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The Second Coming of GC Fractionator

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A frac is risen in southeastern Texas. The imminent restart of Gulf Coast Fractionator (GCF) says a lot about the state of NGL markets and a fairly urgent need for more frac capacity, according to East Daley Analytics’ NGL model.Frac Supply vs capacity Mt Belvieu

Targa Resources (TRGP; 38.75%), EnLink Midstream (ENLC; 38.75%) and Phillips 66 (PSX; 22.5%) are partnering to bring the old unit back when needed the most. Located in Mont Belvieu, the 135 Mb/d fractionator was shut down in 1H21 and has been idle for nearly three years. The owners are giving GCF a second life to help a market constrained by available fractionation capacity.

The companies plan to return GCF to commercial operations in 2Q24. The timing is optimal considering that, in the NGL Network Model, EDA estimates Gulf Coast fracs are operating at 100% utilization (see the circle of green-dashed line in figure).

Help is on the way with additional fractionation expansions from TRGP (Trains 9 and 10), ONEOK (OKE; MB-6) and Enterprise Products (EPD; Frac 14). The problem with most of these projects is timing – they are all newbuilds, and other than TRGP's Train 9 will not be available until 2025. The ability to restart an old frac is a valuable option when timing is of the essence.

The owners previously estimated capital costs of about $67MM to resurrect Gulf Coast Fractionator. Targa and ENLC have contributed $52.2MM through YE23, implying a total cost of $67MM. That sum would put expenses close to the initial estimate, assuming no significant spending in 1Q24.Picture2-Apr-01-2024-10-41-43-4779-PM

Based on historical asset data, earnings for Gulf Coast Fractionator have fluctuated more than throughput volumes, as shown in the figure. From 2010-19, GCF distributed an average of $34MM in cash annually. That would be a conservative cash flow estimate in today’s constrained environment. EDA estimates the cost to EBITDA on the restart is sub-2x, yielding a frothy return for the owners in the Financial Blueprints. Our 2024 cash distribution forecast assumes an in-service in mid-2Q24, and that GCF runs at full utilization for the rest of the year. – Rob Wilson Tickers: ENLC, EPD, OKE, PSX, TRGP.

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