Targa Resources Corp. (TRGP) Q1 2018 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the Targa Resources Corporation First Quarter 2018 Earnings Webcast and Presentation. At this time, all participants are in listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Sanjay Lad, Director of Investor Relations. Sir, you may begin.

Thank you, Heather. Good morning and welcome to the first quarter 2018 earnings call for Targa Resources Corp. The first quarter earnings release for Targa Resources Corp., Targa, TRC or the company, along with the first quarter earnings supplement presentations are available on the Investors section of our website at www.targaresources.com. In addition, an updated investor presentation has also been posted to our website. Any statement made during this call that might include the company's expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Act of 1933 and 1934. Please note that actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actually results to differ, please refer to our recent SEC filings, including the company's annual report on Form 10-K for the year ended December 31st, 2017, and subsequently filed reports with the SEC. Our speakers for the call today will be Joe Bob Perkins, Chief Executive Officer; Matt Meloy, President; and Jen Kneale, Chief Financial Officer. We will also have the following senior management team members available for Q&A. Pat McDonie, President, Gathering and Processing; Scott Pryor, President, Logistics and Marketing; and Bobby Muraro, Chief Commercial Officer. Joe Bob will begin today's call, Matt will provide an update on commercial developments and business outlook, and Jen will then discuss first quarter 2018 results and wrap-up our prepared remarks before we open up for questions. I will now turn the call over to Joe Bob Perkins.

Thanks Sanjay. Good morning and thanks to everyone for joining. It's been a busy couple of months since our last earnings call and I believe that the announcements that we made since mid-February are examples of the strength of execution across our organization. Commercially, we announced significant additional Delaware Basin processing expansions supported by long-term fee-based agreements to provide gathering, processing and downstream transportation, fractionation and other related services with a well-positioned investment-grade energy company. Importantly, part of our expansion is to construct new high-pressure rich gas-gathering lines across some of the most attractive acreage in the Delaware Basin. And that new pipe positioning is already betting additional fruit or otherwise, we would not have been able to compete before. We've already contracted with additional producers, have verbal commitments from others, and expect additional dedications over the coming months. We also announced that we're expanding our Grand Prix NGL pipeline further north into Southern Oklahoma. That expansion is supported by volumes from our current and future Arkoma plant and via significant long-term transportation and fractionation volume commitment from Valiant Midstream. Valiant is a private midstream company that put together a very attractive, very large, dedicated acreage position in the Arkoma STACK. We issued $1 billion of senior notes at an attractive rate in a choppy, high yield market in early April, which demonstrates the continued strong support of Targa's business by our high yield investors. We announced in early April that the 200 million cubic feet per day Joyce Plant has been successfully brought online. The Joyce plant was on-time and on-budget and provides much needed relief to a system that has been operating over capacity in the Midland Basin. We also recently brought the 60 million cubic feet per day Oahu plant online in the Delaware Basin, adding incremental capacity as volumes continue to ramp in our Delaware systems. And this morning, WhiteWater Midstream announced that Targa made a small 10% equity and secured strategic space on their project financed Delaware Basin to Oahu pipeline. Also in April, we announced that we retained Evercore to evaluate the potential divestiture of our petroleum logistics business and that process is ongoing. And this morning, we announced that we recently executed agreements to sell our Inland Barge business for about $70 million. That's an example of us identifying some less strategic assets that could be sold for an attractive valuation with the proceed used to help fund our ongoing highly strategic capital program. These public announcements, coupled with year-to-date execution on multiple other fronts, support our key strategic initiatives, which include; investing in attractive projects that leverage our existing infrastructure and further strengthen our competitive advantage; proactively financing our growth program to maintain balance sheet strength and flexibility; and continuing to identify and pursue additional opportunities to further integrate, strengthen, and grow our existing asset base to further enhance an already attractive long-term Targa outlook. Our capital program is expected to generate significant cash flow growth as the various highly visible projects become operational. The longer term outlook that we provided last June is even better today. Looking back at the outlook provided at that time, the fundamentals are currently stronger, including more activity and higher oil and NGL prices we developed the outlook nearly a year ago. Plus we have had a year of additional commercial success that was not included in that outlook. And since that time, Targa has announced significant additional growth projects that were not included and that clearly leverage our existing asset base. We are well-positioned to deliver attractive returns to Targa shareholders over the longer term, supported by our focus on execution and on continuing to provide best-in-class midstream services to our customers. With that, I'll now turn the call over to Matt, and Matt will provide an update on commercial and operational execution and our business outlook. Matt?

Thanks Joe Bob and good morning everyone. Commercial activity and production in many of our operating regions continues to increase and we expect this positive trend to progress throughout 2018 and beyond. Compared to the fourth quarter, first quarter Permian inlet volumes increased 3% even with the freeze-off related impacts in January reducing first quarter average Permian inlet by approximately 2%. Volume have since more than recovered with estimated average April Permian inlet volumes already 8% above the first quarter average. For a total field G&P, estimated average April inlet volumes were 5% above the first quarter average. In the Permian, we continued to execute on our growth program and remain on track to add an incremental 710 million cubic feet per day of new processing capacity in 2018. In the Delaware Basin, a 60 million cubic feet per day Oahu plant is online and we expect to begin commissioning our 250 million cubic per day Wildcat Plant later this month. Both plants are interconnected with multiple other plants and systems across our Permian Basin footprint. Our recently announced Delaware Basin expansion include the 220-mile high-pressure rates gas header system and two new 250 million cubic feet per day cryogenic natural gas processing. The Falcon and Peregrine plants are scheduled to be completed in the fourth quarter of 2019 and the second quarter of 2020 respectively. As part of the agreement, underpinning the expansion plan, Targa will also provide transportation services on Grand Prix and fractionation services at its Mont Belvieu complex for a majority of the NGLs from the Falcon and Peregrine Plant. Without our multi-plant system that spans across the Permian Basin, Grand Prix, and our fractionation assets and our reputation for best-in-class midstream customer service, we would not have been successful in executing these agreements. The integrated midstream service offering that we're able to provide to our producer customers in the Permian is exemplified by this deal. On the Midland side of the Permian, production growth continues at a rapid pace. We're running some of our West Texas facilities above nameplate capacity to meet the processing needs of our customers, while also offloading to other target systems and third-parties and the Joyce plant coming online provided some much-needed system relief. Our expectation for our 200 million cubic feet per day Johnson Plant are similar. It is anticipated to begin service in the third quarter and is also expected to be highly utilized when it comes online. As a result of the production trends that we're experiencing and continued production growth forecast from our customers in the first quarter, we announced that we're moving forward with construction of two new 250 million cubic feet per day cryogenic plants in the Midland Basin. The Hopson plant will begin operations in the first quarter of 2019. The Hopson plant is being named after the late Steve Hopson, former Targa SVP of Operations and Engineering. Steve played a key role in Targa's early history, development and growth, and he is very much missed. After the Hopson plant, the Pembroke plant will begin operations in the second quarter of 2019. Similar to our other plants currently under construction, these plans will also be interconnected with multiple other plants and systems. A substantial majority of the NGLs from are newly announced Targa plant will be transported over time on Grand Prix to our fractionation assets in Mont Belvieu, LPG export facility on the Houston ship channel, and other downstream outlets, further increasing the organic growth across Targa's integrated footprint. Moving to our Oklahoma assets. Our 150 million cubic feet per day Hickory Hills plant, which is part of our Centrahoma joint venture with MPLX, will support growing natural gas production from the Arkoma Woodford Basin and is on track to begin operations in the fourth quarter of 2018. In late March, we announced the extension of the Grand Prix pipeline in the Southern Oklahoma, which will integrate Targa's G&P positions in SouthOK and North Texas to Targa's Mont Belvieu complex. The extension is supported by significant long-term transportation and fractionation volumes dedication from Targa's existing and future processing plant in Arkoma area and SouthOK system. Additionally, the extension is also supported by significant long-term transportation and fractionation commitments from Valiant Midstream. Valiant is a leading private midstream energy company whose position in the highly prolific Woodford formation is backed over 1.8 million of committed growth acreage within an area of mutual interest. Valiant's initial system, infrastructure, which is expected to phase in during the second quarter of this year will span across multiple counties in Southern Oklahoma and will include the installation of our 200 million cubic feet per day cryogenic processing plant and a high pressure trunk lines spanning through the basin's liquid-rich fairway. In the Bakken our outlook continues to strengthen our activity remains robust on our dedicated acreage and as we benefit from increasing production levels. Estimated April crude gathering volumes averaged about 140,000 barrels per day, representing a sharp increase over the first quarter levels. Construction of the new 200 million cubic feet per day plant at our existing Little Missouri facility through our 50-50 joint venture with Hess Midstream is well underway and will help meet Targa and Hess' growing production needs. The LM4 plant is on track to be complete in the fourth quarter of this year and is expected to be highly utilized over the next year after it commences operations in early 2019. Turning to our downstream business. The outlook for our logistics and marketing business continues to strengthen, supported by strong supply and demand fundamentals. We expect higher field G&P inlet volumes, an increasing ethane recovery to drive higher fractionation volumes. And we expect this trend to continue in 2018 and beyond. In the first quarter, our volumes increased 26% over last year volume. The fourth quarter outperformance and fractionation volume that did not carry over into Q1 was attributable to the impacts of Hurricane Harvey as we fractionated some of our additional inventory in the fourth quarter and also had higher third-party export volumes from fractionating some of the excess inventory build of our peers. We completed a schedule turnaround of our CBS Trains 1 through 3 in early April. For the remainder of the year and beyond, increasing G&P volumes are expected to result in increasing Y-grade volumes available for fractionation. To accommodate this growth, our 100,000 barrels per day Train 6 fractionator is under construction and is expected to be highly utilized when it begins operation in the first quarter of 2019. Benzene volumes were lower in the first quarter and while we continue to receive take-or-pay payments related to the contractor we have in place for benzene treating through 2018, we're going to repurpose our facilities into additional low-sulfur natural gas treating over time given the increasing demand for LNG. The EBITDA impact from these reported volume changes is the deminimus. Shifting to our LPG export business. We averaged 6.1 million barrels per month of exports at Galena Park during the first quarter and April volumes were similar to first quarter. Our long-term outlook is largely unchanged the long-term fundamentals remain robust for the U.S. LPG export, driven by international LPG demand growth and continued strength in growing LPG supply from the U.S. We have an attractive multiyear contract position and the interest in multiyear contracts continues. We're enhancing our capability and flexibility at Mont Belvieu and Galena Park to meet customer demand as we continue construction and add infrastructure at Mont Belvieu and Galena Park including a rebuild of our older stock at Galena Park. These enhancements give us additional capability to export more LPG volumes, depending upon vessel size and product mix. The Dock 2 rebuild will be concentrated during the second and third quarters of this year and will have minimal impact on our operational capacity at Galena Park. Construction on Grand Prix continues and the project remains on-time and on-budget with the pipeline expected to be fully operational in the second quarter of 2019. As announced in late March, volumes are currently expected to exceed 250,000 barrels per day in 2020. Grand Prix is expected to provide significant and increasing fee-based earnings over the long-term and we are well-positioned to stage incremental low-cost expansions that will further enhance project economics to Targa. We're well-positioned to expand Grand Prix by adding stations prospectively when required. As an example, the estimated cost to fully expand Grand Prix capacity from 300,000 to 550,000 barrels per day from the Permian and 450,000 to 950,000 barrels per day in the Mont Belvieu would be less than 10% of the originally announced project costs, providing Targa with capital-efficient growth opportunities that will generate attractive returns. As it relates to residue gas takeaway, Targa is one of the largest aggregators of natural gas in the Permian. Our investment in GCX helps solve some of the gas takeaway constraints from the basin and will direct the gas to premium markets. Additionally, our aggregated positions in excess of GCX are well-positioned to negotiate reliable and competitive future gas takeaways for our producers. You have also seen a press release from WhiteWater Midstream yesterday that we're now at 10% equity owner in the Agua Blanca pipeline in the Delaware Basin. Construction of the pipeline is being largely project financed. So, for a deminimus amount of capital, we secured an interest and attractive process that enhances our ability to transport volumes in the Delaware to Oahu. With that, I'll now turn the call over to Jen to discuss Targa's results for the first quarter.

Thanks, Matt. Good morning everyone. Targa's reported adjusted EBITDA for the first quarter was $307 million, which was 11% higher than the same period in 2017. Continued strong gathering and processing volume growth in the Permian complemented by higher volumes in Badlands, South Texas, and SouthOK, along with higher commodity prices and higher fractionation volumes drove the increase in adjusted EBITDA over the prior year, partially offset by declining WestOK and North Texas volumes. Reported net maintenance CapEx was $22 million in the first quarter of 2018 compared to $25 million in the first quarter of 2017. Distributable cash flow for the first quarter was $216 million, resulting in dividend coverage of about one times. Sequentially, adjusted EBITDA for the first quarter decreased 7% over the fourth quarter. If we normalize and exclude EBITDA that shifted from Q3 to Q4 as a result of the impacts of Hurricane Harvey, adjusted EBITDA for the first quarter was about 4.5% lower than the fourth quarter. In our gathering and processing segment, operating margin decreased by $13 million in the first quarter when compared to the fourth quarter. Higher natural gas inlet volumes in the Permian, South Texas, Badlands, and Coastal were more than offset by lower NGL prices and higher operating expenses due to new assets and system expansions. First quarter Permian inlet volumes sequentially increased 3% from growth in each of our Permian Midland and Permian Delaware systems and as Matt mentioned, volumes would have been higher by approximately 2% pro forma for the freeze-off experience in January. Inlet volumes in SouthTX sequentially increased 14% as we benefited from both volumes from Sanchez and from the producer contracts acquired with the Flag City assets. In the Bakken, first quarter crude oil gathered volumes were largely in line with the fourth quarter and were modestly impacted by the timing of well completions. Permian crude volumes gathered in the first quarter were up 10% over the fourth quarter. In our logistics and marketing segment, operating margin decreased $15 million in the first quarter compared to the fourth quarter as higher wholesale propane operating margin was more than offset by lower fractionation volumes due to the unusual outperformance in the fourth quarter, as mentioned, lower treating volumes and higher OpEx. LPG export volumes were strong in the first quarter as we averaged 6.1 million barrels per month of export at Galena Park. Our first quarter results were consistent with our expectations and we have no changes to our 2018 financial and operational outlook. We continue to expect Permian inlet volume to ramp throughout 2018 as production growth continues and new Targa plants begin operations. And we expect the same volume growth trend to translate to our downstream fractionation business. We expect adjusted EBITDA to also ramp throughout 2018 with fourth quarter adjusted EBITDA being the highest was the year. Moving now to the financial related matters. The fair value of the earn-out payments for our Permian acquisition is currently estimated to be $373 million with the entirety of the payment forecasted for April 2019. No payment is due related to the March 2017 through February 2018 measurement period. The $56 million increase in the contingent consideration versus the fourth quarter estimate is attributable to an increase in underlying volume expectations and a shorter discount period. During the first quarter, we executed additional hedges, and for 2018, we estimated we have hedged approximately 90% of condensate, 85% of natural gas, and 80% of NGL volumes based on our estimate of current equity volumes from our field G&P contracts. Our natural gas hedges include regional basis hedges. For 2019, we estimate that we have hedged approximately 65% of natural gas, 65% of condensate, and 45% of NGL volumes based, again, on our estimate of current volumes from field gathering and processing. As Joe Bob mentioned, in April we issued $1 billion of 5.78% percent senior notes due in April 2026. Net proceeds from the senior notes offering were used to reduce borrowings under our revolver TRP and our accounts receivable facility. Pro forma for the senior notes offering our consolidated liquidity was approximately $2.7 billion. On a debt compliance basis, TRP's leverage ratio at the end of the first quarter was approximately 3.9 times versus a compliance covenant of 5.5 times. Our consolidated reported debt to EBITDA ratio was approximately 4.6 times. Our current 2018 net growth CapEx estimate remains unchanged from our previous update and is approximately $2.2 billion. Full year 2018 maintenance CapEx is forecast to be approximately $120 million. Consistent with our messaging, since our November earnings call, we're focused on identifying the most attractive ways to fund our growth capital program given the visibility that we have to increasing EBITDA looking forward. Year-to-date, we received $87 million of net proceeds from the sale of common equity under our ATM program and believe that the ATM is a useful tool for us given our liquidity as a Corp. The execution of agreements to sell our barge business and the potential divestiture of our petroleum logistics business, highlight our willingness to sell assets to deploy capital into more accretive opportunity. Our confidence in our multifaceted financing approach is supported by the DevCo joint ventures that we announced in early February, our notes offering in early April, which both demonstrates our continued access to private equity capital and public debt capital at attractive course, and significantly reduce our funding needs for 2018 and 2019. We continue to receive strong support and future interest from both sources to provide us with additional capital. We remain focused on executing on the projects, and we have underway to bring our projects in service on-time and on-budget, and also continue to be focused on securing attractive sources of financing that enhance and maximize longer term shareholder value. As we look forward and consistent with the long-term outlook that we published last June, our balance sheet and dividend coverage are expected to strengthen significantly as our projects underway are completed and our EBITDA increases and we're very excited about the outlook for Targa and its shareholders. So, with that, Heather, please open the line up for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Shneur Gershuni with UBS. Your line is open.

Hi, good morning everyone.

Hey good morning.

Hey Shneur.

Just wanted to start off. When you laid out your five-year plan last June, you've announced a series of projects since then. I realize each one of them is smaller in nature, but cumulatively it's been a large capital increase. You also signed a large acreage dedication at the same time. Directionally, I was wondering if you can give us some color on how your outlook on the five-year plan has changed. Do you see getting to $2 billion EBITDA earlier? Or is there another way to characterize it, that you expect to go up by a couple hundred million dollars? I was just wondering if you could give us any color on that.

Yes Shneur. You're probably aware that we get that question often and it's understandable that the markets would like a monthly update on our rarely given long-range outlook. What we do put in the page in our investor presentation is the factors that have changed since about a year ago. And I described that briefly in my comments. Significantly better industry fundamentals, activity, expected production and commodity prices for NGs and crude. Secondly, commercial success over the last year. We continue to have traction, leveraging our existing position and making that existing position better. And then as you mentioned, the significant number of projects that were not included when we laid that outlook out in May of last year. And then we articulated those as they've occurred, as commercially we created the success of the dedications and announced the projects on the upstream and downstream that were necessary to meet our midstream customer's needs. All of that is very positive good news. You've suggested that we probably get to the $2 billion sooner. I think that that's a very reasonable conclusion. But I'm not providing when we get to that. It's just directionally it has to occur sooner. And I hope that satisfies investors on the phone call today. I know that many have done their own analysis and they're coming to a conclusion similar to yours.

Great. As a follow-up specifically around the quarter, OpEx and G&A costs were up specially if you look relative to volumes and so forth. Is it fair to assume that these costs were associated with the startup of the new plants and that we'll see the operating leverage going forward as those plants ramp to full run rates?

That's right Shneur. I think when you think about the year using the first quarter as a decent run rate just given that we have a Joyce plant come online, we've got some other plants that are coming online this year is a reasonable assumption versus trying to exponentially grow it from here.

Okay, great. And then finally, the Outrigger liability increased. Can we assume is fair to assume that it's due to higher volume expectations? And you've also seem to have a lot of frac volumes continue to be up. Is capacity getting tight there and pricing be going up there as well?

On the first piece of that related to the Permian acquisition, yes, the contingent liability or contingent payment is higher now as a result of both volumes and the fact that there's a shorter discount period related to the fair value as you move through time to get closer to the end of the second earn-out payment as well.

Yes and then on the frac side of things, we're seeing a large increase in Y-grade volumes from our systems and that's happening for others other systems to grow. So, fractionation capacity is indeed very tight at Mont Belvieu right now.

Great. Thank you very much guys. Appreciate the color.

Thanks Shneur.

Hey thanks.

Thank you. Your next question comes from Christine Cho of Barclays. Your line is open.

Hi everyone.

Good morning.

The gas pipes out of the Permian quite approaching full capacity. An incremental takeaway isn't expected till second half of next year. Do you have an idea of what the producers behind your system are going to do? Should we think that this could potentially slow down growth or is the plan to start flaring?

Question was sort of broad generalization. I believe that it could result in increased -- in the Permian. That's a natural conclusion to come to. But it's going to depend on each producer situation and locally where are you in the Permian relative to those takeaway. Also, we've done everything we can to try to provide for our producers driving with our hiding zone is the way we like to think about it, to both get them to liquid points and to get them out of the basin. Targa is attempting to do that for the near and medium term and just as many of our competitors are. But I like where we've positioned ourselves so far as a function of our large aggregated residue position in the basin.

And as a follow-up, like just -- excuse me for my ignorance, but I'm under the impression that this flaring usually occurs at the wellhead. So, curious as to why this doesn't happen at the back end of the processing plant with just the residue gas?

Yes. Now, we're talking about emissions regulatory frameworks. Targa as a midstream operator is going to live within our relatively requirements just as the E&P customers wherever are trying live within their regulatory requirements. There are different regulatory requirements at the wellhead than at centralized processing plant. And broadly speaking, producers can get temporary waivers on the ability to flare at the wellhead and Targa will continue to comply with the emissions requirements that we're under and centralized gathering processing facilities.

I see. Okay. That's very helpful. And then you guys have seen some big growth numbers in South Texas. On the NGL volumes that it's turning out, implies that the gas is much richer than what you've historically seen in that segment. Can you talk about what's driving that? Is that just as simple as Flag City volumes are much richer? And how should we think about the cadence of that growth going forward?

Yes. For the Y-grade increase we've seen, if we look at the year-over-year volumes, a lot of that is more of recovery. And so as we look at just our economics and producers' economics, you can see the -- recovery. So, I think it's really more just a factor of what we are recovering at the plants more than the gas being richer.

I see. Okay. And then just two housekeeping items. Did you say that some of the volumes in the Permian were being overflowed to third-party plants? And if that was what I heard, could you quantify how much and for how long?

Yes, we gave a number in the fourth quarter about the offloads we had to third-parties. It was -- what had been?

About 30.

It was 30 million or so. We had some in the first quarter. We didn't quantify. It's significantly less than that. So, most of it we're able to get onto our systems. And you look at the average for the quarter with Joyce coming on, it did provide some relief. But we didn't quantify for the first quarter what that was, but it was 30 in the fourth quarter.

Thank you so much.

Thank you Christine.

Thank you. And your next question comes from Colton Bean of Tudor, Pickering, Holt. Your line is open.

Good morning Colton.

Good morning. I just wanted to check on the Delaware processing throughput. Looks like volumes were effectively flat quarter-over-quarter. So, is that somewhat constrained to Oahu came into service or is it primarily the result of weather impacts?

Yes. So, I think that was potentially -- or it was partially related to the weather impacts. We were in a process of starting up Oahu as well. But we see the outlook really as strong as ever for the Delaware. And you can kind of see that with actually the payment that Jen mentioned increasing for next year, the earn-out payments. So, I think the outlook is as good if not better, but it was impacted by weather in the first quarter.

And I guess, just a follow-up on that from an operational standpoint, is there a risk to seasonality production as you have more production coming from the Delaware with the significantly higher water cut?

That's an interesting observation. The higher water cut is problematic. The multisystem -- systems connect at the multisystem helps us as a midstream provider and we will be learning what it means for each of our E&P producers. What typically happens is they get better and better at handling this and we would expect that.

Okay. And just to switch gears over to crude gathering. Looks like the updated presentation shows a pretty steep uptick for gathering in April versus Q1. You guys have any comments on what the driver of that was, whether it be Permian or Badlands, and just kind of some comments there?

Yes. A significant uptick of that was in the -- up in the Badlands. We mentioned -- I think we said in the script 140,000 barrels a day. So, it was a pretty good uptick up in the Badlands. I think we saw some growth in the Permian as well, more on the Midland side.

Got it. And then just final one from me probably on the fractionation front. Appreciate that the fourth quarter saw an uplift from volume shifting from Q3. I think you had previously provided an adjusted number for Q4, and it looks like that was revised a bit further. So, if you guys could just talk about kind of what the -- that secondary revision was and how we should think about the trajectory over the course of the year.

Yes. So, when we are looking at the numbers, Colton, part of what we revised was the fact that we also had a number of third-party volumes running through our fracs in the fourth quarter related to those third-parties also having built inventory as a result of Hurricane Harvey. So, we felt like that was a more accurate depiction of the Hurricane Harvey impact was to not just show the impact to Targa of inventory that moved into the fourth quarter, but also to quantify for you the impact of third-party inventory that also moved into the fourth quarter.

That makes sense. All right. Appreciate the time.

Okay. Thanks.

Thank you. And your next question comes from TJ Schultz with RBC Capital Markets. Your line is open.

Hey good morning.

Hey good morning.

Hey. How far along in the process are you on the term loan and splitter asset sale program? Have this been received at this point?

Yes. I guess I would just say that, that process is progressing. There is a lot of interest, so there's a lot of potential bidders that were -- have signed CAs. So, that's as far I'll kind of say as part as the process. But early indications are that the progress is progressing very well, and there's a lot of interest.

Okay. Thanks. The Galena Park dock rebuild, can you quantify what impact that will have on operational capacity for exports?

Let me provide a quick answer to that one. I noticed as we went through the script, that might have left a question. We were trying to point to our customers and others that the impact to the work would not be significant while it was going on. What we were trying to point to was that, it was not debottlenecking or making things better. So, I just thought I'd clarify what the intention of the script, and Scott can add some more color to it.

Yes. Certainly, what we point to is the fact that we will have some downtime associated with that Dock 2 rebuild during the second and third quarter. But again, from a contractual standpoint, our obligation to our customers, and frankly, the ability to continue to spot sell where there is availability in the marketplace will continue throughout those quarters. So, we -- again, we see very minimal impact to us.

And we haven't quantified what positive it's providing. We're constantly working on adding effective capacity.

Okay. Thank you.

Thanks TJ.

Thank you. And your next question comes from Craig Shere with Tuohy Brothers. Your line is open.

Good morning Craig.

Good morning.

Hey good morning.

Appreciate the continued robust outlook for the LPG market with exports. We're starting to hear more and more peers kind of talk about vertically integrating into that same area. Can you kind of opine on the potential enhanced competition that might develop and your competitive edge over the next two, three years?

This is Scott, Craig. What I would say is, is, again, when we look at the position that we have, again, integrated through our upstream production, now tied into pipelines that are connecting upstream to downstream through Grand Prix and the increased capacity that we will have over time through fractionation, the announcement of our Train 6, which is currently under construction, looking at additional permits in the future for fractionation expansion, all tied to our Galena Park facilities, we like our position, especially when you look at the ability to store it in Mont Belvieu. So, I can't really concentrate or comment on what's going on with competition. I would just say that our integrated platform looks very attractive to the marketplace, and our customer service is very good as well. So, we like our potential for growth in the future. And we have the ability to expand at our own facility. And we constantly look at opportunities to do those things and we're in a position that we like.

Are you looking at all at diversifying the product in future years?

Certainly most of our concentration over the years since our first announced expansion back in 2013 has been more on propane over the years. And the recent announcement with Dock 2 and some of the integration with the new pipeline concentrates a little bit more on butanes, where we see some growth opportunities. So, we're enhancing those capabilities. We're always going to look at other products. We've mentioned in the past the possibilities of increasing our abilities on ethylene. But again, currently today, our concentration is on propane and butanes, but we don't write-off any other potential products.

That's helpful. Thank you. And last question. Joe Bob, in your prepared remarks, you kind of foreshadowed additional Permian acreage dedications expected in coming months. Without specifics, any kind of proportionality or book-end range you can provide for some of this incremental commercial opportunity?

I'm very pleased with the traction we have on commercial activity around our assets. And in those prepared remarks and sometimes I go off script, I was trying to point to the benefits that the high pressure header associated with that very large investment-grade energy company's dedication, that pipe running through that part of the Delaware would provide. And they're incremental to the first deal, but very attractive because they are incremental to the first deal and then leverage that pipe that's being put in place. Others, we don't talk about. The leveraging of existing assets, the leveraging of our footprint is very accretive, higher return than if we were out there working in the whitespace. That's our focus, and I'm proud of the team that's doing that.

Understood. Thank you.

Thank you. Your next question comes from Darren Horowitz with Raymond James. Your line is open.

On the logistics side, you had mentioned higher ethane recoveries and the opportunity for that to lead to higher frac volumes. From an ethane recovery perspective, what level is built into your guidance? And what pricing impact as we progress throughout this year do you think that's going to have on ethane fracs, spreads, specifically net to your equity and your interest?

Yes. Good question, Dan. So, we had -- when we had that outlook, we had a significant amount of ethane recovery built into that longer range forecast. So, -- and it's a mix. Some of our plans for -- are in full a recovery, others are in partial rejection. And some -- oftentimes, if we have capacity constraints in areas, we'll go into rejection even if it's -- could be operational issues that lead to that. So, it's a mix in that forecast. There is some upside if we were going to go into full recovery mode. There would be some upside to that forecast, and it's really going to benefit us. One, on the frac side as we get more volumes through the fractionation. But once Grand Prix comes online, we'll get the kind of double benefit of getting additional fees for transportation and fractionation. So, it's really kind of as you go into those later years when Grand Prix is online, there's more upside, I'd say, in the post-Grand Prix commencement than the pre.

Okay. And then, if I could, just one quick financing question. Jen, as you think about derisking the funding gap, excluding any sort of petroleum logistics asset sale, for the remaining 2018 equity requirement, do you think -- or I should -- maybe I should say, hypothetically, do you forecast that the ATM on a standalone basis can get you there? And then when you think about the upcoming construct for financing 2019 growth CapEx, including the outrigger earn-out payment and how you guys are thinking about the call option on the DevCo asset JVs, what's the propensity to take on additional debt? And up to what level from a coverage or ratio perspective are you comfortable? Because obviously, what you did in April is an extremely attractive cost to capital. So, can you just give us some color there?

Sure. I think from our perspective, obviously the ATM is a very useful tool. It's been a bit of a game changer as a C Corp. versus an MLP, just in terms of the daily liquidity that we have. So, certainly, if we wanted to just fund through the ATM over the course of the year, that's a tool that's available to us. I think you very consistently heard us say that we are going to use a multifaceted approach to our funding for 2018 and 2019. You've seen us execute in a number of different ways already in terms of the DevCos, the more asset level or strategic joint ventures, obviously the barge sale, and we do have the pet log's evaluation of a potential sale ongoing. So, I think it will continue to be a multifaceted approach looking forward. We're very focused on being prudent and thoughtful given the visibility that we have to our long-term EBITDA outlook and figuring out the way that we can most effectively and efficiently fund our capital program, and that will continue to be our focus. That's very much unchanged.

Colton that was a very good question and a very good answer from Jen.

Darren.

Down -- I'm sorry, Darren. Down in the beginning of the question, there was if you exclude the petroleum logistic sale. We were thinking that, that was the most likely scenario. We wouldn't have gone through the trouble of the process in the first place. So, there is likely to be some proceeds. Some of those assets are very likely to sell. That would have to be the expected case or we would -- we've got better things to do.

And then related to the DevCos, I mean, we very thoughtfully tried to put a structure together that gave us a lot of flexibility, and that's why we have a four-year option period to buy the interest back. That's why we can buy the interest back in part or in whole. And I think sort of more consistent with Targa past practice would be to assume that we won't wait till the very end to take it out and we won't take it out all at once. We'll be very thoughtful and prudent about how we approach that as well.

Thank you.

Thanks Darren.

Thank you. Your next question comes from Vikram Bagri with Citi. Your line is open.

Hey good morning.

Hey guys. Quickly wanted to follow up on an earlier question. The 25% inlet volume growth guidance that you have for Permian Basin, does that factor natural gas takeaway constraints in any way? And you've mentioned you're taking steps to mitigate the impact of takeaway constraints on your customers. Anything you can share in terms of steps you've taken or things you can do to mitigate the impact?

Yes, sure. So, when we gave the 25% Permian growth, that's the bottoms-up build from our producers. And it was our expectation at those levels that we'd be able to get the gas moved to market and away from market. We are one of the larger gas movers in the basin. We're constantly working on securing rights and access to various pipes and we think we've done a good job at serving our producers' needs. It may get tight. As Joe Bob mentioned, there could be some potential flaring. We'll just have to see how the growth progresses and where the pinpoints are. But we've done a proactive job at securing additional takeaway and capacity at the various points in and around the Permian.

Okay. Understood. And in terms of Midland Basin GPM, it picked up in 1Q, was that due to ethane recovery? Or was there something else going on which was one-time?

It was essentially more ethane recovery in Q1.

Okay. And the final question I had about the Permian Basin was I want to get clarity around your contract with this IG-rated company that signed up for G&P and downstream services. Is the contract for incremental production above current levels? Or some of the existing volumes could also be shifted to TRGP systems in the future? Anything you can share on that front.

Yes. I want to be careful getting into too much about any specific contract with any one producer. I think I'll just say we have a very attractive long-term contract with this producer for significant volumes and that we expect will be falling down our system, and we've announced capital associated with those expected volumes. So, we feel very good that those volumes are going to be, in fact, available for us.

Understood. Thank you very much. That's all I had.

Okay. Thank you.

Thank you. Your next question comes from Jeremy Tonet with JPMorgan. Your line is open.

Good morning. Thanks for taking my question. In the slides, you noted under LPG exports strong first quarter exports from additional short-term opportunities there. I was just wondering if you might be able to expand a little bit on what the dynamics were there and if that lease due in an environment where you can kind of extend your contract profile?

We're constantly, Jeremy, looking at extending our contract portfolio. We talked about a diversified portfolio on just about every call that we've had for earnings. The success that we saw in the first quarter resulted in demand that we've seen both in the Americas, Europe, and other areas that we ship to or that we provide products to. We would expect that some of that could continue forward. I'm not going to lean into whether or not that has led to other long-term contracts or anything like that, but we also did give you an indication in the script today that the volumes that we saw in April were very similar to what we saw in the first quarter.

That's very helpful. Thank you. And then just as far as the freeze-offs, I'm wondering if you might be able to quantify the dollar impact there. I think you gave the volumes. But just wondering if you had that -- if you could share that.

No, I think you just have to kind of use your model and estimate for another 2% kind of growth in the Permian, what that would relate to in out-margin.

Fair enough. I'll stop there. Thank you.

Okay. Thanks Jeremy.

Thanks Jeremy.

Thank you. Your next question comes from Sunil Sibal with Seaport Global Securities. Your line is open.

Yes, hi good morning guys and thanks for all the colors on the call. Just had one clarification. So, out of the $2.2 billion net growth CapEx for 2018, how much was spent so far in Q1? And then how should we think about the cadence for the remainder of the year?

I think it was around $400 million to $500 million for the first quarter, Sunil. And then as you think about cadence through the year that would indicate that potentially be fairly ratable.

Yes. And we'll be filing the Q, which will have the breakout for total CapEx, maintenance growth, and then it will have growth in that in there as well.

Okay, got it. That's all I had. Thanks guys.

Yes, thanks.

Thank you. And your next question comes from Dennis Coleman with Bank of America. Your line is open.

Thank you. Good morning everyone. Just a quick fact-check for me. I'm sorry. I was scribbling quickly. But can you just review the expansion capability for Grand Prix. There was a bunch of numbers, I think $300 million to $550 million.

Okay. Sure. I'm going to go pull up my notes.

He's pulling it up. The short one is you can see those expansion capabilities described on a page in our investor presentation and it's consistent with initial announcement where it had the un-pumped capacity and then the pumped-up capacity for the Western leg and for the Southern leg. And those were the capacities that he did. And then we said for that, across the $1.3 billion worth of initial announced capital, that only less than a 10% increase was required to fully pump up those two segments to the pipe. But you can give him the numbers.

Yes. Okay, perfect.

The numbers are in slide 15.

Thank you. Slide 15 with the current deck.

That's fine. The 10% was what I wanted to get back to, to the numbers, and I'll check it on the slide. So okay. Thank you.

I can only remember some of them, but I can't remember most of them.

You got through them quickly.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Sanjay Lad for closing remarks.

Great. Thanks to everyone that was on the call this morning and we appreciate your interest in Targa Resources. Jen and I will be available for any follow-up questions you may have. Thanks and have a great day.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you all may disconnect. Everyone, have a wonderful day.