Targa Resources Corp. (TRGP) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Targa Resources Corp Second 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 be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Sanjay Lad. You may begin.

Thank you, Michelle. Good morning and welcome to the second quarter 2018 earnings call for Targa Resources Corp. The second quarter earnings release for Targa Resources Corp., Targa, TRC or the company, along with the second quarter earnings supplement presentations are available on the Investors section of our Web site at www.targaresources.com. In addition, an updated investor presentation has also been posted to our Web site. 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 actual 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 31, 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 also have the following senior management team members available for Q&A. Pat McDonie, President, Gathering and Processing and Scott Pryor, President, Logistics and Marketing. Joe Bob will begin today's call with a few highlights followed by Jen who will discuss second quarter 2018 results, and Matt will then provide an update on commercial and business development before we open it up for questions. I will now turn the call over to Joe Bob Perkins.

Thanks, Sanjay. Good morning and thank you to everyone for joining. I want to begin today actually by honoring one of Targa's retired founders and my good friend Roy Johnson. Our Permian Johnson plant is named after Roy. For those of you who have not heard, Roy was killed in a tragic bicycling accident in late July. Targa would not exist if it were not for Roy's vision and inspiration. Roy had been retired for several years. But his legacy remains. And many of us will always have Roy's example in our heads and in our hearts. Roy is enjoying this fine earnings report from better place, but he will always be missed. When this year began, a lot of external focus on Targa was related to our attractive growth capital projects and for a while perhaps even more so related to our ability to effectively finance our growth capital program underway. For the first few months of the year, it became even more of a heightened topic as we announced additional attractive new projects requiring additional future CapEx. I believe that now as Targa has continued to execute on our projects and on our financing plans through the first half of this year with major projects on track with the prospects for those projects even better than when we announced them and with us already having funded our minimum equity needs for our 2018 growth CapEx program, the conversation appropriately shifts more to focus on the strength of our asset footprint and the growth profile that is rapidly coming into view as we move thorough this year and into 2019. Many of our important projects underway will be completed by the first half of next year, less than one year away. And we are working to complete those projects as quickly as practicable because the demand for processing pipeline takeaway fractionation and export services continues to increase. Fundamentally, the strengthening outlook for domestic production volumes in crude and NGL commodity prices is providing additional tailwinds for our businesses. And, will accelerate the utilization at the projects underway. And, will continue to drive the need for additional infrastructure. Our operational and financial performance through the first half of this year has its own track to meet or exceed our previously disclosed full-year 2018 guidance. And more importantly, our longer -term outlook for Targa continues to strengthen and continues to gain momentum and visibility. Our continued focus on execution across the company was demonstrated recently by a number of successful highlights. Successfully bringing online our 200 million cubic feet per day Joyce plant in the Midland Basin, which was essentially pulled [ph] at startup; commencing operations of our 60 million cubic feet per day Oahu plant and our 250 million cubic feet per day Wildcat plant, which will support the expected volume ramp in our Delaware systems; expanding our joint venture partnership with Sanchez in South Texas to include a new long-term dedication by Sanchez and by all their working interest partners for over 315,000 additional gross acres in the Western Eagle Ford further strengthening the long-term outlook of our assets in the area. Announcing our participation in an additional strategic residue gas pipeline called Whistler to very effectively linked growing natural gas supply from the Permian Basin to key demand markets along the Texas Gulf Coast further enhancing Targa's Permian Basin asset positioning and midstream service offerings to our customers. Raising more than $300 million for the issuance of common equity under our ATM program during the second quarter, which combined with our financing efforts earlier this year means we have funded our minimum 2018 equity needs. We have funded our minimum 2018 equity needs without the likely benefit of some catalog asset sales. And extending our TRP and TRC revolvers and increasing the size of our TRP revolver to $2.2 billion to support the future liquidity needs of our business. This revolver, the largest for any high yield company in the midstream industry with very attractive terms, also highlight the support that we continue to receive from the bank community. So, our strategic initiatives are driven by continued commercial execution, project execution, and financial execution like those examples. And the growth projects and related execution focus support high level of confidence in the future; confidence from increasing line of site into strong long-term outlook at Targa. With that, I'll now turn the call over to Jen to discuss Targa's results for the second quarter.

Thanks, Joe Bob. Good morning everyone. Before we discuss second quarter results, I would like deliver a special Targa shout out to the many people in the field, accounting and elsewhere in our organization who have put in significant extra effort during our recent financial systems implementation while also balancing daily business priorities. Your efforts and amazing attitude will benefit our organization and are much appreciated. I would also like to thank our vendors and customers for their patience and support as we make this important change to support our organizations over the long term. Moving to our results, Targa's second quarter adjusted EBITDA was $326 million which was 26% higher than the same period in 2017 driven by continued strong gathering and processing volume growth, higher commodity prices, and higher downstream fractionation, and LPG export volume. Distributable cash flow for the second quarter was $225 million resulting in dividend coverage of around one time. Sequentially adjusted EBITDA for the second quarter increased 6% over the first quarter. In our gathering and processing segment sequential operating margin increased $21 million driven by higher natural gas inlet volume in the Permian, Badlands, North Texas, and SouthOK, and higher crude oil gathered volumes in the Badlands and Permian. Second quarter Permian inlet volume sequentially increased to 8% from growth in each of our Permian Midland and Permian Delaware systems plus the addition of volumes for processing at the Joyce Plant that were previously being offloaded to third party. Badlands natural gas volumes increased 17% over the first quarter with our Little Missouri facility now operating at capacity. Inlet volumes in North Texas sequentially increased 5% as we benefited from incremental short-term volume, a trend which we do not expect to continue as we look through to the balance of this year. Inlet volumes in SouthOK increased 4% over the first quarter driven by new commercial arrangements and continued growth in the Arkoma and SCOOP region. Our second quarter crude oil gathered volumes in the Badlands sequentially increased 19% driven by strong production growth in the basin. Permian crude volumes gathered in the second quarter were up 35% over the first quarter. In our logistics and marketing segment, the sequential decrease in operating margin of $9 million was predominantly attributable to seasonality in our marketing businesses and was partially offset by lower operating expenses. Fractionation volumes increased by 6% sequentially averaging 412,000 barrels per day in the second quarter. At our Galena Park facility, we averaged $5.8 million barrels per months of LGP exports which was the strongest second quarter in recent years driven by improved seasonal fundamentals. Moving to other finance related matters. The fair value of the earn-out payments for our Permian acquisition is currently estimated to be $312 million with the payment payable in May 2019. This $61 million reduction in the contingent consideration compared to the first quarter estimate is driven by a decrease in underlying volume forecast expectations over the remaining short measurement period. During the second quarter, we executed additional hedges for Targa's percent proceeds equity commodity position. Based on our estimate of current equity volumes from field gathering and processing for the second half of 2018, we hedged approximately 90% of condensate, 80% of natural gas, and 75% of NGL volume. And for 2019, we estimate that we have hedged approximately 75% of condensate, 65% of NGL, and 60% of natural gas volumes. On June 29, we closed in on the amendment and extension to 2023 of both the TRP and TRC revolving credit facilities. The TRP facility was increased $1.6 billion to $2.2 billion demonstrating strong bank market demand and we were able to lower borrowing cost relative to the prior facility. The TRC facility size remained unchanged at $670 million. At the end of the second quarter, our consolidated liquidity was approximately $3.1 billion. On a debt compliance basis, TRCs leverage ratio at the end of the second quarter was approximately 4.0 times versus a compliance covenant of 5.5 times. Our consolidated reported debt-to-EBITDA ratio was approximately 4.5 times. Our current 2018 net growth CapEx estimate remains unchanged from our previous update and is approximately $2.2 billion with just over $1 billion spend through June 30. Full year 2018 net maintenance CapEx is forecasted to be approximately $120 million with $46 million spend through the second quarter. Related to funding our capital program, we have been very successful utilizing a multifaceted financing growth and are well positioned from a balance sheet perspective looking forward. On our first quarter earnings call in early May, we announced that we had reached $87 million through our ATM program and given we had no project announcements or other events to put us in a blackout for the balance of the second quarter, we are able to raise an additional $283 million for a total of $370 million raise year-to-date by our ATM program. The ATM continues to be a very useful tool for us and our second quarter capital raise demonstrates our access to capital as a liquidity corp. The combination of our ATM proceeds, our DevCo JV financing and the sale of our inland marine barge business means we have raised approximately 630 million through the first seven months of the year which is about 30% of our 2018 net growth CapEx budget. We also continue to make progress on the potential sale of terminals in our petroleum logistics business which would further supplement our financing program and allow us to deploy capital into more creative opportunities. We provided 2018 financial and operational guidance in February to provide some level of insight into our expectations for continued year-over-year growth. Our performance year-to-date in 2018 has been strong and we expected to continue. But our preference is to avoid quarterly updates to that guidance because we believe investors are better served by focusing on our incredibly attractive long-term value proposition with each passing quarter when we close the 2019, when a significant number of our growth projects will come online given a outlook in 2019 and beyond of increasing EBITDA, increasing operating leverage and lower CapEx coupled with demonstrated access to public and private capital market, means we are very well positioned to finance our growth capital going forward. With that, I'll now turn the call over to Matt to provide an update around the execution of our strategic priorities and our business outlook, Matt?

Thanks, Jen, and good morning everyone. Commercial activity and production and many of our operating regions is increasing and we expect this positive trend to continue. In the Permian the Joyce Plant came online and with almost immediately felt. Our 200 million cubic feet per day Johnson Plant is expected to be complete in late September and will be highly utilized when it comes online. Inlet volumes on our Permian Midland systems increases 11% sequentially and the 25 sequential increase on our Permian Delaware systems would have been 5%, had we not been impacted by some scheduled plant downtime in our Versado system. In the bad lands, our little Missouri complex is operating at capacity and our LM4 Plant expected online around the end of the year is already much needed. Turning to the downstream business, the frac market continues to tighten and we expect transect to be fully utilized when it comes online in the first quarter of 2019. Our channel view crude and condensate splitter will begin operations around late September and early October. Permian takeaway for all commodities is tighten -- tightening and we are closely monitoring this to proactively manage such issues for our customer volume. We believe that Targa customers are relatively well-positioned and are based in infrastructure constraints caused by growth rate even more robust and expected will be temporary mitigated by economic and other logistical factors. The short-term impact of takeaway issues on Targa's volume growth should be on the margin of continued robust recent growth rate. We are already seeing some natural activity moderation that still expects strong growth from this area. Jen mentioned that volume forecast associated with our Permian acquisition resulted in the decline and the estimated are now payment. I would like to point out that the volume growth associated with the acquired assets is still in a very high double-digit and is expected to continue well beyond the earn-out period. Construction on Grand Prix continues and the project remained on time and on budget with a pipeline expected to be fully operational and supporting NGL takeaway from the Permian, Southern Oklahoma and North Texas in the second quarter 2019. Construction on GCX also continues and the project remained on time and on budget with a pipeline expected to be fully operational in the fourth quarter of 2019 which will certainly provide some much needed relief on the residue side moving volumes from Waha to El Paso. Our focus across our asset base continues to beyond getting infrastructure place to support the needs of our customers and when you think about the projects that we are now investing in 2Bcf of additional processing capacity, a 100,000 barrels per day of additional frac capacity. Grand Prix, GCX, Agua Blanca, WhiteWater target is clearly committed to continuing to provide our customers with best-in-class service, reliability and optionality. 2018 growth CapEx is at historically high level for Targa, largely as a result of Targa's single largest capital project in Grand Prix and all the necessary processing ads across our gathering and processing footprint. When we think about projects beyond what has already announced, the tightness in fractionation capacity at Mont Belvieu and the outlook for NGL volume to Mont Belvieu is accelerating customer demand. Our fraction facilities at Mont Belvieu operated near full during the second quarter, partially offset by some de-bottlenecking we undertook to enhance system reliability and operational flexibility. Fractionation capacity at Belvieu is expected to remain very tight through 2019 even with our transect factoring coming online. We continue to progress on permitting additional fractionation and have begun ordering long lead-time items to best position ourselves to move quickly through construction once we have our permits on hand. We also continue to enhance our connectivity to our petchem customer's abilities and are well-positioned to capture an increasing share of this demand growth as new petrochemical facilities move towards diversifying their connectivity to supply. Collectively, we remain on track to bring online the substantial portion of our organic growth project currently under construction including a number of processing plants, fracture and fix and Grand Prix within the next six to 12 months which provides us with increasing line of site to significant growth and adjusted EBITDA and cash flow in 2019, 2020 and beyond. Looking ahead, we expect capital expenditures to be focused around incremental processing expansions which will generally direct incremental NGL to Grand Prix and drive additional fractionation in LPG export expansion opportunities, which require significantly less capital investment directly linked to the increasing volume through our systems. We remain focus on executing on these projects that we have underway and on securing attractive sources of financing that enhance and maximize longer term shareholder value. Our balance sheet and dividend coverage are expected to strengthen significantly as our project underway is completed in the near-term and as our EBITDA increases. We are very excited about the outlook for Targa and its shareholders. So with that Operator, please open the line for questions

[Operator Instructions] Our first question comes from TJ Schultz of RBC. Your line is now open.

Good morning, TJ.

Hi, thanks. Hi, good morning. I think just first on the Permian, just as you discussed some moderation maybe in Permian activity, not surprising just given the takeaway, is there any change to your view on Grand Prix volume potential by 2020 at all, and as you think about the expansions there, are you still moving forward with the longer lead time items to prepare for with that extension?

I want to be clear. The moderation is moderation in a growth rate, okay, not moderation in a volume. It's a very active area, we're growing production through our Gathering and Processing, growing production from there, very soon to Grand Prix, third-party volumes to Grand Prix. You asked if there was anything different in our outlook. When we initially announced this project we are significantly better. And I think everybody who's been monitoring the basin and our success know that in an outlook for Grand Prix. We have been ordering long lead-time items for all of our important projects, and that would include for Grand Prix. The long lead time items to expand Grand Prix are not expensive. The purchase of pumps and the installation of pumps is a small fractional addition on that project when necessarily.

Okay, understood. On Delaware volumes in 2Q, the Versado downtime that was planned and you mentioned, was that continued just in 2Q and just what would you expect or would you expect kind of catch up back into 3Q?

Yes, so that was, as we mentioned, the sequential growth, we had 2%, it would've been 5%. So on average for the quarter is about 12 million a day, which was impacted on the Versado system. So we would not expect that impact in Q3. Our longer-term outlook for that area, whether it's the Versado or even just anywhere in the Delaware is kind up into the right, we've said for the acquisition kind of very high single digits. We're seeing strong growth out there. It's just frankly happening a little bit slower than our estimates at the beginning of the year.

Okay, thanks. Just lastly on financing, have you satisfied the ATM for 2018 already? Can you just expand on the flexibility you have for financing into 2019, whether it's maybe pre-funding that on the ATM? Do you prefer to tap some of the private capital again, and just expectation on closing the asset sales this year?

TJ, before I turn it over to Jen to answer that, I just wanted a crack. I said high single digits growth rate for the acquisition, it's actually high double-digit growth rate. So I just want -- I wanted to correct that. Okay, Jen?

Got it, thanks.

I think when we look forward, I think consistent with our track record, we're going to continue to proactively manage our funding to maintain the balance sheet flexibility that we've really worked very hard to get through a number of actions since 2016, and 2017. We're really pleased with the success that we've had thus far, year-to-date, tapping a number of different tools to raise capital. And I think that's what you should expect going forward. That's been very consistent with our messaging over the last year, plus. And I think that's how we'll continue to approach it going forward, utilizing a multifaceted approach.

Okay, just on the asset sales, is there still the process in place there to try to get that done this year.

I called it likely.

Yes, absolutely. So we announced that we are evaluating the sale of our Baltimore Sound and Channelview Terminal. And so there's been a lot of interest from the market for those assets. And we are continuing to proceed through the process. Our expectation is that the assets are likely to go to more than one buyer in more than one transaction. And so it'll just take us a little bit of time to work through all of that.

Okay, thank you everybody.

Okay, thanks, TJ.

Our next question comes from Jeremy Tonet of JPMorgan. Your line is open.

Good morning, Jeremy.

Just want to start off the Whistler Project here, I was just curious. I know it's still kind of early innings here and there's only so much you can share. But as far as proportionate ownership in this project, would you like to kind of link that to what levels of volumes you'd be committing? Is that kind of how you think about how this would fit into your portfolio of growth longer-term?

Yes, so we haven't given specific equity percentages for the pipeline. But I think generally thinking about it the equity ownership related to the MVC commitment is a good way to think about it in general.

Great, thanks for that. And then, Matt, kind of building off from your comments there with the ramps of the Permian plants. In the Delaware with Wildcat and Waha there, was just wondering with the ramp. How do you guys see, I guess, Permian takeaway constraints? Do you see that kind of influencing the ramp there or have you guys kind of locked up the FT where you feel good about being able to place all your molecules on other basin?

Yes, there's really a lot that can be said on that. I'd say as far as producer activity and the volume ramp, we've got a diverse set of producers, whether it's in the Delaware, Midland, and each and every one are kind of evaluating the different takeaway constraints a little bit differently. There's oil, NGL, residue, there's different constraints, and different producers have different options depending on their portfolio of production. We have seen some producers that have a good footprint in other basis, say, instead of adding the rig here in the Permian we're going to add to maybe the Bakken or somewhere else. But we have seen some of that. Are there going to be impacts? We think there's going to be some impacts, as we said in our script. We think those are going to be on the margin to a growth rate. So we still do see strong growth in 2018 and into '19. It's just how much that growth rate will be impacted. And it will vary by producer. And that's something that we're going to have to kind of work out as we go through time and so are.

That's helpful, thanks. And then, Jen, just wanted to touch the finance a little bit here. And clearly Targa has a very deep portfolio of attractive growth projects here. But just wondering as far as the CapEx spend here, is this kind of like the first-half of '18 is like the pig in the python, like this is the high watermark as far as CapEx spend. It looks like the back-half of '18 is stepping down a little bit versus the first-half of '18. And I know you've not given 2019 guidance yet, but just -- would you expect that to kind of trend down a little bit or anything else you can share there?

Sure, Jeremy. So I think the pig in the python, I have heard Joe Bob say before, so I'm sure if you got that from him. But I think we've…

She said people -- doesn't understand that.

I said Canadians, really. Look, I think from our perspective we've spent a little over a billion dollars year-to-date. I think that you can expect that that pace will continue, particularly as you think about the timing of when projects come online early in '19, such as Grand Prix and others. I think from our perspective, we've obviously taken a number of important steps already with the private capital, with some public equity, and with some strategic joint ventures. And I'd expect that that sort of multifaceted approach will continue as we look forward to funding 2019, when we'll obviously benefit from increasing EBITDA from the projects that are coming online either this year or next year. And I think that's what gives us the confidence, really, going forward when we think about the long-term outlook to finance our business.

That's helpful. Thank you for taking my questions.

Okay, thanks, Jeremy.

Our next question comes from Colton Bean of Tudor, Pickering, Holt. Your line is open.

Good morning. So just switching gears here a little bit to the NGL marketing, it looks like we've had a couple of strong quarters here, and actually had lower seasonality than we would've expected in Q2. Can you just provide a little bit of context on what's driving that, and maybe the sustainability of those results?

Yes, I guess there's a couple of pieces there. I mean we have for the wholesale propane business, again which is a smaller part of our business. So I'd say we have pretty regular seasonality. And there's been some downward pressure in Q2 and Q3 for that business. But what you saw was an uptick in fractionation volumes, just strength in overall volumes through our system on the fractionation side provided some uplift to our margin. And you actually saw NGL exports, our LPG exports relatively strong compared to last year, even though it was sequentially down in Q1, we're just seeing continued strength in the export business.

Got it. And then just to Whistler, so maybe a question for Jen here. In the release you mentioned the likelihood of project financing. Would the intent be to retain cash to reduce the debt load or would you guys look to pay out distributions after covering that interest burden?

I mean I think from our perspective Whistler as a project, just given the nature of the contracts associated with it, meaning that it's a very attractive candidate for project financing. So that's why we think that that is logical option for us to consider as the project moves forward. When we think about what we are going to do with our additional cash flow, as our EBITDA ramps, looking forward I think we very consistently have been saying that our goal is to increase coverage, reduce leverage. But really we're a little premature in getting to that point and being able to directly point to what we think we're going to use that additional cash flow for.

Okay, and I guess just a last one from me here, so maybe a little bit limited in terms of disclosure around what you guys can do on the hedging strategy. Looking at next year you do have a little bit of a step down from Waha and Permian Basis swaps. Is any of that concentrated, and in terms of maybe Q1 through Q3 given the FD that you guys have on Gulf Coast Express, or are those numbers the daily average is kind of rateable across the year?

We haven't said that they were rateable across the year. We provide that annual guidance very consistent with our previous approach, how we are managing the particular basis we're taking into account, the timing associated with GCX and we also are taking into account our longer-term view likely timing of that as part of managing that overall exposure. Q – Colton Bean: Understood, I appreciate time this morning.

Thanks, Colton.

Okay, thanks.

Our next question comes from Shneur Gershuni of UBS. Your line is open.

Good morning.

Good morning. Just to start-off, maybe you step back a little bit and look little bit bigger picture, I mean we're seeing kind of the surge in overall NGL production, I believe in your prepared remarks you talked about tight frac capacity, there is some thoughts about need for more LPG export capacity, can you frame for us what the impacts are to Targa beyond what you already announced thus far, does that pre-come online at its fully expanded capacity that you had originally outlined, do you steer capacity away from Belvieu like Lake Charles for fracs and even on the LPG export side, I know your guidance doesn't include spot volumes but are there opportunities to expand there or fully utilize the LPG export facilities?

This is Scott. I'll try to tackle some of that laundry list that you put out there and obviously get help from my colleagues here. But first and foremost when you think about the NGL growth you look what's happening in the Permian both in the Midland and the Delaware side as it relates to our plants as well as third-party activity that's out there, a lot of that is feeding into Belvieu today, so overall picture relative to the tightness that we alluded to and our comments around fractionation capacity and the tightness in the marketplace filling up that fractionation capacity is very evident today. Some of that's related to new growth, some of that's related to ethane recovery and all of that together has moved to a point where Belvieu really is going to be tight as we said through 2019. From a Targa perspective, obviously we've tried to be in front of this with the announcement earlier about our Train 6 expansion which will be online at the end of the first quarter 2019 and obviously we indicated in our notes today that we are actively pursuing permits for multiple fractionators that once we have those in hand and the advent of long lead items purchased, we will execute on those projects as quickly as possible to bring that capacity online as well. So all of that really is a great picture for us, it's a great picture for the industry and certainly when you look at it steered towards Mount Belvieu where we got a significant footprint of both storage and fractionation and then our export capacity, we feel all that would be moving towards capacity limit at some point. We also have been ahead relative to announcing projects in earlier quarters where we were increasing our capabilities particularly around increasing our capacity on exporting butanes. So pipelines entering wells at Belvieu increasing that capacity basically redoing or rebuilding a dock at our facility to make sure that we've got full capacity on all four of our docks to maintain that level of flexibility. At what point, we will continue to look for small projects as well as large projects on the export side to enhance that capability, certainly our expenditures to enhance our capacity is much from a capital spend is much smaller than say a Greenfield project, so we will continue to look for ways to do that and be there when the market demand surpasses.

Thank you for all that color, maybe switching gears a little bit in terms of your overall outlook through 2021, I think on the last call that you had mentioned that you could potentially hit the $2 billion target earlier than 2021, given today's results and given your overall outlook as to how you're seeing things, are you more confident in potentially hitting that target earlier than expected the same was just wondering if you can give us some color around that?

I understand the question, what I try to describe was components of that long-range outlook that we developed and May of 2017 and talking about those components and new components all of which we feel better about today than when they were announced, So yes I've got very high confidence in that curve that was created some time ago, that high confidence in the curve is due to clear views of what are now short term projects. A whole lot of it coming down in less than a year and how we've commercialized them since announcement, so yes I'm going to tell you oh I'm confident in it. Super confident in it and that probably should translate into likely higher, likely earlier without giving you a new number for that. I hope that's helpful at all we disclose.

Yes, I appreciate and it definitely is helpful and one final question for Jen in terms of funding another this question is coming up just pacifically with the potential for the splitter sale, does it need to come online before you're able to market the project as for sale just wondering if you can sort of give us a little bit of color around that?

Well, importantly I remind you so what we said that we're evaluating the sale of were three sort of discrete terminals, so obviously the channel we occurred in condensate splitter but also our terminals up and down Washington as well as our terminals in Baltimore and sort of directionally we have said that when you think about asset op margin contribution from largest to smallest. It sort of splitter then sound and then Baltimore, we have done feedback from some buyers that they may prefer to see the crude and condensate splitter fully operational in order for us to maximize the value that we think, the asset is worth and so that's one of the things that we are obviously balance thing as we work through the evaluation of the sales of that particular terminal and really all the turmoil.

In your comment before I think you said that it late 3Q early 4Q when they start to start up this?

That's right and that said sort of late September early October.

Perfect, thank you very much. Appreciate all the color guys.

Thanks.

Good, thanks.

Our next question comes from Darren Horowitz of Raymond James. Your line is open.

Matt in your prepared commentary you talked about increased in dual recoveries and obviously on the ethane side, we seen regional ethane for expert economics improved with the expectation that should continue into the end of this year how much of a benefit from just margin capture perspective, do you think that could lead or drives for you guys in the back half of the year. I know, I previously you've talked about in nickel moving composite NGL space is still a few big plus or minus $9 million. But I'm more specifically wondering from the ethane potential what that could mean?

Yes, so we haven't given any hard metrics for enhanced ethane recovery, relates to EBITDA for us. We would benefit generally from higher ethane prices would benefit the GMP side of the business and then more volumes through our fractionation facilities, so it is generally positive for us as recovery picks up and we have seen then. Will benefit even more once Grand prix comes online to mid next year with what we're able to capture both the transportation in the fractionation will benefit more from that but we haven't kind of given any, the hard numbers for what that can look like. I just say generally more recoveries are beneficial for us.

Okay and then switching over to your comments around the there was a project and the proposal there. To your point on residue gets taken out of the Permian and a lot of I guess converging effectively -- and then moving into the area, how do you think about the potential scale for Whistler and commitments versus what the competing projects for example like Permian highway could achieve in the timeline across with both of those pipes marketed?

This is Scott. I mean fair question obviously there's two competing projects and if you think back over the last year and a half as many as 13 or 14 projects announced. As Matt alluded to the kind of the formula or a recipe for getting a project done has been a volume metric commitment for an equity position in a pipe. Certainly kind of mortgage got a valid project as do we, do both of them get done I can't answer that. I really don't know what they've got left to do but I certainly have one aside on our project. We have really good commitments in place from industry players that have a lot of experience and a lot of growth in their forecast for the midstream, sort of the business they participate in and honestly in the conversations we are having incrementally we feel very good about the project, we got to get it done, we like where it initiates we like where it terminates into the marketplace both feeding Mexico and the growing LNG markets and so all we can do is stay tuned and we expect it to get done.

Thank you.

Okay, thanks Darren.

Our next question comes from Tristan Richardson of SunTrust. Your line is open.

Hi, good morning guys.

Good morning.

Just mentioned de-bottlenecking opportunities on a fractionation side and Scott you mentioned sort of looking those opportunities up and down, can you talk about what those activities could add or have added on the capacity side for fractionation and while we wait Grand Prix?

What I would say is that, it's a variety of projects obviously as you look into your facilities you are going to look for ways to improve the operation across the number of fractions that we are already are operating today. With that said, I'm not going to give you a volume outlook or what that looks like, what I would tell you is a lot of that focus was on reliability and sustainability as these volumes start ramping up we want to make sure that we have long run times without any bubbles in our system to ensure that we are performing for our customers at a highest degree and as a result of that we think that we become a very attractive player in the marketplace and continue to be attractive player for our customers on the downstream side.

Tristan, I want to chip my hat to the team. First of all, having a high beam zone to be looking for those opportunities prior to being completely utilized and getting that work done at the right time to prepare for that very near future of completely utilize. This was big bang for the buck investment in that cycle and it was well executed.

That's helpful. Thank you, guys. And then, just you guys talk about opportunity for processing capacity additions and frac capacity additions given what Whistler would add, with the idea to generally be to time any incremental opportunities with what you are expecting on my day Whistler to be or given how tight we are on the frac side, would there be opportunities to pull some of those expansion forward ahead of Whistler?

Yes, I think when we think about growth and our GMP business and then further downstream, we think a bit more kind of as we are adding processing plant as GMP inlet volumes are growing, that's going to be the driver for additional NGL production which would then necessitate further investment downstream on fractionation or potential export expansion. To Whistler part of those volumes are from the residue gas takeaway from our processing plants that we are adding but there is also as you self-explanatory in the list you know, additional equity owners in that pipe, there is supply coming from many different areas for Whistler. So I kind of decoupled that and think about more in the adding processing plants from the GMP side and the startup of Grand Prix to even better fees.

Yes, exactly.

Okay, helpful. Thank you guys very much.

Okay, thanks.

Our next question comes from Matthew Phillips of Guggenheim. Your line is open.

Good morning guys. I just want to touch on the fractionation side a bit here in terms of this past quarter in the trend there I mean volumes have continued to tick up but frac revenues have come down and how -- is more of this being allocated to commodity sales versus a pure fee-based arrangement. I mean, how should we look at that going forward?

Yes, when we think about fractionation business, it's we think about as it's basically a fixed fee business. There is a piece of the fractionation business which is a pass-through that we talk about which does hit revenue and OpEx, so the gas prices dropping that can impact our revenues and then impact our OpEx and things like that. So we really tend not to focus too much on revenues that can -- there is going to be some noise in revenues, do you think a bit more on our growth margin and really on an operating margin basis.

Got it. I mean, so does that imply to pick volumes or going to have more seasonal sensitivity, right, and if you are just getting a fee for fractionation services, I mean, is this, I mean is this different? Sorry go ahead.

It is a fee based business but you don't see 100% of the fee in the revenue without a de-dock in the expense and we can walk you through that a little bit more.

Yes Matt, this is Jen, Sanjay and I can walk you through the different components because I think where you are getting your number from there is some noise in there but I think we can help you through.

Okay, that works. And then on for balance Bakken side of things, it's pretty huge step-up in volumes here year-over-year, just given the trend of Permian moderation growth more folks are moving to other basins, would you guys see the Mid-term outlook here and do you see further upside in the JV with us?

Yes, I'd say we feel really good about our outlook up in North Dakota. We've seen volumes increase, the LN-4 plant come online fast enough, so there is the need for additional processing capacity out there not just by us but by others, so we're working to put that in place, I think our expectations for filling up that facility really just continues to improve as we go through time. So the outlook out there I'd say is good and even getting better.

Okay, thank you.

Okay, thanks.

Our next question comes from Craig Shere of Tuohy Brothers. Your line is open.

Good morning, Craig.

Your financial outlook…

Craig, we only heard two words.

Yes, we only heard financial outlook.

I'm sorry, is this better?

Yes.

Yes, we can hear you now.

Okay, looking at slide 9, your financial outlook long-term there is two things that jumped out of me, one is obviously it's over year since you issued the main part of the chart and second all those add-ons on the right and other couple announcements you're not going to be able to fit on one page. So my question is and I appreciate you want to keep your cards a little close to invest and not update every other quarter but could you see by the fourth quarter call refreshing this?

Well, before you say the other piece of that's I do hope jumps out is embedded in the footnote which is that when we develop this guidance it was based on a $50 crude environment flat through the forecast period and $0.60 NGLs flat through the forecast period, so that to me is also one of the, sort of key component pieces that really jumps off the page. I think from our perspective when we think about that long-term outlook we're in a period where we really need to execute, so these projects that we've now been talking about for 18 months plus key projects like Grand Prix. We need to get them online and then you'll start to see really in our results. The impact of such accretive and attractive opportunities and as we move through the balance of this year, move through the balance to 2019 there just more and more incremental projects that are going to contribute. I think from our perspective obviously our investors would like for us to be updating in this real time and we understand that but we do tried to give you a lot of directional color, that we certainly feel like a lot has improved since then. It begins with commodity prices and then the associated volume projections that we made in a $50 per barrel flat crude environment obviously that has improved since then as well and then we've had already a commercial success is that you rightly point out will need to follow a smaller font if we add any more projects on the next go around.

Okay, this fair enough and you're absolutely correct Jen and planning out the commodity benefits and then also the fact that you didn't include anything that was contracted out the LPG export side it's just seems that the long-term street outlook may be unrealistically conservative still and a little help from you guys within the next couple of quarters might be useful.

Understood, long term Street outlook is also not out five years. We worked hard to try to create a view and then outlook in calling it an outlook for folks who want to look beyond that quarter index and we're going to keep trying to add more information, part of that information Jen's pointing out will be actual very soon, with the start of many of the important projects occurring in less than one year. Here your advice we will try to take it to heart, we started up the question would be likely be reprinting this chart next quarter, I think because we've answered it several times that people should hear that we're unlikely to be reprinting this chart and redoing it completely in the next quarter. But as I answered Shneur, you do here the compact okay, you hear that we got line of sight on that curve by improved why it's becoming shorter and shorter term and that that confidence probably does mean that we believe it's above the curve and or earlier which was another way the question was asked and we'll take the question to heart we want to provide information and see what it does.

Great, just one more quick question on the capital funding, Jen to the degree that you are successful with the downstream trillion logistics asset sales, do you see that's kind of a downpayment on first half 2019 spend as you think about beyond that obviously having a much more power of funding with how declines of CapEx and huge increases and retain Dcf?

I think from our perspective, we view funding really as fungibles. So there isn't a line in the sand that we think by ex-date we want to complete it 2018 financing and then we can sort of begin to look forward to 2019 or beyond. I think in our view what we're trying to do is maintain the balance sheet flexibility that we've worked very hard for and as a result of that balance sheet flexibility, we may or may not fund our CapEx program with as much equity as we historically have particularly with the EBITDA ramp that we can see before us. But I think we'll just continue to move through time using the multi-faceted financing approach, I think the potential sale of our terminals business is an important piece of that but everything remains a tool available to us and I think we've demonstrated to our track record our willingness to utilize different tools and so I think that's what we will continue looking forward.

Understood, thank you.

Our next question comes from Sunil Sibal with Seaport. Your line is open.

Hi, good morning guys and congratulations on a great quarter.

Thanks.

Yes, couple of questions from me first going to the food gathered volumes in Permian seems like what is strong sequential pick-up in those volumes, just I'm wondering is there any timing issues there or is that kind of could ramp-up that we can assume for the remainder of the year?

I mean our Permian crude business is obviously a relatively new business for us that we acquired through that with our acquisitions and so you're starting from a small base, so as our commercial team continues to make progress and they executed number of very attractive contracts, you'll continue to I think see volumes increased from there whether we're not going to provide obviously guidance on such a small piece of our business but 35% up to quarter-over-quarter is very nice for that business and we expect it will continue at the activity in the Permian continues.

Okay, got it. And then some of the competitors in the midstream space talked about got pressures on steel tariff considering that you have a fairly robust capital program I was wondering it was starting to see some of that impact also.

Yes, so for our project that's are on the drawing board that pipe was already ordered and done, so we don't have an impact or current capital budget earning material impact our capital budget for those items. Going forward for new processing plans, new facilities, the actual feel causes are relatively small component of the overall infrastructure whether it's a processing plan or fraction facility, so we don't see any material impact from the cost in steel tariffs.

And year two out not get any précised numbers at average target plan to out there this cost the plant purchase fees is probably 15% to 20% of that access that were most of the steel is in the plant and the steel is call it notionally 20% or 30% of that 15% to 20% and there is some other steel but that you can see how an increase in steel I saw someone publicly say may impact our steel prices by 20% to 30% is not going to be but single digit impacts on our cost and that's manageable within new contracts and new deals as we go forward.

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

Thanks.

Okay, thanks.

There are no further questions. I'd like to turn the call back over to Sanjay Lad for any further remarks.

Thanks everyone for participating on this morning's call 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 may all disconnect. Everyone have a great day.