5 Things Targa Resources' Management Wants You to Know
The last couple of years have brought about loads of changes to the oil and gas space, and one of the companies playing a very interesting angle on those changes is Targa Resources Corp. . Today, it is one of the largest exporters of natural gas liquids, and it is looking to expand that business even further with the export of other oil- and gas-based products in the future. On its most recent conference call, Targa's management discussed some of the achievements in this export business and how it plans to grow its business through both the parent company and its limited partnership,Targa Resources Partners . Here are five quotes from management that highlight what it is thinking today.
1. Our Atlas acquisition really helps one corporate entityLast year's acquisition of Atlas Pipeline Partners was a bit of a transformative buy as it gave the company a natural gas and natural gas liquids system that could deliver from the first mile of pipeline all the way to end markets with its export facilities. From an operational standpoint, it makes the company a better operator, but from a financial standpoint, it's pretty clear that the parent company is receiving the better part of the deal:
Because of thestructureof the deal to acquire Atlas, the parent entity of Targa is able to see a much larger share of dividend growth because it is entitled to both distributions from its ownership of units aswell as incentive distribution rights that rise as per-unit distributions increase.
2. Can't predict which way the wind blowsSeveral analysts on the conference call had plenty of questions about guidance for the rest of the year as well as Targa's outlook for oil and gas production in the U.S. in the near future. However, Perkins wanted to remind analysts that management isn't made up of soothsayers and they are making best estimates possible to accommodate the changing times:
Without the invention of a time machine, it's hard to see Targa being able to do anything else other than talk to its customers and figure the best plan from there.
3. Oil-ish exports are a fast-growing businessIt wasn't that long ago that the United States was a major importer ofnaturalgas liquids such as propane. Oh, how times have changed. As this country becomes a major exporter of these products,Targa is positioning itself to get a big piece of the pie. Last quarter was a confirmation of this as Perkins explained the number of exports Targa is currently running:
On top of its current exports of LPG, it is also in negotiations with some oil and gas producers to invest in facilities that would export condensate, which is the closest thing we have ever come to crude oil exports in a long time. If this comes to pass, it could be a big win for the company long term.
4. Margins are becoming more stablePerhaps one critique of Targa's business model is that it is more exposed to commodity prices than many other pipeline and midstream companies because of the types of contracts it has.Historically, 60%-65% of gross operating margins came from fee-based contracts. However, it is looking to change that. According to CFO Matthew Meloy, the most recent quartersaw a larger swing toward fee-based services and contracts.
It may not be the 80%-90% fee-based operating margins that many of its peers get in the pipeline and processing space, but it is certainly a step in the right direction toward generating more stable operational profits on a quarter-to-quarter basis.
5. We're still putting money into growthEven though the company completed its acquisition of Atlas just a few months ago, it hasn't stopped the company from making major investments in its pipeline network. According to Meloy, the company is still on track to spend a sizable amount on organic growth projects:
Perkins went on to explain that a lot of the investments the company plans to make will serve to interconnect its existing system and the Atlas pipeline system. By making them a more fluid network ofpipelines, it will give its customers more options on where to move product.
What a Fool believesThere are still a lot of questions up in the air when it comes to what the changes in the global oil markets will mean to the American market over the next couple of years. So instead of trying to make predictive actions, Targa's management is looking at ways of taking as much of theunpredictabilityout of the equation by ensuring that more of its profits are secured by long-term, fee-based contracts andby investing in areas where there is a lot of potential for growth in both up and down oil markets. Based on where we are today, an investor can't ask a company's management to do much more.
The article 5 Things Targa Resources' Management Wants You to Know originally appeared on Fool.com.
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