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A Sneak Peek at Targa Ahead of the Tape

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The Daley Note: February 3, 2023

Targa Resources (TRGP) closed out 2022 on the low side of company guidance as a result of lower natural gas and NGL prices in the Permian Basin, combined with supply impairments from Winter Storm Elliott on some midstream assets late in the quarter.

Nonetheless, we still see Q-o-Q growth for Targa, driven by its $3.55 billion acquisition of Lucid Energy. TRGP will realize a full quarter of earnings on the Lucid acquisition, a big factor in updates to our TRGP Financial Blueprint ahead of the latest earnings report.

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We forecast the Lucid system in the Delaware Basin increased TRGP’s processing plant volumes by 175 MMcf/d, or 589 MMcf/d when accounting for a full quarter of realized volumes (see highlights in the table). The producers driving growth behind Lucid include EOG Resources (EOG), Devon Energy (DVN) and Mewbourne, with EOG consistently operating 5-7 rigs on the newly acquired Lucid asset. EOG recently guided to flat activity in 2023, citing rising expenses for supplies and equipment, and a continued focus on shareholder returns. Yet even with flat activity, EDA forecasts EOG could grow production by more than 15% in 2023.

In our 4Q Earnings Preview, we forecast volumes on the Midland side of Targa’s Permian G&P footprint to decline by 1%. Pioneer Resources (PXD), the largest producer on the Midland asset, noted its 4Q22 production was dinged by 1% from previous guidance as a result of the winter storm that struck in late December. Targa reports 4Q22 earnings pre-market on February 22, 2023. – Rob Wilson, CFA Tickers: DVN, EOG, PXD, TRGP.

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