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An investor's must-know guide to Targa Resources' 1Q14 earnings

Part 4
An investor's must-know guide to Targa Resources' 1Q14 earnings (Part 4 of 7)

Why expansion projects will drive Targa Resources’ volume growth

Expansion projects at the Field Gathering and Processing segment

The Field Gathering and Processing segment’s operations consist of the Sand Hills, Versado, SAOU, North Texas, and the Badlands. The company plans to expand the capacity to 1.34 billion cubic feet per day by the end of 2014 from 980 million cubic feet per day by end of 2013, an increase of ~37%. The segment’s Permian Basin activity is dominated by the oil shale plays of SAOU, the Sand Hills, and Versado. Its North Texas assets are located in the oiler portion of the Barnett Shale, where drilling activity has remained strong over the past few years. In the Bakken Shale also, oil production is expected to occupy a significant role for next few years.

Capacity Expansion project at field gatheringEnlarge Graph

In the first quarter of 2014, gas inlet volumes at the SAOU, Sand Hills, and Versado plants increased even though Targa’s overall gas inlet volume (all segments combined) reduced by ~5%. Higher drilling activity at the Permian and Bakken should see increased traffic for Targa’s pipeline and natural gas processing in 2014. By 2Q14, NGLS expects the cryogenic processing plant of High Plains with 200 million cubic feet per day of capacity to come online. The plant will facilitate the gathering and compression needs for SAOU to meet increasing production and continued producer activity on the eastern side of the Permian Basin. The company invested $225 million for the entire project. Plus, a 35-mile pipeline connecting the Sand Hills and High Plains is also expected to complete in June 2014.

Operating metrics at fiels gatheringEnlarge Graph

Overall, the segment benefited from higher volume and higher natural gas price and NGL price in the past two years, as the table above shows.

Targa’s assets are well positioned to access the active liquids-rich portion of the Barnett Shale and the Marble Falls play. Barnett volumes continue to trend higher as improvements in horizontal drilling and multi-staged fractionation completions result in higher initial production rates. NGLS plan to invest $180 million for the construction of a new 200 million-cubic-feet-per-day cryogenic processing plant in North Texas.

Targa Resources Partners LP (NGLS) is a master limited partnership operating in the midstream energy space. Targa Resources Corp. (TRGP) is the general partner of NGLS. Other major companies operating in this sector whose earnings investors should follow include Kinder Morgan Energy Partners LP (KMP), MarkWest Energy Partners LP (MWE), and Targa Resources Corp. (TRGP). NGLS is also part of Alerian MLP ETF (AMLP) and the Yorkville High Income Infrastructure MLP ETF (YMLI).

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