Attached files

file filename
EX-32.2 - EX-32.2 - Targa Resources Corp.trgp-ex322_10.htm
EX-32.1 - EX-32.1 - Targa Resources Corp.trgp-ex321_8.htm
EX-31.2 - EX-31.2 - Targa Resources Corp.trgp-ex312_7.htm
EX-31.1 - EX-31.1 - Targa Resources Corp.trgp-ex311_6.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-34991

 

TARGA RESOURCES CORP.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-3701075

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1000 Louisiana St, Suite 4300, Houston, Texas

 

77002

(Address of principal executive offices)

 

(Zip Code)

(713) 584-1000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 1, 2017, there were 198,105,583 shares of the registrant’s common stock, $0.001 par value, outstanding.

 

 

 

 

 

 


 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements.

 

4

 

 

 

Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

 

4

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016

 

5

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2017 and 2016

 

6

 

 

 

Consolidated Statements of Changes in Owners' Equity and Series A Preferred Stock for the three months ended March 31, 2017 and 2016

 

7

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016

 

9

 

 

 

Notes to Consolidated Financial Statements

 

10

 

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

36

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

55

 

 

 

Item 4. Controls and Procedures

 

60

 

 

 

PART II—OTHER INFORMATION

 

62

 

 

 

Item 1. Legal Proceedings

 

62

 

 

 

Item 1A. Risk Factors

 

62

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

62

 

 

 

Item 3. Defaults Upon Senior Securities

 

62

 

 

 

Item 4. Mine Safety Disclosures

 

62

 

 

 

Item 5. Other Information

 

62

 

 

 

Item 6. Exhibits

 

63

 

 

 

SIGNATURES

 

 

 

 

 

Signatures

 

65

 

 

 

1


 

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

Targa Resources Corp.’s (together with its subsidiaries, including Targa Resources Partners LP (“the Partnership” or “TRP”), “we,” “us,” “our,” “Targa,” “TRC,” or the “Company”) reports, filings and other public announcements may from time to time contain statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements.” You can typically identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, by the use of forward-looking statements, such as “may,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “potential,” “plan,” “forecast” and other similar words.

All statements that are not statements of historical facts, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.

These forward-looking statements reflect our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside our control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Known risks and uncertainties include, but are not limited to, the following risks and uncertainties:

 

the timing and extent of changes in natural gas, natural gas liquids, crude oil and other commodity prices, interest rates and demand for our services;

 

the level and success of crude oil and natural gas drilling around our assets, our success in connecting natural gas supplies to our gathering and processing systems, oil supplies to our gathering systems and natural gas liquid supplies to our logistics and marketing facilities and our success in connecting our facilities to transportation services and markets;

 

our ability to access the capital markets, which will depend on general market conditions and the credit ratings for the Partnership’s and our debt obligations;

 

the amount of collateral required to be posted from time to time in our transactions;

 

our success in risk management activities, including the use of derivative instruments to hedge commodity price risks;

 

the level of creditworthiness of counterparties to various transactions with us;

 

changes in laws and regulations, particularly with regard to taxes, safety and protection of the environment;

 

weather and other natural phenomena;

 

industry changes, including the impact of consolidations and changes in competition;

 

our ability to obtain necessary licenses, permits and other approvals;

 

our ability to grow through acquisitions or internal growth projects and the successful integration and future performance of such assets;

 

general economic, market and business conditions; and

 

the risks described in our Annual Report on Form 10-K for the year ended December 31, 2016 (“Annual Report”) and our reports and registration statements filed from time to time with the United States Securities and Exchange Commission (“SEC”).

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate, and, therefore, we cannot assure you that the forward-looking statements included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (“Quarterly Report”) will prove to be accurate. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described in “Part II- Other Information, Item 1A. Risk Factors.” in this Quarterly Report and in our Annual Report. Except as may be required by applicable law, we undertake no obligation to publicly update or advise of any change in any forward-looking statement, whether as a result of new information, future events or otherwise.

2


 

As generally used in the energy industry and in this Quarterly Report, the identified terms have the following meanings:

 

Bbl

 

Barrels (equal to 42 U.S. gallons)

BBtu

 

Billion British thermal units

Bcf

 

Billion cubic feet

Btu

 

British thermal units, a measure of heating value

/d

 

Per day

GAAP

 

Accounting principles generally accepted in the United States of America

gal

 

U.S. gallons

GPM

 

Liquid volume equivalent expressed as gallons per 1000 cu. ft. of natural gas

LACT

 

Lease Automatic Custody Transfer

LIBOR

 

London Interbank Offered Rate

LPG

 

Liquefied petroleum gas

MBbl

 

Thousand barrels

MMBbl

 

Million barrels

MMBtu

 

Million British thermal units

MMcf

 

Million cubic feet

MMgal

 

Million U.S. gallons

NGL(s)

 

Natural gas liquid(s)

NYMEX

 

New York Mercantile Exchange

NYSE

 

New York Stock Exchange

 

Price Index Definitions

 

C2-OPIS-MB

 

Ethane, Oil Price Information Service, Mont Belvieu, Texas

C3-OPIS-MB

 

Propane, Oil Price Information Service, Mont Belvieu, Texas

C5-OPIS-MB

 

Natural Gasoline, Oil Price Information Service, Mont Belvieu, Texas

EP-PERMIAN

 

Inside FERC Gas Market Report, El Paso (Permian Basin)

IC4-OPIS-MB

 

Iso-Butane, Oil Price Information Service, Mont Belvieu, Texas

IF-PB

 

Inside FERC Gas Market Report, Permian Basin

IF-PEPL

 

Inside FERC Gas Market Report, Oklahoma Panhandle, Texas-Oklahoma Midpoint

IF-WAHA

 

Inside FERC Gas Market Report, West Texas WAHA

NC4-OPIS-MB

 

Normal Butane, Oil Price Information Service, Mont Belvieu, Texas

NG-NYMEX

 

NYMEX, Natural Gas

WTI-NYMEX

 

NYMEX, West Texas Intermediate Crude Oil

 

3


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

TARGA RESOURCES CORP.

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

(Unaudited)

 

 

 

(In millions)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

80.0

 

 

$

73.5

 

Trade receivables, net of allowances of $0.1 and $0.9 million at March 31, 2017 and December 31, 2016

 

 

537.7

 

 

 

674.6

 

Inventories

 

 

75.5

 

 

 

137.7

 

Assets from risk management activities

 

 

23.9

 

 

 

16.8

 

Income tax receivable

 

 

70.6

 

 

 

67.8

 

Other current assets

 

 

24.4

 

 

 

36.4

 

Total current assets

 

 

812.1

 

 

 

1,006.8

 

Property, plant and equipment

 

 

12,957.0

 

 

 

12,518.7

 

Accumulated depreciation

 

 

(2,993.6

)

 

 

(2,827.7

)

Property, plant and equipment, net

 

 

9,963.4

 

 

 

9,691.0

 

Intangible assets, net

 

 

2,238.8

 

 

 

1,654.0

 

Goodwill, net

 

 

369.0

 

 

 

210.0

 

Long-term assets from risk management activities

 

 

21.6

 

 

 

5.1

 

Investments in unconsolidated affiliates

 

 

227.0

 

 

 

240.8

 

Other long-term assets

 

 

21.9

 

 

 

63.5

 

Total assets

 

$

13,653.8

 

 

$

12,871.2

 

 

 

 

 

 

 

 

 

 

LIABILITIES, SERIES A PREFERRED STOCK AND OWNERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

867.2

 

 

$

843.5

 

Liabilities from risk management activities

 

 

22.2

 

 

 

49.1

 

Current maturities of debt

 

 

534.9

 

 

 

275.0

 

Total current liabilities

 

 

1,424.3

 

 

 

1,167.6

 

Long-term debt

 

 

4,213.3

 

 

 

4,606.0

 

Long-term liabilities from risk management activities

 

 

7.9

 

 

 

26.1

 

Deferred income taxes, net

 

 

951.6

 

 

 

941.2

 

Other long-term liabilities

 

 

688.9

 

 

 

215.1

 

 

 

 

 

 

 

 

 

 

Contingencies (see Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Preferred 9.5% Stock, $1,000 per share liquidation preference, (1,200,000 shares authorized, issued and outstanding 965,100 shares), net of discount (see Note 12)

 

 

196.9

 

 

 

190.8

 

 

 

 

 

 

 

 

 

 

Owners' equity:

 

 

 

 

 

 

 

 

Targa Resources Corp. stockholders' equity:

 

 

 

 

 

 

 

 

Common stock ($0.001 par value, 300,000,000 shares authorized)

 

 

0.2

 

 

 

0.2

 

                                 Issued                       Outstanding

 

 

 

 

 

 

 

 

March 31, 2017                     197,162,557                  196,639,858

 

 

 

 

 

 

 

 

December 31, 2016               185,234,405                  184,720,525

 

 

 

 

 

 

 

 

Preferred stock ($0.001 par value, after designation of Series A Preferred Stock: 98,800,000 shares authorized, no shares issued and outstanding)

 

 

 

 

 

 

Additional paid-in capital

 

 

5,986.0

 

 

 

5,506.2

 

      Receivables from common stock issuances

 

 

(19.6

)

 

 

 

Retained earnings (deficit)

 

 

(250.5

)

 

 

(187.3

)

Accumulated other comprehensive income (loss)

 

 

6.5

 

 

 

(38.3

)

Treasury stock, at cost (522,699 shares as of March 31, 2017 and 513,880 as of

   December 31, 2016)

 

 

(32.7

)

 

 

(32.2

)

Total Targa Resources Corp. stockholders' equity

 

 

5,689.9

 

 

 

5,248.6

 

Noncontrolling interests in subsidiaries

 

 

481.0

 

 

 

475.8

 

Total owners' equity

 

 

6,170.9

 

 

 

5,724.4

 

Total liabilities, Series A Preferred Stock and owners' equity

 

$

13,653.8

 

 

$

12,871.2

 

 

See notes to consolidated financial statements.

 

4


 

TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

(In millions, except per share amounts)

 

Revenues

 

 

 

 

 

 

 

 

Sales of commodities

 

$

1,858.1

 

 

$

1,171.0

 

Fees from midstream services

 

 

254.5

 

 

 

271.4

 

Total revenues

 

 

2,112.6

 

 

 

1,442.4

 

Costs and expenses:

 

 

 

 

 

 

 

 

Product purchases

 

 

1,654.2

 

 

 

1,011.0

 

Operating expenses

 

 

151.9

 

 

 

132.1

 

Depreciation and amortization expense

 

 

191.1

 

 

 

193.5

 

General and administrative expense

 

 

48.7

 

 

 

45.3

 

Goodwill impairment

 

 

 

 

 

24.0

 

Other operating (income) expense

 

 

16.2

 

 

 

1.0

 

Income from operations

 

 

50.5

 

 

 

35.5

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(63.0

)

 

 

(52.9

)

Equity earnings (loss)

 

 

(12.6

)

 

 

(4.8

)

Gain (loss) from financing activities

 

 

(5.8

)

 

 

24.7

 

Other

 

 

(8.5

)

 

 

(0.1

)

Income (loss) before income taxes

 

 

(39.4

)

 

 

2.4

 

Income tax (expense) benefit

 

 

(71.1

)

 

 

(3.1

)

Net income (loss)

 

 

(110.5

)

 

 

(0.7

)

Less: Net income attributable to noncontrolling interests

 

 

8.8

 

 

 

2.0

 

Net income (loss) attributable to Targa Resources Corp.

 

 

(119.3

)

 

 

(2.7

)

Dividends on Series A preferred stock

 

 

22.9

 

 

 

3.8

 

Deemed dividends on Series A preferred stock

 

 

6.1

 

 

 

 

Net income (loss) attributable to common shareholders

 

$

(148.3

)

 

$

(6.5

)

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - basic

 

$

(0.77

)

 

$

(0.06

)

Net income (loss) per common share - diluted

 

$

(0.77

)

 

$

(0.06

)

Weighted average shares outstanding - basic

 

 

191.8

 

 

 

106.6

 

Weighted average shares outstanding - diluted

 

 

191.8

 

 

 

106.6

 

Dividends per common share declared for the period

 

 

0.91

 

 

 

0.91

 

 

See notes to consolidated financial statements.

 

5


 

TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

Pre-Tax

 

 

Related Income Tax

 

 

After Tax

 

 

Pre-Tax

 

 

Related Income Tax

 

 

After Tax

 

 

 

(Unaudited)

 

 

 

(In millions)

 

Net income (loss) attributable to Targa Resources Corp.

 

 

 

 

 

 

 

 

$

 

(119.3

)

 

 

 

 

 

 

 

 

$

 

(2.7

)

Other comprehensive income (loss) attributable to Targa Resources Corp.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity hedging contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value

$

 

66.2

 

$

 

(25.2

)

 

 

41.0

 

$

 

(17.1

)

$

 

6.6

 

 

 

(10.5

)

Settlements reclassified to revenues

 

 

6.1

 

 

 

(2.3

)

 

 

3.8

 

 

 

(13.0

)

 

 

5.1

 

 

 

(7.9

)

Other comprehensive income (loss) attributable to Targa Resources Corp.

 

 

72.3

 

 

 

(27.5

)

 

 

44.8

 

 

 

(30.1

)

 

 

11.7

 

 

 

(18.4

)

Comprehensive income (loss) attributable to

   Targa Resources Corp.

 

 

 

 

 

 

 

 

$

 

(74.5

)

 

 

 

 

 

 

 

 

$

 

(21.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to noncontrolling interests

 

 

 

 

 

 

 

 

$

 

8.8

 

 

 

 

 

 

 

 

 

$

 

2.0

 

Other comprehensive income (loss) attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity hedging contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value

 

 

 

 

 

 

 

 

 

 

 

23.8

 

 

 

 

 

 

23.8

 

Settlements reclassified to revenues

 

 

 

 

 

 

 

 

 

 

 

(11.2

)

 

 

 

 

 

(11.2

)

Other comprehensive income (loss) attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

12.6

 

 

 

 

 

 

12.6

 

Comprehensive income (loss) attributable to noncontrolling interests

 

 

 

 

 

 

 

 

$

 

8.8

 

 

 

 

 

 

 

 

 

$

 

14.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

$

 

(110.5

)

 

 

 

 

 

 

 

 

$

 

(0.7

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity hedging contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value

 

 

66.2

 

 

 

(25.2

)

 

 

41.0

 

 

 

6.7

 

 

 

6.6

 

 

 

13.3

 

Settlements reclassified to revenues

 

 

6.1

 

 

 

(2.3

)

 

 

3.8

 

 

 

(24.2

)

 

 

5.1

 

 

 

(19.1

)

Other comprehensive income (loss)

$

 

72.3

 

$

 

(27.5

)

 

 

44.8

 

$

 

(17.5

)

$

 

11.7

 

 

 

(5.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

$

 

(65.7

)

 

 

 

 

 

 

 

 

$

 

(6.5

)

 

See notes to consolidated financial statements.

6


 

TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY AND SERIES A PREFERRED STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Earnings

 

 

 

Other

 

 

Treasury

 

 

 

 

 

 

 

 

Total

 

 

Series A

 

 

 

Common Stock

 

 

 

Paid in

 

 

 

(Accumulated

 

 

 

Comprehensive

 

 

Shares

 

 

 

Noncontrolling

 

 

 

Owner's

 

 

Preferred

 

 

 

Shares

 

 

 

Amount

 

 

 

Capital

 

 

 

Deficit)

 

 

 

Income (Loss)

 

 

Shares

 

 

 

Amount

 

 

 

Interests

 

 

 

Equity

 

 

Stock

 

 

 

(Unaudited)

 

 

 

(In millions, except shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

 

 

184,721

 

 

 

$

0.2

 

 

 

$

5,506.2

 

 

 

$

(187.3

)

 

 

$

(38.3

)

 

 

514

 

 

 

$

(32.2

)

 

 

$

475.8

 

 

 

$

5,724.4

 

 

$

190.8

 

Impact of accounting standard adoption (see Note 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56.1

 

 

 

 

Compensation on equity grants

 

 

 

 

 

 

 

 

 

 

10.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.8

 

 

 

 

Distribution equivalent rights

 

 

 

 

 

 

 

 

 

 

(2.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2.2

)

 

 

 

Shares issued under compensation program

 

 

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares and units tendered for tax withholding obligations

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

(0.5

)

 

 

 

 

 

 

 

(0.5

)

 

 

 

Issuance of common stock

 

 

11,886

 

 

 

 

 

 

 

 

676.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

676.8

 

 

 

 

Receivables from common stock offerings

 

 

 

 

 

 

 

 

 

 

(19.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19.6

)

 

 

 

Series A Preferred Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22.9

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

 

 

(22.9

)

 

 

 

22.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Deemed dividends - accretion of beneficial conversion feature

 

 

 

 

 

 

 

 

 

 

(6.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6.1

)

 

 

6.1

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(176.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(176.6

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

 

 

(176.6

)

 

 

 

176.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12.5

)

 

 

 

(12.5

)

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.9

 

 

 

 

8.9

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44.8

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(119.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.8

 

 

 

 

(110.5

)

 

 

 

Balance,  March 31, 2017

 

 

196,640

 

 

 

$

0.2

 

 

 

$

5,966.4

 

 

 

$

(250.5

)

 

 

$

6.5

 

 

 

523

 

 

 

$

(32.7

)

 

 

$

481.0

 

 

 

$

6,170.9

 

 

$

196.9

 

7


 

TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY AND SERIES A PREFERRED STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Earnings

 

 

 

Other

 

 

Treasury

 

 

 

 

 

 

 

 

Total

 

 

Series A

 

 

 

Common Stock

 

 

 

Paid in

 

 

 

(Accumulated

 

 

 

Comprehensive

 

 

Shares

 

 

 

Noncontrolling

 

 

 

Owner's

 

 

Preferred

 

 

 

Shares

 

 

 

Amount

 

 

 

Capital

 

 

 

Deficit)

 

 

 

Income (Loss)

 

 

Shares

 

 

 

Amount

 

 

 

Interests

 

 

 

Equity

 

 

Stock

 

 

 

(Unaudited)

 

 

 

(In millions, except shares in thousands)

 

Balance, December 31, 2015

 

 

56,020

 

 

 

$

0.1

 

 

 

$

1,457.4

 

 

 

$

26.9

 

 

 

$

5.7

 

 

 

426

 

 

 

$

(28.7

)

 

 

$

4,788.8

 

 

 

$

6,250.2

 

 

$

 

Compensation on equity grants

 

 

 

 

 

 

 

 

 

 

5.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.2

 

 

 

 

8.0

 

 

 

 

Distribution equivalent rights

 

 

 

 

 

 

 

 

 

 

(3.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.2

)

 

 

 

(3.7

)

 

 

 

Shares issued under compensation program

 

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares and units tendered for tax withholding obligations

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

(0.2

)

 

 

 

(0.1

)

 

 

 

(0.3

)

 

 

 

Issuance of Series A Preferred and detachable warrants

 

 

 

 

 

 

 

 

 

 

796.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

796.8

 

 

 

173.6

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.8

)

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(51.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(51.1

)

 

 

 

Common stock dividends in excess of retained earnings

 

 

 

 

 

 

 

 

 

 

(28.0

)

 

 

 

28.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(143.8

)

 

 

 

(143.8

)

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.0

 

 

 

 

6.0

 

 

 

 

Acquisition of TRP noncontrolling common interests, net of acquisition costs

 

 

104,526

 

 

 

 

0.1

 

 

 

 

3,093.0

 

 

 

 

 

 

 

 

55.7

 

 

 

 

 

 

 

 

 

 

 

(4,119.9

)

 

 

 

(971.1

)

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18.4

)

 

 

 

 

 

 

 

 

 

 

12.6

 

 

 

 

(5.8

)

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.0

 

 

 

 

(0.7

)

 

 

 

Balance, March 31, 2016

 

 

160,581

 

 

 

$

0.2

 

 

 

$

5,321.5

 

 

 

$

(2.7

)

 

 

$

43.0

 

 

 

435

 

 

 

$

(28.9

)

 

 

$

547.6

 

 

 

$

5,880.7

 

 

$

173.6

 

See notes to consolidated financial statements.

 

8


 

TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

(In millions)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(110.5

)

 

$

(0.7

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Amortization in interest expense

 

 

3.1

 

 

 

4.2

 

Compensation on equity grants

 

 

10.8

 

 

 

8.0

 

Depreciation and amortization expense

 

 

191.1

 

 

 

193.5

 

Goodwill impairment

 

 

 

 

 

24.0

 

Accretion of asset retirement obligations

 

 

1.3

 

 

 

1.2

 

Increase (decrease) in redemption value of mandatorily redeemable preferred interests

 

 

2.5

 

 

 

(18.5

)

Deferred income tax expense (benefit)

 

 

73.4

 

 

 

3.1

 

Equity (earnings) loss of unconsolidated affiliates

 

 

12.6

 

 

 

4.8

 

Distributions of earnings received from unconsolidated affiliates

 

 

2.7

 

 

 

 

Risk management activities

 

 

8.5

 

 

 

4.4

 

(Gain) loss on sale or disposition of assets

 

 

16.1

 

 

 

0.9

 

(Gain) loss from financing activities

 

 

5.8

 

 

 

(24.7

)

Change in contingent considerations

 

 

3.3

 

 

 

 

Changes in operating assets and liabilities, net of business acquisitions:

 

 

 

 

 

 

 

 

Receivables and other assets

 

 

241.2

 

 

 

94.7

 

Inventories

 

 

53.7

 

 

 

62.3

 

Accounts payable and other liabilities

 

 

(196.9

)

 

 

(115.9

)

Net cash provided by operating activities

 

 

318.7

 

 

 

241.3

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Outlays for property, plant and equipment

 

 

(144.2

)

 

 

(190.1

)

Outlays for business acquisition, net of cash acquired

 

 

(480.8

)

 

 

 

Investments in unconsolidated affiliates

 

 

(0.5

)

 

 

 

Return of capital from unconsolidated affiliates

 

 

 

 

 

3.4

 

Other, net

 

 

 

 

 

(1.3

)

Net cash used in investing activities

 

 

(625.5

)

 

 

(188.0

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Debt obligations:

 

 

 

 

 

 

 

 

Proceeds from borrowings under credit facilities

 

 

995.0

 

 

 

532.0

 

Repayments of credit facilities

 

 

(985.0

)

 

 

(977.0

)

Proceeds from borrowings under accounts receivable securitization facility

 

 

75.0

 

 

 

5.7

 

Repayments of accounts receivable securitization facility

 

 

(65.0

)

 

 

(75.0

)

Redemption of senior notes and term loan

 

 

(160.0

)

 

 

(330.6

)

Proceeds from issuance of common stock

 

 

664.8

 

 

 

 

Proceeds from issuance of preferred stock and warrants

 

 

 

 

 

994.1

 

Costs incurred in connection with financing arrangements

 

 

(7.7

)

 

 

(38.5

)

Repurchase of shares and units under compensation plans

 

 

(0.5

)

 

 

(0.2

)

Contributions from noncontrolling interests

 

 

8.9

 

 

 

6.0

 

Distributions to noncontrolling interests

 

 

(9.7

)

 

 

(2.1

)

Distributions to Partnership unitholders

 

 

(2.8

)

 

 

(141.7

)

Dividends paid to common and preferred shareholders

 

 

(199.7

)

 

 

(51.4

)

Payments of distribution equivalent rights

 

 

 

 

 

(0.3

)

Net cash provided by (used in) financing activities

 

 

313.3

 

 

 

(79.0

)

Net change in cash and cash equivalents

 

 

6.5

 

 

 

(25.7

)

Cash and cash equivalents, beginning of period

 

 

73.5

 

 

 

140.2

 

Cash and cash equivalents, end of period

 

$

80.0

 

 

$

114.5

 

 

See notes to consolidated financial statements.

 

 

 

9


 

TARGA RESOURCES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Except as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in millions of dollars.

 

Note 1 — Organization and Operations

 

Our Organization

 

Targa Resources Corp. (“TRC”) is a publicly traded Delaware corporation formed in October 2005. Our common stock is listed on the New York Stock Exchange under the symbol “TRGP.” In this Quarterly Report, unless the context requires otherwise, references to “we,” “us,” “our,” “the Company” or “Targa” are intended to mean our consolidated business and operations.

 

Our Operations

 

The Company is engaged in the business of:

 

gathering, compressing, treating, processing and selling natural gas;

 

storing, fractionating, treating, transporting and selling NGLs and NGL products, including services to LPG exporters;

 

gathering, storing and terminaling crude oil; and

 

storing, terminaling and selling refined petroleum products.

See Note 21 – Segment Information for certain financial information regarding our business segments.

 

 

 

Note 2 — Basis of Presentation

We have prepared these unaudited consolidated financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. While we derived the year-end balance sheet data from audited financial statements, this interim report does not include all disclosures required by GAAP for annual periods. These unaudited consolidated financial statements and other information included in this Quarterly Report should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report.

The unaudited consolidated financial statements for the three months ended March 31, 2017 and 2016 include all adjustments that we believe are necessary for a fair statement of the results for interim periods. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in prior periods may have been reclassified to conform to the current year presentation.

Our financial results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the full year.

One of our indirect subsidiaries is the sole general partner of Targa Resources Partners LP (“the Partnership” or “TRP”). Prior to February 17, 2016, our interests in the Partnership consisted of the following:

 

a 2% general partner interest, which we hold through our 100% ownership interest in the general partner of the Partnership;

 

all Incentive Distribution Rights (“IDRs”);

 

16,309,594 common units representing limited partner interests in the Partnership (“common units”), representing an 8.8% limited partnership interest; and

 

a Special GP Interest representing retained tax benefits related to the contribution to the Partnership from us of the APL general partner interest acquired in the ATLS merger.

On February 17, 2016, we completed the transactions contemplated by the Agreement and Plan of Merger (the “TRC/TRP Merger Agreement”, and such transactions, the “TRC/TRP Merger” or “Buy-in Transaction”), dated November 2, 2015, by and among us, the general partner of TRP, TRC and Spartan Merger Sub LLC, a subsidiary of us (“Merger Sub”) and we acquired indirectly all of the

10


 

outstanding TRP common units that we and our subsidiaries did not already own. Upon the terms and conditions set forth in the TRC/TRP Merger Agreement, Merger Sub merged with and into TRP, with TRP continuing as the surviving entity and as a subsidiary of TRC.

At the effective time of the TRC/TRP Merger, each outstanding TRP common unit not owned by us or our subsidiaries was converted into the right to receive 0.62 shares of our common stock. We issued 104,525,775 shares of our common stock to third-party unitholders of the common units of the Partnership in exchange for all of the 168,590,009 outstanding common units of the Partnership that we previously did not own. No fractional shares were issued in the TRC/TRP Merger, and TRP common unitholders instead received cash in lieu of fractional shares. There were no changes to our other interests in the Partnership.

TRP’s 5,000,000 9.0% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (the “Preferred Units”) remain outstanding after the TRC/TRP Merger. The Preferred Units are listed on the NYSE under “NGLS PRA” and are publicly traded. The Preferred Units are reported as noncontrolling interests in our financial statements.

As we continued to control the Partnership after the TRC/TRP Merger, the resulting change in our ownership interest was accounted for as an equity transaction, which is reflected in our Consolidated Balance Sheet as a reduction of noncontrolling interests and a corresponding increase in common stock and additional paid in capital. The TRC/TRP Merger was a taxable exchange that resulted in a book/tax difference in the basis of the underlying assets acquired (our investment in TRP). The tax impact is presented as a reduction of additional paid-in capital consistent with the accounting for tax effects of transactions with noncontrolling interests.

The earnings recorded by TRP that were attributed to its common units held by the public prior to February 17, 2016 are reflected within “Net income attributable to noncontrolling interests” in our Consolidated Statements of Operations for periods prior to the merger date.

On October 19, 2016, TRP executed the Third Amended and Restated Partnership Agreement of Limited Partnership of Targa Resources Partners LP (the “Third A&R Partnership Agreement”), effective as of December 1, 2016. The Third A&R Partnership Agreement (i) eliminated the IDRs held by the General Partner, and related distribution and allocation provisions, (ii) eliminated the Special GP Interest held by the General Partner, (iii) provided the ability to declare monthly distributions in addition to quarterly distributions, (iv) modified certain provisions relating to distributions from available cash, (v) eliminated the Class B Unit provisions and (vi) made changes to reflect the passage of time and removed provisions that were no longer applicable. In connection with the Third A&R Partnership Agreement, on December 1, 2016, TRP issued to the General Partner (i) 20,380,286 Common Units and 424,590 General Partner Units in exchange for the elimination of the IDRs and (ii) 11,267,485 Common Units and 234,739 General Partner Units in exchange for the elimination of the Special GP Interest.

 

 

Note 3 — Significant Accounting Policies

Accounting Policy Updates

The accounting policies that we follow are set forth in Note 3 – Significant Accounting Policies of the Notes to Consolidated Financial Statements in our Annual Report. There were no significant updates or revisions to our policies during the three months ended March 31, 2017, except as noted below.

Recent Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The update also creates a new Subtopic 340-40, Other Assets and Deferred Costs – Contracts with Customers, which provides guidance for the incremental costs of obtaining a contract with a customer and those costs incurred in fulfilling a contract with a customer that are not in the scope of another topic. The new revenue standard requires that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entities expect to be entitled in exchange for those goods or services. To achieve that core principle, the standard requires a five step process of (1) identifying the contracts with customers, (2) identifying the performance obligations in the contracts, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue when, or as, the performance obligations are satisfied. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

11


 

With the issuance in August 2015 of ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, the revenue recognition standard is effective for the annual period beginning after December 15, 2017, and for annual and interim periods thereafter. Earlier adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We must retrospectively apply the new revenue recognition standard to transactions in all prior periods presented, but will have a choice between either (1) restating each prior period presented or (2) presenting a cumulative effect adjustment in the period the standard is adopted.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The amendments in this update improve the operability and understandability of the implementation guidance on principal versus agent considerations, including clarifying that an entity should determine whether it is a principal or an agent for each specified good or service promised to a customer. These amendments are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2017, with early adoption permitted.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. These amendments clarify the guidance on identification of performance obligations and licensing. The amendments include that entities do not have to decide if goods and services are performance obligations if they are considered immaterial in the context of a contract. Entities are also permitted to account for the shipping and handling that takes place after the customer has gained control of the goods as actions to fulfill the contract rather than separate services. In order to identify a performance obligation in a customer contract, an entity has to determine whether the goods or services are distinct, and ASU No. 2016-10 clarifies how the determination can be made.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. These amendments address certain implementation issues related to assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition, and also provide additional practical expedients.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this update clarify the disclosure requirements for performance obligations, provide optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue and provide clarified guidance regarding impairment testing of capitalized contract costs.

We expect to adopt this new revenue recognition standard on January 1, 2018, presenting a cumulative effect adjustment in the period the standard is adopted. We also anticipate electing the practical expedient to apply the guidance retrospectively to only those contracts that are not completed contracts at the date of initial application. We have disaggregated contracts within our two segments and are in the process of reviewing contracts and transaction types with counterparties in order to evaluate how the new standard would impact our current revenue recognition and disclosure policies upon adoption. In addition, we are also evaluating whether certain contracts within our gathering and processing segment create relationships with counterparties akin to suppliers or involve significant sharing of risks that would exclude such contracts from the scope of Topic 606.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this update require, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We expect to adopt the amendments in the first quarter of 2019 and are currently evaluating the impacts of the amendments to our consolidated financial statements and accounting practices for leases.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. These amendments change the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amendments in this update affect investments in loans, investments in debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We expect to adopt this guidance on January 1, 2019, and are continuing to evaluate the impact on our measurement of credit losses.

12


 

Cash Flow Classification

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). These amendments clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows related to the following transactions: (1) debt prepayment or extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance; (6) distributions received from equity method investees; and (7) beneficial interests in securitization transactions. Additionally, the update clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the effect of the amendments on our consolidated financial statements and related disclosures.

Recognition of Intra-Entity Transfers of Assets Other than Inventory

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. The amendments in this update are intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party or otherwise recovered, which is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. This update eliminates the exception by requiring entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.

We early adopted the applicable amendments in first quarter of 2017 on a modified retrospective basis which resulted in a cumulative effect adjustment on retained earnings as of January 1, 2017 of $56.1 million in order to recognize unamortized tax expense previously deferred of $40.1 million and deferred tax assets previously unrecognized of $96.2 million. We did not have intra-entity transfers of assets other than inventory during the current period.

Business Combinations

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses by providing an initial required screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, then the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments also provide a framework to assist entities in evaluating whether both an input and a substantive process are present. These amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods, with early application permitted for transactions that have not been previously reported. We are currently evaluating the effects of such amendments.

Goodwill Impairment

In January 2017, FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. Step 2 required entities to compute the implied fair value of goodwill if it was determined that the carrying amount of a reporting unit exceeded its fair value. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The goodwill impairment recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. These amendments are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We expect to apply these amendments for our annual goodwill impairment test as of November 30, 2017, or earlier if events or changes in circumstances indicate that an interim goodwill impairment test is necessary.

Other Income

In February 2017, FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), which clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of nonfinancial assets.

13


 

Specifically, the amendments clarify that the guidance applies to all nonfinancial assets and in substance nonfinancial assets unless other specific guidance applies and defines "in substance financial asset" as an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. The amendment also impacts the accounting for partial sales of nonfinancial assets, whereby an entity that transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, will measure the retained interest at fair value resulting in the full gain/loss recognition upon sale. The amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the effect of the amendment on our consolidated financial statements.

 

 

Note 4 – Business Acquisitions and Divestitures

 

2017 Acquisition

 

Permian Acquisition

 

On March 1, 2017, Targa completed the purchase of 100% of the membership interests of Outrigger Delaware Operating, LLC, Outrigger Southern Delaware Operating, LLC (together “New Delaware”) and Outrigger Midland Operating, LLC (“New Midland” and together with New Delaware, the “Permian Acquisition”).

 

We paid $484.1 million in cash at closing on March 1, 2017, and will pay $90.0 million within 90 days of closing (collectively, the “initial purchase price”). Subject to certain performance-linked measures and other conditions, additional cash of up to $935.0 million may be payable to the sellers of New Delaware and New Midland in potential earn-out payments that may occur in 2018 and 2019. The potential earn-out payments will be based upon a multiple of realized gross margin from contracts that existed on March 1, 2017.

 

New Delaware’s gas gathering and processing and crude gathering assets are located in Loving, Winkler, Pecos and Ward counties in Texas. The operations are backed by producer dedications of more than 145,000 acres under long-term, largely fee-based contracts, with an average weighted contract life of 14 years. The New Delaware assets include 70 MMcf/d of processing capacity. Currently, there is 40,000 Bbl/d of crude gathering capacity on the New Delaware system. Since March 1, 2017, financial and statistical data of New Delaware have been included in Sand Hills operations.

 

New Midland’s gas gathering and processing and crude gathering assets are located in Howard, Martin and Borden counties in Texas. The operations are backed by producer dedications of more than 105,000 acres under long-term, largely fee-based contracts, with an average weighted contract life of 13 years. The New Midland assets include 10 MMcf/d of processing capacity. Currently, there is 40,000 Bbl/d of crude gathering capacity on the New Midland system. Since March 1, 2017, financial and statistical data of New Midland have been included in SAOU operations.

 

New Delaware’s gas gathering and processing assets were connected to our Sand Hills system in the first quarter of 2017 and we expect that New Midland’s gas gathering and processing assets will be connected to our existing WestTX system during 2017. We believe connecting the acquired assets to our legacy Permian footprint creates operational and capital synergies, and will afford enhanced flexibility in serving our producer customers.

 

On January 26, 2017, we completed a public offering of 9,200,000 shares of our common stock (including the shares sold pursuant to the underwriters’ overallotment option) at a price to the public of $57.65, providing net proceeds of $524.2 million.  We used the net proceeds from this public offering to fund the cash portion of the Permian Acquisition purchase price due upon closing and for general corporate purposes.

 

The acquired businesses contributed revenues of $8.1 million and a net loss of $1.6 million to us for the period from March 1, 2017 to March 31, 2017, and are reported in our Gathering and Processing segment. As of March 31, 2017, we had incurred $5.1 million of acquisition-related costs. These expenses are included in Other expense in our Consolidated Statements of Operations for the three months ended March 31, 2017.

 

Pro Forma Impact of Permian Acquisition on Consolidated Statement of Operations

 

The following summarized unaudited pro forma Consolidated Statement of Operations information for the three months ended March 31, 2017 and March 31, 2016 assumes that the Permian Acquisition occurred as of January 1, 2016. We prepared the following summarized unaudited pro forma financial results for comparative purposes only. The summarized unaudited pro forma information may not be indicative of the results that would have occurred had we completed this acquisition as of January 1, 2016, or that would be attained in the future.

14


 

 

 

 

March 31, 2017

 

 

March 31, 2016

 

 

 

Pro Forma

 

 

Pro Forma

 

Revenues

 

$

2,126.7

 

 

$

1,445.0

 

Net income (loss)

 

 

(111.4

)

 

 

(12.5

)

 

The pro forma consolidated results of operations amounts have been calculated after applying our accounting policies, and making the following adjustments to the unaudited results of the acquired businesses for the periods indicated:

 

 

Reflect the amortization expense resulting from the preliminary estimate of the fair value of intangible assets recognized as part of the Permian Acquisition. For the purposes of preparing the pro forma adjustments we have assumed a 15-year life using the straight-line method. The amortization method and lives for the Permian Acquisition intangibles will be reviewed and possibly revised as we finalize the valuations.

 

 

Reflect the change in depreciation expense resulting from the difference between the historical balances of the Permian Acquisition’s property, plant and equipment, net, and the preliminary estimate of the fair value of property, plant and equipment acquired.

 

 

Exclude $5.1 million of acquisition-related costs incurred as of March 31, 2017 from pro forma net income for the three months ended March 31, 2017. Pro forma net income for the three months ended March 31, 2016 was adjusted to include those charges.

 

 

Reflect the income tax effects of the above pro forma adjustments.

The following table summarizes the consideration transferred to acquire New Delaware and New Midland:

 

Fair Value of Consideration Transferred:

 

 

 

 

Cash paid, net of cash acquired (1)

 

$

480.8

 

Purchase consideration payable (2)

 

 

90.0

 

Contingent consideration

 

 

461.6

 

Total

 

$

1,032.4

 

 

 

(1)

Net of cash acquired of $3.3 million.

 

(2)

The payable will be settled in cash within 90 days from March 1, 2017.

 

We accounted for the Permian Acquisition as an acquisition of a business under purchase accounting rules. The assets acquired and liabilities assumed related to the Permian Acquisition were recorded at their fair values as of the closing date of March 1, 2017. The fair values below are preliminary and subject to revisions pending the completion of the valuation and other post-closing adjustments. These and other estimates are subject to change as additional information becomes available and is assessed by us, and agreement is reached on the respective final settlement statements. The preliminary fair value of the assets acquired and liabilities assumed at the acquisition date is shown below:

 

Fair value determination:

 

March 1, 2017

 

Trade and other current receivables, net

 

$

6.5

 

Other current assets

 

 

0.6

 

Property, plant and equipment

 

 

255.4

 

Intangible assets

 

 

625.6

 

Current liabilities

 

 

(14.3

)

Other long-term liabilities

 

 

(0.4

)

Total identifiable net assets

 

 

873.4

 

Goodwill

 

 

159.0

 

Total fair value of consideration transferred

 

$

1,032.4

 

 

Under the acquisition method of accounting, the assets acquired and liabilities assumed are recognized at their estimated fair values, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill. Such excess of purchase price over the fair value of net assets acquired was approximately $159.0 million, which was recorded as goodwill. As of March 31, 2017, this determination is based on our preliminary valuation and is subject to revisions pending the completion of the valuation and other adjustments. As a result, goodwill is also preliminary. The preliminary goodwill is attributable to expected

15


 

operational and capital synergies. The goodwill is expected to be amortizable for tax purposes. The attribution of the goodwill to reporting units for the purpose of required future impairment assessments will be completed in conjunction with our finalization of the fair value determination.

 

The preliminary fair value of assets acquired included trade receivables of $6.5 million, all of which was expected to be collectible.

 

The valuation of the acquired assets and liabilities was prepared using fair value methods and assumptions including projections of future production volumes and cash flows, benchmark analysis of comparable public companies, expectations regarding customer contracts and relationships, and other management estimates. The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs, as defined in Note 17 – Fair Value Measurements. These inputs require significant judgments and estimates at the time of valuation.

 

Contingent Consideration

 

A contingent consideration liability arising from potential earn-out payments in connection with the Permian Acquisition has been recognized at its preliminary fair value. We agreed to pay up to an additional $935.0 million in potential earn-out payments that may occur in 2018 and 2019. The preliminary acquisition date fair value of the potential earn-out payments of $461.6 million was recorded within other long-term liabilities on our Consolidated Balance Sheets. Subsequent changes in the fair value of this liability, excluding any measurement period adjustments of the acquisition date fair value, are included in earnings. During the three months ended March 31, 2017, we recognized $3.2 million as Other expense related to the change in fair value of the contingent consideration. See Note 17 – Fair Value Measurements for additional discussion of the fair value methodology.

 

2017 Divestiture

 

Sale of Venice Gathering System, L.L.C.

 

Through our 76.8% ownership interest in Venice Energy Services Company, L.L.C. (“VESCO”), we have operated the Venice gas plant and the Venice gathering system. On April 4, 2017, VESCO entered into a purchase and sale agreement with Rosefield Pipeline Company, LLC, an affiliate of Arena Energy, LP, to sell its 100% ownership interests in Venice Gathering System, L.L.C. (“VGS”), a Delaware limited liability company engaged in the business of transporting natural gas in interstate commerce, under authorization granted by and subject to the jurisdiction of the Federal Energy Regulatory Commission (“FERC”), for approximately $0.4 million in cash. Additionally, the VGS asset retirement obligations (“ARO”) were assumed by the buyer. VGS owns and operates a natural gas gathering system in the Gulf of Mexico. Historically, VGS has been reported in our Gathering and Processing segment. After the sale of VGS, we continue to operate the Venice gas plant through our ownership in VESCO. Targa Midstream Services LLC will continue to operate the Venice gathering system for up to four months after closing pursuant to a Transition Services Agreement with VGS.

 

The sale of VGS closed on April 4, 2017, and as a result, we recognized a loss of $16.1 million in our Consolidated Statements of Operations as part of Other operating (income) expense to impair our basis in the VGS assets to its fair value.

 

 

Note 5 — Inventories

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Commodities

 

$

65.1

 

 

$

126.9

 

Materials and supplies

 

 

10.4

 

 

 

10.8

 

 

 

$

75.5

 

 

$

137.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16


 

Note 6 — Property, Plant and Equipment and Intangible Assets

 

Property, Plant and Equipment

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

Estimated Useful Lives (In Years)

Gathering systems

 

$

6,777.7

 

 

$

6,626.8

 

 

5 to 20

Processing and fractionation facilities

 

 

3,506.9

 

 

 

3,390.2

 

 

5 to 25

Terminaling and storage facilities

 

 

1,231.7

 

 

 

1,205.0

 

 

5 to 25

Transportation assets

 

 

427.9

 

 

 

451.4

 

 

10 to 25

Other property, plant and equipment

 

 

280.6

 

 

 

274.2

 

 

3 to 25

Land

 

 

121.6

 

 

 

121.3

 

 

Construction in progress

 

 

610.6

 

 

 

449.8

 

 

Property, plant and equipment

 

 

12,957.0

 

 

 

12,518.7

 

 

 

Accumulated depreciation

 

 

(2,993.6

)

 

 

(2,827.7

)

 

 

Property, plant and equipment, net

 

$

9,963.4

 

 

$

9,691.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

$

2,662.2

 

 

$

2,036.6

 

 

15 to 20

Accumulated amortization

 

 

(423.4

)

 

 

(382.6

)

 

 

Intangible assets, net

 

$

2,238.8

 

 

$

1,654.0

 

 

 

 

Intangible Assets

 

Intangible assets consist of customer contracts and customer relationships acquired in the Permian Acquisition in 2017, the mergers with Atlas Energy L.P. and Atlas Pipeline Partners L.P. in 2015 (collectively, the “Atlas mergers”) and our Badlands acquisition in 2012. The fair values of these acquired intangible assets were determined at the date of acquisition based on the present values of estimated future cash flows. Key valuation assumptions include probability of contracts under negotiation, renewals of existing contracts, economic incentives to retain customers, past and future volumes, current and future capacity of the gathering system, pricing volatility and the discount rate.

The intangible assets acquired in the Permian Acquisition were recorded at a preliminary fair value of $625.6 million pending completion of final valuations. For the purposes of preparing the accompanying financial statements (which include one month of amortization of these intangible assets), we are amortizing these intangible assets over a 15-year life using the straight-line method. The amortization method and lives for the Permian Acquisition intangibles will be reviewed and possibly revised as we finalize the valuations over the upcoming months.

The intangible assets acquired in the Atlas mergers are being amortized over a 20-year life using the straight-line method, as a reliably determinable pattern of amortization could not be identified. Amortization expense attributable to our intangible assets related to the Badlands acquisition is recorded using a method that closely reflects the cash flow pattern underlying their intangible asset valuation over a 20-year life.

The estimated annual amortization expense for intangible assets, including the provisional Permian valuations and straight-line treatment is approximately $184.2 million, $177.4 million, $166.4 million, $154.2 million and $144.3 million for each of the years 2017 through 2021.

 

The changes in our intangible assets are as follows:

 

Balance at December 31, 2016

 

$

1,654.0

 

Additions from Permian Acquisition

 

 

625.6

 

Amortization

 

 

(40.8

)

Balance at March 31, 2017

 

$

2,238.8

 

 

 

 

17


 

Note 7 – Goodwill

 

As described in Note 3 – Significant Accounting Policies, we evaluate goodwill for impairment at least annually on November 30, or more frequently if we believe necessary based on events or changes in circumstances. During the first quarter of 2016, we finalized our 2015 impairment assessment and recorded additional impairment expense of $24.0 million on our Consolidated Statement of Operations. The impairment of goodwill was primarily due to the effects of lower commodity prices, and a higher cost of capital for companies in our industry compared to conditions in February 2015 when we acquired Atlas.

Changes in the net book value of our goodwill are as follows:

 

 

 

WestTX

 

 

SouthTX

 

 

Permian

 

 

Total

 

Balance at December 31, 2016, net

 

$

174.7

 

 

$

35.3

 

 

$

 

 

$

210.0

 

Permian Acquisition, March 1, 2017 (preliminary valuation)

 

 

 

 

 

 

 

 

159.0

 

 

 

159.0

 

Balance at March 31, 2017, net

 

$

174.7

 

 

$

35.3

 

 

$

159.0

 

 

$

369.0

 

 

 

 

Note 8 – Investments in Unconsolidated Affiliates

 

Our unconsolidated investments consist of a 38.8% non-operated ownership interest in Gulf Coast Fractionators LP (“GCF”) and three non-operated joint ventures in South Texas acquired in the Atlas mergers in 2015: a 75% interest in T2 LaSalle, a gas gathering company; a 50% interest in T2 Eagle Ford, a gas gathering company; and a 50% interest in T2 EF Cogen (“Cogen”), which owns a cogeneration facility, (together the “T2 Joint Ventures”). The T2 Joint Ventures were formed to provide services for the benefit of the joint interest owners. The T2 LaSalle and T2 Eagle Ford gathering companies have capacity lease agreements with the joint interest owners, which cover their costs of operations (excluding depreciation and amortization). The terms of these joint venture agreements do not afford us the degree of control required for consolidating them in our consolidated financial statements, but do afford us the significant influence required to employ the equity method of accounting. Our maximum exposure to loss as a result of our involvement with the T2 Joint Ventures includes our equity investment, any additional capital contribution commitments and our share of any operating expenses incurred by the T2 Joint Ventures.

The following table shows the activity related to our investments in unconsolidated affiliates:

 

 

 

GCF

 

 

T2 LaSalle

 

 

T2 Eagle Ford

 

 

T2 EF Cogen

 

 

Total

 

Balance at December 31, 2016

 

$

46.1

 

 

$

58.6

 

 

$

118.6

 

 

$

17.5

 

 

$

240.8

 

Equity earnings (loss)

 

 

3.7

 

 

 

(1.1

)

 

 

(2.7

)

 

 

(12.5

)

 

 

(12.6

)

Cash distributions (1)

 

 

(2.7

)

 

 

 

 

 

 

 

 

 

 

 

(2.7

)

Contributions for expansion projects (2)

 

 

 

 

 

0.3

 

 

 

1.1

 

 

 

0.1

 

 

 

1.5

 

Balance at March 31, 2017

 

$

47.1

 

 

$

57.8

 

 

$

117.0

 

 

$

5.1

 

 

$

227.0

 

 

 

(1)

During the three months ended March 31, 2017, there were no distributions received in excess of our share of cumulative earnings. Such excess distributions are considered a return of capital and disclosed in cash flows from investing activities in the Consolidated Statements of Cash Flows in the period in which they occur.

 

(2)

Includes a $1.0 million contribution of property, plant and equipment to T2 Eagle Ford.

 

Our equity loss for the three months ended March 31, 2017 includes the effect of an impairment in the carrying value of our investment in T2 EF Cogen. As a result of the decrease in current and expected future utilization of the underlying cogeneration assets, we have determined that factors indicate that a decrease in the value of our investment has occurred that is other than temporary. As a result of this evaluation, we have recorded an impairment loss of approximately $12.0 million, which represents our proportionate share (50%) of an impairment charge recorded by the joint venture, as well as the impairment of the unamortized excess fair value resulting from the Atlas mergers.

The carrying values of the T2 gathering joint ventures include the effects of the Atlas mergers purchase accounting, which determined fair values for the joint ventures as of the date of acquisition. As of March 31, 2017, $30.1 million of unamortized excess fair value over the T2 Joint Ventures capital accounts remained. These basis differences, which are attributable to the underlying depreciable tangible gathering assets, are being amortized on a straight-line basis as components of equity earnings over the estimated 20 year useful lives of the underlying assets.

 

 

18


 

Note 9 — Accounts Payable and Accrued Liabilities

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Commodities

 

$

512.1

 

 

$

574.4

 

Other goods and services

 

 

122.2

 

 

 

117.0

 

Purchase consideration payable

 

 

90.0

 

 

 

-

 

Interest

 

 

52.7

 

 

 

52.3

 

Compensation and benefits

 

 

20.2

 

 

 

37.2

 

Income and other taxes

 

 

22.6

 

 

 

24.2

 

Preferred Series A dividends payable

 

 

22.9

 

 

 

22.9

 

Other

 

 

24.5

 

 

 

15.5

 

 

 

$

867.2

 

 

$

843.5

 

 

Accounts payable and accrued liabilities includes $27.4 million and $30.5 million of liabilities to creditors to whom we have issued checks that remain outstanding as of March 31, 2017 and December 31, 2016.

 

 

19


 

Note 10 — Debt Obligations

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Current:

 

 

 

 

 

 

 

 

Obligations of the Partnership: (1)

 

 

 

 

 

 

 

 

Accounts receivable securitization facility, due December 2017

 

$

285.0

 

 

$

275.0

 

Senior unsecured notes, 5% fixed rate, due January 2018

 

 

250.5

 

 

 

 

 

 

 

535.5

 

 

 

275.0

 

Debt issuance costs, net of amortization

 

 

(0.6

)

 

 

 

Current maturities of debt

 

 

534.9

 

 

 

275.0

 

Long-term:

 

 

 

 

 

 

 

 

TRC obligations:

 

 

 

 

 

 

 

 

TRC Senior secured revolving credit facility, variable rate, due

   February 2020 (2)

 

 

435.0

 

 

 

275.0

 

TRC Senior secured term loan, variable rate, due February 2022

 

 

 

 

 

160.0

 

Unamortized discount

 

 

 

 

 

(2.2

)

Obligations of the Partnership: (1)

 

 

 

 

 

 

 

 

Senior secured revolving credit facility, variable rate, due

   October 2020 (3)

 

 

 

 

 

150.0

 

Senior unsecured notes:

 

 

 

 

 

 

 

 

5% fixed rate, due January 2018

 

 

 

 

 

250.5

 

4% fixed rate, due November 2019

 

 

749.4

 

 

 

749.4

 

6% fixed rate, due August 2022

 

 

278.7

 

 

 

278.7

 

5¼% fixed rate, due May 2023

 

 

559.6

 

 

 

559.6

 

4¼% fixed rate, due November 2023

 

 

583.9

 

 

 

583.9

 

6¾% fixed rate, due March 2024

 

 

580.1

 

 

 

580.1

 

5⅛% fixed rate, due February 2025

 

 

500.0

 

 

 

500.0

 

5⅜% fixed rate, due February 2027

 

 

500.0

 

 

 

500.0

 

TPL notes, 4¾% fixed rate, due November 2021 (4)

 

 

6.5

 

 

 

6.5

 

TPL notes, 5⅞% fixed rate, due August 2023 (4)

 

 

48.1

 

 

 

48.1

 

Unamortized premium

 

 

0.5

 

 

 

0.5

 

 

 

 

4,241.8

 

 

 

4,640.1

 

Debt issuance costs, net of amortization

 

 

(28.5

)

 

 

(34.1

)

Long-term debt

 

 

4,213.3

 

 

 

4,606.0

 

Total debt obligations

 

$

4,748.2

 

 

$

4,881.0

 

Irrevocable standby letters of credit:

 

 

 

 

 

 

 

 

Letters of credit outstanding under the TRC Senior

   secured credit facility (2)

 

$

 

 

$

 

Letters of credit outstanding under the Partnership senior

   secured revolving credit facility (3)

 

 

15.8

 

 

 

13.2

 

 

 

$

15.8

 

 

$

13.2

 

 

(1)

While we consolidate the debt of the Partnership in our financial statements, we do not have the obligation to make interest payments or debt payments with respect to the debt of the Partnership or Targa Pipeline Partners, L.P. (“TPL”).

(2)

As of March 31, 2017, availability under TRC’s $670.0 million senior secured revolving credit facility (“TRC Revolver”) was $235.0 million.

(3)

As of March 31, 2017, availability under the Partnership’s $1.6 billion senior secured revolving credit facility (“TRP Revolver”) was $1,584.2 million.

(4)

TPL notes are not guaranteed by us or the Partnership.

 

20


 

The following table shows the range of interest rates and weighted average interest rate incurred on variable-rate debt obligations during the three months ended March 31, 2017:

 

 

 

Range of Interest Rates Incurred

 

 

Weighted Average Interest Rate Incurred

 

TRC Revolver

 

2.5% - 4.5%

 

 

 

2.6%

 

TRC Senior secured term loan (1)

 

 

5.75%

 

 

 

5.75%

 

TRP Revolver

 

3.0% - 5.3%

 

 

 

3.2%

 

Partnership's accounts receivable securitization facility

 

 

1.8%

 

 

 

1.8%

 

 

 

(1)

The TRC Senior secured term loan is a Eurodollar rate loan with an interest rate of LIBOR (with a LIBOR floor of 1%) plus an applicable rate of 4.75%.

 

Compliance with Debt Covenants

 

As of March 31, 2017, we were in compliance with the covenants contained in our various debt agreements.

 

Securitization Facility

 

On February 23, 2017, we amended the Partnership’s accounts receivable securitization facility (“Securitization Facility”) to increase the facility size from $275.0 million to $350.0 million.  As of March 31, 2017, there was $285.0 million outstanding under the Securitization Facility.

 

TRC Revolver

 

On March 14, 2017, the $160.0 million outstanding balance on the TRC Senior secured term loan was repaid using borrowings under the TRC Revolver.

 

Note 11 — Other Long-term Liabilities

Other long-term liabilities are comprised of the following obligations:

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Asset retirement obligations

 

$

68.0

 

 

$

64.6

 

Mandatorily redeemable preferred interests

 

 

71.9

 

 

 

68.5

 

Deferred revenue

 

 

69.0

 

 

 

69.8

 

Permian Acquisition contingent consideration

 

 

464.8

 

 

 

 

Other liabilities

 

 

15.2

 

 

 

12.2

 

Total long-term liabilities

 

$

688.9

 

 

$

215.1

 

 

Asset Retirement Obligations

Our ARO primarily relate to certain gas gathering pipelines and processing facilities. The changes in our ARO are as follows:

 

Balance at December 31, 2016

 

$

64.6

 

Additions (1)

 

 

0.4

 

Change in cash flow estimate

 

 

1.7

 

Accretion expense

 

 

1.3

 

Balance at March 31, 2017

 

$

68.0

 

___________________________________________________________________________________________________________________

 

(1)

Amount reflects AROs assumed from the Permian Acquisition

 

Mandatorily Redeemable Preferred Interests

Our consolidated financial statements include our interest in two joint ventures that, separately, own a 100% interest in the WestOK natural gas gathering and processing system and a 72.8% undivided interest in the WestTX natural gas gathering and processing system. Our partner in the joint ventures holds preferred interests in each joint venture that are redeemable: (i) at our or our partner’s election, on or after July 27, 2022; and (ii) mandatorily, in July 2037.

21


 

For reporting purposes under GAAP, an estimate of our partner’s interest in each joint venture is required to be recorded as if the redemption had occurred on the reporting date. Because redemption will not be required until at least 2022, the actual value of our partner’s allocable share of each joint venture’s assets at the time of redemption may differ from our estimate of redemption value as of March 31, 2017.

The following table shows the changes attributable to mandatorily redeemable preferred interests:

 

Balance at December 31, 2016

 

$

68.5

 

Income attributable to mandatorily redeemable preferred interests

 

 

0.9

 

Change in estimated redemption value included in interest expense

 

 

2.5

 

Balance at March 31, 2017

 

$

71.9

 

 

 

Deferred Revenue

 

We have certain long-term contractual arrangements under which we have received consideration, but which require future performance by Targa. These arrangements result in deferred revenue, which will be recognized over the periods that performance will be provided.

 

Deferred revenue includes consideration received related to the construction and operation of a crude oil and condensate splitter. On December 27, 2015, Targa Terminals LLC and Noble Americas Corp., a subsidiary of Noble Group Ltd., entered into a long-term, fee-based agreement (“Splitter Agreement”) under which we will build and operate a 35,000 barrel per day crude oil and condensate splitter at our Channelview Terminal on the Houston Ship Channel (“Channelview Splitter”) and provide approximately 730,000 barrels of storage capacity. The Channelview Splitter will have the capability to split approximately 35,000 barrels per day of crude oil and condensate into its various components, including naphtha, kerosene, gas oil, jet fuel, and liquefied petroleum gas and will provide segregated storage for the crude, condensate and components. The Channelview Splitter project is expected to be completed by the first half of 2018, and has an estimated total cost of approximately $140.0 million. The first annual advance payment due under the Splitter Agreement was received in October 2016 and has been recorded as deferred revenue, as the Splitter Agreement requires future performance by Targa. Subsequent annual payments of $43.0 million (subject to an annual inflation factor) will be received through 2022. The deferred revenue will be recognized over the contractual period that future performance will be provided, currently anticipated to commence with start-up in 2018 and continuing through 2025.

 

Deferred revenue also includes consideration received in a 2015 amendment (the “gas contract amendment”) to a gas gathering and processing agreement. We measured the estimated fair value of the assets transferred to us using significant other observable inputs representative of a Level 2 fair value measurement.  Because the gas contract amendment will require future performance by Targa, we have recorded the consideration received as deferred revenue. The deferred revenue related to this amendment is being recognized on a straight-line basis through the end of the agreement’s term in 2030.

 

Deferred revenue also includes consideration received for other construction activities of facilities connected to our systems. The deferred revenue related to these other construction activities will be recognized over the periods that future performance will be provided, which extend through 2023.

 

The following table shows the components of deferred revenue:

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Splitter agreement

 

$

43.0

 

 

$

43.0

 

Gas contract amendment

 

 

19.3

 

 

 

19.7

 

Other deferred revenue

 

 

6.7

 

 

 

7.1

 

Total deferred revenue

 

$

69.0

 

 

$

69.8

 

 

The following table shows the changes in deferred revenue:

 

Balance at December 31, 2016

 

$

69.8

 

Additions

 

 

-

 

Revenue recognized

 

 

(0.8

)

Balance at March 31, 2017

 

$

69.0

 

 

 

 

 

22


 

Contingent Consideration

 

A contingent consideration liability arising from potential earn-out payments in connection with the Permian Acquisition has been recognized at its preliminary fair value. We agreed to pay up to an additional $935.0 million in potential earn-out payments that may occur in 2018 and 2019. The first potential earn-out payment would occur in May 2018. The preliminary acquisition date fair value of the potential earn-out payments of $461.6 million was recorded within other long-term liabilities on our Consolidated Balance Sheets. Subsequent changes in the fair value of this liability, excluding any measurement period adjustments of the acquisition date fair value, are included in earnings. For the one month ended March 31, 2017, we had an increase in the fair value of this liability of $3.2 million, bringing the Permian Acquisition contingent consideration to $464.8 million as of March 31, 2017. See Note 17 – Fair Value Measurements for additional discussion of the fair value methodology.

 

 

Note 12 – Preferred Stock

Preferred Stock and Detachable Warrants

In the first quarter of 2016, TRC sold in two tranches to investors in a private placement 965,100 shares of Series A Preferred Stock (“Series A Preferred”) with detachable Series A Warrants exercisable into a maximum of 13,550,004 shares of our common stock and Series B Warrants exercisable into a maximum of 6,533,727 shares of our common stock (collectively the “Warrants”) for an aggregate purchase price of $994.1 million in cash.

The Series A Preferred has a liquidation value of $1,000 per share and bears a cumulative 9.5% fixed dividend payable quarterly 45 days after the end of each fiscal quarter. The Series A Preferred ranks senior to the common outstanding stock with respect to the payment of dividends and distributions in liquidation. The Company may elect to pay dividends for any quarter with a paid-in-kind election (“PIK”) through December 31, 2017. Under the PIK election, unpaid dividends would be added to the liquidation preference and a commensurate amount of Series A and Series B Warrants would be issued. We have not made an election to PIK through March 31, 2017.  The Series A Preferred has no mandatory redemption date, but is redeemable at our election in year six for a 10% premium to the liquidation preference and for a 5% premium to the liquidation preference thereafter. If the Series A Preferred is not redeemed by the end of year twelve, the investors have the right to convert the Series A Preferred into TRC common stock at an exercise price of $20.77, which represented a 10% premium over the ten day volume weighted average price (“VWAP”) prior to the February 18, 2016 signing date ($18.88) of the Purchase Agreement underlying the first tranche. If the investors do not elect to convert their Series A Preferred into TRC common stock, Targa has a right after year twelve to force conversion, but only if the VWAP for the ten preceding trading days is greater than 120% of the conversion price. A change of control provision could result in forced redemption, at the option of the investor, if the Series A Preferred could not otherwise remain outstanding or be replaced with a “substantially equivalent security.”

The Series A Preferred does not qualify as a liability instrument under ASC 480 – Distinguishing Liabilities from Equity, because it is not mandatorily redeemable. However, as SEC Regulation S-X, Rule 5-02-27 does not permit a probability assessment for a change of control provision our Series A Preferred must be presented as mezzanine equity between liabilities and shareholders’ equity on our Consolidated Balance Sheets because a change of control event, although not considered probable, could force the Company to redeem the Series A Preferred. At each balance sheet date we must re-evaluate whether the Series A Preferred continues to qualify for treatment as an equity instrument. Under the terms of the Registration Rights Agreement covering common stock issuable upon conversion of the Series A Preferred (the “Preferred Registration Rights Agreement”), we will cause a registration statement with respect to the common shares underlying the Series A Preferred to be declared effective within 12 years of the March 16, 2016 issue date (the “Effective Date”), and pay liquidated damages in the event we fail to do so. A maximum of 46,466,057 common shares would be issued upon conversion of the Series A Preferred.

The detachable Warrants have a seven-year term and were exercisable beginning on September 16, 2016. They were issued in two series: Series A Warrants exercisable into a maximum number of 13,550,004 shares of our common stock with an exercise price of $18.88 and 6,533,727 Series B Warrants with an exercise price of $25.11. The Warrants may be net settled in cash or shares of common stock at the Company’s option. The Warrants qualify as freestanding financial instruments and meet the derivatives accounting scope exception in ASC 815 because they are indexed to our equity and otherwise meet the applicable criteria for equity classification. The portion of proceeds allocated to the Series A and Series B Warrants was recorded as additional paid-in capital. See exercise of the Warrants in Note 13 – Common Stock and Related Matters.

Net cash proceeds were allocated on a relative fair value basis to the Series A Preferred, Series A Warrants and Series B Warrants. The $178.1 million discount on the Series A Preferred created by the relative fair value allocation of proceeds, which is not subject to periodic accretion, would be reported as a deemed dividend in the event a redemption occurs. As described below, $614.4 million of the $787.1 million allocated to the Series A Preferred was allocated to additional paid-in capital to give effect to the intrinsic value of a beneficial conversion feature (“BCF”).

23


 

The following table summarizes the accounting upon issuance of our Series A Preferred:

 

 

 

 

 

 

Allocation of Proceeds

 

 

 

 

 

 

 

 

 

 

 

Additional Paid-in Capital

 

 

 

 

 

 

 

Series A Preferred

 

 

Series A Warrants

 

 

Series B Warrants

 

 

Beneficial Conversion Feature

 

Gross proceeds

 

$

994.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction fees

 

 

(24.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Proceeds- Initial Relative Fair Value Allocation

 

$

969.3

 

 

$

787.1

 

 

$

135.7

 

 

$

46.5

 

 

$

 

Allocation to BCF

 

 

 

 

 

 

(614.4

)

 

 

 

 

 

 

 

 

614.4

 

Per balance sheet upon issuance

 

 

 

 

 

$

172.7

 

 

$

135.7

 

 

$

46.5

 

 

$

614.4

 

Beneficial Conversion Feature

ASC 470-20-20 – Debt – Debt with conversion and Other Options (“ASC 470-20”) defines BCF as a nondetachable conversion feature that is in the money at the issuance date. We were required by ASC 470-20 to allocate a portion of the proceeds from the preferred offering equal to the intrinsic value of the BCF to additional paid-in capital. The intrinsic value of the BCF is calculated at the issuance date as the difference between the “accounting conversion price” and the market price of our common shares multiplied by the number of number of shares into which our Series A Preferred is convertible. The accounting conversion price of $17.02 per share is different from the $20.77 per share contractual conversion price. It is derived by dividing the proceeds allocated to the Series A Preferred by the number of common shares into which the Series A Preferred shares are convertible. We are recording the accretion of the $614.4 million Series A Preferred discount attributable to the BCF as a deemed dividend using the effective yield method over the twelve-year period prior to the effective date of the holders’ conversion right.

We have the right to redeem the Series A Preferred beginning after year five. As such, we can effectively mitigate or limit the Series A Preferred Holders’ ability to benefit from their conversion right after year twelve by paying either a $96.5 million (10%) redemption premium in year six or a $48.3 million (5%) redemption premium in years seven through twelve. In either case, the redemption premium would be significantly less than the $614.4 million BCF required to be recognized under GAAP. Upon exercise of our redemption rights, any previously recognized accretion of deemed dividends would be reversed in the period of redemption and reflected as income attributable to common shareholders in our Consolidated Statement of Operations and related per share amounts.

Preferred Stock Dividends

 

As of March 31, 2017, we have accrued cumulative preferred dividends of $22.9 million, which will be paid on May 15, 2017. During the three months ended March 31, 2017, we paid $22.9 million of dividends to preferred shareholders, and recorded deemed dividends of $6.1 million attributable to accretion of the preferred discount resulting from the BCF accounting described above. Such accretion is included in the book value of the Series A Preferred Stock.

 

 

 

 

Note 13 — Common Stock and Related Matters

Public Offerings of Common Stock

On January 26, 2017, we completed a public offering of 9,200,000 shares of our common stock (including the shares sold pursuant to the underwriters’ overallotment option) at a price to the public of $57.65, providing net proceeds of $524.2 million.  We used the net proceeds from this public offering to fund the cash portion of the Permian Acquisition purchase price due upon closing and for general corporate purposes.

 

For the three months ended March 31, 2017, we issued 2,686,460 shares of common stock under our Equity Distribution Agreement entered into in December 2016 (the “December 2016 EDA”), receiving net proceeds of $152.8 million, of which $19.6 million was settled in April. As of March 31, 2017 we have $516.5 million remaining under the December 2016 EDA.

24


 

 

Warrants

During 2016, 19,983,843 warrants were exercised and net settled for 11,336,856 shares of common stock. For the three months ended March 31, 2017, no detachable Warrants were exercised. As a result, Series A Warrants exercisable into a maximum of 67,392 shares of common stock and Series B Warrants exercisable into maximum of 32,496 shares of common stock were outstanding as of March 31, 2017.

 

Dividends

The following table details the dividends declared and/or paid by us to common shareholders during the three months ended March 31, 2017. 

 

Three Months

Ended

 

Date Paid or To Be

Paid

 

Total Common

Dividends Declared

 

 

Amount of Common

Dividends Paid or To Be Paid

 

 

Accrued

Dividends (1)

 

 

Dividend Declared per Share of Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( per share amounts)

 

March 31, 2017

 

May 16, 2017

$

 

182.8

 

$

 

180.3

 

$

 

2.5

 

$

 

0.91000

 

December 31, 2016

 

February 15, 2017

 

 

178.3

 

 

 

176.5

 

 

 

1.8

 

 

 

0.91000

 

 

(1)

Represents accrued dividends on restricted stock and restricted stock units that are payable upon vesting.

Dividends declared are recorded as a reduction of retained earnings to the extent that retained earnings was available at the close of the prior quarter, with any excess recorded as a reduction of additional paid-in capital.

 

Subsequent Event

 

During April 2017, we issued 1,464,408 shares of common stock under the December 2016 EDA, receiving net proceeds of $85.8  million. As of April 30, 2017, we have approximately $430.0 million remaining under the December 2016 EDA.

 

Note 14 — Partnership Units and Related Matters

Distributions

As a result of the TRC/TRP Merger in 2016, we are entitled to receive all available Partnership distributions after payment of preferred distributions each quarter. The Partnership has discretion under the Third A&R Partnership Agreement as to whether to distribute all available cash for any period. See Note 2 – Basis of Presentation.

   

The following details the distributions declared or paid by the Partnership during the three months ended March 31, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

Three Months

 

Date Paid

 

Total

 

 

Distributions to

Targa Resources

 

Ended

 

Or to Be Paid

 

Distributions

 

 

Corp.

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

May 11, 2017

$

 

209.6

 

$

 

206.8

 

December 31, 2016

 

February 10, 2017

 

 

198.1

 

 

 

195.3

 

 

Contributions

Subsequent to December 1, 2016, the effective date of the Third A&R Partnership Agreement, no units will be issued for capital contributions to the Partnership, but all capital contributions will continue to be allocated 98% to the limited partner and 2% to the general partner. During three months ended March 31, 2017, we made total capital contributions to the Partnership of $655.0 million.

 

Preferred Units

 

In October 2015, the Partnership completed an offering of 5,000,000 Preferred Units at a price of $25.00 per unit.  The Preferred Units are listed on the NYSE under the symbol “NGLS PRA.”

 

25


 

Distributions on the Partnership’s Preferred Units are cumulative from the date of original issue in October 2015 and are payable monthly in arrears on the 15th day of each month of each year, when, as and if declared by the board of directors of the Partnership’s general partner. Distributions on the Preferred Units are payable out of amounts legally available at a rate equal to 9.0% per annum. On and after November 1, 2020, distributions on the Preferred Units will accumulate at an annual floating rate equal to the one-month LIBOR plus a spread of 7.71%.

 

The Partnership paid $2.8 million of distributions to the holders of preferred units (“Preferred Unitholders”) during the three months ended March 31, 2017. The Preferred Units are reported as noncontrolling interests in our financial statements.

 

Subsequent Event

 

In April 2017, the board of directors of the general partner of the Partnership declared a cash distribution of $0.1875 per Preferred Unit, resulting in approximately $0.9 million in distributions which will be paid on May 15, 2017.

 

 

 

Note 15 — Earnings per Common Share

The following table sets forth a reconciliation of net income and weighted average shares outstanding (in millions) used in computing basic and diluted net income per common share:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Net income

 

$

(110.5

)

 

$

(0.7

)

Less: Net income attributable to noncontrolling interests

 

 

8.8

 

 

 

2.0

 

Less: Dividends on preferred stock

 

 

29.0

 

 

 

3.8

 

Net income attributable to common shareholders for basic earnings per share

 

$

(148.3

)

 

$

(6.5

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

191.8

 

 

 

106.6

 

 

 

 

 

 

 

 

 

 

Net income available per common share - basic

 

$

(0.77

)

 

$

(0.06

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

191.8

 

 

 

106.6

 

Dilutive effect of unvested stock awards

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

 

191.8

 

 

 

106.6

 

 

 

 

 

 

 

 

 

 

Net income available per common share - diluted

 

$

(0.77

)

 

$

(0.06

)

 

The following potential common stock equivalents are excluded from the determination of diluted earnings per share because the inclusion of such shares would have been anti-dilutive (in millions on a weighted-average basis):

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Unvested restricted stock awards

 

 

1.3

 

 

 

0.1

 

Warrants to purchase common stock

 

 

0.1

 

 

 

2.0

 

Series A preferred stock (1)

 

 

46.5

 

 

 

13.8

 

 

 

(1)

The Series A Preferred has no mandatory redemption date, but is redeemable at our election in year six for a 10% premium to the liquidation preference and for a 5% premium to the liquidation preference thereafter. If the Series A Preferred is not redeemed by the end of year twelve, the investors have the right to convert the Series A Preferred into TRC common stock. See Note 12 – Preferred Stock.

 

 

Note 16 — Derivative Instruments and Hedging Activities

The primary purpose of our commodity risk management activities is to manage our exposure to commodity price risk and reduce volatility in our operating cash flow due to fluctuations in commodity prices. We have hedged the commodity prices associated with a portion of our expected (i) natural gas equity volumes in our Gathering and Processing segment and (ii) NGL and condensate equity volumes predominately in our Gathering and Processing segment that result from percent-of-proceeds processing arrangements. These hedge positions will move favorably in periods of falling commodity prices and unfavorably in periods of rising commodity prices. We have designated these derivative contracts as cash flow hedges for accounting purposes.

The hedges generally match the NGL product composition and the NGL delivery points of our physical equity volumes. Our natural gas hedges are a mixture of specific gas delivery points and Henry Hub. The NGL hedges may be transacted as specific NGL hedges

26


 

or as baskets of ethane, propane, normal butane, isobutane and natural gasoline based upon our expected equity NGL composition. We believe this approach avoids uncorrelated risks resulting from employing hedges on crude oil or other petroleum products as “proxy” hedges of NGL prices. Our natural gas and NGL hedges are settled using published index prices for delivery at various locations.

We hedge a portion of our condensate equity volumes using crude oil hedges that are based on the NYMEX futures contracts for West Texas Intermediate light, sweet crude, which approximates the prices received for condensate. This exposes us to a market differential risk if the NYMEX futures do not move in exact parity with the sales price of our underlying condensate equity volumes.

As part of the Atlas mergers, outstanding TPL derivative contracts with a fair value of $102.1 million as of February 27, 2015 (the “acquisition date”), were novated to us and included in the acquisition date fair value of assets acquired. We received derivative settlements of $3.0 million for the three months ended March 31, 2017 and $8.7 million for the three months ended March 31, 2016, related to these novated contracts. From the acquisition date through March 31, 2017, we have received derivative settlements of $97.6 million. The remainder of the novated contracts will settle by the end of 2017. These settlements were reflected as a reduction of the acquisition date fair value of the TPL derivative assets acquired and had no effect on results of operations.

The "off-market" nature of these acquired derivatives can introduce a degree of ineffectiveness for accounting purposes due to an embedded financing element representing the amount that would be paid or received as of the acquisition date to settle the derivative contract. The resulting ineffectiveness can either potentially disqualify the derivative contract in its entirety for hedge accounting or alternatively affect the amount of unrealized gains or losses on qualifying derivatives that can be deferred from inclusion in periodic net income. Additionally, we recorded ineffectiveness losses of less than $0.1 million for the three months ended March 31, 2016, related to otherwise qualifying TPL derivatives, which are primarily natural gas swaps. There were no ineffectiveness losses on these derivatives for the three months ended March 31, 2017.

We also enter into derivative instruments to help manage other short-term commodity-related business risks. We have not designated these derivatives as hedges and record changes in fair value and cash settlements to revenues.

At March 31, 2017, the notional volumes of our commodity derivative contracts were:

 

Commodity

Instrument

Unit

2017

 

2018

 

2019

 

Natural Gas

Swaps

MMBtu/d

 

141,960

 

 

100,500

 

 

61,383

 

Natural Gas

Basis Swaps

MMBtu/d

 

95,963

 

 

1,103

 

 

-

 

Natural Gas

Futures

MMBtu/d

 

-

 

 

1,103

 

 

-

 

Natural Gas

Options

MMBtu/d

 

22,900

 

 

9,486

 

 

-

 

NGL

Swaps

Bbl/d

 

14,143

 

 

6,658

 

 

5,339

 

NGL

Futures

Bbl/d

 

5,702

 

 

1,288

 

 

-

 

NGL

Options

Bbl/d

 

1,647

 

 

1,676

 

 

-

 

Condensate

Swaps

Bbl/d

 

2,690

 

 

2,190

 

 

1,063

 

Condensate

Options

Bbl/d

 

1,380

 

 

691

 

 

590

 

 

Our derivative contracts are subject to netting arrangements that permit our contracting subsidiaries to net cash settle offsetting asset and liability positions with the same counterparty within the same Targa entity. We record derivative assets and liabilities on our Consolidated Balance Sheets on a gross basis, without considering the effect of master netting arrangements. The following schedules reflect the fair values of our derivative instruments and their location in our Consolidated Balance Sheets as well as pro forma reporting assuming that we reported derivatives subject to master netting agreements on a net basis:

 

 

 

 

 

Fair Value as of March 31, 2017

 

 

Fair Value as of December 31, 2016

 

 

 

Balance Sheet

 

Derivative

 

 

Derivative

 

 

Derivative

 

 

Derivative

 

 

 

Location

 

Assets

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current

 

$

23.6

 

 

$

20.8

 

 

$

16.7

 

 

$

48.6

 

 

 

Long-term

 

 

21.6

 

 

 

7.9

 

 

 

5.1

 

 

 

26.1

 

Total derivatives designated as hedging instruments

 

 

 

$

45.2

 

 

$

28.7

 

 

$

21.8

 

 

$

74.7

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current

 

$

0.3

 

 

$

1.4

 

 

$

0.1

 

 

$

0.5

 

Total derivatives not designated as hedging instruments

 

 

 

$

0.3

 

 

$

1.4

 

 

$

0.1

 

 

$

0.5

 

Total current position

 

 

 

$

23.9

 

 

$

22.2

 

 

$

16.8

 

 

$

49.1

 

Total long-term position

 

 

 

 

21.6

 

 

 

7.9

 

 

 

5.1

 

 

 

26.1

 

Total derivatives

 

 

 

$

45.5

 

 

$

30.1

 

 

$

21.9

 

 

$

75.2

 

 

27


 

The pro forma impact of reporting derivatives in our Consolidated Balance Sheets on a net basis is as follows:

 

 

 

Gross Presentation

 

 

Pro forma net presentation

 

March 31, 2017

Asset

 

 

Liability

 

 

Collateral

 

 

Asset

 

 

Liability

 

Current Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

$

23.8

 

 

$

(20.8

)

 

$

0.1

 

 

$

10.8

 

 

$

(7.7

)

 

Counterparties without offsetting positions - assets

 

0.1

 

 

 

-

 

 

 

-

 

 

 

0.1

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

-

 

 

 

(1.4

)

 

 

-

 

 

 

-

 

 

 

(1.4

)

 

 

 

23.9

 

 

 

(22.2

)

 

 

0.1

 

 

 

10.9

 

 

 

(9.1

)

Long Term Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

21.3

 

 

 

(6.6

)

 

 

-

 

 

 

16.7

 

 

 

(2.0

)

 

Counterparties without offsetting positions - assets

 

0.3

 

 

 

-

 

 

 

-

 

 

 

0.3

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

-

 

 

 

(1.3

)

 

 

-

 

 

 

-

 

 

 

(1.3

)

 

 

 

21.6

 

 

 

(7.9

)

 

 

-

 

 

 

17.0

 

 

 

(3.3

)

Total Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

45.1

 

 

 

(27.4

)

 

 

0.1

 

 

 

27.5

 

 

 

(9.7

)

 

Counterparties without offsetting positions - assets

 

0.4

 

 

 

-

 

 

 

-

 

 

 

0.4

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

-

 

 

 

(2.7

)

 

 

-

 

 

 

-

 

 

 

(2.7

)

 

 

$

45.5

 

 

$

(30.1

)

 

$

0.1

 

 

$

27.9

 

 

$

(12.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Presentation

 

 

Pro forma net presentation

 

December 31, 2016

Asset

 

 

Liability

 

 

Collateral

 

 

Asset

 

 

Liability

 

Current Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

$

16.8

 

 

$

(46.1

)

 

$

7.0

 

 

$

5.7

 

 

$

(28.0

)

 

Counterparties without offsetting positions - assets

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

-

 

 

 

(3.0

)

 

 

-

 

 

 

-

 

 

 

(3.0

)

 

 

 

16.8

 

 

 

(49.1

)

 

 

7.0

 

 

 

5.7

 

 

 

(31.0

)

Long Term Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

5.1

 

 

 

(18.7

)

 

 

-

 

 

 

-

 

 

 

(13.6

)

 

Counterparties without offsetting positions - assets

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

-

 

 

 

(7.4

)

 

 

-

 

 

 

-

 

 

 

(7.4

)

 

 

 

5.1

 

 

 

(26.1

)

 

 

-

 

 

 

-

 

 

 

(21.0

)

Total Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

21.9

 

 

 

(64.8

)

 

 

7.0

 

 

 

5.7

 

 

 

(41.6

)

 

Counterparties without offsetting positions - assets

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

-

 

 

 

(10.4

)

 

 

-

 

 

 

-

 

 

 

(10.4

)

 

 

$

21.9

 

 

$

(75.2

)

 

$

7.0

 

 

$

5.7

 

 

$

(52.0

)

 

 

Our payment obligations in connection with a majority of these hedging transactions are secured by a first priority lien in the collateral securing the TRP Revolver that ranks equal in right of payment with liens granted in favor of the Partnership’s senior secured lenders. Some of our hedges are futures contracts executed through a broker that clears the hedges through an exchange. We maintain a margin deposit with the broker in an amount sufficient enough to cover the fair value of our open futures positions. The margin deposit is considered collateral, which is located within other current assets on our Consolidated Balance Sheets and is not offset against the fair values of our derivative instruments.

The fair value of our derivative instruments, depending on the type of instrument, was determined by the use of present value methods or standard option valuation models with assumptions about commodity prices based on those observed in underlying markets. The estimated fair value of our derivative instruments was a net asset of $15.4 million as of March 31, 2017. The estimated fair value is net of an adjustment for credit risk based on the default probabilities by year as indicated by market quotes for the counterparties’ credit default swap rates. The credit risk adjustment was immaterial for all periods presented. Our futures contracts that are cleared through an exchange are margined daily and do not require any credit adjustment.

The following tables reflect amounts recorded in Other Comprehensive Income and amounts reclassified from OCI to revenue and expense for the periods indicated:

 

 

Gain (Loss) Recognized in OCI on

Derivatives (Effective Portion)

 

Derivatives in Cash Flow

 

Three Months Ended March 31,

 

Hedging Relationships

 

2017

 

 

2016

 

Commodity contracts

 

$

66.2

 

 

$

6.7

 

 

28


 

 

 

Gain (Loss) Reclassified from OCI into

Income (Effective Portion)

 

 

 

Three Months Ended March 31,

 

Location of Gain (Loss)

 

2017

 

 

2016

 

Revenues

 

$

(6.1

)

 

$

24.2

 

 

Our consolidated earnings are also affected by the use of the mark-to-market method of accounting for derivative instruments that do not qualify for hedge accounting or that have not been designated as hedges. The changes in fair value of these instruments are recorded on the balance sheet and through earnings rather than being deferred until the anticipated transaction settles. The use of mark-to-market accounting for financial instruments can cause non-cash earnings volatility due to changes in the underlying commodity price indices.

 

 

 

Location of Gain

 

Gain (Loss) Recognized in Income on Derivatives

 

Derivatives Not Designated

 

Recognized in Income on

 

Three Months Ended March 31,

 

as Hedging Instruments

 

Derivatives

 

2017

 

 

2016

 

Commodity contracts

 

Revenue

 

$

(0.8

)

 

$

1.8

 

 

Based on valuations as of March 31, 2017, we expect to reclassify commodity hedge related deferred gains of $10.8 million included in accumulated other comprehensive income into earnings before income taxes through the end of 2019, with $2.6 million of losses to be reclassified over the next twelve months.

See Note 17 – Fair Value Measurements for additional disclosures related to derivative instruments and hedging activities.

 

 

Note 17 — Fair Value Measurements

Under GAAP, our Consolidated Balance Sheets reflect a mixture of measurement methods for financial assets and liabilities (“financial instruments”). Derivative financial instruments and contingent consideration related to business acquisitions are reported at fair value in our Consolidated Balance Sheets. Other financial instruments are reported at historical cost or amortized cost in our Consolidated Balance Sheets. The following are additional qualitative and quantitative disclosures regarding fair value measurements of financial instruments.

Fair Value of Derivative Financial Instruments

Our derivative instruments consist of financially settled commodity swaps, futures, option contracts and fixed-price forward commodity contracts with certain counterparties. We determine the fair value of our derivative contracts using present value methods or standard option valuation models with assumptions about commodity prices based on those observed in underlying markets. We have consistently applied these valuation techniques in all periods presented and we believe we have obtained the most accurate information available for the types of derivative contracts we hold.

The fair values of our derivative instruments are sensitive to changes in forward pricing on natural gas, NGLs and crude oil. The financial position of these derivatives at March 31, 2017, a net asset position of $15.4 million, reflects the present value, adjusted for counterparty credit risk, of the amount we expect to receive or pay in the future on our derivative contracts. If forward pricing on natural gas, NGLs and crude oil were to increase by 10%, the result would be a fair value reflecting a net liability of $47.5 million, ignoring an adjustment for counterparty credit risk. If forward pricing on natural gas, NGLs and crude oil were to decrease by 10%, the result would be a fair value reflecting a net asset of $79.0 million, ignoring an adjustment for counterparty credit risk.

Fair Value of Other Financial Instruments

Due to their cash or near-cash nature, the carrying value of other financial instruments included in working capital (i.e., cash and cash equivalents, accounts receivable, accounts payable) approximates their fair value. Long-term debt is primarily the other financial instrument for which carrying value could vary significantly from fair value. We determined the supplemental fair value disclosures for our long-term debt as follows:

 

The TRC Revolver, TRP Revolver, and the Partnership’s accounts receivable securitization facility are based on carrying value, which approximates fair value as their interest rates are based on prevailing market rates; and

 

Our term loan and the Partnership’s senior unsecured notes are based on quoted market prices derived from trades of the debt.

Contingent consideration liabilities related to business acquisitions are carried at fair value.

29


 

Fair Value Hierarchy

We categorize the inputs to the fair value measurements of financial assets and liabilities at each balance sheet reporting date using a three-tier fair value hierarchy that prioritizes the significant inputs used in measuring fair value:

 

Level 1 – observable inputs such as quoted prices in active markets;

 

Level 2 – inputs other than quoted prices in active markets that we can directly or indirectly observe to the extent that the markets are liquid for the relevant settlement periods; and

 

Level 3 – unobservable inputs in which little or no market data exists, therefore we must develop our own assumptions.

The following table shows a breakdown by fair value hierarchy category for (1) financial instruments measurements included in our Consolidated Balance Sheets at fair value and (2) supplemental fair value disclosures for other financial instruments:

 

 

 

March 31, 2017

 

 

 

Carrying

 

 

Fair Value

 

 

 

Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Instruments Recorded on Our

   Consolidated Balance Sheets at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets from commodity derivative contracts (1)

 

$

37.7

 

 

$

37.7

 

 

$

 

 

$

35.7

 

 

$

2.0

 

Liabilities from commodity derivative contracts (1)

 

 

22.1

 

 

 

22.1

 

 

 

 

 

 

20.8

 

 

 

1.3

 

Permian Acquisition contingent consideration (2)

 

 

464.8

 

 

 

464.8

 

 

 

 

 

 

 

 

 

464.8

 

TPL contingent consideration (3)

 

 

2.7

 

 

 

2.7

 

 

 

 

 

 

 

 

 

2.7

 

Financial Instruments Recorded on Our

   Consolidated Balance Sheets at Carrying Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

80.0

 

 

 

80.0

 

 

 

 

 

 

 

 

 

 

TRC Revolver

 

 

435.0

 

 

 

435.0

 

 

 

 

 

 

435.0

 

 

 

 

TRC term loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TRP Revolver

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership's Senior unsecured notes

 

 

4,057.3

 

 

 

4,169.1

 

 

 

 

 

 

4,169.1

 

 

 

 

Partnership's accounts receivable securitization facility

 

 

285.0

 

 

 

285.0

 

 

 

 

 

 

285.0

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Carrying

 

 

Fair Value

 

 

 

Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Instruments Recorded on Our

   Consolidated Balance Sheets at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets from commodity derivative contracts (1)

 

$

21.0

 

 

$

21.0

 

 

$

 

 

$

19.6

 

 

$

1.4

 

Liabilities from commodity derivative contracts (1)

 

 

74.2

 

 

 

74.2

 

 

 

 

 

 

69.3

 

 

 

4.9

 

TPL contingent consideration (3)

 

 

2.6

 

 

 

2.6

 

 

 

 

 

 

 

 

 

2.6

 

Financial Instruments Recorded on Our

   Consolidated Balance Sheets at Carrying Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

73.5

 

 

 

73.5

 

 

 

 

 

 

 

 

 

 

TRC Revolver

 

 

275.0

 

 

 

275.0

 

 

 

 

 

 

275.0

 

 

 

 

TRC term loan

 

 

157.8

 

 

 

158.4

 

 

 

 

 

 

158.4

 

 

 

 

TRP Revolver

 

 

150.0

 

 

 

150.0

 

 

 

 

 

 

150.0

 

 

 

 

Partnership's Senior unsecured notes

 

 

4,057.3

 

 

 

4,101.6

 

 

 

 

 

 

4,101.6

 

 

 

 

Partnership's accounts receivable securitization facility

 

 

275.0

 

 

 

275.0

 

 

 

 

 

 

275.0

 

 

 

 

 

(1)

The fair value of derivative contracts in this table is presented on a different basis than the Consolidated Balance Sheets presentation as disclosed in Note 16 – Derivative Instruments and Hedging Activities. The above fair values reflect the total value of each derivative contract taken as a whole, whereas the Consolidated Balance Sheets presentation is based on the individual maturity dates of estimated future settlements. As such, an individual contract could have both an asset and liability position when segregated into its current and long-term portions for Consolidated Balance Sheets classification purposes.

(2)

We have a contingent consideration liability related to the Permian Acquisition. See Note 4 – Business Acquisitions and Divestitures.

(3)

We have a contingent consideration liability for TPL’s previous acquisition of a gas gathering system and related assets, which are carried at fair value.

Additional Information Regarding Level 3 Fair Value Measurements Included in Our Consolidated Balance Sheets

We reported certain of our swaps and option contracts at fair value using Level 3 inputs due to such derivatives not having observable implied volatilities or market prices for substantially the full term of the derivative asset or liability. For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations whose contract length extends into unobservable periods.

30


 

The fair value of these swaps is determined using a discounted cash flow valuation technique based on a forward commodity basis curve. For these derivatives, the primary input to the valuation model is the forward commodity basis curve, which is based on observable or public data sources and extrapolated when observable prices are not available.

As of March 31, 2017, we had 17 commodity swap and option contracts categorized as Level 3. The significant unobservable inputs used in the fair value measurements of our Level 3 derivatives are (i) the forward natural gas liquids pricing curves, for which a significant portion of the derivative’s term is beyond available forward pricing and (ii) implied volatilities, which are unobservable as a result of inactive natural gas liquids options trading. The change in the fair value of Level 3 derivatives associated with a 10% change in the forward basis curve where prices are not observable is immaterial.

The fair value of the Permian Acquisition contingent consideration was determined using a Monte-Carlo simulation model. Significant inputs used in the fair value measurement include expected gross margin (calculated in accordance with the terms of the purchase and sale agreements), term of the earn-out period, risk adjusted discount rate and volatility associated with the underlying assets. A significant decrease in expected gross margin during the earn-out period, or significant increase in the discount rate or volatility would result in a lower fair value estimate.  The fair value of the TPL contingent consideration was determined using a probability-based model measuring the likelihood of meeting certain volumetric measures. The inputs for both models are not observable; therefore, the entire valuations of the contingent considerations are categorized in Level 3. Changes in the fair value of these liabilities are included in Other income (expense) on the Consolidated Statements of Operations.

The following table summarizes the changes in fair value of our financial instruments classified as Level 3 in the fair value hierarchy:

 

 

 

 

Commodity

 

 

 

 

 

 

 

 

Derivative Contracts

 

 

Contingent

 

 

 

 

Asset/(Liability)

 

 

Liability

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

 

$

(3.6

)

 

$

(2.6

)

 

Change in fair value of TPL contingent consideration

 

 

-

 

 

 

(0.1

)

 

Fair value of Permian Acquisition contingent consideration (1)

 

 

-

 

 

 

(464.8

)

 

New Level 3 derivative instruments

 

 

(0.1

)

 

 

-

 

 

Transfers out of Level 3 (2)

 

 

1.6

 

 

 

-

 

 

Settlements included in Revenue

 

 

0.2

 

 

 

-

 

 

Unrealized gain/(loss) included in OCI

 

 

2.6

 

 

 

-

 

Balance, March 31, 2017

 

$

0.7

 

 

$

(467.5

)

 

(1)

Represents the March 31, 2017 balance of the contingent consideration that arose as part of the Permian Acquisition in Q1 2017. See Note 4 – Business Acquisitions and Divestitures for discussion of the initial fair value.

(2)

Transfers relate to long-term over-the-counter swaps for NGL products for which observable market prices became available for substantially their full term.

 

 

Note 18 – Contingencies

Legal Proceedings

Environmental Proceedings

On June 18, 2015, the New Mexico Environment Department’s Air Quality Bureau issued a Notice of Violation to Targa Midstream Services LLC for alleged violations of air emissions regulations related to emissions events that occurred at the Monument Gas Plant between June 2014 and December 2014.  The Monument Gas Plant is owned by Versado Gas Processors, L.L.C., which was a joint venture in which we owned a 63% interest until October 31, 2016, when we acquired the remaining 37% membership interest from Chevron U.S.A. Inc. On January 31, 2017, Targa Midstream Services LLC executed a settlement agreement with the New Mexico Environment Department which resolved the matter for a civil penalty in the amount of $29,223.

We and the Partnership are also parties to various legal, administrative and regulatory proceedings that have arisen in the ordinary course of our business

 

 

 

 

 

 

 

 

 

31


 

Note 19 – Other Operating (Income) Expense

 

Other operating (income) expense is comprised of the following:

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

(Gain) loss on sale or disposal of assets (1)

$

16.1

 

 

$

0.9

 

Miscellaneous business tax

 

0.1

 

 

 

0.1

 

 

$

16.2

 

 

$

1.0

 

 

(1)

Comprised primarily of a $16.1 million loss in 2017 due to the reduction in the carrying value of our ownership interest in VGS in connection with the April 4, 2017 sale.

 

Note 20 - Supplemental Cash Flow Information

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Cash:

 

 

 

 

 

 

 

 

 

Interest paid, net of capitalized interest (1)

$

 

56.1

 

 

$

 

82.8

 

Income taxes paid, net of refunds

 

 

(0.2

)

 

 

 

1.0

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

 

Deadstock commodity inventory transferred to property, plant and equipment

$

 

8.3

 

 

$

 

16.9

 

Impact of capital expenditure accruals on property, plant and equipment

 

 

30.0

 

 

 

 

13.7

 

Transfers from materials and supplies inventory to property, plant and equipment

 

 

0.4

 

 

 

 

0.5

 

Contribution of property, plant and equipment to investment in unconsolidated affiliates.

 

 

1.0

 

 

 

 

 

Change in ARO liability and property, plant and equipment due to revised cash flow estimate

 

 

1.7

 

 

 

 

(9.1

)

Non-cash financing activities:

 

 

 

 

 

 

 

 

 

Reduction of Owner's Equity related to accrued dividends on unvested equity awards under share compensation arrangements

$

 

2.2

 

 

$

 

3.7

 

Accrued issue costs associated with Series A preferred stock

 

 

 

 

 

 

3.3

 

Receivables from equity offerings

 

 

19.6

 

 

 

 

 

Impact of accounting standard adoption recorded in retained earnings

 

 

56.1

 

 

 

 

 

Change in accrued dividends of Series A Preferred Stock

 

 

 

 

 

 

3.8

 

Accrued deemed dividends of Series A Preferred Stock

 

 

6.1

 

 

 

 

 

Non-cash balance sheet movements related to the Permian Acquisition:

 

 

 

 

 

 

 

 

 

Contingent consideration recorded at the acquisition date

$

 

461.6

 

 

$

 

 

Purchase consideration payable recorded for the Permian Acquisition

 

 

90.0

 

 

 

 

 

Non-cash balance sheet movements related to the TRC/TRP Merger:

 

 

 

 

 

 

 

 

 

Prepaid transaction costs reclassified in the additional paid-in capital

 

 

 

 

 

 

4.5

 

Issuance of common stock

 

 

 

 

 

 

0.1

 

Additional paid-in capital

 

 

 

 

 

 

3,115.5

 

Accumulated other comprehensive income

 

 

 

 

 

 

55.9

 

Noncontrolling interests

 

 

 

 

 

 

(4,119.9

)

Deferred tax liability

 

 

 

 

 

 

948.4

 

 

 

(1)

Interest capitalized on major projects was $1.7 million and $4.8 million for the three months ended March 31, 2017 and 2016.

 

 

 

 

 

 

 

32


 

Note 21 — Segment Information

We operate in two primary segments: (i) Gathering and Processing, and (ii) Logistics and Marketing (also referred to as the Downstream Business).

Our Gathering and Processing segment includes assets used in the gathering of natural gas produced from oil and gas wells and processing this raw natural gas into merchantable natural gas by extracting NGLs and removing impurities; and assets used for crude oil gathering and terminaling. The Gathering and Processing segment's assets are located in the Permian Basin of West Texas and Southeast New Mexico; the Eagle Ford Shale in South Texas; the Barnett Shale in North Texas; the Anadarko, Ardmore, and Arkoma Basins in Oklahoma and South Central Kansas; the Williston Basin in North Dakota and in the onshore and near offshore regions of the Louisiana Gulf Coast and the Gulf of Mexico.

Our Logistics and Marketing segment includes all the activities necessary to convert mixed NGLs into NGL products and provides certain value added services such as storing, terminaling, distributing and marketing of NGLs, the storage and terminaling of refined petroleum products and crude oil and certain natural gas supply and marketing activities in support of our other businesses including services to LPG exporters. It also includes certain natural gas supply and marketing activities in support of our other operations, as well as transporting natural gas and NGLs.

Logistics and Marketing operations are generally connected to and supplied in part by our Gathering and Processing segment and are predominantly located in Mont Belvieu and Galena Park, Texas; Lake Charles, Louisiana and Tacoma, Washington.

Other contains the results (including any hedge ineffectiveness) of commodity derivative activities included in operating margin and mark-to-market gains/losses related to derivative contracts that were not designated as cash flow hedges. Elimination of inter-segment transactions are reflected in the corporate and eliminations column.

Reportable segment information is shown in the following tables:

 

 

 

 

Three Months Ended March 31, 2017

 

 

 

Gathering and Processing

 

 

Logistics and Marketing

 

 

Other

 

 

Corporate

and

Eliminations

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

$

166.7

 

 

$

1,692.4

 

 

$

(1.0

)

 

$

 

 

$

1,858.1

 

Fees from midstream

   services

 

 

118.2

 

 

 

136.3

 

 

 

 

 

 

 

 

 

254.5

 

 

 

 

284.9

 

 

 

1,828.7

 

 

 

(1.0

)

 

 

 

 

 

2,112.6

 

Intersegment revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

 

713.0

 

 

 

75.4

 

 

 

 

 

 

(788.4

)

 

 

 

Fees from midstream

   services

 

 

1.9

 

 

 

7.0

 

 

 

 

 

 

(8.9

)

 

 

 

 

 

 

714.9

 

 

 

82.4

 

 

 

 

 

 

(797.3

)

 

 

 

Revenues

 

$

999.8

 

 

$

1,911.1

 

 

$

(1.0

)

 

$

(797.3

)

 

$

2,112.6

 

Operating margin

 

$

177.4

 

 

$

130.1

 

 

$

(1.0

)

 

$

 

 

$

306.5

 

Other financial information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (1)

 

$

10,780.4

 

 

$

2,687.2

 

 

$

44.9

 

 

$

141.3

 

 

$

13,653.8

 

Goodwill

 

$

369.0

 

 

$

 

 

$

 

 

$

 

 

$

369.0

 

Capital expenditures

 

$

139.2

 

 

$

34.6

 

 

$

 

 

$

0.8

 

 

$

174.6

 

 

(1)

Corporate assets at the segment level primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.

 

33


 

 

 

Three Months Ended March 31, 2016

 

 

 

Gathering and Processing

 

 

Logistics and Marketing

 

 

Other

 

 

Corporate

and

Eliminations

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

$

110.3

 

 

$

1,033.9

 

 

$

26.8

 

 

$

 

 

$

1,171.0

 

Fees from midstream

   services

 

 

115.8

 

 

 

155.6

 

 

 

 

 

 

 

 

 

271.4

 

 

 

 

226.1

 

 

 

1,189.5

 

 

 

26.8

 

 

 

 

 

 

1,442.4

 

Intersegment revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

 

412.6

 

 

 

47.3

 

 

 

 

 

 

(459.9

)

 

 

 

Fees from midstream

   services

 

 

2.1

 

 

 

4.1

 

 

 

 

 

 

(6.2

)

 

 

 

 

 

 

414.7

 

 

 

51.4

 

 

 

 

 

 

(466.1

)

 

 

 

Revenues

 

$

640.8

 

 

$

1,240.9

 

 

$

26.8

 

 

$

(466.1

)

 

$

1,442.4

 

Operating margin

 

$

115.6

 

 

$

157.0

 

 

$

26.8

 

 

$

(0.1

)

 

$

299.3

 

Other financial information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (1)

 

$

10,219.0

 

 

$

2,501.0

 

 

$

105.7

 

 

$

123.5

 

 

$

12,949.2

 

Goodwill

 

$

393.0

 

 

$

 

 

$

 

 

$

 

 

$

393.0

 

Capital expenditures

 

$

103.0

 

 

$

73.1

 

 

$

 

 

$

0.8

 

 

$

176.9

 

 

(1)

Corporate assets at the segment level primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.

 

The following table shows our consolidated revenues by product and service for the periods presented:

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Sales of commodities:

 

 

 

 

 

 

 

Natural gas

$

480.9

 

 

$

326.9

 

NGL

 

1,314.9

 

 

 

785.8

 

Condensate

 

43.6

 

 

 

22.2

 

Petroleum products

 

19.8

 

 

 

9.6

 

Derivative activities

 

(1.1

)

 

 

26.5

 

 

 

1,858.1

 

 

 

1,171.0

 

Fees from midstream services:

 

 

 

 

 

 

 

Fractionating and treating

 

31.0

 

 

 

30.2

 

Storage, terminaling, transportation and export

 

99.7

 

 

 

118.4

 

Gathering and processing

 

107.7

 

 

 

105.0

 

Other

 

16.1

 

 

 

17.8

 

 

 

254.5

 

 

 

271.4

 

Total revenues

$

2,112.6

 

 

$

1,442.4

 

 

 

34


 

The following table shows a reconciliation of operating margin to net income (loss) for the periods presented:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Reconciliation of operating margin to net income (loss):

 

 

 

 

 

 

 

 

 

 

Operating margin

 

$

 

306.5

 

 

$

 

299.3

 

Depreciation and amortization expenses

 

 

 

(191.1

)

 

 

 

(193.5

)

General and administrative expenses

 

 

 

(48.7

)

 

 

 

(45.3

)

Goodwill impairment

 

 

 

-

 

 

 

 

(24.0

)

Interest expense, net

 

 

 

(63.0

)

 

 

 

(52.9

)

Other, net

 

 

 

(43.1

)

 

 

 

18.8

 

Income tax (expense) benefit

 

 

 

(71.1

)

 

 

 

(3.1

)

Net income (loss)

 

$

 

(110.5

)

 

$

 

(0.7

)

 

 

35


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2016 (“Annual Report”), as well as the unaudited consolidated financial statements and Notes hereto included in this Quarterly Report on Form 10-Q.

 

Overview

 

Targa Resources Corp. (NYSE: TRGP) is a publicly traded Delaware corporation formed in October 2005. Targa is a leading provider of midstream services and is one of the largest independent midstream energy companies in North America. We own, operate, acquire and develop a diversified portfolio of complementary midstream energy assets.

 

On February 17, 2016, TRC completed its acquisition of all of the outstanding common units of Targa Resources Partners LP (“the Partnership” or “TRP”) pursuant to the Agreement and Plan of Merger (the “TRC/TRP Merger Agreement” and such transaction, the “TRC/TRP Merger” or “Buy-in Transaction”). We issued 104,525,775 shares of common stock in exchange for all of the outstanding common units of the Partnership that we previously did not own, which were listed on the New York Stock Exchange (“NYSE”) under the symbol “NGLS” prior to the consummation of the TRC/TRP Merger. As a result of the completion of the TRC/TRP Merger, the TRP common units are no longer publicly traded. The Partnership’s 9.00% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (the “Preferred Units”) that were issued in October 2015 remain outstanding as limited partner interests in TRP and continue to trade on the NYSE under the symbol “NGLS PRA”.

 

As we continue to control the Partnership, the change in our ownership interest as a result of the TRC/TRP Merger was accounted for as an equity transaction and no gain or loss was recognized in our Consolidated Statements of Operations related to the Buy-in Transaction. The equity interests in TRP (which are consolidated in our financial statements) that were owned by the public prior to February 17, 2016 are reflected within “noncontrolling interests” in our Consolidated Balance Sheets for periods prior to the merger date. The earnings recorded by TRP that were attributed to its common units held by the public prior to February 17, 2016 are reflected within “Net income attributable to noncontrolling interests” in our Consolidated Statements of Operations for periods prior to the merger date.

 

Our Operations

 

We are engaged in the business of:

 

gathering, compressing, treating, processing and selling natural gas;

 

storing, fractionating, treating, transporting and selling NGLs and NGL products, including services to LPG exporters;

 

gathering, storing and terminaling crude oil; and

 

storing, terminaling and selling refined petroleum products.

 

To provide these services, we operate in two primary segments: (i) Gathering and Processing, and (ii) Logistics and Marketing (also referred to as the Downstream Business).

 

Our Gathering and Processing segment includes assets used in the gathering of natural gas produced from oil and gas wells and processing this raw natural gas into merchantable natural gas by extracting NGLs and removing impurities; and assets used for crude oil gathering and terminaling. The Gathering and Processing segment's assets are located in the Permian Basin of West Texas and Southeast New Mexico; the Eagle Ford Shale in South Texas; the Barnett Shale in North Texas; the Anadarko, Ardmore, and Arkoma Basins in Oklahoma and South Central Kansas; the Williston Basin in North Dakota and in the onshore and near offshore regions of the Louisiana Gulf Coast and the Gulf of Mexico.

 

Our Logistics and Marketing segment includes all the activities necessary to convert mixed NGLs into NGL products and provides certain value added services such as storing, fractionating, terminaling, transporting and marketing of NGLs and NGL products, including services to LPG exporters; storing and terminaling of refined petroleum products and crude oil and certain natural gas supply and marketing activities in support of our other businesses.

 

Logistics and Marketing operations are generally connected to and supplied in part by our Gathering and Processing segment and are predominantly located in Mont Belvieu and Galena Park, Texas; Lake Charles, Louisiana and Tacoma, Washington.

 

36


 

Other contains the results (including any hedge ineffectiveness) of our commodity derivative activities that are included in operating margin.

 

Recent Developments

Gathering and Processing Segment Expansion

 

Permian Acquisition

 

On March 1, 2017, we completed the purchase of 100% of the membership interests of Outrigger Delaware Operating, LLC, Outrigger Southern Delaware Operating, LLC (together “New Delaware”) and Outrigger Midland Operating, LLC (“New Midland” and together with New Delaware, the “Permian Acquisition”).

 

We paid $484.1 million in cash at closing on March 1, 2017, and will pay $90.0 million within 90 days of closing (collectively, the "initial purchase price"). Subject to certain performance-linked measures and other conditions, additional cash of up to $935.0 million may be payable to the sellers of New Delaware and New Midland in potential earn-out payments that may occur in 2018 and 2019. The potential earn-out payments will be based upon a multiple of realized gross margin from contracts that existed on March 1, 2017.

 

New Delaware's gas gathering and processing and crude gathering assets are located in Loving, Winkler, Pecos and Ward counties. The operations are backed by producer dedications of more than 145,000 acres under long-term, largely fee-based contracts, with an average weighted contract life of 14 years. The New Delaware assets include 70 MMcf/d of processing capacity and an uninstalled 60 MMcf/d plant, which we are in the process of installing in the Delaware Basin with expectations of commencing operations in late 2017. Currently, there is 40,000 Bbl/d of crude gathering capacity on the New Delaware system.

 

New Midland's gas gathering and processing and crude gathering assets are located in Howard, Martin and Borden counties. The operations are backed by producer dedications of more than 105,000 acres under long-term, largely fee-based contracts, with an average weighted contract life of 13 years. The New Midland assets include 10 MMcf/d of processing capacity. Currently, there is 40,000 Bbl/d of crude gathering capacity on the New Midland system.

 

New Delaware's gas gathering and processing assets were connected to our Sand Hills system in the first quarter of 2017, and we expect that New Midland's gas gathering and processing assets will be connected to our existing WestTX system during 2017. We believe connecting the acquired assets to our legacy Permian footprint creates operational and capital synergies, and will afford enhanced flexibility in serving our producer customers.

 

Additional Permian System Processing Capacity

 

In November 2016, we announced plans to restart the idled 45 MMcf/d Benedum cryogenic processing plant and to add 20 MMcf/d of capacity at our Midkiff plant in our WestTX system.  The Benedum plant was idled in September 2014 after the start-up of the 200 MMcf/d Edward plant, and was brought back online in the first quarter of 2017.  We expect that the addition of 20 MMcf/d of capacity at our Midkiff plant will increase overall plant capacity of the Midkiff/Consolidator plant complex in Reagan County, Texas from 210 MMcf/d to 230 MMcf/d. The Midkiff/Consolidator plant complex addition is expected to be completed in the second quarter of 2017. Also in November 2016, we announced plans to build the 200 MMcf/d Joyce plant, which is expected to be completed in the first quarter of 2018. We expect total net growth capital expenditures for the Joyce plant to be approximately $90 million.

 

In May 2017, we announced plans to build a new plant and expand the gathering footprint of our Permian Midland system in the Midland Basin. This project includes a new 200 MMcf/d cryogenic processing plant, known as the Johnson plant, which is expected to begin operations in the third quarter of 2018. We expect total net growth capital expenditures for the Johnson plant to be approximately $90 million.

 

Also in May 2017, we announced plans to build a new plant and expand the gathering footprint of our Permian Delaware system in the Delaware Basin. This project includes a new 250 MMcf/d cryogenic processing plant, known as the Wildcat plant, which is expected to begin operations in the third quarter of 2018. We expect total net growth capital expenditures for the Wildcat plant to be approximately $130 million.

 

 

 

37


 

Eagle Ford Shale Natural Gas Gathering and Processing Joint Ventures

 

In October 2015, we announced that we had entered into the Carnero Joint Ventures with Sanchez Energy Corporation (“Sanchez”) to construct the 200 MMcf/d Raptor Plant and approximately 45 miles of associated pipelines. In July 2016, Sanchez sold its interest in the gathering joint venture to Sanchez Production Partners, L.P. (“SPP”) and in November 2016, sold its interest in the processing joint venture to SPP. Through the Carnero Joint Ventures, we indirectly own a 50% interest in the plant and the approximately 45 miles of high pressure gathering pipelines that will connect SPP's Catarina gathering system to the plant. We hold the capacity on the high pressure gathering pipelines, and pay the gathering joint venture fees for transportation.

 

The Raptor Plant will accommodate the growing production from Sanchez’s premier Eagle Ford Shale acreage position in Dimmit, La Salle and Webb Counties, Texas and from other third party producers. The plant and high pressure gathering pipelines are supported by long-term, firm, fee-based contracts and acreage dedications with Sanchez. We manage operations of the high pressure gathering lines and the plant, which is expected to begin operations in the second quarter of 2017, and will be capable of processing 200 MMcf/d. In February 2017, we announced the addition of compression to increase the processing capacity of the Raptor Plant to 260 MMcf/d, which we expect to be completed in the third quarter of 2017. Prior to the plant being placed in service, we benefited from Sanchez natural gas volumes that were processed at our Silver Oak facilities in Bee County, Texas.

 

Badlands

 

During 2017, we expect to invest approximately $150 million to expand our crude gathering and natural gas processing business in the Williston Basin, North Dakota. The expansion includes the addition of pipelines, LACT units, compression and other infrastructure to support continued growth in producer activity.

 

Sale of Venice Gathering System, L.L.C.

 

Through our 76.8% ownership interest in Venice Energy Services Company, L.L.C. (“VESCO”), we have operated the Venice gas plant and the Venice gathering system. On April 4, 2017, VESCO entered into a purchase and sale agreement with Rosefield Pipeline Company, LLC, an affiliate of Arena Energy, LP, to sell its 100% ownership interests in Venice Gathering System, L.L.C. (“VGS”), a Delaware limited liability company engaged in the business of transporting natural gas in interstate commerce, under authorization granted by and subject to the jurisdiction of the Federal Energy Regulatory Commission (“FERC”), for approximately $0.4 million in cash. Additionally, the VGS asset retirement obligations were assumed by the buyer. VGS owns and operates a natural gas gathering system in the Gulf of Mexico. Historically, VGS has been reported in our Gas Gathering and Processing segment. After the sale of VGS, we continue to operate the Venice gas plant through our ownership in VESCO. Targa Midstream Services LLC will continue to operate the Venice gathering system for up to four months after closing pursuant to a Transition Services Agreement with VGS.

In addition to the major projects noted above, we have other growth capital expenditures in 2017 related to the continued build out of our gathering and processing infrastructure and logistics capabilities. We will continue to evaluate other potential projects based on return profile, capital requirements and strategic need and may choose to defer projects depending on expected activity levels.

 

Financing Activities

 

On January 26, 2017, we completed a public offering of 9,200,000 shares of common stock (including underwriters’ overallotment option) at a price of $57.65, providing net proceeds of $524.2 million. We used the net proceeds from this public offering to fund the cash portion of the Permian Acquisition purchase price due upon closing and for general corporate purposes.

 

On February 23, 2017, we amended the Partnership’s account receivable securitization facility (“Securitization Facility”) to increase the facility size to $350.0 million from $275.0 million.

 

On March 14, 2017, we used borrowings under our senior secured revolving credit facility (“TRC Revolver”) to repay in full the $160.0 million outstanding balance on our senior secured term loan.

 

For the three months ended March 31, 2017, we sold 2,686,460 shares under our ATM program, yielding net proceeds of $152.8 million.

 

During April 2017, we issued 1,464,408 shares of common stock under the December 2016 EDA, receiving net proceeds of $85.8 million.

38


 

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements that will affect us, see “Recent Accounting Pronouncements” included within Note 3 – Significant Accounting Policies in our Consolidated Financial Statements.

 

 

How We Evaluate Our Operations

The profitability of our business segments is a function of the difference between: (i) the revenues we receive from our operations, including fee-based revenues from services and revenues from the natural gas, NGLs, crude oil and condensate we sell, and (ii) the costs associated with conducting our operations, including the costs of wellhead natural gas, crude oil and mixed NGLs that we purchase as well as operating, general and administrative costs and the impact of our commodity hedging activities. Because commodity price movements tend to impact both revenues and costs, increases or decreases in our revenues alone are not necessarily indicative of increases or decreases in our profitability. Our contract portfolio, the prevailing pricing environment for crude oil, natural gas and NGLs, and the volumes of crude oil, natural gas and NGL throughput on our systems are important factors in determining our profitability. Our profitability is also affected by the NGL content in gathered wellhead natural gas, supply and demand for our products and services, utilization of our assets and changes in our customer mix.

Our profitability is also impacted by fee-based revenues. Our growth strategy, based on expansion of existing facilities as well as third-party acquisitions of businesses and assets, has increased the percentage of our revenues that are fee-based. Fixed fees for services such as fractionation, storage, terminaling and crude oil gathering are not directly tied to changes in market prices for commodities.

Management uses a variety of financial measures and operational measurements to analyze our performance. These include: (1) throughput volumes, facility efficiencies and fuel consumption, (2) operating expenses, (3) capital expenditures and (4) the following non-GAAP measures: gross margin, operating margin, adjusted EBITDA and distributable cash flow.

Throughput Volumes, Facility Efficiencies and Fuel Consumption

Our profitability is impacted by our ability to add new sources of natural gas supply and crude oil supply to offset the natural decline of existing volumes from oil and natural gas wells that are connected to our gathering and processing systems. This is achieved by connecting new wells and adding new volumes in existing areas of production, as well as by capturing crude oil and natural gas supplies currently gathered by third-parties. Similarly, our profitability is impacted by our ability to add new sources of mixed NGL supply, typically connected by third-party transportation, to our Downstream Business fractionation facilities. We fractionate NGLs generated by our gathering and processing plants, as well as by contracting for mixed NGL supply from third-party facilities.

In addition, we seek to increase operating margin by limiting volume losses, reducing fuel consumption and by increasing efficiency. With our gathering systems’ extensive use of remote monitoring capabilities, we monitor the volumes received at the wellhead or central delivery points along our gathering systems, the volume of natural gas received at our processing plant inlets and the volumes of NGLs and residue natural gas recovered by our processing plants. We also monitor the volumes of NGLs received, stored, fractionated and delivered across our logistics assets. This information is tracked through our processing plants and Downstream Business facilities to determine customer settlements for sales and volume related fees for service and helps us increase efficiency and reduce fuel consumption.

As part of monitoring the efficiency of our operations, we measure the difference between the volume of natural gas received at the wellhead or central delivery points on our gathering systems and the volume received at the inlet of our processing plants as an indicator of fuel consumption and line loss. We also track the difference between the volume of natural gas received at the inlet of the processing plant and the NGLs and residue gas produced at the outlet of such plant to monitor the fuel consumption and recoveries of our facilities. Similar tracking is performed for our crude oil gathering and logistics assets. These volume, recovery and fuel consumption measurements are an important part of our operational efficiency analysis and safety programs.

Operating Expenses

Operating expenses are costs associated with the operation of specific assets. Labor, contract services, repair and maintenance, utilities and ad valorem taxes comprise the most significant portion of our operating expenses. These expenses, other than fuel and power, generally remain relatively stable and independent of the volumes through our systems, but fluctuate depending on the scope of the activities performed during a specific period.

39


 

Capital Expenditures

Capital projects associated with growth and maintenance projects are closely monitored. Return on investment is analyzed before a capital project is approved, spending is closely monitored throughout the development of the project, and the subsequent operational performance is compared to the assumptions used in the economic analysis performed for the capital investment approval.

Gross Margin

We define gross margin as revenues less product purchases. It is impacted by volumes and commodity prices as well as by our contract mix and commodity hedging program.

Gathering and Processing segment gross margin consists primarily of revenues from the sale of natural gas, condensate, crude oil and NGLs and fee revenues related to natural gas and crude oil gathering and services, less producer payments and other natural gas and crude oil purchases.

Logistics and Marketing segment gross margin consists primarily of

 

service fee revenues (including the pass-through of energy costs included in fee rates),  

 

system product gains and losses, and

 

NGL and natural gas sales less NGL and natural gas purchases, transportation costs and the net inventory change.

The gross margin impacts of cash flow hedge settlements are reported in Other.

Operating Margin

We define operating margin as gross margin less operating expenses. Operating margin is an important performance measure of the core profitability of our operations.

Management reviews business segment gross margin and operating margin monthly as a core internal management process. We believe that investors benefit from having access to the same financial measures that management uses in evaluating our operating results. Gross margin and operating margin provide useful information to investors because they are used as supplemental financial measures by management and by external users of our financial statements, including investors and commercial banks, to assess:

 

the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

 

our operating performance and return on capital as compared to other companies in the midstream energy sector, without regard to financing or capital structure; and

 

the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

Gross margin and operating margin are non-GAAP measures. The GAAP measure most directly comparable to gross margin and operating margin is net income. Gross margin and operating margin are not alternatives to GAAP net income and have important limitations as analytical tools. Investors should not consider gross margin and operating margin in isolation or as a substitute for analysis of our results as reported under GAAP. Because gross margin and operating margin exclude some, but not all, items that affect net income and are defined differently by different companies in our industry, our definitions of gross margin and operating margin may not be comparable with similarly titled measures of other companies, thereby diminishing their utility. Management compensates for the limitations of gross margin and operating margin as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating these insights into its decision-making processes.

 

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) available to TRC before: interest; income taxes; depreciation and amortization; impairment of goodwill; gains or losses on debt repurchases, redemptions, amendments, exchanges and early debt extinguishments and asset disposals; risk management activities related to derivative instruments including the cash impact of hedges acquired in the mergers with Atlas Energy L.P. and Atlas Pipeline Partners L.P. in 2015; non-cash compensation on equity grants; transaction costs related to business acquisitions; the Splitter Agreement adjustment; net income attributable to TRP preferred limited partners; earnings/losses from unconsolidated affiliates net of distributions, distributions from preferred interests, change in contingent consideration and the noncontrolling interest portion of depreciation and amortization expense. Adjusted EBITDA is used as a

40


 

supplemental financial measure by us and by external users of our financial statements such as investors, commercial banks and others. The economic substance behind our use of Adjusted EBITDA is to measure the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and pay dividends to our investors.

Adjusted EBITDA is a non-GAAP financial measure. The GAAP measure most directly comparable to Adjusted EBITDA is net income (loss) attributable to TRC. Adjusted EBITDA should not be considered as an alternative to GAAP net income. Adjusted EBITDA has important limitations as an analytical tool. Investors should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA excludes some, but not all, items that affect net income and is defined differently by different companies in our industry, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating these insights into its decision-making processes.

 

Distributable Cash Flow

We define distributable cash flow as Adjusted EBITDA less distributions to TRP preferred limited partners, the Splitter Agreement adjustments, cash interest expense on debt obligations, cash tax (expense) benefit and maintenance capital expenditures (net of any reimbursements of project costs). This measure includes the impact of noncontrolling interests on the prior adjustment items.

Distributable cash flow is a significant performance metric used by us and by external users of our financial statements, such as investors, commercial banks and research analysts, to compare basic cash flows generated by us (prior to the establishment of any retained cash reserves by our board of directors) to the cash dividends we expect to pay our shareholders. Using this metric, management and external users of our financial statements can quickly compute the coverage ratio of estimated cash flows to cash dividends. Distributable cash flow is also an important financial measure for our shareholders since it serves as an indicator of our success in providing a cash return on investment. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly dividend rates.

Distributable cash flow is a non-GAAP financial measure. The GAAP measure most directly comparable to distributable cash flow is net income (loss) attributable to TRC. Distributable cash flow should not be considered as an alternative to GAAP net income (loss) available to common and preferred shareholders. It has important limitations as an analytical tool. Investors should not consider distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because distributable cash flow excludes some, but not all, items that affect net income and is defined differently by different companies in our industry, our definition of distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

Management compensates for the limitations of distributable cash flow as an analytical tool by reviewing the comparable GAAP measure, understanding the differences between the measures and incorporating these insights into our decision-making processes.

41


 

Our Non-GAAP Financial Measures

The following tables reconcile the non-GAAP financial measures used by management to the most directly comparable GAAP measures for the periods indicated.

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Reconciliation of Net Income (Loss) attributable to TRC to Operating Margin and Gross Margin:

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to TRC

 

$

 

(119.3

)

 

$

 

(2.7

)

Net income (loss) attributable to noncontrolling interests

 

 

 

8.8

 

 

 

 

2.0

 

Net income (loss)

 

 

 

(110.5

)

 

 

 

(0.7

)

Depreciation and amortization expense

 

 

 

191.1

 

 

 

 

193.5

 

General and administrative expense

 

 

 

48.7

 

 

 

 

45.3

 

Goodwill impairment

 

 

 

 

 

 

 

24.0

 

Interest expense, net

 

 

 

63.0

 

 

 

 

52.9

 

Income tax expense (benefit)

 

 

 

71.1

 

 

 

 

3.1

 

(Gain) loss on sale or disposition of assets

 

 

 

16.1

 

 

 

 

0.9

 

(Gain) loss from financing activities

 

 

 

5.8

 

 

 

 

(24.7

)

Other, net

 

 

 

21.2

 

 

 

 

5.0

 

Operating margin

 

 

 

306.5

 

 

 

 

299.3

 

Operating expenses

 

 

 

151.9

 

 

 

 

132.1

 

Gross margin

 

$

 

458.4

 

 

$

 

431.4

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Reconciliation of Net Income (Loss) attributable to TRC to Adjusted EBITDA and Distributable Cash Flow

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to TRC

 

$

 

(119.3

)

 

$

 

(2.7

)

Impact of TRC/TRP Merger on NCI

 

 

 

 

 

 

 

(3.8

)

Income attributable to TRP preferred limited partners

 

 

 

2.8

 

 

 

 

2.8

 

Interest expense, net

 

 

 

63.0

 

 

 

 

52.9

 

Income tax expense (benefit)

 

 

 

71.1

 

 

 

 

3.1

 

Depreciation and amortization expense

 

 

 

191.1

 

 

 

 

193.5

 

Goodwill impairment

 

 

 

 

 

 

 

24.0

 

(Gain) loss on sale or disposition of assets

 

 

 

16.1

 

 

 

 

0.9

 

(Gain) loss from financing activities

 

 

 

5.8

 

 

 

 

(24.7

)

(Earnings) loss from unconsolidated affiliates

 

 

 

12.6

 

 

 

 

4.8

 

Distributions from unconsolidated affiliates and preferred partner interests, net

 

 

 

4.2

 

 

 

 

5.8

 

Change in contingent consideration

 

 

 

3.3

 

 

 

 

 

Compensation on equity grants

 

 

 

10.8

 

 

 

 

8.0

 

Transaction costs related to business acquisitions

 

 

 

5.1

 

 

 

 

 

Splitter Agreement (1)

 

 

 

10.8

 

 

 

 

 

Risk management activities

 

 

 

3.6

 

 

 

 

5.9

 

Noncontrolling interests adjustments (2)

 

 

 

(4.3

)

 

 

 

(5.8

)

TRC Adjusted EBITDA

 

$

 

276.7

 

 

$

 

264.7

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to TRP preferred limited partners

 

 

 

(2.8

)

 

 

 

(2.8

)

Splitter Agreement (1)

 

 

 

(10.8

)

 

 

 

 

Interest expense on debt obligations (3)

 

 

 

(59.0

)

 

 

 

(69.7

)

Cash tax (expense) benefit (4)

 

 

 

15.3

 

 

 

 

 

Maintenance capital expenditures

 

 

 

(25.7

)

 

 

 

(15.0

)

Noncontrolling interests adjustments of maintenance capex

 

 

 

0.3

 

 

 

 

0.8

 

Distributable Cash Flow

 

$

 

194.0

 

 

$

 

178.0

 

_______________

(1)

In Adjusted EBITDA, the Splitter Agreement adjustment represents the recognition of the annual cash payment received under the condensate splitter agreement over the four quarters following receipt. In Distributable Cash Flow, the Splitter Agreement adjustment represents the amounts necessary to reflect the annual cash payment in the period received less the amount recognized in Adjusted EBITDA.

(2)

Noncontrolling interest portion of depreciation and amortization expense.

(3)

Excludes amortization of interest expense.

(4)

Includes an adjustment, reflecting the benefit from net operating loss carryback to 2015 and 2014, which is recognized over a period of six quarters beginning in Q3 2016, and a refund of Texas margin tax paid in previous periods and received in 2017.

 

 

42


 

Consolidated Results of Operations

The following table and discussion is a summary of our consolidated results of operations:

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

2016

 

 

 

2017 vs. 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions, except operating statistics and price amounts)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

$

 

1,858.1

 

 

$

 

1,171.0

 

 

$

 

687.1

 

 

 

59

%

Fees from midstream services

 

 

254.5

 

 

 

 

271.4

 

 

 

 

(16.9

)

 

 

(6

%)

Total revenues

 

 

2,112.6

 

 

 

 

1,442.4

 

 

 

 

670.2

 

 

 

46

%

Product purchases

 

 

1,654.2

 

 

 

 

1,011.0

 

 

 

 

643.2

 

 

 

64

%

Gross margin (1)

 

 

458.4

 

 

 

 

431.4

 

 

 

 

27.0

 

 

 

6

%

Operating expenses

 

 

151.9

 

 

 

 

132.1

 

 

 

 

19.8

 

 

 

15

%

Operating margin (1)

 

 

306.5

 

 

 

 

299.3

 

 

 

 

7.2

 

 

 

2

%

Depreciation and amortization expense

 

 

191.1

 

 

 

 

193.5

 

 

 

 

(2.4

)

 

 

(1

%)

General and administrative expense

 

 

48.7

 

 

 

 

45.3

 

 

 

 

3.4

 

 

 

8

%

Goodwill impairment

 

 

 

 

 

 

24.0

 

 

 

 

(24.0

)

 

 

(100

%)

Other operating (income) expense

 

 

16.2

 

 

 

 

1.0

 

 

 

 

15.2

 

 

NM

 

Income from operations

 

 

50.5

 

 

 

 

35.5

 

 

 

 

15.0

 

 

 

42

%

Interest expense, net

 

 

(63.0

)

 

 

 

(52.9

)

 

 

 

(10.1

)

 

 

19

%

Equity earnings (loss)

 

 

(12.6

)

 

 

 

(4.8

)

 

 

 

(7.8

)

 

 

163

%

Gain (loss) from financing activities

 

 

(5.8

)

 

 

 

24.7

 

 

 

 

(30.5

)

 

 

(123

%)

Other income (expense)

 

 

(8.5

)

 

 

 

(0.1

)

 

 

 

(8.4

)

 

NM

 

Income tax (expense) benefit

 

 

(71.1

)

 

 

 

(3.1

)

 

 

 

(68.0

)

 

NM

 

Net income (loss)

 

 

(110.5

)

 

 

 

(0.7

)

 

 

 

(109.8

)

 

NM

 

Less: Net income attributable to noncontrolling interests

 

 

8.8

 

 

 

 

2.0

 

 

 

 

6.8

 

 

NM

 

Net income (loss) attributable to Targa Resources Corp.

 

 

(119.3

)

 

 

 

(2.7

)

 

 

 

(116.6

)

 

NM

 

Dividends on Series A preferred stock

 

 

22.9

 

 

 

 

3.8

 

 

 

 

19.1

 

 

NM

 

Deemed dividends on Series A preferred stock

 

 

6.1

 

 

 

 

 

 

 

 

6.1

 

 

 

 

Net income (loss) attributable to common shareholders

$

 

(148.3

)

 

$

 

(6.5

)

 

$

 

(141.8

)

 

NM

 

Financial and operating data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (1)

$

 

276.7

 

 

$

 

264.7

 

 

$

 

12.0

 

 

 

5

%

Distributable cash flow (1)

 

 

194.0

 

 

 

 

178.0

 

 

 

 

16.0

 

 

 

9

%

Capital expenditures

 

 

174.6

 

 

 

 

176.9

 

 

 

 

(2.3

)

 

 

(1

%)

Business acquisition (2)

 

 

1,032.4

 

 

 

 

 

 

 

 

1,032.4

 

 

 

 

Operating statistics: (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil gathered, Badlands, MBbl/d

 

 

113.5

 

 

 

 

108.1

 

 

 

 

5.4

 

 

 

5

%

Crude oil gathered, Permian, MBbl/d (4)

 

 

9.2

 

 

 

 

 

 

 

 

9.2

 

 

 

 

Plant natural gas inlet, MMcf/d  (5) (6)

 

 

3,242.1

 

 

 

 

3,406.0

 

 

 

 

(163.9

)

 

 

(5

%)

Gross NGL production, MBbl/d

 

 

291.8

 

 

 

 

284.7

 

 

 

 

7.1

 

 

 

2

%

Export volumes, MBbl/d (7)

 

 

217.5

 

 

 

 

181.0

 

 

 

 

36.5

 

 

 

20

%

Natural gas sales, BBtu/d  (6) (8)

 

 

1,870.2

 

 

 

 

1,974.6

 

 

 

 

(104.4

)

 

 

(5

%)

NGL sales, MBbl/d (8)

 

 

533.6

 

 

 

 

547.8

 

 

 

 

(14.2

)

 

 

(3

%)

Condensate sales, MBbl/d

 

 

10.7

 

 

 

 

9.5

 

 

 

 

1.2

 

 

 

13

%

 

(1)

Gross margin, operating margin, adjusted EBITDA, and distributable cash flow are non-GAAP financial measures and are discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – How We Evaluate Our Operations.”

(2)

Includes the $90.0 million payable which will be settled within 90 days from March 1, 2017, and the preliminary acquisition date fair value of the potential earn-out payments of $461.6 million due in 2018 and 2019.

(3)

These volume statistics are presented with the numerator as the total volume sold during the quarter and the denominator as the number of calendar days during the quarter.

(4)

Includes operations from the Permian Acquisition for the period effective March 1, 2017. For the volume statistics presented, the numerator is the total volume sold during the period of our ownership while the denominator is the number of calendar days during the quarter.

(5)

Plant natural gas inlet represents the volume of natural gas passing through the meter located at the inlet of a natural gas processing plant, other than in Badlands, where it represents total wellhead gathered volume.

(6)

Plant natural gas inlet volumes include producer take-in-kind volumes, while natural gas sales exclude producer take-in-kind volumes.

(7)

Export volumes represent the quantity of NGL products delivered to third-party customers at our Galena Park Marine Terminal that are destined for international markets.

(8)

Includes the impact of intersegment eliminations.

NM

Due to a low denominator, the noted percentage change is disproportionately high and as a result, considered not meaningful.

 

 

43


 

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

 

The increase in commodity sales was primarily due to higher commodity prices ($757.8 million), partially offset by decreased volumes ($45.4 million) and the impact of hedge settlements ($25.3 million). Additionally, fee-based and other revenues decreased primarily due to lower export fees.

 

The increase in product purchases was primarily due to the impact of higher commodity prices, partially offset by decreased volumes.

 

The higher operating margin and gross margin in 2017 reflects increased segment margin results for Gathering and Processing, partially offset by decreased Logistics and Marketing segment margins. Operating expenses increased compared to 2016 due to higher maintenance in the Logistics and Marketing segment and plant and system expansions in the Permian region. See “—Results of Operations—By Reportable Segment” for additional information regarding changes in operating margin and gross margin on a segment basis.

 

The decrease in depreciation and amortization expenses reflects the impact of fully depreciated property assets and lower scheduled amortization on the Badlands intangibles, partially offset by one month of operations of the Permian Acquisition in 2017 and the impact of growth investments, primarily CBF Train 5 which went into service in June 2016.

 

General and administrative expenses increased primarily due to higher compensation and benefits.

 

We recognized an impairment of goodwill in the first quarter of 2016 of $24.0 million to finalize the 2015 provisional impairment of goodwill. The impairment charge related to goodwill acquired in the mergers with Atlas Energy L.P. and Atlas Pipeline Partners L.P. in 2015 (collectively, the “Atlas mergers”).

 

Other operating (income) expense in 2017 includes the loss due to the reduction in the carrying value of our ownership interest in the Venice Gathering System in connection with the April 4, 2017 sale.

 

Net interest expense increased primarily due to higher non-cash interest expense related to the mandatorily redeemable preferred interests liability that is revalued quarterly at the estimated redemption value as of the reporting date. The estimated redemption value of the mandatorily redeemable preferred interests increased in 2017, whereas it decreased in 2016. This increase was partially offset by the impact of lower average outstanding borrowings during 2017.

 

Higher equity losses in 2017 reflects a $12.0 million loss provision due to the impairment of our investment in the T2 EF Cogen joint venture, partially offset by increased equity earnings at Gulf Coast Fractionators.

 

During 2017, we recorded a loss of $5.8 million on the repayment of the outstanding balance on our senior secured term loan, whereas in 2016 we recorded a gain of $24.7 million on open debt market repurchases and other financing activities.

 

Other expense in 2017 was primarily attributable to $5.1 million of non-recurring transaction costs related to the Permian Acquisition and a $3.2 million increase in the fair value of the Permian Acquisition contingent consideration liability from the acquisition date to March 31, 2017.

 

Income tax expense for the first quarter of 2017 reflects our current estimates for full-year effective tax rate and full-year earnings.  The full-year estimates anticipate a tax benefit, rather than expense, on estimated full year earnings and therefore a negative tax rate to reflect the tax benefit.  The negative tax rate that is estimated on a full-year basis is applied to our first quarter loss, so the first quarter reflects income tax expense rather than benefit.  We currently estimate that the first quarter income tax expense will be more than offset by income tax benefit over the remainder of the year. 

 

Net income attributable to noncontrolling interests was higher in 2017 due to the February 2016 TRC/TRP Merger, which eliminated the noncontrolling interest associated with the third-party TRP common unit holders for a portion of the first quarter 2016, and our October 2016 acquisition of the 37% interest of Versado that we did not already own.  Further, earnings at our joint ventures increased in 2017 as compared with 2016.

 

Preferred dividends represent both cash dividends related to the March 2016 Series A Preferred Stock offering and non-cash deemed dividends for the accretion of the preferred discount related to a beneficial conversion feature. Preferred dividends increased as the Series A Preferred Stock was outstanding for a full quarter in 2017, as compared to a partial quarter in 2016.

 

 

 

44


 

Results of Operations—By Reportable Segment

Our operating margins by reportable segment are:

 

 

Gathering and

Processing

 

 

Logistics and Marketing

 

 

Other

 

 

TRC Non-Partnership

 

 

Consolidated Operating Margin

 

 

(In millions)

 

Three Months Ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

$

 

177.4

 

 

$

 

130.1

 

 

$

 

(1.0

)

 

$

 

 

 

$

 

306.5

 

March 31, 2016

 

 

115.6

 

 

 

 

157.0

 

 

 

 

26.8

 

 

 

 

(0.1

)

 

 

 

299.3

 

45


 

Gathering and Processing Segment

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

2017 vs. 2016

 

Gross margin

$

 

263.0

 

 

$

 

194.1

 

 

$

 

68.9

 

 

 

35

%

Operating expenses

 

 

85.6

 

 

 

 

78.5

 

 

 

 

7.1

 

 

 

9

%

Operating margin

$

 

177.4

 

 

$

 

115.6

 

 

$

 

61.8

 

 

 

53

%

Operating statistics (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plant natural gas inlet, MMcf/d (2),(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SAOU (4)

 

 

275.6

 

 

 

 

243.5

 

 

 

 

32.1

 

 

 

13

%

WestTX

 

 

536.5

 

 

 

 

461.0

 

 

 

 

75.5

 

 

 

16

%

Total Permian Midland

 

 

812.1

 

 

 

 

704.5

 

 

 

 

107.6

 

 

 

 

 

Sand Hills (4)

 

 

139.5

 

 

 

 

151.1

 

 

 

 

(11.6

)

 

 

(8

%)

Versado

 

 

198.5

 

 

 

 

180.0

 

 

 

 

18.5

 

 

 

10

%

Total Permian Delaware

 

 

338.0

 

 

 

 

331.1

 

 

 

 

6.9

 

 

 

 

 

Total Permian

 

 

1,150.1

 

 

 

 

1,035.6

 

 

 

 

114.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX

 

 

171.8

 

 

 

 

175.7

 

 

 

 

(3.9

)

 

 

(2

%)

North Texas

 

 

282.5

 

 

 

 

327.5

 

 

 

 

(45.0

)

 

 

(14

%)

SouthOK

 

 

440.4

 

 

 

 

457.9

 

 

 

 

(17.5

)

 

 

(4

%)

WestOK

 

 

393.1

 

 

 

 

487.0

 

 

 

 

(93.9

)

 

 

(19

%)

Total Central

 

 

1,287.8

 

 

 

 

1,448.1

 

 

 

 

(160.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badlands (5)

 

 

46.0

 

 

 

 

53.7

 

 

 

 

(7.7

)

 

 

(14

%)

Total Field

 

 

2,483.9

 

 

 

 

2,537.4

 

 

 

 

(53.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coastal

 

 

758.2

 

 

 

 

868.6

 

 

 

 

(110.4

)

 

 

(13

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

3,242.1

 

 

 

 

3,406.0

 

 

 

 

(163.9

)

 

 

(5

%)

Gross NGL production, MBbl/d (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SAOU (4)

 

 

33.3

 

 

 

 

29.2

 

 

 

 

4.1

 

 

 

14

%

WestTX

 

 

69.5

 

 

 

 

52.4

 

 

 

 

17.1

 

 

 

33

%

Total Permian Midland

 

 

102.8

 

 

 

 

81.6

 

 

 

 

21.2

 

 

 

 

 

Sand Hills (4)

 

 

14.8

 

 

 

 

15.7

 

 

 

 

(0.9

)

 

 

(6

%)

Versado

 

 

23.1

 

 

 

 

21.9

 

 

 

 

1.2

 

 

 

5

%

Total Permian Delaware

 

 

37.9

 

 

 

 

37.6

 

 

 

 

0.3

 

 

 

 

 

Total Permian

 

 

140.7

 

 

 

 

119.2

 

 

 

 

21.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX

 

 

16.6

 

 

 

 

23.1

 

 

 

 

(6.5

)

 

 

(28

%)

North Texas

 

 

32.0

 

 

 

 

35.7

 

 

 

 

(3.7

)

 

 

(10

%)

SouthOK

 

 

40.9

 

 

 

 

28.0

 

 

 

 

12.9

 

 

 

46

%

WestOK

 

 

22.8

 

 

 

 

26.9

 

 

 

 

(4.1

)

 

 

(15

%)

Total Central

 

 

112.3

 

 

 

 

113.7

 

 

 

 

(1.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badlands

 

 

5.5

 

 

 

 

7.6

 

 

 

 

(2.1

)

 

 

(28

%)

Total Field

 

 

258.5

 

 

 

 

240.5

 

 

 

 

18.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coastal

 

 

33.3

 

 

 

 

44.2

 

 

 

 

(10.9

)

 

 

(25

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

291.8

 

 

 

 

284.7

 

 

 

 

7.1

 

 

 

2

%

Crude oil gathered, Badlands, MBbl/d

 

 

113.5

 

 

 

 

108.1

 

 

 

 

5.4

 

 

 

5

%

Crude oil gathered, Permian, MBbl/d (4)

 

 

9.2

 

 

 

 

 

 

 

 

9.2

 

 

 

 

Natural gas sales, BBtu/d (3)

 

 

1,562.2

 

 

 

 

1,687.2

 

 

 

 

(125.0

)

 

 

(7

%)

NGL sales, MBbl/d (3)

 

 

227.6

 

 

 

 

219.3

 

 

 

 

8.3

 

 

 

4

%

Condensate sales, MBbl/d

 

 

10.7

 

 

 

 

9.5

 

 

 

 

1.2

 

 

 

13

%

Average realized prices (6):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas, $/MMBtu

 

 

2.86

 

 

 

 

1.75

 

 

 

 

1.11

 

 

 

63

%

NGL, $/gal

 

 

0.50

 

 

 

 

0.28

 

 

 

 

0.22

 

 

 

79

%

Condensate, $/Bbl

 

 

44.98

 

 

 

 

25.65

 

 

 

 

19.33

 

 

 

75

%

 

(1)

Segment operating statistics include the effect of intersegment amounts, which have been eliminated from the consolidated presentation. For all volume statistics presented, the numerator is the total volume sold during the quarter and the denominator is the number of calendar days during the quarter.

(2)

Plant natural gas inlet represents our undivided interest in the volume of natural gas passing through the meter located at the inlet of a natural gas processing plant.

(3)

Plant natural gas inlet volumes and gross NGL production volumes include producer take-in-kind volumes, while natural gas sales and NGL sales exclude producer take-in-kind volumes.

46


 

(4)

Includes operations from the Permian Acquisition for the period effective March 1, 2017. New Midland volumes are included within SAOU and New Delaware volumes are included within Sand Hills. For the volume statistics presented, the numerator is the total volume sold during the period of our ownership while the denominator is the number of calendar days during the quarter.

(5)

Badlands natural gas inlet represents the total wellhead gathered volume.

(6)

Average realized prices exclude the impact of hedging activities presented in Other.

 

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

 

The increase in gross margin was primarily due to higher commodity prices and the inclusion of the Permian Acquisition for one month in 2017 partially offset by lower throughput volumes. Inlet volumes for Field Gathering and Processing were slightly lower with increases at WestTX, SAOU and Versado offset by decreases at the other areas. The inlet volume decrease for Coastal Gathering and Processing which generates significantly lower margins than does Field Gathering and Processing, accounted for over 67% of the overall inlet volume decrease. Despite overall lower inlet volumes, NGL production and NGL sales increased primarily due to increased plant recoveries including additional ethane recovery. Natural gas sales decreased due to lower inlet volumes and increased ethane recovery. Total crude oil gathered volumes increased in the Permian region due to the Permian Acquisition and in Badlands due to system expansions. Badlands natural gas volumes decreased primarily due to severe winter weather.

 

The increase in operating expenses was primarily driven by plant and system expansions in the Permian region and the inclusion of the Permian Acquisition for one month of 2017.  Operating expenses in other areas were relatively flat.

 

Gross Operating Statistics Compared to Actual Reported

 

The table below provides a reconciliation between gross operating statistics and the actual reported operating statistics for the Field portion of the Gathering and Processing segment:

 

 

 

Three Months Ended March 31, 2017

 

Operating statistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plant natural gas inlet, MMcf/d (1),(2)

 

Gross Volume (3)

 

 

Ownership %

 

 

Net Volume (3)

 

 

Actual Reported

 

SAOU (4)

 

 

275.6

 

 

 

100

%

 

 

275.6

 

 

 

275.6

 

WestTX (5) (6)

 

 

736.9

 

 

 

73

%

 

 

536.5

 

 

 

536.5

 

Total Permian Midland

 

 

1,012.5

 

 

 

 

 

 

 

812.1

 

 

 

812.1

 

Sand Hills (4)

 

 

139.5

 

 

 

100

%

 

 

139.5

 

 

 

139.5

 

Versado (7)

 

 

198.5

 

 

 

100

%

 

 

198.5

 

 

 

198.5

 

Total Permian Delaware

 

 

338.0

 

 

 

 

 

 

 

338.0

 

 

 

338.0

 

Total Permian

 

 

1,350.5

 

 

 

 

 

 

 

1,150.1

 

 

 

1,150.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX

 

 

171.8

 

 

Varies (8)

 

 

 

161.6

 

 

 

171.8

 

North Texas

 

 

282.5

 

 

 

100

%

 

 

282.5

 

 

 

282.5

 

SouthOK

 

 

440.4

 

 

Varies (9)

 

 

 

366.1

 

 

 

440.4

 

WestOK

 

 

393.1

 

 

 

100

%

 

 

393.1

 

 

 

393.1

 

Total Central

 

 

1,287.8

 

 

 

 

 

 

 

1,203.3

 

 

 

1,287.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badlands (10)

 

 

46.0

 

 

 

100

%

 

 

46.0

 

 

 

46.0

 

Total Field

 

 

2,684.3

 

 

 

 

 

 

 

2,399.4

 

 

 

2,483.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross NGL production, MBbl/d (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SAOU (4)

 

 

33.3

 

 

 

100

%

 

 

33.3

 

 

 

33.3

 

WestTX (5) (6)

 

 

95.5

 

 

 

73

%

 

 

69.5

 

 

 

69.5

 

Total Permian Midland

 

 

128.8

 

 

 

 

 

 

 

102.8

 

 

 

102.8

 

Sand Hills (4)

 

 

14.8

 

 

 

100

%

 

 

14.8

 

 

 

14.8

 

Versado (7)

 

 

23.1

 

 

 

100

%

 

 

23.1

 

 

 

23.1

 

Total Permian Delaware

 

 

37.9

 

 

 

 

 

 

 

37.9

 

 

 

37.9

 

Total Permian

 

 

166.7

 

 

 

 

 

 

 

140.7

 

 

 

140.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX

 

 

16.6

 

 

Varies (8)

 

 

 

15.7

 

 

 

16.6

 

North Texas

 

 

32.0

 

 

 

100

%

 

 

32.0

 

 

 

32.0

 

SouthOK

 

 

40.9

 

 

Varies (9)

 

 

 

34.2

 

 

 

40.9

 

WestOK

 

 

22.8

 

 

 

100

%

 

 

22.8

 

 

 

22.8

 

Total Central

 

 

112.3

 

 

 

 

 

 

 

104.7

 

 

 

112.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badlands

 

 

5.5

 

 

 

100

%

 

 

5.5

 

 

 

5.5

 

Total Field

 

 

284.5

 

 

 

 

 

 

 

250.9

 

 

 

258.5

 

 

(1)

Plant natural gas inlet represents the volume of natural gas passing through the meter located at the inlet of a natural gas processing plant.

(2)

Plant natural gas inlet volumes and gross NGL production volumes include producer take-in-kind volumes.

47


 

(3)

For these volume statistics presented, the numerator is the total volume sold during the quarter and the denominator is the number of calendar days during the quarter.

(4)

Includes operations from the Permian Acquisition for the period effective March 1, 2017. New Midland volumes are included within SAOU and New Delaware volumes are included within Sand Hills.

(5)

Operating results for the WestTX undivided interest assets are presented on a pro-rata net basis in our reported financials.

(6)

Includes the Buffalo Plant that commenced commercial operations in April 2016.

(7)

Versado is a consolidated subsidiary and its financial results are presented on a gross basis in our reported financials. We held a 63% interest in Versado until October 31, 2016, when we acquired the remaining 37% interest.

(8)

SouthTX includes the Silver Oak II plant, of which Targa Pipeline Partners, L.P. (“TPL”) has owned a 90% interest since October 2015, and prior to which TPL owned a 100% interest. Silver Oak II is owned by a consolidated subsidiary and its financial results are presented on a gross basis in our reported financials.

(9)

SouthOK includes the Centrahoma joint venture, of which TPL owns 60%, and other plants which are owned 100% by TPL. Centrahoma is a consolidated subsidiary and its financial results are presented on a gross basis in our reported financials.

(10)

Badlands natural gas inlet represents the total wellhead gathered volume.

 

 

 

 

Three Months Ended March 31, 2016

 

Operating statistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plant natural gas inlet, MMcf/d (1),(2)

 

Gross Volume (3)

 

 

Ownership %

 

 

Net Volume (3)

 

 

Actual Reported

 

SAOU

 

 

243.5

 

 

 

100

%

 

 

243.5

 

 

 

243.5

 

WestTX (4)

 

 

633.2

 

 

 

73

%

 

 

461.0

 

 

 

461.0

 

Total Permian Midland

 

 

876.7

 

 

 

 

 

 

 

704.5

 

 

 

704.5

 

Sand Hills

 

 

151.1

 

 

 

100

%

 

 

151.1

 

 

 

151.1

 

Versado (5)

 

 

180.0

 

 

 

63

%

 

 

113.4

 

 

 

180.0

 

Total Permian Delaware

 

 

331.1

 

 

 

 

 

 

 

264.5

 

 

 

331.1

 

Total Permian

 

 

1,207.8

 

 

 

 

 

 

 

969.0

 

 

 

1,035.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX

 

 

175.7

 

 

 

100

%

 

 

175.7

 

 

 

175.7

 

North Texas

 

 

327.5

 

 

 

100

%

 

 

327.5

 

 

 

327.5

 

SouthOK

 

 

457.9

 

 

Varies (6)

 

 

 

380.9

 

 

 

457.9

 

WestOK

 

 

487.0

 

 

 

100

%

 

 

487.0

 

 

 

487.0

 

Total Central

 

 

1,448.1

 

 

 

 

 

 

 

1,371.1

 

 

 

1,448.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badlands (7)

 

 

53.7

 

 

 

100

%

 

 

53.7

 

 

 

53.7

 

Total Field

 

 

2,709.6

 

 

 

 

 

 

 

2,393.8

 

 

 

2,537.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross NGL production, MBbl/d (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SAOU

 

 

29.2

 

 

 

100

%

 

 

29.2

 

 

 

29.2

 

WestTX (4)

 

 

72.0

 

 

 

73

%

 

 

52.4

 

 

 

52.4

 

Total Permian Midland

 

 

101.2

 

 

 

 

 

 

 

81.6

 

 

 

81.6

 

Sand Hills

 

 

15.7

 

 

 

100

%

 

 

15.7

 

 

 

15.7

 

Versado (5)

 

 

21.9

 

 

 

63

%

 

 

13.8

 

 

 

21.9

 

Total Permian Delaware

 

 

37.6

 

 

 

 

 

 

 

29.5

 

 

 

37.6

 

Total Permian

 

 

138.8

 

 

 

 

 

 

 

111.1

 

 

 

119.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX

 

 

23.1

 

 

 

100

%

 

 

23.1

 

 

 

23.1

 

North Texas

 

 

35.7

 

 

 

100

%

 

 

35.7

 

 

 

35.7

 

SouthOK

 

 

28.0

 

 

Varies (6)

 

 

 

24.7

 

 

 

28.0

 

WestOK

 

 

26.9

 

 

 

100

%

 

 

26.9

 

 

 

26.9

 

Total Central

 

 

113.7

 

 

 

 

 

 

 

110.4

 

 

 

113.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badlands

 

 

7.6

 

 

 

100

%

 

 

7.6

 

 

 

7.6

 

Total Field

 

 

260.1

 

 

 

 

 

 

 

229.1

 

 

 

240.5

 

 

(1)

Plant natural gas inlet represents the volume of natural gas passing through the meter located at the inlet of a natural gas processing plant.

(2)

Plant natural gas inlet volumes and gross NGL production volumes include producer take-in-kind volumes.

(3)

For these volume statistics presented, the numerator is the total volume sold during the quarter and the denominator is the number of calendar days during the quarter.

(4)

Operating results for the WestTX undivided interest assets are presented on a pro-rata net basis in our reported financials.

(5)

Versado is a consolidated subsidiary and its financial results are presented on a gross basis in our reported financials. We held a 63% interest in Versado until October 31, 2016, when we acquired the remaining 37% interest.

(6)

SouthOK includes the Centrahoma joint venture, of which TPL owns 60%, and other plants which are owned 100% by TPL. Centrahoma is a consolidated subsidiary and its financial results are presented on a gross basis in our reported financials.

(7)

Badlands natural gas inlet represents the total wellhead gathered volume.

48


 

Logistics and Marketing Segment

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2017

 

 

2016

 

 

2017 vs. 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

Gross margin

 

$

 

196.4

 

 

$

 

210.6

 

 

$

 

(14.2

)

 

 

(7

%)

Operating expenses

 

 

 

66.3

 

 

 

 

53.6

 

 

 

 

12.7

 

 

 

24

%

Operating margin

 

$

 

130.1

 

 

$

 

157.0

 

 

$

 

(26.9

)

 

 

(17

%)

Operating statistics MBbl/d (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fractionation volumes (2)(3)

 

 

 

304.9

 

 

 

 

295.5

 

 

 

 

9.4

 

 

 

3

%

LSNG treating volumes (2)

 

 

 

34.5

 

 

 

 

21.0

 

 

 

 

13.5

 

 

 

64

%

Benzene treating volumes (2)

 

 

 

23.5

 

 

 

 

21.0

 

 

 

 

2.5

 

 

 

12

%

Export volumes, MBbl/d (4)

 

 

 

217.5

 

 

 

 

181.0

 

 

 

 

36.5

 

 

 

20

%

NGL sales, MBbl/d

 

 

 

502.0

 

 

 

 

482.0

 

 

 

 

20.0

 

 

 

4

%

Average realized prices:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NGL realized price, $/gal

 

$

 

0.66

 

 

$

 

0.41

 

 

$

 

0.25

 

 

 

61

%

 

(1)

Segment operating statistics include intersegment amounts, which have been eliminated from the consolidated presentation. For all volume statistics presented, the numerator is the total volume sold during the quarter and the denominator is the number of calendar days during the quarter.

(2)

Fractionation and treating contracts include pricing terms composed of base fees and fuel and power components which vary with the cost of energy.  As such, the Logistics and Marketing segment results include effects of variable energy costs that impact both gross margin and operating expenses.

(3)

Fractionation volumes reflect those volumes delivered and settled under fractionation contracts.

(4)

Export volumes represent the quantity of NGL products delivered to third-party customers at our Galena Park Marine Terminal that are destined for international markets.

 

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

 

Logistics and Marketing gross margin decreased due to lower LPG export margin and lower wholesale and marketing margin, partially offset by higher fractionation margin, higher terminaling and storage throughput and higher treating margin. LPG export margin decreased due to lower fees partially offset by higher volumes. Wholesale and marketing margin decreased primarily due to less favorable wholesale supply opportunities in 2017 compared to the same period last year and lower marketing gains. Fractionation margin increased due to higher system product gains, higher fees and higher supply volume. Fractionation margin was partially impacted by the variable effects of fuel and power which are largely reflected in operating expenses (see footnote (2) above). Treating margin increased slightly due to higher volumes partially offset by lower fees.

 

Operating expenses increased due to higher maintenance primarily associated with unusual one-time events, higher fuel and power, and higher compensation and benefits.

 

Other

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2017

 

 

2016

 

 

2017 vs. 2016

 

 

 

(In millions)

 

Gross margin

 

$

(1.0

)

 

$

26.8

 

 

$

(27.8

)

Operating margin

 

$

(1.0

)

 

$

26.8

 

 

$

(27.8

)

 

Other contains the results (including any hedge ineffectiveness) of commodity derivative activities related to Gathering and Processing hedges of equity volumes that are included in operating margin and mark-to-market gain/losses related to derivative contracts that were not designated as cash flow hedges. The primary purpose of our commodity risk management activities is to mitigate a portion of the impact of commodity prices on our operating cash flow. We have entered into derivative instruments to hedge the commodity price associated with a portion of our expected natural gas, NGL and condensate equity volumes in our Gathering and Processing Operations that result from percent of proceeds/liquids processing arrangements. Because we are essentially forward-selling a portion of our future plant equity volumes, these hedge positions will move favorably in periods of falling commodity prices and unfavorably in periods of rising commodity prices.

49


 

The following table provides a breakdown of the change in Other operating margin:

 

 

 

Three Months Ended March 31, 2017

 

 

Three Months Ended March 31, 2016

 

 

 

 

 

 

 

(In millions, except volumetric data and price amounts)

 

 

 

 

 

 

 

Volume

Settled

 

 

Price

Spread

(1)

 

 

Gain

(Loss)

 

 

Volume

Settled

 

 

Price

Spread

(1)

 

 

Gain

(Loss)

 

 

2017 vs. 2016

 

Natural gas (BBtu)

 

 

10.5

 

 

$

0.02

 

 

$

0.2

 

 

 

9.5

 

 

$

1.40

 

 

$

13.2

 

 

$

(13.0

)

NGL (MMgal)

 

 

43.3

 

 

 

(0.04

)

 

 

(1.8

)

 

 

14.3

 

 

 

0.27

 

 

 

3.8

 

 

 

(5.6

)

Crude oil (MBbl)

 

 

0.2

 

 

 

5.35

 

 

 

1.2

 

 

 

0.2

 

 

 

35.22

 

 

 

7.1

 

 

 

(5.9

)

Non-hedge accounting (2)

 

 

 

 

 

 

 

 

 

 

(0.8

)

 

 

 

 

 

 

 

 

 

 

2.7

 

 

 

(3.5

)

Ineffectiveness (3)

 

 

 

 

 

 

 

 

 

 

0.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.2

 

 

 

 

 

 

 

 

 

 

 

$

(1.0

)

 

 

 

 

 

 

 

 

 

$

26.8

 

 

$

(27.8

)

 

(1)

The price spread is the differential between the contracted derivative instrument pricing and the price of the corresponding settled commodity transaction.

(2)

Mark-to-market income (loss) associated with derivative contracts that are not designated as hedges for accounting purposes.

(3)

Ineffectiveness primarily relates to certain crude hedging contracts and certain acquired hedges of TPL that do not qualify for hedge accounting.

 

As part of the Atlas mergers, outstanding TPL derivative contracts with a fair value of $102.1 million as of February 27, 2015 (the “acquisition date”), were novated to us and included in the acquisition date fair value of assets acquired. We received derivative settlements of $3.0 million for the three months ended March 31, 2017 and $8.7 million for the three months ended March 31, 2016, related to these novated contracts. From the acquisition date through March 31, 2017, we have received total derivative settlements of $97.6 million. The remainder of the novated contracts will settle by the end of 2017. These settlements were reflected as a reduction of the acquisition date fair value of the TPL derivative assets acquired and had no effect on results of operations.

 

 

Liquidity and Capital Resources

As of March 31, 2017, we had $80.0 million of “Cash and cash equivalents,” on our Consolidated Balance Sheet. We believe our cash position, remaining borrowing capacity on our credit facilities (discussed below in “Short-term Liquidity”), and our cash flows from operating activities are adequate to allow us to manage our day-to-day cash requirements and anticipated obligations as discussed further below.

After completion of the TRC/TRP Merger, our liquidity and capital resources have been managed on a consolidated basis. We have the ability to access the Partnership’s liquidity, subject to the limitations set forth in the Partnership Agreement and any restrictions contained in the covenants of the Partnership’s debt agreements, as well as the ability to contribute capital to the Partnership, subject to any restrictions contained in the covenants of our debt agreements.

On a consolidated basis, our ability to finance our operations, including funding capital expenditures and acquisitions, meeting our indebtedness obligations, refinancing our indebtedness and meeting our collateral requirements, and to pay dividends declared by our board of directors will depend on our ability to generate cash in the future. Our ability to generate cash is subject to a number of factors, some of which are beyond our control. These include commodity prices, weather and ongoing efforts to manage operating costs and maintenance capital expenditures, as well as general economic, financial, competitive, legislative, regulatory and other factors.

Historically, dividends have been funded by the cash distributions we received from the Partnership. In connection with the TRC/TRP Merger, TRC acquired all of the outstanding TRP common units that TRC and its subsidiaries did not already own. As a result, we are entitled to the entirety of distributions made by the Partnership on its equity interests, other than those made to the TRP Preferred Unitholders. The actual amount we declare as dividends continues to depend on our consolidated financial condition, results of operations, cash flow, the level of our capital expenditures, future business prospects, compliance with our debt covenants and any other matters that our board of directors deems relevant.

The Partnership’s debt agreements and obligations to its Preferred Unitholders may restrict or prohibit the payment of distributions if the Partnership is in default, threat of default, or arrears. In addition, so long as any shares of our Preferred Shares are outstanding, certain common stock distribution limitations exist. If the Partnership cannot make distributions to us, we may be limited in our ability, or unable, to pay dividends on our common stock.

50


 

On a consolidated basis, our main sources of liquidity and capital resources are internally generated cash flows from operations, borrowings under the TRC Revolver, the TRP Revolver, and the Securitization Facility, and access to debt and equity capital markets. For companies involved in hydrocarbon production, transportation and other oil and gas related services, the capital markets have experienced and may continue to experience volatility. Our exposure to adverse credit conditions includes our credit facilities, cash investments, hedging abilities, customer performance risks and counterparty performance risks.

Short-term Liquidity

Our short-term liquidity on a consolidated basis as of May 1, 2017, was:

 

 

 

May 1, 2017

 

 

 

(In millions)

 

 

 

TRC

 

 

TRP

 

 

Consolidated

Total

 

Cash on hand

 

$

32.1

 

 

$

113.6

 

 

$

145.7

 

Total availability under the TRC Revolver

 

 

670.0

 

 

 

 

 

 

670.0

 

Total availability under the TRP Revolver

 

 

 

 

1,600.0

 

 

 

1,600.0

 

Total availability under the Securitization Facility

 

 

 

 

250.2

 

 

 

250.2

 

 

 

 

702.1

 

 

 

1,963.8

 

 

 

2,665.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Outstanding borrowings under the TRC Revolver

 

 

(355.0

)

 

 

 

 

 

(355.0

)

Outstanding borrowings under the TRP Revolver

 

 

 

 

 

(180.0

)

 

 

(180.0

)

Outstanding borrowings under the Securitization Facility

 

 

 

 

 

(250.2

)

 

 

(250.2

)

Outstanding letters of credit under the TRP Revolver

 

 

 

 

 

(20.2

)

 

 

(20.2

)

Total liquidity

 

$

347.1

 

 

$

1,513.4

 

 

$

1,860.5

 

 

Other potential capital resources associated with our existing arrangements include:

 

Our right to request an additional $200 million in commitment increases under the TRC Revolver, subject to the terms therein. The TRC Revolver matures on February 27, 2020.

 

Our right to request an additional $500 million in commitment increases under the TRP Revolver, subject to the terms therein. The TRP Revolver matures on October 7, 2020.

 

We may elect to pay dividends to Series A Preferred shareholders for any quarter with a paid-in-kind election (“PIK”) through December 31, 2017. Under the PIK election, unpaid dividends would be added to the liquidation preference and a commensurate amount of Series A and Series B Warrants would be issued.

A portion of our capital resources are allocated to letters of credit to satisfy certain counterparty credit requirements. These letters of credit reflect our non-investment grade status, as assigned to us by Moody’s and S&P. They also reflect certain counterparties’ views of our financial condition and ability to satisfy our performance obligations, as well as commodity prices and other factors.

Working Capital

Working capital is the amount by which current assets exceed current liabilities. On a consolidated basis, at the end of any given month, accounts receivable and payable that are tied to commodity sales and purchases are relatively balanced, with receivables from NGL customers being offset by plant settlements payable to producers. The factors that typically cause overall variability in our reported total working capital are: (1) our cash position; (2) liquids inventory levels and valuation, which we closely manage; (3) changes in the fair value of the current portion of derivative contracts; and (4) major structural changes in our asset base or business operations, such as acquisitions or divestitures and certain organic growth projects.

Our working capital, exclusive of current debt obligations, decreased $191.5 million from December 31, 2016 to March 31, 2017. The major items contributing to this decrease were the establishment of the $90 million purchase consideration payable related to the Permian Acquisition, reduction in inventory due to higher export volumes and the seasonality of our wholesale business, a decrease in our net commodity receivables and payables due to lower commodity revenue in March 2017 as compared to December 2016 and reduced commodity purchases partially offset by an increase in our net risk management working capital position due to changes in the forward prices of commodities and a higher cash balance. The increase of $260.5 million in current debt obligations was due to reclassification of the senior note due January 2018 from long-term to current, as well as the increased receivables available for the Securitization Facility.

51


 

Based on our anticipated levels of operations and absent any disruptive events, we believe that our internally generated cash flow, borrowings available under the TRC Revolver, the TRP Revolver and the Securitization Facility and proceeds from debt and equity offerings should provide sufficient resources to finance our operations, capital expenditures, long-term debt obligations, collateral requirements and quarterly cash dividends for at least the next twelve months.

Long-term Financing

Our long-term financing consists of common stock, common warrants, preferred stock and long-term debt obligations. On January 26, 2017, we completed a public offering of 9,200,000 shares of our common stock (including the shares sold pursuant to the underwriters’ overallotment option) at a price to the public of $57.65, providing net proceeds of $524.2 million.  We used the net proceeds from this public offering to fund the cash portion of the Permian Acquisition purchase price due upon closing and for general corporate purposes.

During 2017, through the December 2016 equity distribution agreement, we issued and sold through our sales agents 4,150,868 shares of common stock and received net proceeds of $238.6 million. As of April 30, 2017, we have $430.0 million remaining under our December 2016 equity distribution agreement.

During 2016, 19,983,843 warrants were exercised and net settled for 11,336,856 shares of common stock. For the three months ended March 31, 2017, no detachable Warrants were exercised. As a result, Series A Warrants exercisable into a maximum of 67,392 shares of common stock and Series B Warrants exercisable into a maximum of 32,496 shares of common stock were outstanding as of March 31, 2017.  

From time to time, we issue long-term debt securities, which we refer to as senior notes. Our senior notes issued to date, generally have similar terms other than interest rates, maturity dates and redemption premiums. All of our fixed rate senior notes provide that the notes may be redeemed at any time at a price equal to 100% plus accrued interest to the redemption date, and in some cases, a make-whole premium. As of March 31, 2017 and December 31, 2016, the aggregate principal amount outstanding of our various long-term debt obligations (excluding current maturities) was $4,241.3 million and $4,641.8 million, respectively.

We consolidate the debt of the Partnership with that of our own; however, we do not have the contractual obligation to make interest or principal payments with respect to the debt of the Partnership. Our debt obligations do not restrict the ability of the Partnership to make distributions to us. Our Credit Agreement has restrictions and covenants that may limit our ability to pay dividends to our stockholders. See Note 10 – Debt Obligations for more information regarding our debt obligations.

The majority of our consolidated long-term debt is fixed rate borrowings; however, we have some exposure to the risk of changes in interest rates, primarily as a result of the variable rate borrowings under the TRC Revolver, the TRC term loan and the TRP Revolver. We may enter into interest rate hedges with the intent to mitigate the impact of changes in interest rates on cash flows. As of March 31, 2017, we do not have any interest rate hedges.

 

To date, we do not believe our and our subsidiaries’ debt balances have adversely affected our operations, our ability to grow or our ability to repay or refinance our indebtedness. For additional information about our debt-related transactions, see Note 10 - Debt Obligations to our consolidated financial statements.  For information about our interest rate risk, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk.”

 

Compliance with Debt Covenants

As of March 31, 2017, both we and the Partnership were in compliance with the covenants contained in our various debt agreements.

Cash Flow

Cash Flows from Operating Activities

The Consolidated Statements of Cash Flows included in our historical consolidated financial statements employs the traditional indirect method of presenting cash flows from operating activities. Under the indirect method, net cash provided by operating activities is derived by adjusting our net income for non-cash items related to operating activities. An alternative GAAP presentation employs the direct method in which the actual cash receipts and outlays comprising cash flow are presented.

52


 

The following table displays our operating cash flows using the direct method as a supplement to the presentation in our consolidated financial statements:

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2017

 

 

2016

 

 

2017 vs. 2016

 

 

 

(In millions)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Cash received from customers

 

$

2,243.2

 

 

$

1,486.2

 

 

$

757.0

 

Cash received from (paid to) derivative counterparties

 

 

1.2

 

 

 

28.1

 

 

 

(26.9

)

Cash distributions from equity investments (1)

 

 

2.7

 

 

 

 

 

 

2.7

 

Cash outlays for:

 

 

 

 

 

 

 

 

 

 

 

 

Product purchases

 

 

1,647.8

 

 

 

1,027.2

 

 

 

620.6

 

Operating expenses

 

 

169.3

 

 

 

125.3

 

 

 

44.0

 

General and administrative expense

 

 

49.0

 

 

 

36.7

 

 

 

12.3

 

     Interest paid, net of amounts capitalized (2)

 

 

56.1

 

 

 

82.8

 

 

 

(26.7

)

     Income taxes paid, net of refunds

 

 

(0.2

)

 

 

1.1

 

 

 

(1.3

)

Other cash (receipts) payments

 

 

6.4

 

 

 

(0.1

)

 

 

6.5

 

Net cash provided by operating activities

 

$

318.7

 

 

$

241.3

 

 

$

77.4

 

 

(1)

Excludes $3.4 million included in investing activities for the three months ended March 31, 2016 related to distributions from GCF and the T2 Joint Ventures that exceeded cumulative equity earnings. We did not have distributions that exceeded cumulative earnings for the three months ended March 31, 2017.

(2)

Net of capitalized interest paid of $1.7 million and $4.8 million included in investing activities for the three months ended March 31, 2017 and 2016.

 

Higher commodity prices were the primary contributor to increased cash collections and payments for product purchases in 2017 compared to 2016. Derivative settlements remained an overall source of revenue during 2017, but at a lower amount as commodity price spreads between the prices paid to counterparties and the fixed prices we received on those derivative contracts were lower in 2017 in comparison to 2016. Interest payments are lower this year largely due to repurchases of debt in the first quarter 2016, offset by the timing of payments of interest on two new series of notes we issued in 2016. Cash payments for general and administrative expenses and operating expenses were higher, primarily due to increases in compensation and benefits, contractor and other professional services, coupled with higher utilities and higher maintenance.   Other cash payments in 2017 were higher mainly due to transaction expenses associated with the Permian Acquisition in 2017.

Cash Flows from Investing Activities

 

Three Months Ended March 31,

 

 

 

 

 

2017

 

 

2016

 

 

2017 vs. 2016

 

(In millions)

 

 

 

 

 

$

(625.5

)

 

$

(188.0

)

 

$

(437.5

)

 

Cash used in investing activities increased in 2017 compared to 2016, primarily due to the $480.8 million outlay for the cash portion due at closing of the Permian Acquisition consideration. An additional $90 million will be paid during the second quarter of 2017, as well as potential contingent consideration payments in 2018 and 2019. Growth and maintenance capital expenditures decreased $45.9 million during 2017 reflecting the completion of major growth projects during 2016.

Cash Flows from Financing Activities

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Source of Financing Activities, net

(In millions)

 

Debt, including financing costs

$

(140.1

)

 

$

(845.0

)

Equity offerings, net of financing costs

 

657.2

 

 

 

955.7

 

Dividends and distributions

 

(202.5

)

 

 

(193.4

)

Other

 

(1.3

)

 

 

3.7

 

Net cash provided by (used in) financing activities

$

313.3

 

 

$

(79.0

)

 

53


 

In 2017, we realized a net source of cash from financing activities, primarily due to a public offering of 9,200,000 shares of common stock to fund the cash portion of the Permian Acquisition purchase price due upon closing and our common stock offerings through our 2016 equity distribution agreement, partially offset by the repayment of our term loan and payments of dividends to shareholders.

 

In 2016, we incurred a net use of cash from financing activities, primarily due to a net reduction of debt outstanding and payment of dividends and distributions, partially offset by proceeds from our Series A Preferred and Warrants offering. With the proceeds from equity issuances we repurchased a portion of the Partnership’s senior notes through open market repurchases generally at a discount to par values and repaid a portion of our senior secured credit facilities.

 

 

Common Dividends

The following table details the dividends on common stock declared and/or paid by us for the three months ended March 31, 2017:

 

Three Months

Ended

 

Date Paid or To Be

Paid

 

Total Common

Dividends Declared

 

 

Amount of Common

Dividends Paid or To Be Paid

 

 

Accrued

Dividends (1)

 

 

Dividend Declared per Share of Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( per share amounts)

 

March 31, 2017

 

May 16, 2017

$

 

182.8

 

$

 

180.3

 

$

 

2.5

 

$

 

0.91000

 

December 31, 2016

 

February 15, 2017

 

 

178.3

 

 

 

176.5

 

 

 

1.8

 

 

 

0.91000

 

 

(1)

Represents accrued dividends on restricted stock and restricted stock units that are payable upon vesting.

Preferred Dividends

Our Series A Preferred has a liquidation value of $1,000 per share and bears a cumulative 9.5% fixed dividend payable quarterly 45 days after the end of each fiscal quarter. The Company may elect to pay dividends in kind (“PIK”) for any quarter through December 31, 2017. Under the PIK election, unpaid dividends would be added to the liquidation preference and a commensurate amount of warrants would be issued. We have not made an election to PIK through March 31, 2017.

Cash dividends of $22.9 million were paid to holders of the Series A Preferred during the three months ended March 31, 2017. As of March 31, 2017, cash dividends accrued for our Series A Preferred were $22.9 million, which will be paid on May 15, 2017.

Capital Requirements

Our capital requirements relate to capital expenditures, which are classified as expansion expenditures including business acquisitions and maintenance expenditures. Expansion capital expenditures improve the service capability of the existing assets, extend asset useful lives, increase capacities from existing levels, add capabilities, reduce costs or enhance revenues, and fund acquisitions of businesses or assets. Maintenance capital expenditures are those expenditures that are necessary to maintain the service capability of our existing assets, including the replacement of system components and equipment, which are worn, obsolete or completing their useful life and expenditures to remain in compliance with environmental laws and regulations.

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Capital expenditures:

 

 

 

 

 

 

 

 

Consideration for business acquisition

 

$

1,032.4

 

 

$

 

Contingent consideration (1)

 

 

(461.6

)

 

 

 

Purchase consideration payable (2)

 

 

(90.0

)

 

 

 

Business acquisition, net of cash acquired

 

 

480.8

 

 

 

 

Expansion

 

 

148.9

 

 

 

161.9

 

Maintenance

 

 

25.7

 

 

 

15.0

 

Gross capital expenditures

 

 

174.6

 

 

 

176.9

 

Transfers from materials and supplies inventory to

   property, plant and equipment

 

 

(0.4

)

 

 

(0.5

)

Decrease in capital project payables and accruals

 

 

(30.0

)

 

 

13.7

 

Cash outlays for capital projects

 

 

144.2

 

 

 

190.1

 

Total

 

$

625.0

 

 

$

190.1

 

54


 

 

 

(1)

See Note 4 – Business Acquisitions and Divestitures of the “Consolidated Financial Statements.” Represents the preliminary estimated fair value of contingent consideration at the acquisition date.

 

(2)

The payable will be settled in cash within 90 days from March 1, 2017.

We currently estimate that we will invest at least $960 million in net growth capital expenditures (exclusive of outlays for business acquisitions) for announced projects in 2017. Given our objective of growth through expansions of existing assets, other internal growth projects, and acquisitions, we anticipate that over time that we will invest significant amounts of capital to grow and acquire assets. Future expansion capital expenditures may vary significantly based on investment opportunities. Our expansion capital expenditures decreased in the first quarter of 2017 as compared to 2016, primarily due to lower CBF train 5 construction costs, partially offset by the restart of the Benedum Plant and the commencement of construction of the Joyce Plant. Our maintenance capital expenditures increased for 2017 as compared to 2016, primarily due to higher numbers of compressors reaching the end of their maintenance cycles in the first quarter 2017 versus 2016 and increased well connects.

Off-Balance Sheet Arrangements

As of March 31, 2017, there were $38.8 million in surety bonds outstanding related to various performance obligations. These are in place to support various performance obligations as required by (i) statutes within the regulatory jurisdictions where we operate and (ii) counterparty support. Obligations under these surety bonds are not normally called, as we typically comply with the underlying performance requirement.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our principal market risks are our exposure to changes in commodity prices, particularly to the prices of natural gas, NGLs and crude oil, changes in interest rates, as well as nonperformance by our customers.

Risk Management

We evaluate counterparty risks related to our commodity derivative contracts and trade credit. We have all our commodity derivatives with major financial institutions or major oil companies. Should any of these financial counterparties not perform, we may not realize the benefit of some of our hedges under lower commodity prices, which could have a material adverse effect on our results of operations. We sell our natural gas, NGLs and condensate to a variety of purchasers. Non-performance by a trade creditor could result in losses.

Crude oil, NGL and natural gas prices are also volatile. In an effort to reduce the variability of our cash flows, we have entered into derivative instruments to hedge the commodity price associated with a portion of our expected natural gas equity volumes, NGL equity volumes and condensate equity volumes and future commodity purchases and sales through 2019. The current market conditions may also impact our ability to enter into future commodity derivative contracts.

Commodity Price Risk

A significant portion of our revenues are derived from percent-of-proceeds contracts under which we receive a portion of the proceeds from the sale of natural gas and/or NGLs as payment for services. The prices of natural gas and NGLs are subject to fluctuations in response to changes in supply, demand, market uncertainty and a variety of additional factors beyond our control. We monitor these risks and enter into hedging transactions designed to mitigate the impact of commodity price fluctuations on our business. Cash flows from a derivative instrument designated as a hedge are classified in the same category as the cash flows from the item being hedged.

The primary purpose of our commodity risk management activities is to hedge some of the exposure to commodity price risk and reduce fluctuations in our operating cash flow due to fluctuations in commodity prices. In an effort to reduce the variability of our cash flows, as of March 31, 2017, we have hedged the commodity price associated with a portion of our expected (i) natural gas equity volumes in our Gathering and Processing operations, (ii) NGL and condensate equity volumes in our Gathering and Processing operations that result from our percent-of-proceeds processing arrangements and (iii) future commodity purchases and sales in our Logistics and Marketing segment by entering into derivative instruments. We hedge a higher percentage of our expected equity volumes in the current year compared to future years, for which we hedge incrementally lower percentages of expected equity volumes. With swaps, we typically receive an agreed fixed price for a specified notional quantity of natural gas or NGLs and we pay the hedge counterparty a floating price for that same quantity based upon published index prices. Since we receive from our customers substantially the same floating index price from the sale of the underlying physical commodity, these transactions are designed to effectively lock-in the agreed fixed price in advance for the volumes hedged. In order to avoid having a greater volume hedged than our actual equity volumes, we typically limit our use of swaps to hedge the prices of less than our expected natural gas and NGL

55


 

equity volumes. We utilize purchased puts (or floors) and calls (or caps) to hedge additional expected equity commodity volumes without creating volumetric risk. We may buy calls in connection with swap positions to create a price floor with upside. We intend to continue to manage our exposure to commodity prices in the future by entering into derivative transactions using swaps, collars, purchased puts (or floors), futures or other derivative instruments as market conditions permit.

When entering into new hedges, we intend to generally match the NGL product composition and the NGL and natural gas delivery points to those of our physical equity volumes. The NGL hedges cover specific NGL products based upon the expected equity NGL composition. We believe this strategy avoids uncorrelated risks resulting from employing hedges on crude oil or other petroleum products as “proxy” hedges of NGL prices. The natural gas and NGL hedges’ fair values are based on published index prices for delivery at various locations, which closely approximate the actual natural gas and NGL delivery points. A portion of our condensate sales are hedged using crude oil hedges that are based on the NYMEX futures contracts for West Texas Intermediate light, sweet crude.

A majority of these commodity price hedging transactions are typically documented pursuant to a standard International Swap Dealers Association form with customized credit and legal terms. The principal counterparties (or, if applicable, their guarantors) have investment grade credit ratings. Our payment obligations in connection with substantially all of these hedging transactions and any additional credit exposure due to a rise in natural gas and NGL prices relative to the fixed prices set forth in the hedges are secured by a first priority lien in the collateral securing the Partnership’s senior secured indebtedness that ranks equal in right of payment with liens granted in favor of the Partnership’s senior secured lenders. Absent federal regulations resulting from the Dodd-Frank Act, and as long as this first priority lien is in effect, we expect to have no obligation to post cash, letters of credit or other additional collateral to secure these hedges at any time, even if a counterparty’s exposure to our credit increases over the term of the hedge as a result of higher commodity prices or because there has been a change in our creditworthiness. A purchased put (or floor) transaction does not expose our counterparties to credit risk, as we have no obligation to make future payments beyond the premium paid to enter into the transaction; however, we are exposed to the risk of default by the counterparty, which is the risk that the counterparty will not honor its obligation under the put transaction.

We also enter into commodity price hedging transactions using futures contracts on futures exchanges. Exchange traded futures are subject to exchange margin requirements, so we may have to increase our cash deposit due to a rise in natural gas and NGL prices.  Unlike bilateral hedges, we are not subject to counterparty credit risks when using futures on futures exchanges.

Our operating revenues increased (decreased) by net hedge adjustments on commodity derivative contracts of $(6.7) million and $21.2 million, during the three months ended March 31, 2017 and 2016, as a result of transactions accounted for as derivatives. We account for derivatives designated as hedges that mitigate commodity price risk as cash flow hedges. Changes in fair value are deferred in other comprehensive income until the underlying hedged transactions settle. We also enter into derivative instruments to help manage other short-term commodity-related business risks. We have not designated these derivatives as hedges and record changes in fair value and cash settlements to revenues.

Our risk management position has moved from a net liability position of $53.3 million at December 31, 2016 to a net asset position of $15.4 million at March 31, 2017. The fixed prices we currently expect to receive on derivative contracts are above the aggregate forward prices for commodities related to those contracts, creating this net asset position.

56


 

As of March 31, 2017, we had the following derivative instruments that will settle during the years shown below:

Natural GAS

 

Instrument

 

Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Type

Index

$/MMBtu

 

 

 

 

MMBtu/d

 

 

Fair Value

 

 

 

 

 

 

 

 

 

2017

 

 

2018

 

 

2019

 

 

(In millions)

 

Gathering & Processing

 

Swap

IF-Waha

 

2.87

 

 

 

 

 

103,600

 

 

 

-

 

 

 

-

 

 

 

(2.0

)

Swap

IF-Waha

 

2.68

 

 

 

 

 

-

 

 

 

73,600

 

 

 

-

 

 

 

3.7

 

Swap

IF-Waha

 

2.77

 

 

 

 

 

-

 

 

 

-

 

 

 

45,383

 

 

 

6.5

 

 

 

 

 

 

 

 

 

 

103,600

 

 

 

73,600

 

 

 

45,383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

IF-PB

 

2.51

 

 

 

 

 

10,900

 

 

 

-

 

 

 

-

 

 

 

(1.0

)

Swap

IF-PB

 

2.51

 

 

 

 

 

-

 

 

 

10,900

 

 

 

-

 

 

 

0.3

 

 

 

 

 

 

 

 

 

 

10,900

 

 

 

10,900

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

IF-PEPL

 

2.6835

 

 

 

 

 

16,000

 

 

 

-

 

 

 

-

 

 

 

(1.1

)

Swap

IF-PEPL

 

2.6835

 

 

 

 

 

-

 

 

 

16,000

 

 

 

-

 

 

 

0.4

 

Swap

IF-PEPL

 

2.6835

 

 

 

 

 

-

 

 

 

-

 

 

 

16,000

 

 

 

1.6

 

 

 

 

 

 

 

 

 

 

16,000

 

 

 

16,000

 

 

 

16,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

NG-NYMEX

 

3.99

 

 

 

 

 

12,000

 

 

 

-

 

 

 

-

 

 

 

2.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put Price

 

Call Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar

IF-Waha

 

3.00

 

 

3.67

 

 

7,500

 

 

 

-

 

 

 

-

 

 

 

0.4

 

Collar

IF-Waha

 

3.25

 

 

4.20

 

 

-

 

 

 

1,849

 

 

 

-

 

 

 

0.2

 

 

 

 

 

 

 

 

 

 

7,500

 

 

 

1,849

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put Price

 

Call Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar

IF-PB

 

2.80

 

 

3.50

 

 

15,400

 

 

 

-

 

 

 

-

 

 

 

0.6

 

Collar

IF-PB

 

3.00

 

 

3.65

 

 

-

 

 

 

7,637

 

 

 

-

 

 

 

1.4

 

 

 

 

 

 

 

 

 

 

15,400

 

 

 

7,637

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basis Swap

EP-PERMIAN

 

(0.1444

)

 

 

 

 

6,000

 

 

 

-

 

 

 

-

 

 

 

0.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basis Swap

PEPL

 

(0.3308

)

 

 

 

 

6,000

 

 

 

-

 

 

 

-

 

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Gathering & Processing total

 

 

 

 

 

177,400

 

 

 

109,986

 

 

 

61,383

 

 

 

13.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (1)

 

Swap

NG-NYMEX

 

(3.1602

)

 

 

 

 

(540

)

 

 

-

 

 

 

-

 

 

$

0.0

 

Basis Swap

Various

 

(0.1930

)

 

 

 

 

83,964

 

 

 

1,103

 

 

 

-

 

 

 

(1.2

)

Future

Various

 

3.2640

 

 

 

 

 

-

 

 

 

1,103

 

 

 

-

 

 

 

(0.1

)

        Other total

 

 

 

 

 

83,424

 

 

 

2,206

 

 

 

-

 

 

$

(1.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

12.6

 

 

(1)

Other includes derivative agreements entered into for the purpose of hedging future commodity purchases and sales in our Logistics and Marketing segment.

57


 

NGLs

 

Instrument

 

Price

 

 

 

 

 

 

 

 

 

 

Type

Index

$/gal

 

 

 

 

Bbl/d

 

 

Fair Value

 

 

 

 

 

 

 

 

 

2017

 

 

2018

 

 

2019

 

 

(In millions)

 

Gathering & Processing

 

Swap

C2-OPIS-MB

 

0.2746

 

 

 

 

 

4,498

 

 

 

-

 

 

 

-

 

 

 

0.8

 

Swap

C2-OPIS-MB

 

0.2776

 

 

 

 

 

-

 

 

 

2,368

 

 

 

-

 

 

 

(1.0

)

Swap

C2-OPIS-MB

 

0.2932

 

 

 

 

 

-

 

 

 

-

 

 

 

1,710

 

 

 

(1.0

)

Total

 

 

 

 

 

 

 

 

4,498

 

 

 

2,368

 

 

 

1,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

C3-OPIS-MB

 

0.6505

 

 

 

 

 

6,005

 

 

 

-

 

 

 

-

 

 

 

2.2

 

Swap

C3-OPIS-MB

 

0.5530

 

 

 

 

 

-

 

 

 

2,650

 

 

 

-

 

 

 

(1.3

)

Swap

C3-OPIS-MB

 

0.5530

 

 

 

 

 

-

 

 

 

-

 

 

 

2,650

 

 

 

(0.1

)

Total

 

 

 

 

 

 

 

 

6,005

 

 

 

2,650

 

 

 

2,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

IC4-OPIS-MB

 

0.8080

 

 

 

 

 

630

 

 

 

-

 

 

 

-

 

 

 

0.2

 

Swap

IC4-OPIS-MB

 

0.7487

 

 

 

 

 

-

 

 

 

230

 

 

 

-

 

 

 

0.0

 

Swap

IC4-OPIS-MB

 

0.7200

 

 

 

 

 

-

 

 

 

-

 

 

 

110

 

 

 

(0.0

)

Total

 

 

 

 

 

 

 

 

630

 

 

 

230

 

 

 

110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

NC4-OPIS-MB

 

0.7960

 

 

 

 

 

1,500

 

 

 

-

 

 

 

-

 

 

 

0.5

 

Swap

NC4-OPIS-MB

 

0.7388

 

 

 

 

 

-

 

 

 

600

 

 

 

-

 

 

 

0.2

 

Swap

NC4-OPIS-MB

 

0.7050

 

 

 

 

 

-

 

 

 

-

 

 

 

300

 

 

 

(0.0

)

Total

 

 

 

 

 

 

 

 

1,500

 

 

 

600

 

 

 

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

C5-OPIS-MB

 

1.1056

 

 

 

 

 

1,510

 

 

 

-

 

 

 

-

 

 

 

(0.6

)

Swap

C5-OPIS-MB

 

1.0385

 

 

 

 

 

-

 

 

 

810

 

 

 

-

 

 

 

(0.7

)

Swap

C5-OPIS-MB

 

1.0825

 

 

 

 

 

-

 

 

 

-

 

 

 

569

 

 

 

0.3

 

Total

 

 

 

 

 

 

 

 

1,510

 

 

 

810

 

 

 

569

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put Price

 

Call Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar

C2-OPIS-MB

 

0.240

 

 

0.290

 

 

410

 

 

 

-

 

 

 

-

 

 

 

0.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put Price

 

Call Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar

C3-OPIS-MB

 

0.570

 

 

0.68625

 

 

380

 

 

 

-

 

 

 

-

 

 

 

0.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put Price

 

Call Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar

C5-OPIS-MB

 

1.210

 

 

1.415

 

 

130

 

 

 

-

 

 

 

-

 

 

 

0.2

 

Collar

C5-OPIS-MB

 

1.230

 

 

1.385

 

 

-

 

 

 

32

 

 

 

-

 

 

 

0.1

 

Total

 

 

 

 

 

 

 

 

130

 

 

 

32

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Gathering & Processing total

 

 

 

 

 

15,063

 

 

 

6,690

 

 

 

5,339

 

 

$

(0.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (1)(2)

 

Future

C2-OPIS-MB

 

0.2715

 

 

 

 

 

4,091

 

 

 

-

 

 

 

-

 

 

 

(0.1

)

Future

C2-OPIS-MB

 

0.3015

 

 

 

 

 

-

 

 

 

1,288

 

 

 

-

 

 

 

(0.2

)

Total

 

 

 

 

 

 

 

 

4,091

 

 

 

1,288

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future

C3-OPIS-MB

 

0.6618

 

 

 

 

 

1,400

 

 

 

-

 

 

 

-

 

 

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future

IC4-OPIS-MB

 

0.7800

 

 

 

 

 

218

 

 

 

-

 

 

 

-

 

 

 

(0.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future

Heating Oil

 

1.5950

 

 

 

 

 

(7

)

 

 

-

 

 

 

-

 

 

 

(0.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option

C2-OPIS-MB

 

0.2694

 

 

 

 

 

727

 

 

 

-

 

 

 

-

 

 

 

0.2

 

Option

C2-OPIS-MB

 

0.2963

 

 

 

 

 

-

 

 

 

1,644

 

 

 

-

 

 

 

0.8

 

Total

 

 

 

 

 

 

 

 

727

 

 

 

1,644

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Other total

 

 

 

 

 

6,429

 

 

 

2,932

 

 

 

-

 

 

$

1.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.9

 

58


 

 

(1)

Other includes derivative agreements entered into for the purpose of hedging future commodity purchases and sales in our Logistics and Marketing segment.

(2)

The “Future” line items are comprised of futures transactions entered into on both the Intercontinental Exchange (“ICE”) and Chicago Mercantile Exchange (“CME”).

CONDENSATE

 

Instrument

 

Price

 

 

 

 

 

 

 

 

 

 

Type

Index

$/Bbl

 

 

 

 

Bbl/d

 

 

Fair Value

 

 

 

 

 

 

 

 

 

2017

 

 

2018

 

 

2019

 

 

(In millions)

 

Gathering & Processing

 

Swap

WTI-NYMEX

 

54.54

 

 

 

 

 

2,690

 

 

 

-

 

 

 

-

 

 

 

2.1

 

Swap

WTI-NYMEX

 

48.79

 

 

 

 

 

-

 

 

 

2,190

 

 

 

-

 

 

 

(2.4

)

Swap

WTI-NYMEX

 

51.19

 

 

 

 

 

-

 

 

 

-

 

 

 

1,063

 

 

 

(0.1

)

 

 

 

 

 

 

 

 

 

2,690

 

 

 

2,190

 

 

 

1,063

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put Price

 

Call Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar

WTI-NYMEX

 

54.04

 

 

64.09

 

 

1,380

 

 

 

-

 

 

 

-

 

 

 

1.7

 

Collar

WTI-NYMEX

 

49.76

 

 

58.50

 

 

-

 

 

 

691

 

 

 

-

 

 

 

0.4

 

Collar

WTI-NYMEX

 

48.00

 

 

56.25

 

 

-

 

 

 

-

 

 

 

590

 

 

 

0.2

 

 

 

 

 

 

 

 

 

 

1,380

 

 

 

691

 

 

 

590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

4,070

 

 

 

2,881

 

 

 

1,653

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.9

 

 

These contracts may expose us to the risk of financial loss in certain circumstances. Generally, our hedging arrangements provide us protection on the hedged volumes if prices decline below the prices at which these hedges are set. If prices rise above the prices at which they have been hedged, we will receive less revenue on the hedged volumes than we would receive in the absence of hedges (other than with respect to purchased calls). For derivative instruments not designated as cash flow hedges, these contracts are marked-to-market and recorded in revenues.

We account for the fair value of our financial assets and liabilities using a three-tier fair value hierarchy, which prioritizes the significant inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. We determine the value of our derivative contracts utilizing a discounted cash flow model for swaps and a standard option pricing model for options, based on inputs that are readily available in public markets. For the contracts that have inputs from quoted prices, the classification of these instruments is Level 2 within the fair value hierarchy. For those contracts which we are unable to obtain quoted prices for at least 90% of the full term of the commodity contract, the valuations are classified as Level 3 within the fair value hierarchy. See Note 16 - Fair Value Measurements in this Quarterly Report for more information regarding classifications within the fair value hierarchy.

Interest Rate Risk

We are exposed to the risk of changes in interest rates, primarily as a result of variable rate borrowings under the TRC Revolver, the TRP Revolver and the Securitization Facility. As of March 31, 2017, we do not have any interest rate hedges. However, we may enter into interest rate hedges in the future with the intent to mitigate the impact of changes in interest rates on cash flows. To the extent that interest rates increase, interest expense for the TRC Revolver, TRP Revolver and the Securitization Facility will also increase. As of March 31, 2017, the Partnership had $285.0 million in outstanding variable rate borrowings under the TRP Revolver and Securitization Facility, and we had outstanding variable rate borrowings of $435.0 million under the TRC Revolver and no borrowings under our term loan facility. A hypothetical change of 100 basis points in the interest rate of our variable rate debt would impact the Partnership’s annual interest expense by $2.9 million and our consolidated annual interest expense by $7.2 million.

Counterparty Credit Risk

We are subject to risk of losses resulting from nonpayment or nonperformance by our counterparties. The credit exposure related to commodity derivative instruments is represented by the fair value of the asset position (i.e. the fair value of expected future receipts)

59


 

at the reporting date. Our futures contracts have limited credit risk since they are cleared through an exchange and are margined daily. Should the creditworthiness of one or more of the counterparties decline, our ability to mitigate nonperformance risk is limited to a counterparty agreeing to either a voluntary termination and subsequent cash settlement or a novation of the derivative contract to a third party. In the event of a counterparty default, we may sustain a loss and our cash receipts could be negatively impacted. We have master netting provisions in the International Swap Dealers Association agreements with all our derivative counterparties. These netting provisions allow us to net settle asset and liability positions with the same counterparties within the same Targa entity, and would reduce our maximum loss due to counterparty credit risk by $30.1 million as of March 31, 2017. The range of losses attributable to our individual counterparties would be between $0.1 million and $13.3 million, depending on the counterparty in default.

Customer Credit Risk

We extend credit to customers and other parties in the normal course of business. We have an established policy and various procedures to manage our credit exposure risk, including initial and subsequent credit risk analyses, credit limits and terms and credit enhancements when necessary. We use credit enhancements including (but not limited to) letters of credit, prepayments, parental guarantees and rights of offset to limit credit risk to ensure that our established credit criteria are followed and financial loss is mitigated or minimized.

We have an active credit management process, which is focused on controlling loss exposure to bankruptcies or other liquidity issues of counterparties. If an assessment of uncollectible accounts resulted in a 1% reduction of our third-party accounts receivable as of March 31, 2017, our operating income would decrease by $5.4 million in the year of the assessment.

 

 

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the design and effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered in this Quarterly Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure because of the material weakness in our internal control over financial reporting as described below.

Previously Identified Material Weakness in Internal Control Over Financial Reporting

 

 

As previously disclosed in our Annual Report, we did not maintain effective controls over the preparation and review of income tax provisions for interim periods. Specifically, our controls were not designed to detect material clerical errors, as well as identify and address unusual and infrequently occurring circumstances requiring special consideration under accounting standards applicable to the determination of income tax expense for interim periods. 

Remediation Status

In response to the material weakness disclosed in our Annual Report, we developed a plan for remediation that consists of the following elements:

 

Performing an independent detailed review and re-performance of key elements of the interim tax provision calculation and entries to provide additional assurance that clerical errors are detected, and that detailed reviews already required under our controls and procedures are performed timely and effectively.

 

Incorporating into our process a formal interim tax provision checklist designed to ensure that we identify and appropriately address unusual and infrequently occurring circumstances requiring special consideration under GAAP applicable to interim income taxes.

 

Conducting formal reviews with financial and tax executive management to provide enhanced transparency and to facilitate an assessment of appropriateness of the estimated annual effective tax rate utilized in the preparation of interim income tax provisions.

We are in the process of testing and evaluating the operational effectiveness of the revised controls and procedures in conjunction with the preparation of our interim financial statements during 2017.

60


 

 

 

Changes in Internal Control Over Financial Reporting 

There have been no changes in our internal control over financial reporting that occurred during the quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, during our most recent fiscal quarter.

 

61


 

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

 

The information required for this item is provided in Note 18 – Contingencies, under the heading “Legal Proceedings” included in the Notes to Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report, which is incorporated by reference into this item.

 

Item 1A. Risk Factors.

 

For an in-depth discussion of our risk factors, see “Part I—Item 1A Risk Factors” of our Annual Report. All of these risks and uncertainties could adversely affect our business, financial condition and/or results of operations.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Recent Sales of Unregistered Securities.

 

None.

 

Repurchase of Equity by Targa Resources Corp. or Affiliated Purchasers.

 

Period

 

Total number of shares withheld (1)

 

 

Average price per share

 

 

Total number of shares purchased as part of publicly announced plans

 

 

Maximum number of shares that may yet to be purchased under the plan

 

January 1, 2017 - January 31, 2017

$

 

6,990

 

$

 

57.95

 

 

 

 

 

 

 

February 1, 2017 - February 28, 2017

 

 

1,829

 

 

 

58.69

 

 

 

 

 

 

 

 

(1)

Represents shares that were withheld by us to satisfy tax withholding obligations of certain of our officers, directors and key employees that arose upon the lapse of restrictions on restricted stock.

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

62


 

Item 6. Exhibits

 

Number

 

Description

 

 

 

2.1***

 

Membership Interest Purchase and Sale Agreement, dated January 22, 2017, by and between Targa Resources Partners LP and Outrigger Delaware Midstream, LLC (incorporated by reference to Exhibit 2.1 to Targa Resources Corp.’s Current Report on Form 8-K filed January 23, 2017 (File No. 001-34991)).

 

 

 

2.2***

 

Membership Interest Purchase and Sale Agreement, dated January 22, 2017, by and between Targa Resources Partners LP and Outrigger Energy, LLC (incorporated by reference to Exhibit 2.2 to Targa Resources Corp.’s Current Report on Form 8-K filed January 23, 2017 (File No. 001-34991)).

 

 

 

2.3***

 

Membership Interest Purchase and Sale Agreement, dated January 22, 2017, by and between Targa Resources Partners LP and Outrigger Midland Midstream, LLC (incorporated by reference to Exhibit 2.3 to Targa Resources Corp.’s Current Report on Form 8-K filed January 23, 2017 (File No. 001-34991)).

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Targa Resources Corp. (incorporated by reference to Exhibit 3.1 to Targa Resources Corp.’s Current Report on Form 8-K filed December 16, 2010 (File No. 001-34991)).

 

 

 

3.2

 

Certificate of Designations of Series A Preferred Stock of Targa Resources Corp., filed with the Secretary of State of the State of Delaware on March 16, 2016 (incorporated by reference to Exhibit 3.1 to Targa Resources Corp.’s Current Report on Form 8-K/A filed March 17, 2016 (File No. 001-34991)).

 

 

 

3.3

 

Amended and Restated Bylaws of Targa Resources Corp. (incorporated by reference to Exhibit 3.2 to Targa Resources Corp.’s Current Report on Form 8-K filed December 16, 2010 (File No. 001-34991)).

 

 

 

3.4

 

First Amendment to the Amended and Restated Bylaws of Targa Resources Corp. (incorporated by reference to Exhibit 3.1 to Targa Resources Corp.’s Current Report on Form 8-K filed January 15, 2016 (File No. 001-34991)).

 

 

 

3.5

 

Certificate of Limited Partnership of Targa Resources Partners LP (incorporated by reference to Exhibit 3.2 to Targa Resources Partners LP’s Registration Statement on Form S-1 filed November 16, 2006 (File No. 333-138747)).

 

 

 

3.6

 

Certificate of Formation of Targa Resources GP LLC (incorporated by reference to Exhibit 3.3 to Targa Resources Partners LP’s Registration Statement on Form S-1/A filed January 19, 2007 (File No. 333-138747)).

 

 

 

3.7

 

Third Amended and Restated Agreement of Limited Partnership of Targa Resources Partners LP, effective December 1, 2016 (incorporated by reference to Exhibit 3.1 to Targa Resources Partners LP’s Current Report on Form 8-K filed October 21, 2016 (File No. 001-33303)).

 

 

 

3.8

 

Limited Liability Company Agreement of Targa Resources GP LLC (incorporated by reference to Exhibit 3.4 to Targa Resources Partners LP’s Registration Statement on Form S-1/A filed January 19, 2007 (File No. 333-138747)).

 

 

 

4.1

 

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Targa Resources Corp.’s Registration Statement on Form S-1/A filed November 12, 2010 (File No. 333-169277)).

 

 

 

10.1

 

Commitment Increase Request, dated February 23, 2017, by and among Targa Receivables LLC, as seller, the Partnership, as servicer, and PNC Bank, National Association, as administrator, purchaser agent and LC Bank (incorporated by reference to Exhibit 10.1 to Targa Resources Partners LP’s Current Report on Form 8-K filed February 24, 2017 (File No. 001-33303)).

 

 

 

10.2

 

Indemnification Agreement by and between Targa Resources Corp. and Robert Muraro, dated February 22, 2017 (incorporated by reference to Exhibit 10.1 to Targa Resources Corp.’s Current Report on Form 8-K filed February 27, 2017 (File No. 001-34991)).

 

 

 

10.3

 

Supplemental Indenture dated March 10, 2017 to Indenture dated January 31, 2012, among the Guaranteeing Subsidiary, Targa Resources Partners LP, Targa Resources Partners Finance Corporation, the other Subsidiary Guarantors and U.S. Bank National Association (incorporated by reference to Exhibit 4.2 to Targa Resources Partners LP’s Quarterly Report on Form 10-Q filed May 4, 2017 (File No. 001-33303)).

63


 

Number

 

Description

 

 

 

10.4

 

Supplemental Indenture dated March 10, 2017 to Indenture dated October 25, 2012, among the Guaranteeing Subsidiary, Targa Resources Partners LP, Targa Resources Partners Finance Corporation, the other Subsidiary Guarantors and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 to Targa Resources Partners LP’s Quarterly Report on Form 10-Q filed May 4, 2017 (File No. 001-33303)).

 

 

 

10.5

 

Supplemental Indenture dated March 10, 2017 to Indenture dated May 14, 2013, among the Guaranteeing Subsidiary, Targa Resources Partners LP, Targa Resources Partners Finance Corporation, the other Subsidiary Guarantors and U.S. Bank National Association (incorporated by reference to Exhibit 4.4 to Targa Resources Partners LP’s Quarterly Report on Form 10-Q filed May 4, 2017 (File No. 001-33303)).

 

 

 

10.6

 

Supplemental Indenture dated March 10, 2017 to Indenture dated October 28, 2014, among the Guaranteeing Subsidiary, Targa Resources Partners LP, Targa Resources Partners Finance Corporation, the other Subsidiary Guarantors and U.S. Bank National Association (incorporated by reference to Exhibit 4.5 to Targa Resources Partners LP’s Quarterly Report on Form 10-Q filed May 4, 2017 (File No. 001-33303)).

 

 

 

10.7

 

Supplemental Indenture dated March 10, 2017 to Indenture dated January 30, 2015, among the Guaranteeing Subsidiary, Targa Resources Partners LP, Targa Resources Partners Finance Corporation, the other Subsidiary Guarantors and U.S. Bank National Association (incorporated by reference to Exhibit 4.6 to Targa Resources Partners LP’s Quarterly Report on Form 10-Q filed May 4, 2017 (File No. 001-33303)).

 

 

 

10.8

 

Supplemental Indenture dated March 10, 2017 to Indenture dated September 14, 2015, among the Guaranteeing Subsidiary, Targa Resources Partners LP, Targa Resources Partners Finance Corporation, the other Subsidiary Guarantors and U.S. Bank National Association (incorporated by reference to Exhibit 4.7 to Targa Resources Partners LP’s Quarterly Report on Form 10-Q filed May 4, 2017 (File No. 001-33303)).

 

 

 

10.9

 

Supplemental Indenture dated March 10, 2017 to Indenture dated October 6, 2016, among the Guaranteeing Subsidiary, Targa Resources Partners LP, Targa Resources Partners Finance Corporation, the other Subsidiary Guarantors and U.S. Bank National Association (incorporated by reference to Exhibit 4.8 to Targa Resources Partners LP’s Quarterly Report on Form 10-Q filed May 4, 2017 (File No. 001-33303)).

 

 

 

10.10+

 

Targa Resources Corp. 2017 Annual Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to Targa Resources Partner’s Current Report on Form 8-K filed January 25, 2017(File No. 001-33303)).

 

 

 

31.1*

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2*

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1**

 

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2**

 

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

*

Filed herewith

**

Furnished herewith

***

The schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request.

+

Management contract or compensatory plan or arrangement

 

64


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Targa Resources Corp.

 

(Registrant)

 

 

 

 

Date: May 4, 2017

By:

 

/s/ Matthew J. Meloy

 

 

 

Matthew J. Meloy

 

 

 

Executive Vice President and Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

 

65