An investor’s key guide to Targa Resources’s business operations
Targa Resources operates under two main divisions: Gathering and Processing, and Logistics and Marketing.
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Gathering and Processing
Under its Gathering and Processing divison, Targa divides its operations into its “Field Gathering and Processing Segment” and its “Coastal Gathering and Processing Segment.” The Field Gathering and Processing Segment consists of assets that gather and process natural gas on land in the Permian Basin in West Texas and southeast New Mexico, the Barnett Shale in North Texas, and the Williston Basin in North Dakota. Plus, in North Dakota, NGLS operates certain crude oil gathering and terminaling assets. The Coastal Gathering and Processing Segment consists of assets that gather and process natural gas in the Louisiana Gulf Coast, with access to natural gas from the Gulf Coast and the Gulf of Mexico.
In the Gathering and Processing division, Targa benefits when more volume passes through its gathering and processing assets. So more drilling in the areas around Targa’s assets, which are located in the Permian, Bakken, North Texas, and Gulf Coast, is ultimately beneficial to the company. If drilling activity slows around Targa’s assets, revenues could be pressured, as less natural gas will flow through the company’s assets. In this manner, Targa has some indirect exposure to commodity prices, as drilling normally slows in a lower commodity price environment.
Plus, some of Targa’s gathering and processing contracts are commodity-sensitive, and the company noted that for 2013, its “percent-of-proceeds” or “POP” arrangements covered ~48% of gathered natural gas volume. Under a POP contract, Targa processes raw natural gas into natural gas and natural gas liquids streams, and it retains a percentage of the proceeds from the sale of the total processed natural gas and NGLs. Under this arrangement, Targa is net long both natural gas and natural gas liquids.
Logistics and Marketing
Under its Logistics and Marketing division, Targa separates its businesses into two business lines: Logistics Assets and Marketing and Distribution. Under its Logistics Assets segment, Targa fractionates, stores, treats, and transports natural gas liquids, usually under fee-based contracts (that is, not pegged to commodity prices). The Logistics Assets segment also engages in refined petroleum product and crude oil storage and terminaling. Also, under this segment, Targa operates assets that are capable of exporting propane or butane.
Under the Marketing and Distribution segment, Targa markets its natural gas liquids to customers such as petrochemical companies, refineries, and other marketing and retail companies. Part of the business involves the wholesale marketing of propane, which can be significantly affected by cold weather during the winter, when the fuel is in high demand for home heating. Targa provides NGL transportation and distribution services, markets natural gas, and provides natural gas liquids to refineries. Targa’s Logistics and Marketing segment should benefit from higher demand for natural gas liquids as well as the transportation and storage of NGLs and refined products, which are tied somewhat to the price of NGLs.