The Daley Note: October 3, 2023
With little fanfare, Targa Resources (TRGP) has started service on a new natural gas pipeline in the Permian Basin that is likely contributing to the company’s financial performance.
East Daley caught wind of the stealth pipeline via a filing last week with the Federal Energy Regulatory Commission (FERC). The new 250 MMcf/d pipeline will influence the company outlook in East Daley Analytics’ upcoming TRGP Financial Blueprint and 3Q23 Earnings Preview.
Targa filed a Section 311 request with FERC for Delaware-Permian Pipeline, LLC (Del-Perm), seeking approval to charge the same rates for interstate service as the pipeline receives for intrastate transport in Texas. Del-Perm runs 33 miles from Targa’s Oahu and Midway gas processing plants in the Delaware sub-basin to the Waha hub. The project amounts to a $112MM capital investment for TRGP and includes primarily 36-inch pipeline in Crane, Ward, Reeves, and Pecos counties in West Texas (refer to map).
Del-Perm began service on July 13, according to the FERC filing, near the start of 3Q23. Del-Perm connects to “a pipeline that moves gas from the Waha Hub to the Agua Dulce Hub in South Texas.” This likely refers to Whistler Pipeline, which was scheduled to start its own expansion in September. TRGP is a significant capacity holder on Whistler, according to EDA contract data.
Despite the project milestone, Targa has said little publicly about its newest pipeline. A review by East Daley turned up no references to Delaware-Permian Pipeline in TRGP investor materials. TRGP does list Delaware-Permian Pipeline as a subsidiary in its latest 10-Q filing, the only reference to the project in the document.
The Railroad Commission of Texas approved intrastate rates for Del-Perm on August 22, according to the FERC filing. The pipeline seeks permission to charge the same rates for interstate service. Del-Perm does not specify which pipelines it seeks to supply, but the Agua Blanca header system owned by Whitewater Midstream connects with the Northern Natural Gas and Natural Gas Pipeline Company of America (NGPL) interstate systems.
Targa placed its Midway plant into service in 2Q23, and the company is likely directing residue gas from Midway to the Agua Blanca interconnect bordering Reeves and Pecos counties.
By debottlenecking processing and takeaway capacity, Targa gives producers behind its Delaware G&P mega-system the opportunity to grow. The largest producers feeding TRGP - Delaware include Chevron (CVX), ConocoPhillips (COP), EOG Resources (EOG), ExxonMobil (XOM), Mewbourn Oil, Occidental (OXY) and Devon (DVN). While these E&P companies also produce into competing G&P systems, EDA estimates 40-50 rigs are consistently connecting into TRGP’s Delaware asset (see figure).
With a proposed tariff rate of $0.25/MMBtu, EDA estimates the annual EBITDA contribution of Del-Perm will be about $20-25MM per year. Our updates to the TRGP Financial Blueprint will include this latest project ahead of 3Q23 earnings. – Rob Wilson, CFA Tickers: TRGP.
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