Why did Targa Resources exceed analysts’ expectations in 4Q13?
On February 13, 2014, Targa Resources (NGLS) reported 4Q13 and FY2013 earnings. The company reported 4Q13 EBITDA of $214.6 million, compared to consensus EBITDA of $185 million. Reported EBITDA for full-year 2013 was $629.2 million, compared to consensus EBITDA of $600 million.
Interested in NGLS? Don't miss the next report.
Receive e-mail alerts for new research on NGLS
Targa outperformed consensus due to a few factors. Management noted that 4Q13 experienced higher-than-expected contribution from projects that went into operation during the latter part of 2013—notably its LPG (propane and butane) export facilities. During 4Q13, demand for propane and butane exports was “very robust,” and Targa stated that the performance of those assets exceeded expectations. On the call, management commented that during 4Q13 and early in 1Q14, Targa had benefitted from high international demand for exports, both spot and long-term, though spot demand had fallen off somewhat recently as U.S. prices rose relative to international prices (for more on propane exports, see Why more exports and crop drying mean higher propane demand).
Plus, the company noted that its gathering and processing assets benefitted from strong volume throughput, meaning that a lot of natural gas flowed through Targa’s assets. Lastly, the company overall benefitted from higher natural gas and natural gas liquids prices during the quarter. Targa would benefit from this development, as high natural and natural gas liquids prices would imply more drilling during the period, and consequently more volumes. Plus, higher commodity prices would elevate Targa’s revenues under its percentage-of-proceeds natural gas processing contracts.
Also notable is that Targa continues to increase its fee-based margins
Targa notes that the proportion of its fee-based operating margin continues to increase over time. During full-year 2013, the company’s fee-based operating margin accounted for 57% of the total, and was 62% in 4Q13. Over 2014, Targa expects its fee-based operating margin to increase to between 60% and 65% of the total. For the proportion of operating margin from its Field Gathering and Processing segment, which is commodity-sensitive, the company estimates that it has hedged ~70% of 2014 natural gas and ~20% of natural gas liquids and condensate exposure.
Read on to the next part of this series to find out about Targa’s capex and EBITDA guidance for 2014.