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

Part 6
An investor's must-know guide to Targa Resources' 1Q14 earnings (Part 6 of 7)

Targa Resources’ Logistics and Marketing segments greatly improve

A significant improvement

Targa Resources’ (NGLS) LPG export volumes averaged 67 thousand barrels per day (MBbl/d) in 2013 compared to 32 MBbl/d for the previous year. Exports of liquefied petroleum gas benefit both the Logistics Assets and Marketing and Distribution segments. The higher volumes reflect a significant increase in ongoing LPG export activity primarily due to NGLS’s foray into the international export project, which went into service in September 2013. Terminaling rates per unit volume rose higher and storage revenues increased due to increased rates and addition of new customers. The gross margin for 2013 also benefitted from the renewable fuels project in the company’s Petroleum Logistics business.

LPG ExportEnlarge Graph

Expansion projects

NGLS has huge investment plans for its exports business, some of which are are already in place. The construction of Phase II of the international export expansion project at the Mont Belvieu facility and the Galena Park Marine Terminal will further expand the company’s propane and butane international export capacity by approximately 2 million barrels per month. The expected completion period of this project is 3Q14. The company expects to invest approximately $480 million in total for both the projects. Targa is also constructing a condensate splitter at the Channelview Terminal of its Petroleum Logistics business with capacity of 35,000 barrel per day. This has an estimated cost of $150 million and is expected to be completed by the end of 2015.

Frac and NGL SalesEnlarge Graph

NGLS looks to reap the benefits of stable cash flows from NGL sales though short-term and long-term contract thorough 2015. Joe Perkins, the CEO of NGLS, commented in the conference call of 1Q14, “We are completing the second phase of our international export expansion in stages. In our operational capabilities, we’ll continue to improve as each stage is completed, with Phase 2 expected to be fully operational in the third quarter of 2014. We continue to benefit from significant demand for long term and short-term contracts at Galena Park. For the remainder of 2014, we have an average of 4.2 million barrels of exports per month contracted. That 4.2 million barrels of exports includes both short-term and long-term contracts. Looking forward for 2015, we have the similar amount already contracted under just our longer-term arrangements. Some of those longer-term arrangements extend as long as 2020. And obviously as we complete our expansion projects, our export capabilities for next year are even greater than this year, providing potential volume upside.”

Possible joint venture with KMP

Targa Resources also has signed a joint venture with Kinder Morgan (KMP) to provide fractionation services. Joe Perkins, the CEO of NGLS, said in the conference call, “In late December 2013, we announced that we have signed a joint venture with Kinder Morgan to provide fractionation services downstream up there in MarkWest Utica, Marcellus Texas Pipeline, abbreviated UMTP. UMTP is continuing to gain traction with producers, but as mentioned in Kinder’s Q1 2014 earnings call, UMTP does not yet have commitments.”

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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