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Targa Resources Raises 2017 Capital Expenditure Guidance By 37%


May. 8 2017, Updated 7:38 a.m. ET

2017 capital expenditure

Targa Resources (TRGP) revised its 2017 capital expenditure guidance upwards, by 37% to $960 million. Targa’s plans for new projects include two processing plants—one in the Midland Basin and another in the Delaware Basin. Moreover, Targa plans to double its investment in the Williston Basin to $150 million, to expand crude gathering and natural gas processing.

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Attractive opportunities?

The above table lists Targa’s key projects along with their expected completion dates. Targa Resources expects strong growth in the Midland and Delaware basins. In the company’s 1Q17 earnings release, Targa CEO Joe Bob Perkins stated that “the strength of the outlook for our Midland and Delaware Basin footprints is exemplified by our announcement today that we are moving forward with two additional natural gas processing plants in those Basins representing an additional 450 MMcf/d[1.million cubic feet per day] of natural gas processing capacity.”

Perkins added that “strong long-term market fundamentals underpin the growth trajectory for our Gathering and Processing and Downstream segments and are driving attractive opportunities for additional midstream infrastructure, which provides us with greater visibility for potential cash flow growth in 2018, 2019 and beyond.”

Targa’s dividends

On April 19, 2017, Targa announced a 1Q17 dividend of $0.91 per share, which is unchanged from the previous quarter. The company expects its dividend coverage for 2017 to be at least 1.0x, assuming flat dividends for the remaining three quarters. Targa currently trades at a yield higher than 6.5%.

Targa’s yield is higher than Kinder Morgan’s (KMI) yield of 2.4%, Enterprise Products Partners’ (EPD) 6%, and Magellan Midstream Partners’ (MMP) 4.5%.

In comparison, the Alerian MLP ETF (AMLP) is trading at a yield of ~7%, while the SPDR S&P 500 ETF (SPY) currently yields ~2%. The energy sector forms nearly 6.6% of the S&P 500 (SPX-INDEX).


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