The Daley Note: January 5, 2023
East Daley is revisiting the biggest energy and midstream stories of 2022. This post was originally published for clients in our weekly Data Insights on June 17, 2022.
Targa Resources (TRGP) is acquiring Lucid Energy from Riverstone Holdings and Goldman Sachs for $3.55 billion in cash. East Daley sees the acquisition as a great strategic fit that could create long-term opportunities to boost activity on Targa’s downstream NGL assets.
Private Lucid operates the largest G&P system in the Delaware Basin. The Lucid S. Carlsbad footprint in Eddy and Lea counties, NM includes ~1,050 miles of gathering lines and 1.4 Bcf/d of gas processing. The acquisition price represents a 7.5x multiple based on estimated 2023 EBITDA, TRGP said.
Lucid’s customers is a Who’s Who list of the largest and most active Permian producers including Chevron (CVX), ConocoPhillips (COP), ExxonMobil (XOM) and EOG Resource (EOG). 
East Daley is tracking over 20 rigs drilling on the Lucid S. Carlsbad system today through our G&P system model in Energy Data Studio. We forecast significant supply growth ahead that may require an expansion of the system’s gas processing capacity by 3Q22. We forecast average gas plant inlets in June to be just over 1.3 Bcf/d, with a 2022 exit rate of over 1.5 Bcf/d.
Lucid’s Red Hills I-V plants currently feed Y-grade to NGL pipelines owned by Targa competitors. These include ONEOK (OKE; West Texas NGL Pipeline), Enterprise Products and Kinetik Holdings (EPD/KNTK; Shin Oak), Energy Transfer (ET; Lone Star Pipeline), and EPIC Midstream (Epic Y-Grade). Lucid’s Roadrunner I plant connects to Shin Oak and EPIC; the Dagger Draw plant connects to West Texas NGL.
By acquiring Lucid, Targa could move more Permian Y-grade supply to its own Grand Prix NGL pipeline, which has latent capacity. Grand Prix does not currently connect to TRGP’s Versado system or to Lucid, but we expect that TRGP will eventually shift volumes. This would create a waterfall effect to expand activity for other TRGP assets.
In the downstream, Targa also has spare capacity at its fractionation complex and export docks on the Texas Gulf Coast. Targa noted it has a permit to build a new fractionator at Mont Belvieu, and discussed the potential to expand LPG export capacity at its Galena Park LPG terminal.
Targa will pay for the Lucid acquisition through a combination of cash and debt. TRGP has prepared its balance sheet by using free cash flow to pay down debt. Targa also recently sold its interest in Gulf Coast Express Pipeline for $857 million. Based on our financial model of TRGP, leverage is below 2.75x by YE2023 before this latest acquisition. – Jarred Blumensheid Tickers: COP, CVX, EOG, EPD, ET, KNTK, OKE, TRGP, XOM.
Dirty Little Secrets 2023 is Now Available!
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3Q22 Earnings Previews and Earnings Reviews Now Available
East Daley has published a complete group of 3Q22 Earnings Previews and Blueprint Financial Models for midstream companies within our coverage. We also are publishing 3Q22 Earnings Reviews as companies report comparing our forecasts vs results. Quarterly Earnings Previews and Blueprints are now available for Antero Midstream (AM), Crestwood Equity (CEQP), Enbridge (ENB), EnLink Midstream (ENLC), Enterprise Products (EPD), Energy Transfer (ET), Equitrans Midstream (ETRN), Kinder Morgan (KMI), Kinetik Holdings (KNTK), Magellan Midstream (MMP), MPLX (MPLX), ONEOK (OKE), Plains All American (PAA), Summit Midstream (SMLP), Targa Resources (TRGP), TC Pipelines (TRP), Western Midstream (WES) and Williams (WMB).
Our Earnings Previews include quarterly earnings forecasts compared to Street consensus, a detailed list of the top assets that will impact the quarter, analysis of near- and long-term risks to future earnings, along with forecasts for Adj. EBITDA by segments. Please log in to access these reports.
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