Targa Resources Corp. Q2 2025 earnings call

Thank you, Howard. Good morning and welcome to the second quarter 2025 earnings call for Targa Resources Corporation. The second quarter earnings release, along with a supplemental presentation that accompanies our call, are available on our website at targaresources.com. Additionally, an updated investor presentation has also been posted to our website. Statements made during this call that might 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 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; Scott Pryor, President, Logistics and Transportation; Bobby Muraro, Chief Commercial Officer; and Ben Branstetter, Senior Vice President, Downstream. I'll now turn the call over to Matt.

Thanks, Tristan, and good morning. I would like to begin by announcing that after 35 years with Targa Resources and its predecessor companies, Scott Pryor, our President of Logistics and Transportation, has shared with us his intent to retire effective March 1st, 2026. Scott has been a critical part of the Targa team, and his leadership, work ethic, dedication, integrity, and focus on serving our customers has made it a pleasure to work alongside Scott. On behalf of our board, the leadership team, all of Targa's employees, and our customers, I'd like to thank you, Scott. Following Scott's retirement, Ben Branstetter will succeed Scott as President of Logistics and Transportation. Ben has been with Targa for the past eight years in various leadership roles across corporate development and our downstream group.

Scott and Ben have worked closely together for years and will work together over the next many months in transition, and we look forward to Ben's continued contribution to Targa in his new role. Turning to the second quarter, we reported strong results with record Permian volumes, record NGL transportation volumes, and continued execution across our footprint, setting us up well for the balance of the year and providing a lot of momentum looking ahead. We saw a strong ramp in volumes in the second quarter as gas on our Permian system increased by about a processing plant worth of volumes during the quarter, up about 270 million cu ft per day. We are seeing that strength continue.

In July, our volumes were up another 250 million cu ft per day, meaning we added a plant worth of gas in the second quarter and another plant worth of gas in July. We are seeing that strength continue so far in August. There has been movement in the broader Permian rig count this year, which has been a focus for investors. Over the last four months, while the Permian rig count has softened, the number of rigs on our system is largely unchanged. While there is a lot of noise and volatility in the macro environment, ongoing discussions with our producers point to continued strong growth on our system for the remainder of 2025 and into 2026 and beyond.

Given the strong ramp in volumes we're seeing and our expectations for the remainder of the year, our outlook for 2026 volume growth is as strong now as it was at the beginning of the year, with the potential for it to be stronger by the time we exit this year. We have also added some new material to our investor presentation, which lends support for our continued growth outlook. We have highlighted some factors that demonstrate Targa's differentiated growth profile. Over the past five years, Permian gas production has grown at a higher rate than crude production due to the general increase in gas-to-oil ratios across the basin over time. While year-over-year growth in crude production from the Permian has averaged 8% per year over the past five years, associated gas growth has averaged 13% per year. Targa's volume growth has outperformed crude and gas production over that timeframe.

Our year-over-year volume growth has averaged 17%, 4% higher than associated gas and 9% higher than crude per year. Looking forward, third-party forecasts call for 7% growth in Permian associated gas over the next five years. With this strong outlook, coupled with Targa's footprint across the best rock in the basin and world-class producers, we are well positioned for meaningful growth over the long term. There are a lot of tailwinds for Targa. We move a lot of natural gas to end markets, and the demand for natural gas is expected to continue to increase. We transport and fractionate a lot of natural gas liquids to domestic and international end markets, and the demand for NGLs is expected to continue to increase. Our customers across our value chain are very good at what they do, and we think we'll continue to create meaningful growth opportunities for our company.

Our conviction is demonstrated by $324 million of common share repurchases during the second quarter across a volatile quarter. Our focus continues to be on increasing adjusted EBITDA and increasing common dividend per share and declining share count while maintaining our strong investment-grade balance sheet. We believe that our premier Permian asset footprint, integrated wellhead-to-water system, and strong financial position will allow us to continue to invest in integrated growth opportunities, generate attractive returns, and return increasing capital to our shareholders over the long term. 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. Let's talk about our operational results in more detail. Starting in the Permian, our natural gas inlet volumes averaged a record 6.3 billion cu ft per day in the second quarter, an increase of 11% versus a year ago, and a strong rebound from the first quarter, which was impacted by severe weather events. In the Permian Midland, our new Pembrook II plant is currently in startup, ahead of schedule and much needed as our Midland system continues to run at very high utilization. Our East Pembrook and East Driver plants remain on track to begin operations in the second quarter and third quarter of 2026. In Permian Delaware, our Bull Moose II plant is ahead of schedule and is now expected to begin operations in the fourth quarter of 2025.

Our Falcon II plant remains on track to begin operations in the second quarter of 2026. We expect our processing infrastructure currently under construction will be much needed at startup. Lastly, in the Delaware, we recently completed our seventh AGI well, further increasing our leading gas treating capabilities across the basin. Looking out further, we are ordering long lead items for additional Permian plants as we prepare for growth in 2027 and beyond. As production continues to grow, Targa is increasingly moving more and more natural gas for our customers across the Midland and Delaware basins. To further enhance connectivity and reliability, we are announcing an extension of our Bull Run natural gas pipeline system in the Delaware Basin. The 43 mi, 42 in intrastate natural gas pipeline extension of Bull Run will enhance gas takeaway by increasing connectivity between our Permian Delaware system and the Waha Hub.

The extension will add further flow assurance for our customers across the Delaware and increase access to important residue markets. It is scheduled to be in service in the first quarter of 2027. On the Blackcomb and Traverse natural gas pipelines, where we have a 17.5% equity interest, Blackcomb remains on track and is fully subscribed. The planned capacity of Traverse was recently upsized to 2.5 billion cu ft per day from 1.75 billion cu ft per day, based on strong customer demand. Shifting to our Logistics and Transportation segment, Targa's NGL pipeline transportation volumes averaged a record 961,000 barrels per day, and fractionation volumes averaged 969,000 barrels per day during the second quarter. Our fractionation volumes were meaningfully impacted by our planned turnaround at our fractionation complex in Mont Belvieu, which reduced our capacity for 2/3 of the second quarter.

With the turnaround complete in early June and increasing GMP supply, our fractionation volumes are now more than 1 million barrels per day. Given the anticipated growth in our Permian GMP business and corresponding announced plant additions, our outlook for NGL supply growth on our system remains strong. Looking at our downstream projects currently underway, Delaware Express, our intrabasin NGL pipeline expansion, is ahead of schedule and is now expected to be complete in the second quarter of 2026. Our next fractionator in Mont Belvieu, Train 11, is also ahead of schedule and is expected to be complete in the second quarter of 2026. Train 12 remains on track for the first quarter of 2027. Turning to our LPG export business at Galena Park, our loadings averaged 12.8 million barrels per month during the second quarter.

Despite shifting trade policy and a lot of macro headlines, our docks remained effectively full, and we are seeing continued strength in cargo loadings. Our LPG export debottleneck expansion is expected to be in service in the fourth quarter, and we remain on track with our larger LPG export expansion, which will increase our loading capacity to approximately 19 million barrels per month and is scheduled to be online in the third quarter of 2027. To build on Matt's earlier comments, even with commodity price volatility and headlines around global trade, our results highlight our resilient business model. We are well-positioned operationally and believe that our leading customer service-driven wellhead-to-water strategy puts us in an excellent position to continue to execute for our shareholders. I will now turn the call over to Will to discuss our second quarter results, outlook, and capital allocation. Will?

Thanks, Jen. Targa's reported adjusted EBITDA for the second quarter was $1.163 billion, an 18% increase from a year ago. The increase was attributable primarily to higher Permian volumes generating higher margin across our GMP and LMP segments and contribution from 100% ownership of our Badlands assets. Adjusted EBITDA was roughly flat for the first quarter. The record Permian and NGL transportation volumes were offset by lower marketing margin, sequentially weaker commodity prices, and the impact of our planned turnaround at our fractionation complex in Mont Belvieu. 2025 is progressing on track with a strong first half and our continued expectation of increasing Permian volumes for the remainder of the year. We continue to estimate full-year 2025 adjusted EBITDA to be in a range of $4.65 billion-$4.85 billion.

In June, we successfully completed a $1.5 billion debt offering comprised of $750 million of 4.9% notes due 2030 and $750 million of 5.65% notes due 2036. We used the net proceeds from the debt issuance to reduce borrowings on our commercial paper program and in July to retire $705 million of 6.5% notes due 2027. In July, we also extended the maturity of our accounts receivable securitization facility to August 31st, 2026. At the end of the second quarter, we had $3.5 billion of available liquidity, and our pro forma consolidated leverage ratio was 3.6x, comfortably within our long-term leverage ratio target range of 3x-4x.

With projects tracking ahead of schedule, our announced Bull Run extension in the Permian Delaware, and spending on long lead items for additional Permian gas processing expansions, we now expect net growth capital spending for 2025 to be approximately $3 billion. We continue to estimate 2025 net maintenance capital spending of $250 million. With the recently enacted tax legislation and its return of 100% bonus depreciation, we expect we will no longer be subject to the Corporate Alternative Minimum Tax, or CAMT, in 2026 and will defer becoming a material cash taxpayer beyond 2027. As we continue to assess the benefit to Targa, we could see deferral of cash taxes further out depending on a variety of factors in the out years. 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. During the second quarter, we repurchased $324 million in common shares at an average price of $165.86 per share, continuing our track record of executing opportunistic share repurchases as part of our all-of-the-above capital allocation strategy. This week, our Board of Directors also authorized a new $1 billion common share repurchase program. This brings total available share repurchase capacity to approximately $1.6 billion as of June 30, 2025. This authorization adds to our flexibility and is purely a continuation of our existing program. We remain steadfast in our strategy of continuing to target returning 40% to 50% of adjusted cash flow from operations to equity holders over time through a growing combination of dividends and opportunistic share repurchases.

We are in excellent financial shape with a strong and flexible balance sheet, and we are well positioned to continue to create value for our shareholders. I will turn the call back to Tristan.

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