Targa Resources Corp. (TRGP) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Targa Resources Corp. Second Quarter 2026 Earnings Webcast and Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tristan Richardson, Vice President, Investor Relations and fundamentals. Please go ahead.

Thanks, operator. Good morning, and welcome to the Second Quarter 2026 Earnings Call for Targa Resources Corp. The second quarter earnings release, a supplement presentation and our latest investor presentation are available in the Investors section of our website at targaresources.com. Statements made during this call that may include Targa's expectations or predictions should be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our latest SEC filings. Our speakers for the call today will be Matt Meloy, Chief Executive Officer; Jen Kneale, President; and Will Byers, Chief Financial Officer. Additionally, members of Targa's senior management will be available for Q&A, including Pat McDonie, President, Gathering and Processing; Ben Branstetter, President, Logistics and Transportation; and Bobby Muraro, Chief Commercial Officer. I will now turn the call over to Matt.

Thanks, Tristan, and good morning. We had another great quarter where we reported numerous financial and operational records. Adjusted EBITDA increased 38% year-over-year. We reported record volumes again in the Permian, up more than 900 million cubic feet per day from a year ago, and up 450 million cubic feet per day compared to Q1. That's almost 2 plants worth of gas in 1 quarter. . This strong Permian growth drove record volumes across our downstream systems, including NGL transportation, fractionation and LPG export. Our customers remain active in the commercial service offering we've built the past many years continues to gain traction with our customers. We continue to benefit from the activity of our producer customers with millions of acres dedicated across the Permian, and that number continues to grow. With the largest G&P footprint in the Permian, we believe we are positioned very well for continued growth over the long term. And given the strength we have seen so far this year, we now expect to be towards the top end of our previously provided adjusted EBITDA guidance range, suggesting that our 2026 adjusted EBITDA growth over 2025 may be close to $1 billion, all while reducing our share count and increasing our dividend. This strong performance underscores the value of the organic growth projects we continue to invest in and positions Targa for success across a range of market conditions. In the first half of 2026 against the backdrop of weather-related challenges in the first quarter, natural gas takeaway constraints Negative Permian gas pricing and broader market volatility, we were still able to deliver record results. And beyond 2026, we believe we are in an excellent position with our multiple projects underway expected to provide our producer customers with a critical infrastructure needed to grow production. In a global environment is recognizing the value and importance of U.S. energy now more than ever. We expect to benefit from critical long lead demand catalyst, including expanding LNG export capacity, growing power generation needs, increasing global demand for hydrocarbons and increasing recognition of the strategic role U.S. energy plays in supporting economic growth in energy security worldwide. Against this backdrop, we believe Targa is uniquely positioned to benefit from sustained producer activity and increasing demand for the critical infrastructure services we provide. Our focus at Targa remains unchanged. To deliver the very best operating performance for our customers to utilize that track record to continue to add contracts with existing and new customers and to deliver on our major projects currently underway. We believe our premier Permian asset footprint, integrated wellhead to water system and strong financial position provide a durable competitive advantage. These strengths allow us to continue investing in high-return, integrated growth opportunities that maximize the value of our existing network while supporting our customers' development plans. Before I turn the call over to Jen to discuss operations in more detail, I would like to thank the Targa team for their continued focus on safety and execution while continuing to provide best-in-class service and reliability to our customers.

Thanks, Matt. Good morning, everyone. Second quarter Permian volumes were a record 7.2 billion cubic feet per day, up approximately 7% from the first quarter and 14% from a year ago. We mentioned in early May that we had about 200 million to 400 million cubic feet per day of gas shut-in behind our Permian systems on any given day with weak Waha prices. So our volume growth of 450 million cubic feet a day quarter-over-quarter despite a second quarter with shut-ins demonstrates the robust activity that we are seeing on our assets. With Hubrinsin Phase 1 and the GCX expansion now online, we have seen most of the price-driven producer shut-ins return to our system in July and we continue to see a lot of activity behind our systems, positioning us really well for strong growth in Permian volumes across 2026 that are tracking higher than what we were expecting in February. This will position us well with continued momentum heading into 2027. The constrained gas egress environment across the past several quarters has created increased marketing opportunities for Targa with our marketing businesses outperforming our expectations by approximately $250 million in the first half of the year, much of which occurred in the second quarter. Waha gas prices have improved, narrowing basis spreads and curtailed volumes are returning to our system, highlighting some of the built-in offsets in our business. In addition to the strong growth we are seeing from our customers, 2026 is a year of significant execution for Targa as we continue to progress the major projects along our integrated system. In the Permian Delaware, our 5 gas processing plants Copper head 1 and 2, YETI 1 and 2 and Roadrunner are on track to begin operations as previously announced. In the Permian Midland, our East driver plant began service late in the second quarter, ahead of schedule. We continue to see growth behind our Midland system and are currently evaluating the timing of our next Midland processing plant. We also continue to execute on our residue natural gas strategy, adding intra-basin connectivity across our Permian footprint with our key natural gas projects on track, which will enhance our producer customers access to multiple premium markets. Blackcomb and Traverse to natural gas pipelines in which we have an equity interest remain on track for the fourth quarter of 2026 and mid-2027, contributing to continued improving natural gas egress in the Permian for the near to medium term. Shifting to logistics and transportation, the growth we are experiencing in the Permian is flowing through our integrated footprint, contributing to record NGL transportation volumes of 1.1 million barrels per day and record fractionation volumes of 1.2 million barrels per day. With conflict in the Middle East increasing global demand for U.S. hydrocarbons, our LPG export loadings averaged a record 14.8 million barrels per month during the second quarter. The Target team was able to respond quickly and serve our customers and our commercial teams have been active adding to our long-term contract portfolio. With our strong outlook for continued growth on our Permian G&P footprint, which we expect will create meaningful incremental supply of NGLs, we have several key downstream projects underway. Our train 11 and fractionator came online early in the second quarter and was quickly highly utilized, and our train 12 and train 13 fractionators remain on track. Cargo's Delaware Express pipeline and expansion of our NGL pipeline transportation system within the Permian came online during the second quarter and will give us much needed capacity for the growing supply of NGLs we are seeing across the Delaware Basin. Speedway, the large expansion of our NGL transportation system connecting our Permian G&P position of our leading fractionation footprint in Mont Belvieu remains on track for the third quarter of 2027. Our NGL transportation system has effectively been running full since we announced Speedway, and our transportation volumes reflect our proactive and capital-efficient efforts to secure medium-term transportation agreements on third-party pipelines until Speedway comes into service. We have completed 5 processing plants in the Permian since we announced Speedway and have 5 plants currently underway. The growth we expect from our G&P footprint positions us well for a baseload of supply for Speedway's initial capacity of 500,000 barrels per day. Lastly, we expect our large LPG export expansion that will increase our capacity to around 90 million barrels per month will be much needed and remains on track for the third quarter of 2027. We believe that we are exceptionally well positioned operationally and that our wellhead-to-water strategy, driven by activity in the Permian Basin will continue to put us in an excellent position to execute for our shareholders and customers. I would also like to thank our employees that have worked tirelessly to continue to perform safely and at an exceptional level for our customers and our shareholders. I will now turn the call over to Will to discuss our financial results and outlook in more detail. Will?

Thanks, Jen. Targa's reported adjusted EBITDA for the second quarter was $1.603 billion, 14% higher than the first quarter. The increase was primarily a result of contributions from higher optimization opportunities in our marketing businesses and record volumes across our operations, including Permian G&P, NGL transformation, fractionation and LPG exports. Given the strength of our performance so far this year, we now expect full year 2026 adjusted EBITDA to be towards the top end of our guidance range of $5.7 billion to $5.9 billion. As has long been our practice, we do not forecast material marketing optimization margin when we provide our financial expectations. The first half of 2026 benefited from marketing opportunities that were not included in our guidance provided in February. And our approach remains unchanged as we look to the balance of the year. Importantly, the fundamentals supporting our business are very constructive. Improved Permian takeaway capacity and stronger Waha pricing are benefiting our customers and supporting continued growth in liquids-rich natural gas volumes across our integrated system. Combined with the ongoing execution of our growth projects and the strength of our asset footprint -- these factors continue to support our confidence in the outlook for the second half of 2026 and beyond. We continue to estimate net growth capital for 2026 of approximately $4.5 billion, we also continue to estimate 2026 net maintenance capital spending of $250 million. At the end of the second quarter, we had $3.2 billion of available liquidity and our pro forma consolidated leverage ratio was approximately 3.4x, well within our long-term leverage ratio target range of 3 to 4x. In July, we also extended the maturity of our accounts receivable securitization facility to July 30, 2027 and expanded the total capacity by $200 million. Shifting to capital allocation. Our focus is more of the same from Targa, maintain our strong investment-grade balance sheet, continue to invest in high-returning integrated projects and return an increasing amount of capital to our shareholders. We declared a second quarter common dividend of $1.25 per share, which is a 25% increase relative to the second quarter common dividend for 2025. We also opportunistically repurchased approximately $80 million in common stock at an average price of $259.93 per share during the second quarter. We are on track for another record year at Targa across multiple dimensions and remain well positioned to create value for our shareholders over the long term. And with that, I will turn the call back over to Tristan.

Thanks, Will. For the Q&A session, we ask that you limit to 1 question and 1 follow-up and reenter the queue if you have additional questions. Operator? .

[Operator Instructions] Our first question comes from Jeremy Tonet with JPMorgan Securities. .

Just wanted to touch on how you see the volume trajectory at this point. If you could drill in on what type of curtailments you see in the system and what could come back over, I guess, the balance of the year? And just thinking, I guess, some of your competitors say that they're seeing activity picking up quicker than they expected. And I'm wondering how you see activity in your system and the trajectory into '27?

Jeremy, this is Jen. I think as I tried to describe in my scripted remarks, volumes are -- volume growth is going really, really well across the Targa system. We had a really good start to the first half of the year. which is pretty remarkable when you think about the weather impacts in the first quarter. And then as we described on our May earnings call, about $200 million to $400 million a day of shut-ins on any given day during the second quarter. So to have 450 million cubic feet a day of growth quarter-over-quarter, I think, is really reflective of the producers and the activity in and around our systems. As we look forward, July was another really strong month of volume growth. So as I said, for the year now, I'd say that we are tracking ahead of expectations with a view of continued volume growth across the back half of the year. I think largely, the growth that we're seeing is consistent with what we expected, again, maybe a little bit ahead. But we've got really active producers across the system that I think are feeling supported by a macro backdrop now with both higher crude oil prices and now with the egress situation in the Permian at least temporary result benefiting from higher gas prices. So it's just a really supportive environment of both an expectation for continued activity back half of 2016. And then that, of course, I think, means we're well supported for their continued growth into '27 and beyond.

Got it. And then just wanted to go back, I guess, to any thoughts you could share on the cadence of gas processing plant additions. How you see that going forward each year? Is it 3 years? Would you expect 3 for '28? Or how should we think about that at this point?

I think you've seen a quick cadence of plant adds for us over the last several years. Here already this year, getting 2 plants online in the Midland Basin. That's a little bit lumpier for us having 2 plants come online as quickly sort of back-to-back as they did. But part of that was an exceptional job by our engineering and operations team to get East Pembrook online earlier than expected. We've now got 5 plants that are under construction indicated on the call this morning that we're evaluating the next time or the next -- the appropriate time to move forward with our next Midland plant. So as we look forward, we put out an illustrative framework now a couple of quarters ago that demonstrated a continued cadence of call it, 3 plants a year if we assume, high single digit, low double-digit Permian growth. I think -- where we are today with the commercial success that we've had over the last couple of years is accelerated from there. Ultimately, whether that cadence continues to be accelerated going forward will be a function both of the existing contracts that we've already got in place as well as continued commercial success. I'm biased, but I think we've got, by far, the best commercial team in the business, and I can assure you that they are not resting on their laurels and are continuing to go out and identify opportunities to add to the contracts that we already have in place with existing and new producers. So we'll be continuing to work that angle as well. So I think we just feel really good, Jeremy. But ultimately, the pace of growth will drive is at 3 plants? Is it more plants, but feel well positioned for just continued growth going forward.

That's really great to hear. Thank you. .

Our next question comes from Spiro Dounis with Citi.

I want to go back to your comments around the integrated footprint. If I include East driver, that's about 6-ounce plants, adding about 240,000 barrels a day of NGLs to the system. It sounds like you're covered on the egress side, frac arguably starting to build tied again if you announce another plant and on export, I think that's probably where we could see the need for another expansion sooner rather than later. So curious how you're thinking about downstream infrastructure needs and what a seventh rate plan coming online in 2028 must do to need to expand downstream again?

I think we've got really good operating leverage when we think about Speedway coming online in third quarter of 2027 and our ability to expand Speedway from, call it, 500,000 barrels a day to 1 million barrels a day by just adding incremental pumps as our volume growth continues to ramp, a very cost-efficient way to add a lot of capacity. So I think we've got good operating leverage there, but are in a really good spot to baseload Speedway with a lot of volumes given everything that we've announced that came into service. And as you pointed out, on the LPG export side, a lot of operating leverage there when that expansion comes online in the third quarter of 2027 as well. So I think you really hit all the key points, which is we need to evaluate the timing of our next fractionator. We feel like we're in a good position right now, Train 11 online, highly utilized from startup. If you like trains 12 and 13 will be as well. But we'll evaluate the right timing of that next frac. Otherwise, on the residue side, I feel like we're in a good spot with all the intra-basin activity that we've got underway to really build out our residue capabilities. So ultimately, I think it will continue to be more of the same, which is with the additional plant ends, when do we need another frac. But we do have, I think, material operating leverage across both NGL and transportation and exports once we get those 2 big projects online in the third quarter of 2027.

Got it. That's great to hear. Maybe just to go back to the guidance quickly. And you talked about this a little bit with Jeremy, but it does seem to imply a decline in the second half of the year to hit the high end, which does screen conservative to us, certainly appreciate the point that Waha marketing gains are probably moderating here. But you had a lot of positive commentary about producer activity and curtailments really coming back. And would have thought that had been enough to offset. Could you maybe just walk through some of the assumptions and maybe put a finer point on what you're not counting on, that could lead to a positive surprise?

Matt here. No, good question. Look, the first half of the year was really strong underlying volume performance, which Jen talked about. But we also pointed to $250 million of optimization margin that we weren't counting on. And with the basis narrowing part of that margin comes from our transport position. So we forecast that pretty conservative in the back half of the year. We have -- we don't have a very significant assumption for continued marketing gains as we go forward from here. And so that's why you're seeing perhaps a conservative view of the second half of this year. But with the volumes that we've seen across our system, Jen talked about the strength that we've had so far this year, most of the shut-ins have returned. July was a really good month. We've had really good August so far. And we actually still have some volume shut in on our system. They are going to come back and add even more volumes in the back half of the year. So I think we feel really good about the underlying volume trajectory. It's just going to be moderated and offset by perhaps lower marketing opportunities in the back half of the year.

Got it. Appreciate the color. That's it for me today. Thank you, everyone.

Our next question comes from Jackie Koletas with Goldman Sachs.

First, I just wanted to touch again on the NGL business and extending your platform. peers are actively expanding the ethane export capacity on the Gulf Coast. I mean where would you say are the economics currently for expanding into ethane capacity at Galena Park? Are you comfortable continuing to rely on the LPG business? Or is there a scale that you can see on ethane export solution?

Jackie, this is Jen. I think it was probably, gosh, 8 or 9 years ago that we first mentioned publicly that we were evaluating ethane export opportunities. given a vast amount of ethane in our system, I think it puts us in a really good position with a lot of supply. We've managed that supply position thus far by selling into the domestic markets and have really strong relationships with our domestic customers, and also with some of our peers that are exporting some of those volumes to the rest of the world. I think that's worked really well for us thus far. But of course, we're always evaluating opportunities across the entire value chain and ethane exports is no different. We have got a growing supply portfolio as a result of all of our gathering and processing plant adds and then the incremental fracs bringing more ethane into our system. I think our team has done a great job of increasing our domestic connectivity to make sure that we're very comfortable with where those volumes ultimately will find a home. But certainly, that's something that we continue to evaluate, and we'll continue to evaluate it going forward. But I don't think we feel like it's something that we have to do. I think if it's complementary to what we do and if it makes sense and if it can provide returns that are commensurate with lower we can invest across the rest of our portfolio, then we'll certainly continue to consider expanding.

That's very clear. And then just as a follow-up, you mentioned very strong volume recovery. As we see volume growth continue and prices begin to rebound, how do you contemplate the ability to move off the fee floors into '27 and how that may frame up your long-term outlook from here.

I think moving off of fee floors would be very much welcomed across the Targa system. We've been below fee floors for a long time, really only having maybe less than a handful of months over the last couple of years where we have benefited from margin above fee floor levels. I think certainly with the incremental egress on the natural gas side, you're seeing gas prices move higher. Our fee floors are a combination of both gas and NGL prices. So ultimately, it will depend where sort of the entire barrel moves. But I think that from our perspective, we do believe with all of the tailwinds around the incremental demand for natural gas and NGLs in the U.S. and globally. . We're likely to see some price tailwinds as we move forward. And ultimately, that would be certainly additive to our performance as we move through the next several years.

Our next question comes from [ Julian Mullensmith ] with Jefferies.

Thank you guys so much for the time. Appreciate it. maybe following up on what's been discussed here a little bit. Can you follow up on the plant cadence. Can you speak to what are the variables that can surprise the upside to this 3 plant per year model, right? Is it more of the Permian macro versus specific commercial wins. And specifically, given the commercial discussion that you've had here in '25 and obviously year-to-date '26, are you tracking ahead of that expectation of 3 plants per year or that framework for '28 and onwards here? Again, kind of going on your improving backdrop commentary?

Yes. No, good question. We're always challenging ourselves for what -- how to kind of think about that. I think it's a combination of what you talked about. I think overall, just trends in the Permian Basin with just strong activity, increasing GOR is going to put us in a good position to continue to add multiple plants a year for years to come. But then on top of that, which is a bit more episodic is our larger commercial wins and other opportunities. And as Jen said, we think we have the best commercial team in the business. So as we continue to have commercial wins, you've seen us talk about that 2024 and 2025. We're having a good year so far in 2026 and would expect to continue to add more acreage dedications, more volumes from our commercial success. So I think in any environment, we're going to be adding multiple plants a year. I think that is already outlined, and then we have 5 plants coming on and already announced, and we're evaluating the timing of the next plant in the Midland, and we're evaluating more plants in the Delaware or future timing. So we feel really good about adding significant volumes. But I think it's a combination of all of those factors.

And maybe a related point here. with the Permian Basin continue to consolidate, can you speak to how you're structuring your commercial strategy going forward, right? Are you pursuing a more volumetric centric strategy on the G&P front to attract more volume on your system and improve like more of a system-wide ROIC with your downstream assets as well? I mean, how are you thinking about that, especially given the improving volume large we just alluded to?

I think that we have exceptional relationships with our producers and are always trying to add to our portfolio of producers that we have on our systems, Julien. And so part of what we pride ourselves is a willingness to be creative and work with each individual producer to meet their needs, whether that's a result of the needs that they have from consolidation or for any other reason. So for us, it's a portfolio approach. We work with each individual producer to try to figure out what their needs are and then best meet those needs. And then that all comes together in thinking through what therefore, that we need from an infrastructure perspective to support that outlook of growth that, that portfolio of producer customers will provide for us. So I think it's really much each producer is different. We work very well with each of the producer customers that we have are always trying to figure out how to best position our producer customers for success as well as Targa. And that's really, I think, put us in a really good position to both continue to service existing customers and add contracts with existing customers and then go out and win new business as well.