 2020, $278.1 million outstanding under TRP’s accounts receivable securitization facility and $3,778.5 million of outstanding TRP senior notes, net of unamortized premiums.

 

As of September 30, 2017, TRC had available borrowing capacity under its senior secured revolving credit facility of $235.0 million. TRP had $430.0 million of borrowings outstanding under its $1.6 billion senior secured revolving credit facility and $22.4 million in outstanding letters of credit, resulting in available senior secured revolving credit facility capacity of $1,147.6 million at the Partnership. Total consolidated liquidity of the Company as of September 30, 2017, including $114.1 million of cash, was approximately $1.5 billion.  

 

In October 2017, the Partnership issued $750.0 million aggregate principal amount of 5% Senior Notes due January 2028. The Partnership used the net proceeds of $744.4 million after costs from this offering to redeem its 5% Senior Notes due 2018, reduce borrowings under its credit facilities, and for general partnership purposes.

 


 


Exhibit 99.1

 

2017 Forecasted Capital Expenditures Update

 

Targa expects 2017 net growth capital expenditures for announced projects will be approximately $1,320.0 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 November 2, 2017 to discuss third 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 6883649. 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

September 30,

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

September 30,

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

2016

 

 

 

2017 vs. 2016

 

 

 

2017

 

 

 

2016

 

 

 

2017 vs. 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions, except operating statistics and price amounts)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

$

 

1,871.5

 

 

$

 

1,398.7

 

 

$

 

472.8

 

 

 

34

%

 

$

 

5,353.1

 

 

$

 

3,882.9

 

 

$

 

1,470.2

 

 

 

38

%

Fees from midstream services

 

 

260.3

 

 

 

 

253.6

 

 

 

 

6.7

 

 

 

3

%

 

 

 

759.0

 

 

 

 

795.5

 

 

 

 

(36.5

)

 

 

(5

%)

Total revenues

 

 

2,131.8

 

 

 

 

1,652.3

 

 

 

 

479.5

 

 

 

29

%

 

 

 

6,112.1

 

 

 

 

4,678.4

 

 

 

 

1,433.7

 

 

 

31

%

Product purchases

 

 

1,663.1

 

 

 

 

1,222.7

 

 

 

 

440.4

 

 

 

36

%

 

 

 

4,737.8

 

 

 

 

3,378.9

 

 

 

 

1,358.9

 

 

 

40

%

Gross margin (1)

 

 

468.7

 

 

 

 

429.6

 

 

 

 

39.1

 

 

 

9

%

 

 

 

1,374.3

 

 

 

 

1,299.5

 

 

 

 

74.8

 

 

 

6

%

Operating expenses

 

 

155.5

 

 

 

 

143.0

 

 

 

 

12.5

 

 

 

9

%

 

 

 

462.7

 

 

 

 

414.0

 

 

 

 

48.7

 

 

 

12

%

Operating margin (1)

 

 

313.2

 

 

 

 

286.6

 

 

 

 

26.6

 

 

 

9

%

 

 

 

911.6

 

 

 

 

885.5

 

 

 

 

26.1

 

 

 

3

%

Depreciation and amortization expense

 

 

208.3

 

 

 

 

184.0

 

 

 

 

24.3

 

 

 

13

%

 

 

 

602.8

 

 

 

 

563.6

 

 

 

 

39.2

 

 

 

7

%

General and administrative expense

 

 

49.9

 

 

 

 

46.1

 

 

 

 

3.8

 

 

 

8

%

 

 

 

149.5

 

 

 

 

138.3

 

 

 

 

11.2

 

 

 

8

%

Impairment of property, plant and equipment

 

 

378.0

 

 

 

 

 

 

 

 

378.0

 

 

 

 

 

 

 

378.0

 

 

 

 

 

 

 

 

378.0

 

 

 

 

Impairment of goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24.0

 

 

 

 

(24.0

)

 

 

(100

%)

Other operating (income) expense

 

 

0.6

 

 

 

 

4.9

 

 

 

 

(4.3

)

 

 

(88

%)

 

 

 

17.2

 

 

 

 

6.1

 

 

 

 

11.1

 

 

 

182

%

Income from operations

 

 

(323.6

)

 

 

 

51.6

 

 

 

 

(375.2

)

 

NM

 

 

 

 

(235.9

)

 

 

 

153.5

 

 

 

 

(389.4

)

 

 

(254

%)

Interest expense, net

 

 

(56.1

)

 

 

 

(62.7

)

 

 

 

6.6

 

 

 

11

%

 

 

 

(181.2

)

 

 

 

(187.0

)

 

 

 

5.8

 

 

 

3

%

Equity earnings (loss)

 

 

0.2

 

 

 

 

(2.2

)

 

 

 

2.4

 

 

 

109

%

 

 

 

(16.6

)

 

 

 

(11.4

)

 

 

 

(5.2

)

 

 

46

%

Gain (loss) from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16.5

)

 

 

 

21.4

 

 

 

 

(37.9

)

 

 

(177

%)

Change in contingent considerations

 

 

126.8

 

 

 

 

0.3

 

 

 

 

126.5

 

 

NM

 

 

 

 

125.6

 

 

 

 

0.3

 

 

 

 

125.3

 

 

NM

 

Other income (expense), net

 

 

0.2

 

 

 

 

1.1

 

 

 

 

(0.9

)

 

 

(82

%)

 

 

 

(2.7

)

 

 

 

0.9

 

 

 

 

(3.6

)

 

NM

 

Income tax (expense) benefit

 

 

97.4

 

 

 

 

8.7

 

 

 

 

88.7

 

 

NM

 

 

 

 

132.3

 

 

 

 

3.9

 

 

 

 

128.4

 

 

NM

 

Net income (loss)

 

 

(155.1

)

 

 

 

(3.2

)

 

 

 

(151.9

)

 

NM

 

 

 

 

(195.0

)

 

 

 

(18.4

)

 

 

 

(176.6

)

 

NM

 

Less: Net income attributable to noncontrolling interests

 

 

12.5

 

 

 

 

7.5

 

 

 

 

5.0

 

 

 

67

%

 

 

 

34.3

 

 

 

 

18.2

 

 

 

 

16.1

 

 

 

88

%

Net income (loss) attributable to Targa Resources Corp.

 

 

(167.6

)

 

 

 

(10.7

)

 

 

 

(156.9

)

 

NM

 

 

 

 

(229.3

)

 

 

 

(36.6

)

 

 

 

(192.7

)

 

NM

 

Dividends on Series A Preferred Stock

 

 

22.9

 

 

 

 

22.9

 

 

 

 

 

 

 

 

 

 

 

68.8

 

 

 

 

49.7

 

 

 

 

19.1

 

 

 

38

%

Deemed dividends on Series A Preferred Stock

 

 

6.5

 

 

 

 

5.8

 

 

 

 

0.7

 

 

 

12

%

 

 

 

19.0

 

 

 

 

12.3

 

 

 

 

6.7

 

 

 

54

%

Net income (loss) attributable to common shareholders

$

 

(197.0

)

 

$

 

(39.4

)

 

$

 

(157.6

)

 

NM

 

 

$

 

(317.1

)

 

$

 

(98.6

)

 

$

 

(218.5

)

 

 

222

%

Financial and operating data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (1)

$

 

276.5

 

 

$

 

245.3

 

 

$

 

31.2

 

 

 

13

%

 

$

 

811.1

 

 

$

 

767.1

 

 

$

 

44.0

 

 

 

6

%

Distributable cash flow (1)

 

 

186.6

 

 

 

 

168.3

 

 

 

 

18.3

 

 

 

11

%

 

 

 

576.7

 

 

 

 

516.0

 

 

 

 

60.7

 

 

 

12

%

Capital expenditures

 

 

378.7

 

 

 

 

134.6

 

 

 

 

244.1

 

 

 

181

%

 

 

 

987.7

 

 

 

 

426.5

 

 

 

 

561.2

 

 

 

132

%

Business acquisition (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

987.1

 

 

 

 

 

 

 

 

987.1

 

 

 

 

Operating statistics: (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil gathered, Badlands, MBbl/d

 

 

108.7

 

 

 

 

103.9

 

 

 

 

4.8

 

 

 

5

%

 

 

 

111.6

 

 

 

 

105.7

 

 

 

 

5.9

 

 

 

6

%

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

 

 

35.7

 

 

 

 

 

 

 

 

35.7

 

 

 

 

 

 

 

24.6

 

 

 

 

 

 

 

 

24.6

 

 

 

 

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

 

 

3,621.4

 

 

 

 

3,356.6

 

 

 

 

264.8

 

 

 

8

%

 

 

 

3,418.5

 

 

 

 

3,422.3

 

 

 

 

(3.8

)

 

 

 

Gross NGL production, MBbl/d

 

 

346.2

 

 

 

 

310.4

 

 

 

 

35.8

 

 

 

12

%

 

 

 

318.9

 

 

 

 

305.4

 

 

 

 

13.5

 

 

 

4

%

Export volumes, MBbl/d (7)

 

 

154.5

 

 

 

 

156.7

 

 

 

 

(2.2

)

 

 

(1

%)

 

 

 

175.5

 

 

 

 

173.0

 

 

 

 

2.5

 

 

 

1

%

Natural gas sales, BBtu/d  (6) (8)

 

 

2,054.1

 

 

 

 

1,993.0

 

 

 

 

61.1

 

 

 

3

%

 

 

 

1,942.5

 

 

 

 

1,975.4

 

 

 

 

(32.9

)

 

 

(2

%)

NGL sales, MBbl/d (8)

 

 

497.6

 

 

 

 

497.3

 

 

 

 

0.3

 

 

 

 

 

 

 

501.6

 

 

 

 

520.6

 

 

 

 

(19.0

)

 

 

(4

%)

Condensate sales, MBbl/d

 

 

11.4

 

 

 

 

10.0

 

 

 

 

1.4

 

 

 

14

%

 

 

 

11.5

 

 

 

 

10.3

 

 

 

 

1.2

 

 

 

12

%

 

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

 


Exhibit 99.1

 

(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 the Company’s 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.

(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 September 30, 2017 Compared to Three Months Ended September 30, 2016

 

The increase in commodity sales was primarily due to higher commodity prices ($443.3 million) and increased volumes ($40.0 million), partially offset by the impact of hedge settlements ($10.5 million). Fee-based and other revenues increased primarily due to higher gas processing fees.

 

The increase in product purchases was primarily due to the impact of higher commodity prices and increased volumes.

 

In the third quarter of 2017, the Company experienced limited impacts to its operations as a result of Hurricane Harvey. The Company incurred: (i) flooding at its Mont Belvieu facilities that resulted in temporary constraints on the receipt of NGLs and the temporary removal of fractionators from service at CBF, resulting in increased levels of mixed NGLs in storage and (ii) the shut-in of the Company’s Galena Park Marine Terminal for approximately one week due to the closure of the Houston Ship Channel. The Company’s operating margin for the three months ended September 30, 2017, was reduced by approximately $10 million as a result of Hurricane Harvey, comprised of the impact on the Mont Belvieu and Galena Park Marine Terminal facilities along with lost operating margin associated with temporary production disruptions for a limited number of the Company’s producer and downstream customers.  The Company expects to recover approximately $7 million of the reduced operating margin during the fourth quarter of 2017 when the additional stored volumes of mixed NGLs are fractionated and sold. No property insurance claims are expected as a result of the storm as damage to the Company’s facilities was minimal. Business interruption insurance claims related to the storm are expected to be minimal.

 

The higher operating margin and gross margin in 2017 reflects increased segment margin results for Gathering and Processing, partially offset by decreased Logistics and Marketing segment margins. Operating expenses increased compared to 2016 due to the impact of the Permian Acquisition, plant and system expansions in the Permian region and the June 2017 commencement of operations of the Raptor Plant at SouthTX in the Gathering and Processing segment, and higher labor, repairs and maintenance expense in the Logistics and Marketing segment. See “Review of Segment Performance” for additional information regarding changes in operating margin and gross margin on a segment basis.

 

Depreciation and amortization expense increased primarily due to the impact of the Permian Acquisition and other growth investments.

 

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

 

The impairment of property, plant and equipment in 2017 reflects an impairment as of September 30, 2017 of gas processing facilities and gathering systems associated with the Company’s North Texas operations in the Gathering and Processing segment. The impairment is a result of the Company’s current assessment that forecasted undiscounted future net cash flows from operations, while positive, will not be sufficient to recover the existing total net book value of the underlying assets. Given the current price environment, the Company is projecting a continuing decline in natural gas production across the Barnett Shale in North Texas due in part to producers pursuing more attractive opportunities in other basins.

 

Other operating expense in 2016 included the loss on decommissioning of two storage wells at the Company’s Hattiesburg facility and an acid gas injection well at the Company’s Versado facility.

 

Net interest expense decreased primarily due to the impact of lower average outstanding borrowings and higher capitalized interest during 2017, partially offset by higher non-cash interest expense related to the mandatorily redeemable preferred interests that is revalued quarterly at the estimated redemption value as of the reporting date.

 

During 2017, the Company recorded other income of $126.8 million resulting from the change in the fair value of contingent considerations, substantially all of which was due to the reduction in fair value as of September 30, 2017 of the Permian Acquisition contingent consideration liability, which is based on a multiple of gross margin realized during the first two annual periods after the acquisition date. The decrease in fair value was primarily related to reductions in actual and forecasted volumes and gross margin as a result of changes in producers’ drilling activity in the region since the acquisition date. Such changes in estimated fair value of the

 


Exhibit 99.1

 

contingent consideration are attributable to events and circumstances that occurred after the acquisition date, and as such are recognized in earnings. The fair value of the contingent consideration represents the Company’s current view of the future payment amounts, and may decrease or increase until the settlement dates, resulting in the recognition of additional other income (expense).

 

The income tax benefit increased in 2017 primarily due to an increased loss before income taxes.  

 

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

 

Preferred dividends represent both cash dividends related to the offering of Series A Preferred Stock in March 2016 (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.

 

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

 

The increase in commodity sales was primarily due to higher commodity prices ($1,600.9 million) and increased petroleum products and condensate volumes ($44.0 million), partially offset by decreased NGL and natural gas sales volumes ($126.0 million) and the impact of hedge settlements ($48.7 million). Fee-based and other revenues decreased primarily due to lower export fees, partially offset by increases in gas processing and crude gathering fees.

 

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

 

In the third quarter of 2017, the Company experienced limited impacts to their operations as a result of Hurricane Harvey. The Company’s operating margin for the nine months ended September 30, 2017, was reduced by approximately $10 million as a result of Hurricane Harvey, comprised of the impact on the Mont Belvieu and Galena Park Marine Terminal facilities along with lost operating margin associated with temporary production disruptions for a limited number of the Company’s producer and chemical customers.  The Company expects to recover approximately $7 million of the reduced operating margin during the fourth quarter of 2017 when the additional stored volumes of mixed NGLs are fractionated and sold.

 

The higher operating margin and gross margin in 2017 reflects increased segment margin results for Gathering and Processing, partially offset by decreased Logistics and Marketing segment margins. Operating expenses increased compared to 2016 due to the impact of the Permian Acquisition, plant and system expansions in the Permian region and the June 2017 commencement of operations of the Raptor Plant at SouthTX in the Gathering and Processing segment, and higher fuel and power that is largely passed through in the Logistics and Marketing segment. See “Review of Segment Performance” for additional information regarding changes in operating margin and gross margin on a segment basis.

 

Depreciation and amortization expense increased primarily due to the impact of the March 2017 Permian Acquisition and the impact of other growth investments, including CBF Train 5 that went into service in the second quarter of 2016 and the Raptor Plant at SouthTX that went into service in the second quarter of 2017.

 

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

 

The impairment of property, plant and equipment in 2017 reflects an impairment of gas processing facilities and gathering systems associated with the Company’s North Texas operations in the Gathering and Processing segment (described above).

 

In the first quarter of 2016, the Company recognized a $24.0 million adjustment to a provisional impairment of goodwill recorded in the fourth quarter of 2015 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 expense in 2017 is primarily due to the reduction in the carrying value of the Company’s ownership interest in the Venice Gathering System in connection with the April 2017 sale. Other operating expense in 2016 is primarily due to the loss on decommissioning two storage wells at the Company’s Hattiesburg facility and an acid gas injection well at the Company’s Versado facility.

 

Net interest expense in 2017 decreased as compared with 2016 primarily due to lower average outstanding borrowings during 2017, partially offset by higher non-cash interest expense related to the mandatorily redeemable preferred interests that is revalued quarterly at the estimated redemption value as of the reporting date.

 

 


Exhibit 99.1

 

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.

 

During 2017, the Company recorded other income of $125.6 million resulting from the change in the fair value of contingent considerations, substantially all of which was due to the reduction in fair value as of September 30, 2017 of the Permian Acquisition contingent consideration liability.

 

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 nine months ended September 30, 2017, the Company was subject to a loss limitation rule because the year-to-date ordinary loss is expected to exceed 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 of 2016, and the Company’s October 2016 acquisition of the 37% interest of Versado that the Company 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 three 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.

 

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

 

 


Exhibit 99.1

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

2017 vs. 2016

 

 

2017

 

 

2016

 

 

 

2017 vs. 2016

 

Gross margin

$

 

289.7

 

 

$

 

231.7

 

 

$

 

58.0

 

 

 

25

%

 

$

 

817.1

 

 

$

 

648.0

 

 

$

 

169.1

 

 

 

26

%

Operating expenses

 

 

91.4

 

 

 

 

82.3

 

 

 

 

9.1

 

 

 

11

%

 

 

 

267.8

 

 

 

 

243.9

 

 

 

 

23.9

 

 

 

10

%

Operating margin

$

 

198.3

 

 

$

 

149.4

 

 

$

 

48.9

 

 

 

33

%

 

$

 

549.3

 

 

$

 

404.1

 

 

$

 

145.2

 

 

 

36

%

Operating statistics (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SAOU (4)

 

 

324.6

 

 

 

 

262.5

 

 

 

 

62.1

 

 

 

24

%

 

 

 

304.1

 

 

 

 

255.1

 

 

 

 

49.0

 

 

 

19

%

WestTX

 

 

607.5

 

 

 

 

506.0

 

 

 

 

101.5

 

 

 

20

%

 

 

 

560.8

 

 

 

 

480.8

 

 

 

 

80.0

 

 

 

17

%

Total Permian Midland

 

 

932.1

 

 

 

 

768.5

 

 

 

 

163.6

 

 

 

 

 

 

 

 

864.9

 

 

 

 

735.9

 

 

 

 

129.0

 

 

 

 

 

Sand Hills (4)

 

 

193.0

 

 

 

 

140.9

 

 

 

 

52.1

 

 

 

37

%

 

 

 

171.6

 

 

 

 

142.6

 

 

 

 

29.0

 

 

 

20

%

Versado

 

 

210.9

 

 

 

 

180.6

 

 

 

 

30.3

 

 

 

17

%

 

 

 

202.0

 

 

 

 

176.5

 

 

 

 

25.5

 

 

 

14

%

Total Permian Delaware

 

 

403.9

 

 

 

 

321.5

 

 

 

 

82.4

 

 

 

 

 

 

 

 

373.6

 

 

 

 

319.1

 

 

 

 

54.5

 

 

 

 

 

Total Permian

 

 

1,336.0

 

 

 

 

1,090.0

 

 

 

 

246.0

 

 

 

 

 

 

 

 

1,238.5

 

 

 

 

1,055.0

 

 

 

 

183.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX

 

 

330.1

 

 

 

 

218.0

 

 

 

 

112.1

 

 

 

51

%

 

 

 

242.1

 

 

 

 

219.7

 

 

 

 

22.4

 

 

 

10

%

North Texas

 

 

261.8

 

 

 

 

315.2

 

 

 

 

(53.4

)

 

 

(17

%)

 

 

 

273.7

 

 

 

 

323.4

 

 

 

 

(49.7

)

 

 

(15

%)

SouthOK

 

 

515.2

 

 

 

 

469.8

 

 

 

 

45.4

 

 

 

10

%

 

 

 

478.5

 

 

 

 

466.1

 

 

 

 

12.4

 

 

 

3

%

WestOK

 

 

367.1

 

 

 

 

434.4

 

 

 

 

(67.3

)

 

 

(15

%)

 

 

 

382.5

 

 

 

 

455.6

 

 

 

 

(73.1

)

 

 

(16

%)

Total Central

 

 

1,474.2

 

 

 

 

1,437.4

 

 

 

 

36.8

 

 

 

 

 

 

 

 

1,376.8

 

 

 

 

1,464.8

 

 

 

 

(88.0

)