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The Daley Note: March 14, 2023

Targa Resources (TRGP) reported 4Q22 earnings in line with East Daley Analytics. The company also guided to 2023 volume growth consistent with our Financial Blueprint forecast, though we are on the low side of 2023 EBITDA guidance. TRGP’s results show how the company is built to maintain profitability amid choppy commodity markets.

Targa reported 4Q22 Adj. EBITDA of $840 million vs our TRGP Financial Blueprint forecast of $829 million and a Street estimate of $827 million. TRGP is guiding to a 10% increase in Permian inlet volume in 2023 from 4Q22 levels, matching our own forecast for the company’s Permian assets.

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There were offsetting puts and takes on the quarter. Targa’s 4Q22 G&P margin per Mcf dipped to $1.30 vs 3Q22 margin of $1.50/Mcf. Waha gas prices nosedived in 4Q22 from $6.42/MMBtu to $3.09, which explains much of the Q-o-Q decline in the midstream economics given TRGP’s exposure to commodity-linked contracts. The plunge in Permian Basin gas prices also explains how a 645 MMcf/d increase in field throughput volumes resulted in lower overall segment margin.

What’s interesting is the miss from Targa’s G&P segment was more than offset by the beat from the Logistics & Marketing segment, due in part to volume growth on TRGP’s downstream assets. Furthermore, Targa cited market optimization opportunities in NGL and natural gas marketing.

Based on data filed with the Federal Energy Regulatory Commission (FERC), it appears Targa Gas Marketing was able to capture some of the Waha-to-Carthage price differential in 4Q22 by moving more interruptible (IT) gas on pipelines like Atmos Pipeline (shown in the figure).

The FERC-filed data is not comprehensive, and Atmos did not disclose origin and destination points like most pipelines. Nonetheless, the data suggests Targa has been able to partly offset commodity price declines by capturing gas price arbitrage through its downstream marketing affiliate. - Rob Wilson, CFA Tickers: TRGP.


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