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TRGP Targa Resources

Filed: 5 Nov 20, 2:23pm

 

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 September 30, 2020

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.)

 

 

 

811 Louisiana St, Suite 2100, Houston, Texas

 

77002

(Address of principal executive offices)

 

(Zip Code)

(713) 584-1000

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock

TRGP

New York Stock Exchange

 

 

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 every Interactive Data File required to be submitted 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 such files).      Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

☐  

  

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 November 2, 2020, there were 229,013,171 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 September 30, 2020 and December 31, 2019

 

4

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019

 

5

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019

 

6

 

 

 

Consolidated Statements of Changes in Owners' Equity and Series A Preferred Stock for the three and nine months ended
September 30, 2020 and 2019

 

7

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

 

11

 

 

 

Notes to Consolidated Financial Statements

 

12

 

 

 

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

 

30

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

50

 

 

 

Item 4. Controls and Procedures

 

53

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

 

54

 

 

 

Item 1A. Risk Factors

 

54

 

 

 

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

 

56

 

 

 

Item 3. Defaults Upon Senior Securities

 

56

 

 

 

Item 4. Mine Safety Disclosures

 

56

 

 

 

Item 5. Other Information

 

56

 

 

 

Item 6. Exhibits

 

57

 

 

 

SIGNATURES

 

 

 

 

 

Signatures

 

59

 

 

 

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 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 transportation facilities and our success in connecting our facilities to transportation services and markets;

 

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;

 

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

 

the impact of outbreaks of illnesses, pandemics (like COVID-19) or any other public health crises;

 

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 timely obtain and maintain necessary licenses, permits and other approvals;

 

our ability to grow through internal growth capital projects or acquisitions 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, 2019 (“Annual Report”) and our reports and registration statements filed from time to time with the United States Securities and Exchange Commission (“SEC”).

Additionally, while we have not been previously materially impacted by prior outbreaks of illnesses, pandemics or other public health crises, there are potential risks to us from the continued impact on global demand for commodities related to the COVID-19 pandemic. The COVID-19 pandemic reduced economic activity and the related demand for energy commodities, which contributed to weakened commodity prices compared to historical levels and price volatility during the nine months ended September 30, 2020 and is expected to continue to impact demand over the short-to-medium term.

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 September 30, 2020 (“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 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

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

SCOOP

 

South Central Oklahoma Oil Province

STACK

 

Sooner Trend, Anadarko, Canadian and Kingfisher

 

3


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

TARGA RESOURCES CORP.

CONSOLIDATED BALANCE SHEETS

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

(Unaudited)

 

 

 

(In millions)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

275.0

 

 

$

331.1

 

Trade receivables, net of allowances of $0.1 and $0.0 million at September 30, 2020 and December 31, 2019

 

 

609.8

 

 

 

855.0

 

Inventories

 

 

261.7

 

 

 

161.5

 

Assets from risk management activities

 

 

88.9

 

 

 

103.3

 

Deposits

 

 

110.1

 

 

 

35.4

 

Held for sale assets

 

 

62.2

 

 

 

137.7

 

Other current assets

 

 

36.7

 

 

 

34.3

 

Total current assets

 

 

1,444.4

 

 

 

1,658.3

 

Property, plant and equipment, net

 

 

12,292.8

 

 

 

14,548.5

 

Intangible assets, net

 

 

1,417.6

 

 

 

1,735.0

 

Long-term assets from risk management activities

 

 

79.5

 

 

 

35.5

 

Investments in unconsolidated affiliates

 

 

718.8

 

 

 

738.7

 

Other long-term assets

 

 

99.0

 

 

 

99.1

 

Total assets

 

$

16,052.1

 

 

$

18,815.1

 

 

 

 

 

 

 

 

 

 

LIABILITIES, SERIES A PREFERRED STOCK AND OWNERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

617.7

 

 

$

954.8

 

Accrued liabilities

 

 

69.5

 

 

 

114.4

 

Dividends payable

 

 

125.9

 

 

 

122.6

 

Interest payable

 

 

95.3

 

 

 

125.7

 

Accrued taxes

 

 

85.9

 

 

 

62.4

 

Liabilities from risk management activities

 

 

121.1

 

 

 

104.1

 

Current debt obligations

 

 

261.9

 

 

 

382.2

 

Held for sale liabilities

 

 

3.6

 

 

 

6.4

 

Total current liabilities

 

 

1,380.9

 

 

 

1,872.6

 

Long-term debt

 

 

7,652.2

 

 

 

7,440.2

 

Long-term liabilities from risk management activities

 

 

62.9

 

 

 

40.8

 

Deferred income taxes, net

 

 

131.1

 

 

 

434.2

 

Other long-term liabilities

 

 

307.0

 

 

 

305.6

 

Contingencies (see Note 13)

 

 

 

 

 

 

 

 

Series A Preferred 9.5% Stock, $1,000 per share liquidation preference, (1,200,000 shares authorized, 965,100 shares issued and outstanding), net of discount (see Note 7)

 

 

306.5

 

 

 

278.8

 

Owners' equity:

 

 

 

 

 

 

 

 

Targa Resources Corp. stockholders' equity:

 

 

 

 

 

 

 

 

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

 

 

0.2

 

 

 

0.2

 

                                 Issued                       Outstanding

 

 

 

 

 

 

 

 

September 30, 2020              234,745,594                  233,517,921

 

 

 

 

 

 

 

 

December 31, 2019              233,852,810                  232,843,526

 

 

 

 

 

 

 

 

Preferred stock ($0.001 par value, after designation of Series A Preferred Stock: 98,800,000 shares authorized, 0 shares issued and outstanding)

 

 

0

 

 

 

0

 

Additional paid-in capital

 

 

4,911.7

 

 

 

5,221.2

 

Retained earnings (deficit)

 

 

(1,927.1

)

 

 

(339.6

)

Accumulated other comprehensive income (loss)

 

 

(90.8

)

 

 

92.5

 

Treasury stock, at cost (1,227,673 shares as of September 30, 2020 and 1,009,284 shares as of December 31, 2019)

 

 

(59.0

)

 

 

(53.5

)

Total Targa Resources Corp. stockholders' equity

 

 

2,835.0

 

 

 

4,920.8

 

Noncontrolling interests

 

 

3,376.5

 

 

 

3,522.1

 

Total owners' equity

 

 

6,211.5

 

 

 

8,442.9

 

Total liabilities, Series A Preferred Stock and owners' equity

 

$

16,052.1

 

 

$

18,815.1

 

 

 

See notes to consolidated financial statements.

4


TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(Unaudited)

 

 

(In millions, except per share amounts)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

$

1,840.8

 

 

$

1,594.2

 

 

$

4,900.8

 

 

$

5,254.8

 

Fees from midstream services

 

274.3

 

 

 

308.3

 

 

 

786.7

 

 

 

942.4

 

Total revenues

 

2,115.1

 

 

 

1,902.5

 

 

 

5,687.5

 

 

 

6,197.2

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product purchases

 

1,303.2

 

 

 

1,328.1

 

 

 

3,346.8

 

 

 

4,415.7

 

Operating expenses

 

181.9

 

 

 

200.2

 

 

 

565.1

 

 

 

600.8

 

Depreciation and amortization expense

 

203.7

 

 

 

244.3

 

 

 

647.3

 

 

 

718.9

 

General and administrative expense

 

58.6

 

 

 

69.9

 

 

 

180.6

 

 

 

223.5

 

Impairment of long-lived assets

 

 

 

 

 

 

 

2,442.8

 

 

 

 

Other operating (income) expense

 

72.2

 

 

 

18.4

 

 

 

73.8

 

 

 

21.7

 

Income (loss) from operations

 

295.5

 

 

 

41.6

 

 

 

(1,568.9

)

 

 

216.6

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(97.7

)

 

 

(89.1

)

 

 

(292.4

)

 

 

(241.8

)

Equity earnings (loss)

 

18.6

 

 

 

10.0

 

 

 

54.1

 

 

 

15.9

 

Gain (loss) from financing activities

 

(13.7

)

 

 

 

 

 

47.4

 

 

 

(1.4

)

Gain (loss) from sale of equity-method investment

 

 

 

 

65.8

 

 

 

 

 

 

65.8

 

Change in contingent considerations

 

 

 

 

 

 

 

 

 

 

(8.8

)

Other, net

 

1.4

 

 

 

 

 

 

2.2

 

 

 

 

Income (loss) before income taxes

 

204.1

 

 

 

28.3

 

 

 

(1,757.6

)

 

 

46.3

 

Income tax (expense) benefit

 

(31.9

)

 

 

3.8

 

 

 

286.6

 

 

 

10.0

 

Net income (loss)

 

172.2

 

 

 

32.1

 

 

 

(1,471.0

)

 

 

56.3

 

Less: Net income (loss) attributable to noncontrolling interests

 

102.9

 

 

 

79.4

 

 

 

116.5

 

 

 

152.7

 

Net income (loss) attributable to Targa Resources Corp.

 

69.3

 

 

 

(47.3

)

 

 

(1,587.5

)

 

 

(96.4

)

Dividends on Series A Preferred Stock

 

22.9

 

 

 

22.9

 

 

 

68.8

 

 

 

68.8

 

Deemed dividends on Series A Preferred Stock

 

9.5

 

 

 

8.4

 

 

 

27.7

 

 

 

24.4

 

Net income (loss) attributable to common shareholders

$

36.9

 

 

$

(78.6

)

 

$

(1,684.0

)

 

$

(189.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - basic

$

0.16

 

 

$

(0.34

)

 

$

(7.22

)

 

$

(0.82

)

Net income (loss) per common share - diluted

$

0.16

 

 

$

(0.34

)

 

$

(7.22

)

 

$

(0.82

)

Weighted average shares outstanding - basic

 

233.4

 

 

 

232.7

 

 

 

233.2

 

 

 

232.4

 

Weighted average shares outstanding - diluted

 

233.8

 

 

 

232.7

 

 

 

233.2

 

 

 

232.4

 

 

See notes to consolidated financial statements.

 

5


TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

 

Three Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Pre-Tax

 

 

Related Income Tax

 

 

After Tax

 

 

Pre-Tax

 

 

Related Income Tax

 

 

After Tax

 

 

 

(Unaudited)

 

 

 

(In millions)

 

Net income (loss)

 

 

 

 

 

 

 

 

$

 

172.2

 

 

 

 

 

 

 

 

 

$

 

32.1

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity hedging contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value

$

 

(128.7

)

$

 

31.7

 

 

 

(97.0

)

$

 

118.2

 

$

 

(28.8

)

 

 

89.4

 

Settlements reclassified to revenues

 

 

(19.2

)

 

 

3.8

 

 

 

(15.4

)

 

 

(41.5

)

 

 

10.0

 

 

 

(31.5

)

Other comprehensive income (loss)

 

 

(147.9

)

 

 

35.5

 

 

 

(112.4

)

 

 

76.7

 

 

 

(18.8

)

 

 

57.9

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

59.8

 

 

 

 

 

 

 

 

 

 

 

90.0

 

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

102.9

 

 

 

 

 

 

 

 

 

 

 

79.4

 

Comprehensive income (loss) attributable to Targa Resources Corp.

 

 

 

 

 

 

 

 

$

 

(43.1

)

 

 

 

 

 

 

 

 

$

 

10.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Pre-Tax

 

 

Related Income Tax

 

 

After Tax

 

 

Pre-Tax

 

 

Related Income Tax

 

 

After Tax

 

 

 

(Unaudited)

 

 

 

(In millions)

 

Net income (loss)

 

 

 

 

 

 

 

 

$

 

(1,471.0

)

 

 

 

 

 

 

 

 

$

 

56.3

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity hedging contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value

$

 

(102.6

)

$

 

23.5

 

 

 

(79.1

)

$

 

167.8

 

$

 

(40.7

)

 

 

127.1

 

Settlements reclassified to revenues

 

 

(139.4

)

 

 

35.2

 

 

 

(104.2

)

 

 

(106.1

)

 

 

25.6

 

 

 

(80.5

)

Other comprehensive income (loss)

 

 

(242.0

)

 

 

58.7

 

 

 

(183.3

)

 

 

61.7

 

 

 

(15.1

)

 

 

46.6

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

(1,654.3

)

 

 

 

 

 

 

 

 

 

 

102.9

 

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

116.5

 

 

 

 

 

 

 

 

 

 

 

152.7

 

Comprehensive income (loss) attributable to Targa Resources Corp.

 

 

 

 

 

 

 

 

$

 

(1,770.8

)

 

 

 

 

 

 

 

 

$

 

(49.8

)

 

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, June 30, 2020

 

 

233,177

 

 

$

0.2

 

 

$

4,949.1

 

 

$

(1,996.4

)

 

$

21.6

 

 

 

1,116

 

 

$

(56.9

)

 

$

3,351.5

 

 

$

6,269.1

 

 

$

297.0

 

Compensation on equity grants

 

 

 

 

 

 

 

 

16.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16.4

 

 

 

 

Distribution equivalent rights

 

 

 

 

 

 

 

 

1.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.9

 

 

 

 

Shares issued under compensation program

 

 

453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares and units tendered for tax withholding obligations

 

 

(112

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

112

 

 

 

(2.1

)

 

 

 

 

 

(2.1

)

 

 

 

Series A Preferred Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends - $23.75 per share

 

 

 

 

 

 

 

 

 

 

 

(22.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22.9

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

(22.9

)

 

 

22.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Deemed dividends - accretion of beneficial conversion feature

 

 

 

 

 

 

 

 

(9.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9.5

)

 

 

9.5

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends - $0.10 per share

 

 

 

 

 

 

 

 

 

 

 

(23.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23.3

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

(23.3

)

 

 

23.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(113.1

)

 

 

(113.1

)

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7.7

 

 

 

7.7

 

 

 

 

Non-cash allocation to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27.5

 

 

 

27.5

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(112.4

)

 

 

 

 

 

 

 

 

 

 

 

(112.4

)

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

69.3

 

 

 

 

 

 

 

 

 

 

 

 

102.9

 

 

 

172.2

 

 

 

 

Balance, September 30, 2020

 

 

233,518

 

 

$

0.2

 

 

$

4,911.7

 

 

$

(1,927.1

)

 

$

(90.8

)

 

 

1,228

 

 

$

(59.0

)

 

$

3,376.5

 

 

$

6,211.5

 

 

$

306.5

 

 

See notes to consolidated financial statements.


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, June 30, 2019

 

 

232,476

 

 

$

0.2

 

 

$

5,687.8

 

 

$

(179.5

)

 

$

83.0

 

 

 

896

 

 

$

(49.2

)

 

$

3,396.8

 

 

$

8,939.1

 

 

$

261.7

 

Compensation on equity grants

 

 

 

 

 

 

 

 

16.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16.1

 

 

 

 

Distribution equivalent rights

 

 

 

 

 

 

 

 

(3.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.7

)

 

 

 

Shares issued under compensation program

 

 

412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares and units tendered for tax withholding obligations

 

 

(105

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

105

 

 

 

(3.9

)

 

 

 

 

 

(3.9

)

 

 

 

Series A Preferred Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends - $23.75 per share

 

 

 

 

 

 

 

 

 

 

 

(22.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22.9

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

(22.9

)

 

 

22.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Deemed dividends - accretion of beneficial conversion feature

 

 

 

 

 

 

 

 

(8.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8.4

)

 

 

8.4

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends - $0.91 per share

 

 

 

 

 

 

 

 

 

 

 

(211.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(211.7

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

(211.7

)

 

 

211.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(90.0

)

 

 

(90.0

)

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

115.3

 

 

 

115.3

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57.9

 

 

 

 

 

 

 

 

 

 

 

 

57.9

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(47.3

)

 

 

 

 

 

 

 

 

 

 

 

79.4

 

 

 

32.1

 

 

 

 

Balance, September 30, 2019

 

 

232,783

 

 

$

0.2

 

 

$

5,457.2

 

 

$

(226.8

)

 

$

140.9

 

 

 

1,001

 

 

$

(53.1

)

 

$

3,501.5

 

 

$

8,819.9

 

 

$

270.1

 

 

See notes to consolidated financial statements.


8


 

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, 2019

 

 

232,844

 

 

$

0.2

 

 

$

5,221.2

 

 

$

(339.6

)

 

$

92.5

 

 

 

1,010

 

 

$

(53.5

)

 

$

3,522.1

 

 

$

8,442.9

 

 

$

278.8

 

Compensation on equity grants

 

 

 

 

 

 

 

 

49.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49.5

 

 

 

 

Distribution equivalent rights

 

 

 

 

 

 

 

 

(3.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.5

)

 

 

 

Shares issued under compensation program

 

 

892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares and units tendered for tax withholding obligations

 

 

(218

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

218

 

 

 

(5.5

)

 

 

 

 

 

(5.5

)

 

 

 

Series A Preferred Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends - $71.25 per share

 

 

 

 

 

 

 

 

 

 

 

(68.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68.8

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

(68.8

)

 

 

68.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Deemed dividends - accretion of beneficial conversion feature

 

 

 

 

 

 

 

 

(27.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27.7

)

 

 

27.7

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends - $1.11 per share

 

 

 

 

 

 

 

 

 

 

 

(259.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(259.0

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

(259.0

)

 

 

259.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(322.9

)

 

 

(322.9

)

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33.3

 

 

 

33.3

 

 

 

 

Non-cash allocation to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27.5

 

 

 

27.5

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(183.3

)

 

 

 

 

 

 

 

 

 

 

 

(183.3

)

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(1,587.5

)

 

 

 

 

 

 

 

 

 

 

 

116.5

 

 

 

(1,471.0

)

 

 

 

Balance, September 30, 2020

 

 

233,518

 

 

$

0.2

 

 

$

4,911.7

 

 

$

(1,927.1

)

 

$

(90.8

)

 

 

1,228

 

 

$

(59.0

)

 

$

3,376.5

 

 

$

6,211.5

 

 

$

306.5

 

 

See notes to consolidated financial statements.


9


 

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, 2018

 

 

231,791

 

 

$

0.2

 

 

$

6,154.9

 

 

$

(130.4

)

 

$

94.3

 

 

 

666

 

 

$

(39.6

)

 

$

1,391.4

 

 

$

7,470.8

 

 

$

245.7

 

Compensation on equity grants

 

 

 

 

 

 

 

 

49.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49.0

 

 

 

 

Distribution equivalent rights

 

 

 

 

 

 

 

 

(10.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10.5

)

 

 

 

Shares issued under compensation program

 

 

1,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares and units tendered for tax withholding obligations

 

 

(335

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

335

 

 

 

(13.5

)

 

 

 

 

 

(13.5

)

 

 

 

Series A Preferred Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends - $71.25 per share

 

 

 

 

 

 

 

 

 

 

 

(68.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68.8

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

(68.8

)

 

 

68.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Deemed dividends - accretion of beneficial conversion feature

 

 

 

 

 

 

 

 

(24.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24.4

)

 

 

24.4

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Dividends - $2.73 per share

 

 

 

 

 

 

 

 

 

 

 

(634.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(634.8

)

 

 

 

    Dividends in excess of retained earnings

 

 

 

 

 

 

 

 

(634.8

)

 

 

634.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(181.1

)

 

 

(181.1

)

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

518.8

 

 

 

518.8

 

 

 

 

Sale of ownership interests in subsidiaries, net

 

 

 

 

 

 

 

 

(8.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,619.7

 

 

 

1,611.5

 

 

 

 

Other comprehensive income (loss)

 

 

 

��

 

 

 

 

 

 

 

 

 

 

46.6

 

 

 

 

 

 

 

 

 

 

 

 

46.6

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(96.4

)

 

 

 

 

 

 

 

 

 

 

 

152.7

 

 

 

56.3

 

 

 

 

Balance, September 30, 2019

 

 

232,783

 

 

$

0.2

 

 

$

5,457.2

 

 

$

(226.8

)

 

$

140.9

 

 

 

1,001

 

 

$

(53.1

)

 

$

3,501.5

 

 

$

8,819.9

 

 

$

270.1

 

 

See notes to consolidated financial statements.

 

10


TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

(In millions)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,471.0

)

 

$

56.3

 

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

 

 

 

 

 

 

 

 

Amortization in interest expense

 

 

8.5

 

 

 

7.6

 

Compensation on equity grants

 

 

49.5

 

 

 

49.0

 

Depreciation and amortization expense

 

 

647.3

 

 

 

718.9

 

Impairment of long-lived assets

 

 

2,442.8

 

 

 

 

Accretion of asset retirement obligations

 

 

2.6

 

 

 

3.7

 

Deferred income tax expense (benefit)

 

 

(269.8

)

 

 

(10.0

)

Equity (earnings) loss of unconsolidated affiliates

 

 

(54.1

)

 

 

(15.9

)

Distributions of earnings received from unconsolidated affiliates

 

 

65.5

 

 

 

26.0

 

Risk management activities

 

 

(214.2

)

 

 

100.8

 

(Gain) loss on sale or disposition of business and assets

 

 

58.0

 

 

 

3.6

 

Write-downs of assets

 

 

13.5

 

 

 

17.9

 

(Gain) loss from financing activities

 

 

(47.4

)

 

 

1.4

 

(Gain) loss from sale of equity-method investment

 

 

 

 

 

(65.8

)

Change in contingent considerations

 

 

 

 

 

8.8

 

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

 

 

 

 

 

 

 

 

Receivables and other assets

 

 

168.7

 

 

 

98.4

 

Inventories

 

 

(115.8

)

 

 

(89.7

)

Accounts payable, accrued liabilities and other liabilities

 

 

(158.0

)

 

 

(4.2

)

Interest payable

 

 

(30.4

)

 

 

12.2

 

Net cash provided by operating activities

 

 

1,095.7

 

 

 

919.0

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Outlays for property, plant and equipment

 

 

(803.1

)

 

 

(2,434.1

)

Proceeds from sale of business and assets

 

 

135.9

 

 

 

2.7

 

Investments in unconsolidated affiliates

 

 

(2.2

)

 

 

(243.7

)

Proceeds from sale of equity-method investment

 

 

 

 

 

70.3

 

Return of capital from unconsolidated affiliates

 

 

10.7

 

 

 

1.1

 

Other, net

 

 

4.7

 

 

 

(16.3

)

Net cash used in investing activities

 

 

(654.0

)

 

 

(2,620.0

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Debt obligations:

 

 

 

 

 

 

 

 

Proceeds from borrowings under credit facilities

 

 

1,460.0

 

 

 

2,630.0

 

Repayments of credit facilities

 

 

(1,360.0

)

 

 

(2,500.0

)

Proceeds from borrowings under accounts receivable securitization facility

 

 

476.4

 

 

 

770.0

 

Repayments of accounts receivable securitization facility

 

 

(596.4

)

 

 

(804.0

)

Proceeds from issuance of senior notes

 

 

1,000.0

 

 

 

1,500.0

 

Redemption of senior notes

 

 

(831.0

)

 

 

(749.4

)

Principal payments of finance leases

 

 

(9.3

)

 

 

(8.5

)

Costs incurred in connection with financing arrangements

 

 

(9.6

)

 

 

(25.2

)

Payment of contingent consideration

 

 

 

 

 

(317.1

)

Repurchase of shares and units under compensation plans

 

 

(5.5

)

 

 

(13.5

)

Sale of ownership interests in subsidiaries

 

 

 

 

 

1,619.7

 

Contributions from noncontrolling interests

 

 

33.3

 

 

 

518.8

 

Distributions to noncontrolling interests

 

 

(310.6

)

 

 

(98.9

)

Distributions to Partnership unitholders

 

 

(8.4

)

 

 

(8.4

)

Dividends paid to common and Series A preferred shareholders

 

 

(336.7

)

 

 

(718.3

)

Net cash provided by (used in) financing activities

 

 

(497.8

)

 

 

1,795.2

 

Net change in cash and cash equivalents

 

 

(56.1

)

 

 

94.2

 

Cash and cash equivalents, beginning of period

 

 

331.1

 

 

 

232.1

 

Cash and cash equivalents, end of period

 

$

275.0

 

 

$

326.3

 

 

See notes to consolidated financial statements.

 

 

 

11


 

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. TRC controls the general partner of and owns all of the outstanding common units representing limited partner interests in Targa Resources Partners LP, referred to herein as the “Partnership” or “TRP.”

 

Our Operations

 

The Company is primarily engaged in the business of:

 

 

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

 

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

 

gathering, storing, terminaling and purchasing and selling crude oil.

 

See Note 18 – Segment Information for certain financial information regarding our business segments.

 

Note 2 — Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by GAAP. Therefore, this information should be read in conjunction with our consolidated financial statements and notes contained in our Annual Report. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim periods reported. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in prior periods have been reclassified to conform to the current year presentation. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

Note 3 — Significant Accounting Policies

 

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. Other than the updates noted below, there were no significant updates or revisions to our accounting policies during the nine months ended September 30, 2020.

 

Recent Accounting Pronouncements

 

Recently issued accounting pronouncements not yet adopted

 

Convertible Debt and Equity Instruments

 

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this update simplify the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and embedded conversion features that can be recognized separately from the primary contract. These amendments also enhance transparency and improve disclosures for convertible instruments and earnings per share guidance. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2021, with early adoption permitted. This update permits the use of either the modified retrospective or full retrospective method of adoption. We are currently evaluating the effects of such amendments on our consolidated financial statements.

 

12


 

Recently adopted accounting pronouncements

 

Measurement of Credit Losses

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update modify the impairment model for financial instruments, including trade and other receivables, held-to-maturity debt securities and other instruments.

 

The amendments require entities to consider historical information, current conditions, and supportable forecasts to estimate expected credit losses, which may result in earlier recognition of losses. The amendments were effective for us on January 1, 2020 and were adopted by applying the modified retrospective transition approach. The adoption did not result in a cumulative effect adjustment to retained earnings on January 1, 2020. As a result of our adoption, see Accounting Policy Updates – Allowance for Doubtful Accounts below.

 

Accounting Policy Updates

 

Allowance for Doubtful Accounts

 

Estimated losses on accounts receivable are provided through an allowance for doubtful accounts. We estimate the allowance for doubtful accounts through various procedures, including extensive review of our trade receivable balances by counterparty, assessing economic events and conditions, our historical experience with counterparties, the counterparty’s financial condition and the amount and age of past due accounts.

 

We continuously evaluate our ability to collect amounts owed to us. Receivables are considered past due if full payment is not received by the contractual due date. These procedures also include performing account reconciliations, dispute resolution and payment confirmation. We may involve our legal counsel to pursue the recovery of defaulted trade receivables.

 

As the financial condition of any counterparty changes, circumstances develop or additional information becomes available, adjustments to our allowance may be required.

 

Note 4 — Property, Plant and Equipment and Intangible Assets

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

Estimated Useful Lives (In Years)

Gathering systems

 

$

9,125.2

 

 

$

8,976.8

 

 

5 to 20

Processing and fractionation facilities

 

 

6,138.3

 

 

 

5,143.0

 

 

5 to 25

Terminaling and storage facilities

 

 

1,514.8

 

 

 

1,495.5

 

 

5 to 25

Transportation assets

 

 

2,422.6

 

 

 

2,292.4

 

 

10 to 50

Other property, plant and equipment

 

 

123.9

 

 

 

184.1

 

 

3 to 50

Land

 

 

160.7

 

 

 

159.7

 

 

Construction in progress

 

 

697.5

 

 

 

1,576.5

 

 

Finance lease right-of-use assets

 

 

51.3

 

 

 

48.8

 

 

 

Property, plant and equipment

 

 

20,234.3

 

 

 

19,876.8

 

 

 

Accumulated depreciation, amortization and impairment

 

 

(7,941.5

)

 

 

(5,328.3

)

 

 

Property, plant and equipment, net

 

$

12,292.8

 

 

$

14,548.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

$

2,643.5

 

 

$

2,643.5

 

 

10 to 20

Accumulated amortization and impairment

 

 

(1,225.9

)

 

 

(908.5

)

 

 

Intangible assets, net

 

$

1,417.6

 

 

$

1,735.0

 

 

 

 

During the preparation of the Company's first quarter 2019 consolidated financial statements, the Company identified an error related to depreciation expense on certain assets that should have been placed in-service during 2018. The Company does not believe this error is material to its previously issued historical consolidated financial statements for any of the periods impacted and accordingly, has not adjusted the historical financial statements. The Company recorded the cumulative impact of a one-time $12.5 million overstatement of depreciation expense during the first quarter of 2019.

 

During the three and nine months ended September 30, 2020, depreciation expense was $168.5 million and $538.5 million, respectively. During the three and nine months ended September 30, 2019, depreciation expense was $201.4 million and $590.1 million, respectively.

 

13


 

Asset Impairments

 

We review and evaluate our long-lived assets, including intangible assets, for impairment when events or changes in circumstances indicate that the related carrying amount of such assets may not be recoverable, and changes to our estimates could have an impact on our assessment of asset recoverability.

 

During the nine months ended September 30, 2020, global commodity prices declined due to factors that significantly impacted both demand and supply. As the COVID-19 pandemic spread, causing travel and other restrictions to be implemented globally, the demand for commodities declined. Additionally, the supply shock late in the first quarter from certain major oil producing nations increasing production also significantly contributed to the sharp drop in commodity prices. While these major oil and gas producing countries subsequently agreed to collectively decrease production and global economies are beginning to re-open, these events, combined with the outbreak of the COVID-19 pandemic, contributed to volatility and depressed commodity prices. The drop in commodity prices resulted in prompt reactions from some domestic producers, including significantly reducing capital budgets and resultant drilling activity and shutting-in production. Commodity prices remain weak relative to historical levels and have remained volatile as uncertainty around global commodity supply and demand continues due to the COVID-19 pandemic.

 

In the first quarter of 2020, we determined that indicators of impairment existed for certain asset groups reported primarily within our Gathering and Processing segment. For each asset group for which undiscounted future net cash flows were not sufficient to recover the net book value, fair value was determined through use of discounted estimated cash flows to measure the impairment loss.

 

The estimated cash flows used to assess recoverability of our long-lived assets and measure fair value of our asset groups are derived from current business plans, which are developed using near-term price and volume projections reflective of the current environment and management's projections for long-term average prices and volumes. In addition to near and long-term price assumptions, other key assumptions include volume projections, operating costs, timing of incurring such costs and the use of an appropriate discount rate. We believe our estimates and models used to determine fair value are similar to what a market participant would use.

 

The fair value measurement of our long-lived assets was based, in part, on significant inputs not observable in the market (as discussed above) and thus represents a Level 3 measurement. The significant unobservable inputs used include discount rates and terminal value exit multiples. We utilized a weighted average discount rate of 14.0% when deriving the fair value of the asset groups impaired during the first quarter of 2020. The weighted average discount rate and exit multiples reflect management’s best estimate of inputs a market participant would utilize.

 

In the first quarter of 2020, we recorded non-cash pre-tax impairments of $2,442.8 million primarily associated with the partial impairment of gas processing facilities and gathering systems associated with our Mid-Continent operations and full impairment of our Coastal operations - all of which are in our Gathering and Processing segment. Our first quarter impairment assessment forecasted further decline in natural gas production across the Mid-Continent and Gulf of Mexico. The carrying value adjustments are included in Impairment of long-lived assets in our Consolidated Statements of Operations. There were no indicators of impairment identified during the second or third quarters of 2020.

 

Intangible Assets

 

Intangible assets consist of customer contracts and customer relationships acquired in prior business combinations. The fair value of these acquired intangible assets were determined at the date of acquisition based on the present values of estimated future cash flows. Amortization expense attributable to these assets is recorded over the periods in which we benefit from services provided to customers.

 

As a result of the triggering events and analysis described above, in the first quarter of 2020, we recognized a non-cash pre-tax impairment loss associated with certain intangible customer relationships for which undiscounted future net cash flows were not sufficient to recover the net book value.    

 

The estimated annual amortization expense for intangible assets is approximately $144.0 million, $130.9 million, $122.7 million, $117.5 million and $113.7 million for each of the years 2020 through 2024, respectively.

 

The changes in our intangible assets are as follows:

 

Balance at December 31, 2019

 

$

1,735.0

 

Impairment

 

 

(208.6

)

Amortization

 

 

(108.8

)

Balance at September 30, 2020

 

$

1,417.6

 

 

 

 

 

 

14


 

Assets and Liabilities Held for Sale

 

In October 2020, we executed agreements to sell our assets in Channelview, Texas for approximately $58 million (the “October 2020 Sale”). As of September 30, 2020, we classified our assets as held for sale and measured the fair value of the disposal group using the expected sales price under a contract with a third party (an input within Level 3 of the fair value hierarchy). We recognized a loss of $58.3 million included within other operating (income) expense in our Consolidated Statements of Operations for the three and nine months ended September 30, 2020 to reduce the carrying value of our assets to their recoverable amounts.

 

The sale closed in October 2020, and we used the proceeds for general corporate purposes. The sale of the assets is included in our Logistics and Transportation segment and does not qualify for reporting as a discontinued operation, as its divestiture did not represent a strategic shift that would have a major effect on our operations or financial results.

 

The adjusted carrying amounts of the assets and liabilities held for sale as of September 30, 2020 are as follows:

 

 

 

September 30, 2020

 

Current assets:

 

 

 

 

Property, plant and equipment, net of accumulated depreciation and estimated loss on sale

 

$

61.0

 

Other current assets

 

 

1.2

 

Total assets held for sale

 

$

62.2

 

 

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable and accrued liabilities

 

$

1.0

 

Other long-term obligations

 

 

2.6

 

Total liabilities held for sale

 

$

3.6

 

 

 

 

 


15


 

Note 5 — Debt Obligations

 

 

 

September 30, 2020

 

 

December 31, 2019

 

Current:

 

 

 

 

 

 

 

 

Obligations of the Partnership: (1)

 

 

 

 

 

 

 

 

Accounts receivable securitization facility, due April 2021 (2)

 

$

250.0

 

 

$

370.0

 

Finance lease liabilities

 

 

11.9

 

 

 

12.2

 

Current debt obligations

 

 

261.9

 

 

 

382.2

 

 

 

 

 

 

 

 

 

 

Long-term:

 

 

 

 

 

 

 

 

TRC obligations:

 

 

 

 

 

 

 

 

TRC Senior secured revolving credit facility, variable rate, due

   June 2023 (3)

 

 

435.0

 

 

 

435.0

 

Obligations of the Partnership: (1)

 

 

 

 

 

 

 

 

Senior secured revolving credit facility, variable rate, due

   June 2023 (4)

 

 

100.0

 

 

 

0

 

Senior unsecured notes:

 

 

 

 

 

 

 

 

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

 

 

0

 

 

 

580.1

 

5⅛% fixed rate, due February 2025

 

 

481.0

 

 

 

500.0

 

5⅞% fixed rate, due April 2026

 

 

963.2

 

 

 

1,000.0

 

5⅜% fixed rate, due February 2027

 

 

468.1

 

 

 

500.0

 

6½% fixed rate, due July 2027

 

 

705.2

 

 

 

750.0

 

5% fixed rate, due January 2028

 

 

700.3

 

 

 

750.0

 

6⅞% fixed rate, due January 2029

 

 

679.3

 

 

 

750.0

 

5½% fixed rate, due March 2030

 

 

949.6

 

 

 

1,000.0

 

4⅞% fixed rate, due February 2031

 

 

1,000.0

 

 

 

0

 

TPL notes, 4¾% fixed rate, due November 2021 (5)

 

 

6.5

 

 

 

6.5

 

TPL notes, 5⅞% fixed rate, due August 2023 (5)

 

 

48.1

 

 

 

48.1

 

Unamortized premium

 

 

0.2

 

 

 

0.3

 

 

 

 

7,680.0

 

 

 

7,463.5

 

Debt issuance costs, net of amortization

 

 

(48.5

)

 

 

(49.1

)

Finance lease liabilities

 

 

20.7

 

 

 

25.8

 

Long-term debt

 

 

7,652.2

 

 

 

7,440.2

 

Total debt obligations

 

$

7,914.1

 

 

$

7,822.4

 

Irrevocable standby letters of credit:

 

 

 

 

 

 

 

 

Letters of credit outstanding under the TRC Senior

   secured credit facility (3)

 

$

0

 

 

$

0

 

Letters of credit outstanding under the Partnership senior

   secured revolving credit facility (4)

 

 

35.3

 

 

 

88.2

 

 

 

$

35.3

 

 

$

88.2

 

 

(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.

(2)

As of September 30, 2020, the Partnership had $250.0 million of qualifying receivables under its $250.0 million accounts receivable securitization facility (“Securitization Facility”), resulting in 0 availability. During the second quarter of 2020, the Partnership amended the Securitization Facility to decrease the facility size from $400.0 million to $250.0 million to more closely align with our expectations for borrowing needs given commodity prices and to extend the facility termination date to April 21, 2021.

(3)

As of September 30, 2020, availability under TRC’s $670.0 million senior secured revolving credit facility (“TRC Revolver”) was $235.0 million.

(4)

As of September 30, 2020, availability under the Partnership’s $2.2 billion senior secured revolving credit facility (“TRP Revolver”) was $2,064.7 million.

(5)

“TPL” refers to Targa Pipeline Partners LP.

 

The following table shows the range of interest rates and weighted average interest rate incurred on variable-rate debt obligations during the nine months ended September 30, 2020:

 

 

Range of Interest Rates Incurred

 

Weighted Average Interest Rate Incurred

 

TRC Revolver

 

1.9% - 3.5%

 

2.5%

 

TRP Revolver

 

1.9% - 6.0%

 

2.3%

 

Partnership's Securitization Facility

 

1.5% - 2.7%

 

2.0%

 

 

Compliance with Debt Covenants

 

As of September 30, 2020, we were in compliance with the covenants contained in our various debt agreements.

 

16


 

Senior Unsecured Notes Issuance

 

In August 2020, the Partnership issued $1.0 billion aggregate principal amount of 4⅞% Senior Notes due 2031 (the “August 2020 Offering”), resulting in net proceeds of $991.0 million. The 4⅞% Senior Notes due 2031 have substantially similar terms and covenants as our other series of Senior Notes. A portion of the net proceeds from the issuance were used to fund the concurrent cash tender offer (the “Tender Offer”) of the Partnership’s % Senior Notes due 2024 and redeem any % Senior Notes due 2024 that remained outstanding after consummation of the Tender Offer, with the remainder used for repayment of borrowings under the Partnership’s senior secured revolving credit facility. See “Debt Extinguishments and Repurchases” for further details of the concurrent tender offer.

 

Debt Extinguishments and Repurchases

 

Concurrent with the August 2020 Offering, the Partnership commenced the Tender Offer to purchase for cash, subject to certain terms and conditions, any and all of our outstanding % Senior Notes due 2024. We accepted for purchase all the notes that were validly tendered as of the early tender date, which totaled $262.1 million.

 

Subsequent to the closing of the Tender Offer in August 2020, the Partnership redeemed the % Senior Notes due 2024 for the remaining note balance of $318.0 million (the “2024 Note Redemption”). As a result of the Tender Offer and the 2024 Note Redemption, we recorded a loss due to debt extinguishment of $13.7 million comprised of $11.1 million premiums paid and a write-off of $2.6 million of debt issuance costs.

 

Debt Repurchases

The following table summarizes the Partnership’s senior note repurchases for the nine months ended September 30, 2020:

 

Debt Repurchased

 

Book Value

 

 

Payment

 

 

Gain (Loss)

 

 

Write-off of Debt Issuance Costs

 

 

Net Gain

 

5⅛% Senior Notes due 2025

 

$

19.0

 

 

$

(14.6

)

 

$

4.4

 

 

$

(0.1

)

 

$

4.3

 

5⅞% Senior Notes due 2026

 

 

36.8

 

 

 

(29.7

)

 

 

7.1

 

 

 

(0.2

)

 

 

6.9

 

5⅜% Senior Notes due 2027

 

 

31.9

 

 

 

(26.6

)

 

 

5.3

 

 

 

(0.2

)

 

 

5.1

 

6½% Senior Notes due 2027

 

 

44.8

 

 

 

(35.5

)

 

 

9.3

 

 

 

(0.4

)

 

 

8.9

 

5% Senior Notes due 2028

 

 

49.7

 

 

 

(38.0

)

 

 

11.7

 

 

 

(0.4

)

 

 

11.3

 

6⅞% Senior Notes due 2029

 

 

70.7

 

 

 

(55.2

)

 

 

15.5

 

 

 

(0.6

)

 

 

14.9

 

5½% Senior Notes due 2030

 

 

50.4

 

 

 

(40.2

)

 

 

10.2

 

 

 

(0.5

)

 

 

9.7

 

6¾% Senior Notes due 2024

 

 

580.1

 

 

 

(591.2

)

 

 

(11.1

)

 

 

(2.6

)

 

 

(13.7

)

 

 

$

883.4

 

 

$

(831.0

)

 

$

52.4

 

 

$

(5.0

)

 

$

47.4

 

 

We or the Partnership may retire or purchase various series of the Partnership’s outstanding debt through cash purchases and/or exchanges for other debt, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

 

Contractual Obligations

 

The following table summarizes payment obligations for debt instruments after giving effect to the debt repurchases detailed above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due By Period

 

 

 

 

 

 

 

Less Than

 

 

 

 

 

 

 

 

 

 

More Than

 

 

 

Total

 

 

1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

5 Years

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

Long-term debt obligations (1)

 

$

7,679.8

 

 

$

-

 

 

$

1,149.2

 

 

$

1,064.9

 

 

$

5,465.7

 

Interest on debt obligations (2)

 

 

2,754.7

 

 

 

411.3

 

 

 

807.1

 

 

 

657.6

 

 

 

878.7

 

 

 

$

10,434.5

 

 

$

411.3

 

 

$

1,956.3

 

 

$

1,722.5

 

 

$

6,344.4

 

 

(1)

Represents scheduled future maturities of consolidated debt obligations for the periods indicated.

(2)

Represents interest expense on debt obligations based on both fixed debt interest rates and prevailing September 30, 2020 rates for floating debt.

17


 

 

Subsequent Event

 

On November 2, 2020, the Partnership redeemed the $559.6 million remaining balance of its % Senior Notes due 2023.

 

Note 6 — Other Long-term Liabilities

Other long-term liabilities are comprised of deferred revenue, asset retirement obligations and operating lease liabilities.

Deferred Revenue

 

We have certain long-term contractual arrangements for which we have received consideration that we are not yet able to recognize as revenue. The resulting deferred revenue will be recognized once all conditions for revenue recognition have been met.

 

Deferred revenue as of September 30, 2020 and December 31, 2019, was $169.4 million and $172.0 million, respectively, which includes $129.0 million of payments received from Vitol Americas Corp. (“Vitol”) (formerly known as Noble Americas Corp.), a subsidiary of Vitol US Holding Co., in 2016, 2017, and 2018 as part of an agreement (the “Splitter Agreement”) related to the construction and operation of a crude oil and condensate splitter. In December 2018, Vitol elected to terminate the Splitter Agreement. The Splitter Agreement provides that the first three annual payments are ours if Vitol elects to terminate, which Vitol disputes. The timing of revenue recognition related to the Splitter Agreement deferred revenue is dependent on the outcome of current litigation with Vitol. Deferred revenue also includes nonmonetary consideration received in a 2015 amendment to a gas gathering and processing agreement and consideration received for other construction activities of facilities connected to our systems. See Part II—Item 1. Legal Proceedings for further details on the related litigation.

 

Note 7 — Preferred Stock

Preferred Stock Dividends

 

As of September 30, 2020, we have accrued cumulative preferred dividends of $22.9 million on our Series A Preferred Stock (“Series A Preferred”), which will be paid on November 13, 2020. During the three and nine months ended September 30, 2020, we paid $22.9 million and $68.8 million of dividends to preferred shareholders, and recorded deemed dividends of $9.5 million and $27.7 million attributable to accretion of the preferred discount resulting from beneficial conversion feature accounting. Such accretion is included in the book value of the Series A Preferred.

 

 

Common Stock Dividends

 

The following table details the dividends declared and/or paid by us to common shareholders for the nine months ended September 30, 2020:

 

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)

 

 

Dividends Declared per Share of Common Stock

 

(In millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

November 16, 2020

$

 

23.8

 

$

 

23.3

 

$

 

0.5

 

$

 

0.10000

 

June 30, 2020

 

August 17, 2020

 

 

23.7

 

 

 

23.3

 

 

 

0.4

 

 

 

0.10000

 

March 31, 2020

 

May 15, 2020

 

 

23.7

 

 

 

23.3

 

 

 

0.4

 

 

 

0.10000

 

December 31, 2019

 

February 18, 2020

 

 

216.0

 

 

 

212.0

 

 

 

4.0

 

 

 

0.91000

 

 

(1)

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

 


18


 

Subsequent Event

 

In October 2020, our Board of Directors approved a share repurchase program (the “Share Repurchase Program”) for the repurchase of up to $500 million of our outstanding common stock. As of November 2, 2020, we have repurchased 4,505,507 shares at a weighted average price of $16.33 for a total net cost of $73.6 million. There is approximately $426 million remaining under the Share Repurchase Program. We may discontinue the Share Repurchase Program at any time and are not obligated to repurchase any specific dollar amount or number of shares.

 

Note 9 — Partnership Units and Related Matters

 

Distributions

 

We are entitled to receive all Partnership distributions from available cash on the Partnership’s common units after payment of preferred unit distributions each quarter.

 

The following table details the distributions declared and paid by the Partnership for the nine months ended September 30, 2020:

 

Three Months Ended

 

Date Paid or To Be Paid

 

Total Distributions

 

 

Distributions to

Targa Resources Corp.

 

September 30, 2020

 

November 13, 2020

$

 

51.7

 

$

 

48.9

 

June 30, 2020

 

August 13, 2020

 

 

51.7

 

 

 

48.9

 

March 31, 2020

 

May 13, 2020

 

 

53.1

 

 

 

50.3

 

December 31, 2019

 

February 13, 2020

 

 

241.9

 

 

 

239.1

 

 

Contributions

 

All capital contributions to the Partnership continue to be allocated 98% to the limited partner and 2% to the general partner; however, no units will be issued for those contributions. For the nine months ended September 30, 2020, we made a total of $50.0 million in contributions to the Partnership.

 

Preferred Units

 

The Partnership’s issued and outstanding Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (the “Preferred Units”) rank senior to the Partnership’s common units with respect to the distribution rights. Distributions on the Partnership’s 5,000,000 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 and $8.4 million of distributions to the holders of Preferred Units (“Preferred Unitholders”) for the three and nine months ended September 30, 2020. The Preferred Units are reported as noncontrolling interests in our financial statements.

 

Subsequent Event

 

In October 2020, 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 that will be paid on November 16, 2020.

 

 


19


 

Note 10 — 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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss) attributable to Targa Resources Corp.

 

$

69.3

 

 

$

(47.3

)

 

$

(1,587.5

)

 

$

(96.4

)

Less: Dividends on preferred stock

 

 

32.4

 

 

 

31.3

 

 

 

96.5

 

 

 

93.2

 

Net income (loss) attributable to common shareholders for basic earnings per share

 

$

36.9

 

 

$

(78.6

)

 

$

(1,684.0

)

 

$

(189.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

233.4

 

 

 

232.7

 

 

 

233.2

 

 

 

232.4

 

Dilutive effect of unvested stock awards (1)

 

 

0.4

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – diluted

 

 

233.8

 

 

 

232.7

 

 

 

233.2

 

 

 

232.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available per common share - basic and diluted

 

$

0.16

 

 

$

(0.34

)

 

$

(7.22

)

 

$

(0.82

)

 

 

(1)  

For the three months ended September 30, 2020, on a weighted average basis, 2.3 million unvested restricted stock awards, 0.5 million unvested performance stock units and 46.5 million Series A Preferred Stock were antidilutive, and accordingly, were excluded from the diluted earnings per common share calculation. For all other periods presented above, all unvested restricted stock awards, unvested performance stock units, and Series A Preferred Stock were antidilutive because a net loss existed for those respective periods.  

 

Note 11 — Derivative Instruments and Hedging Activities

The primary purposes of our commodity risk management activities are to manage our exposure to commodity price risk and reduce volatility in our operating cash flow due to fluctuations in commodity prices. We have entered into derivative instruments to hedge the commodity price risks associated with a portion of our expected (i) natural gas, NGL, and condensate equity volumes in our Gathering and Processing operations that result from percent-of-proceeds processing arrangements, (ii) future commodity purchases and sales in our Logistics and Transportation segment and (iii) natural gas transportation basis risk in our Logistics and Transportation segment. The hedge positions associated with (i) and (ii) above will move favorably in periods of falling commodity prices and unfavorably in periods of rising commodity prices and are designated 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 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.

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 September 30, 2020, the notional volumes of our commodity derivative contracts were:

 

Commodity

Instrument

Unit

2020

 

2021

 

2022

 

2023

 

2024

 

2025

 

Natural Gas

Swaps

MMBtu/d

 

168,317

 

 

166,216

 

 

90,600

 

 

33,350

 

 

0

 

 

0

 

Natural Gas

Basis Swaps

MMBtu/d

 

445,084

 

 

471,168

 

 

295,390

 

 

250,000

 

 

90,000

 

 

5,000

 

NGL

Swaps

Bbl/d

 

30,909

 

 

29,261

 

 

16,848

 

 

2,627

 

 

0

 

 

0

 

NGL

Futures

Bbl/d

 

52,685

 

 

25,526

 

 

0

 

 

0

 

 

0

 

 

0

 

Condensate

Swaps

Bbl/d

 

5,190

 

 

4,872

 

 

2,125

 

 

515

 

 

0

 

 

0

 

 

20


 

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 value of our derivative instruments and their location on 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 September 30, 2020

 

 

Fair Value as of December 31, 2019

 

 

 

Balance Sheet

 

Derivative

 

 

Derivative

 

 

Derivative

 

 

Derivative

 

 

 

Location

 

Assets

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current

 

$

58.4

 

 

$

116.1

 

 

$

102.1

 

 

$

11.6

 

 

 

Long-term

 

 

14.0

 

 

 

62.8

 

 

 

33.7

 

 

 

6.4

 

Total derivatives designated as hedging instruments

 

 

 

$

72.4

 

 

$

178.9

 

 

$

135.8

 

 

$

18.0

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current

 

$

30.5

 

 

$

5.0

 

 

$

1.2

 

 

$

92.5

 

 

 

Long-term

 

 

65.5

 

 

 

0.1

 

 

 

1.8

 

 

 

34.4

 

Total derivatives not designated as hedging instruments

 

 

 

$

96.0

 

 

$

5.1

 

 

$

3.0

 

 

$

126.9

 

Total current position

 

 

 

$

88.9

 

 

$

121.1

 

 

$

103.3

 

 

$

104.1

 

Total long-term position

 

 

 

 

79.5

 

 

 

62.9

 

 

 

35.5

 

 

 

40.8

 

Total derivatives

 

 

 

$

168.4

 

 

$

184.0

 

 

$

138.8

 

 

$

144.9

 

 

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

 

 

 

 

Gross Presentation

 

 

Pro Forma Net Presentation

 

September 30, 2020

 

Asset

 

 

Liability

 

 

Collateral

 

 

Asset

 

 

Liability

 

Current Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

$

80.3

 

 

$

(121.1

)

 

$

60.1

 

 

$

31.5

 

 

$

(12.2

)

 

Counterparties without offsetting positions - assets

 

 

8.6

 

 

 

-

 

 

 

-

 

 

 

8.6

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

88.9

 

 

 

(121.1

)

 

 

60.1

 

 

 

40.1

 

 

 

(12.2

)

Long Term Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

 

63.4

 

 

 

(62.6

)

 

 

-

 

 

 

26.3

 

 

 

(25.5

)

 

Counterparties without offsetting positions - assets

 

 

16.1

 

 

 

-

 

 

 

-

 

 

 

16.1

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

 

-

 

 

 

(0.3

)

 

 

-

 

 

 

-

 

 

 

(0.3

)

 

 

 

 

79.5

 

 

 

(62.9

)

 

 

-

 

 

 

42.4

 

 

 

(25.8

)

Total Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

 

143.7

 

 

 

(183.7

)

 

 

60.1

 

 

 

57.8

 

 

 

(37.7

)

 

Counterparties without offsetting positions - assets

 

 

24.7

 

 

 

-

 

 

 

-

 

 

 

24.7

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

 

-

 

 

 

(0.3

)

 

 

-

 

 

 

-

 

 

 

(0.3

)

 

 

 

$

168.4

 

 

$

(184.0

)

 

$

60.1

 

 

$

82.5

 

 

$

(38.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Presentation

 

 

Pro Forma Net Presentation

 

December 31, 2019

 

Asset

 

 

Liability

 

 

Collateral

 

 

Asset

 

 

Liability

 

Current Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

$

99.8

 

 

$

(85.0

)

 

$

(4.9

)

 

$

56.0

 

 

$

(46.1

)

 

Counterparties without offsetting positions - assets

 

 

3.5

 

 

 

-

 

 

 

-

 

 

 

3.5

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

 

-

 

 

 

(19.1

)

 

 

-

 

 

 

-

 

 

 

(19.1

)

 

 

 

 

103.3

 

 

 

(104.1

)

 

 

(4.9

)

 

 

59.5

 

 

 

(65.2

)

Long Term Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

 

33.3

 

 

 

(40.5

)

 

 

-

 

 

 

18.1

 

 

 

(25.3

)

 

Counterparties without offsetting positions - assets

 

 

2.2

 

 

 

-

 

 

 

-

 

 

 

2.2

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

 

-

 

 

 

(0.3

)

 

 

-

 

 

 

-

 

 

 

(0.3

)

 

 

 

 

35.5

 

 

 

(40.8

)

 

 

-

 

 

 

20.3

 

 

 

(25.6

)

Total Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparties with offsetting positions or collateral

 

 

133.1

 

 

 

(125.5

)

 

 

(4.9

)

 

 

74.1

 

 

 

(71.4

)

 

Counterparties without offsetting positions - assets

 

 

5.7

 

 

 

-

 

 

 

-

 

 

 

5.7

 

 

 

-

 

 

Counterparties without offsetting positions - liabilities

 

 

-

 

 

 

(19.4

)

 

 

-

 

 

 

-

 

 

 

(19.4

)

 

 

 

$

138.8

 

 

$

(144.9

)

 

$

(4.9

)

 

$

79.8

 

 

$

(90.8

)

 

21


 

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 brokers that clear the hedges through an exchange. We maintain a margin deposit with the brokers 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 Deposits on our Consolidated Balance Sheets and is not offset against the fair value 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 liability of $15.6 million as of September 30, 2020. The estimated fair value is net of an adjustment for credit risk based on the default probabilities 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 (“OCI”) and amounts reclassified from OCI to revenue for the periods indicated:

 

 

 

Gain (Loss) Recognized in OCI on

Derivatives (Effective Portion)

 

Derivatives in Cash Flow

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Hedging Relationships

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Commodity contracts

 

$

(128.7

)

 

$

118.2

 

 

$

(102.6

)

 

$

167.8

 

 

 

 

Gain (Loss) Reclassified from OCI into

Income (Effective Portion)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Location of Gain (Loss)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

 

$

19.2

 

 

$

41.5

 

 

$

139.4

 

 

$

106.1

 

 

Based on valuations as of September 30, 2020, we expect to reclassify commodity hedge-related deferred losses of $(106.0) million included in accumulated other comprehensive income into earnings before income taxes through the end of 2023, with $(57.2) million of losses to be reclassified over the next twelve months.

 

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. For the three and nine months ended September 30, 2020, the unrealized mark-to-market gains are primarily attributable to favorable movements in natural gas forward basis prices, as compared to our hedged positions.

 

 

 

Location of Gain

 

Gain (Loss) Recognized in Income on Derivatives

 

Derivatives Not Designated

 

Recognized in Income on

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

as Hedging Instruments

 

Derivatives

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Commodity contracts

 

Revenue

 

$

90.0

 

 

$

(103.3

)

 

$

197.9

 

 

$

(113.8

)

See Note 12 – Fair Value Measurements and Note 18 – Segment Information for additional disclosures related to derivative instruments and hedging activities.

 


22


 

Note 12 — 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 on our Consolidated Balance Sheets. Other financial instruments are reported at historical cost or amortized cost on 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 September 30, 2020, a net liability position of $15.6 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 $(136.8) million. 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 $106.1 million.

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 Securitization Facility are based on carrying value, which approximates fair value as their interest rates are based on prevailing market rates; 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 until the end of the related earn-out period.

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.

23


 

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

 

 

 

September 30, 2020

 

 

 

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)

 

$

168.4

 

 

$

168.4

 

 

$

0

 

 

$

168.4

 

 

$

0

 

Liabilities from commodity derivative contracts (1)

 

 

184.0

 

 

 

184.0

 

 

 

0

 

 

 

183.7

 

 

 

0.3

 

TPL contingent consideration (2)

 

 

2.3

 

 

 

2.3

 

 

 

0

 

 

 

0

 

 

 

2.3

 

Financial Instruments Recorded on Our

   Consolidated Balance Sheets at Carrying Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

275.0

 

 

 

275.0

 

 

 

0

 

 

 

0

 

 

 

0

 

TRC Revolver

 

 

435.0

 

 

 

435.0

 

 

 

0

 

 

 

435.0

 

 

 

0

 

TRP Revolver

 

 

100.0

 

 

 

100.0

 

 

 

0

 

 

 

100.0

 

 

 

0

 

Partnership's Senior unsecured notes

 

 

7,145.0

 

 

 

7,206.0

 

 

 

0

 

 

 

7,206.0

 

 

 

0

 

Partnership's Securitization Facility

 

 

250.0

 

 

 

250.0

 

 

 

0

 

 

 

250.0

 

 

 

0

 

 

 

 

December 31, 2019

 

 

 

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)

 

$

136.5

 

 

$

136.5

 

 

$

0

 

 

$

136.2

 

 

$

0.3

 

Liabilities from commodity derivative contracts (1)

 

 

142.6

 

 

 

142.6

 

 

 

0

 

 

 

142.0

 

 

 

0.6

 

TPL contingent consideration (2)

 

 

2.3

 

 

 

2.3

 

 

 

0

 

 

 

0

 

 

 

2.3

 

Financial Instruments Recorded on Our

   Consolidated Balance Sheets at Carrying Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

331.1

 

 

 

331.1

 

 

 

0

 

 

 

0

 

 

 

0

 

TRC Revolver

 

 

435.0

 

 

 

435.0

 

 

 

0

 

 

 

435.0

 

 

 

0

 

TRP Revolver

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Partnership's Senior unsecured notes

 

 

7,028.5

 

 

 

7,376.9

 

 

 

0

 

 

 

7,376.9

 

 

 

0

 

Partnership's Securitization Facility

 

 

370.0

 

 

 

370.0

 

 

 

0

 

 

 

370.0

 

 

 

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 11 –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 for TPL’s previous acquisition of a gas gathering system and related assets, which is carried at fair value. 

Additional Information Regarding Level 3 Fair Value Measurements Included on 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 market prices or implied volatilities 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.

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.

The significant unobservable inputs used in the fair value measurements of our Level 3 derivatives were (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 was immaterial. As of September 30, 2020, we had 3 commodity swap and option contracts categorized as Level 3.

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 are not observable; therefore, the entire valuation of the contingent consideration is categorized in Level 3.

24


 

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)

 

 

Consideration

 

Balance, December 31, 2019

 

$

(0.3

)

 

$

(2.3

)

New Level 3 derivative instruments

 

 

(0.5

)

 

 

0

 

Transfers out of Level 3 (1)

 

 

0.3

 

 

 

0

 

Unrealized gain/(loss) included in OCI

 

 

0.2

 

 

 

0

 

Balance, September 30, 2020

 

$

(0.3

)

 

$

(2.3

)

  

(1)

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Nonfinancial assets and liabilities, such as long-lived assets, are measured at fair value on a nonrecurring basis upon impairment. In the first quarter of 2020, we recorded non-cash pre-tax impairments of $2,442.8 million. The impairment charge is primarily associated with the partial impairment of gas processing facilities and gathering systems associated with our Mid-Continent operations and full impairment of our Coastal operations. For disclosures related to valuation techniques, see Note 4 – Property, Plant and Equipment and Intangible Assets.

The techniques described above may produce a fair value calculation that may not be indicative or reflective of future fair values. Furthermore, while we believe our valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine fair value of certain financial and nonfinancial assets and liabilities could result in a different fair value measurement at the reporting date.

 

 

Legal Proceedings

 

We and the Partnership are parties to various legal, administrative and regulatory proceedings that have arisen in the ordinary course of our business. We and the Partnership are also parties to various proceedings with governmental environmental agencies, including but not limited to the U.S. Environmental Protection Agency, Texas Commission on Environmental Quality, Oklahoma Department of Environmental Quality, New Mexico Environment Department, Louisiana Department of Environmental Quality and North Dakota Department of Environmental Quality, which assert monetary sanctions for alleged violations of environmental regulations, including air emissions, discharges into the environment and reporting deficiencies, related to events that have arisen at certain of our facilities in the ordinary course of our business. See Part II—Item 1. Legal Proceedings for further details.

 

Note 14 — Revenue

 

Fixed consideration allocated to remaining performance obligations

 

The following table presents the estimated minimum revenue related to unsatisfied performance obligations at the end of the reporting period, and is comprised of fixed consideration primarily attributable to contracts with minimum volume commitments, for which a guaranteed amount of revenue can be calculated. These contracts are comprised primarily of gathering and processing, fractionation, export, terminaling and storage agreements, with remaining contract terms ranging from 1 to 19 years.

 

 

2020

 

 

2021

 

 

2022 and after

 

Fixed consideration to be recognized as of September 30, 2020

$

140.7

 

 

$

518.1

 

 

$

2,858.8

 

 

Based on the optional exemptions we elected to apply, the amounts presented in the table above exclude remaining performance obligations for (i) variable consideration for which the allocation exception is met and (ii) contracts with an original expected duration of one year or less.

 

For disclosures related to disaggregated revenue, see Note 18 – Segment Information.

 

25


 

Note 15 — Income Taxes

 

The Company records income taxes using an estimated annual effective tax rate (“ETR”) and recognizes specific events discretely as they occur. We have concluded that the annual ETR is a reliable estimate considering recent economic and financial market effects of decreased commodity prices and demand destruction due to the COVID-19 pandemic. We regularly evaluate the realizable tax benefits of deferred tax assets and record a valuation allowance, if required, based on an estimate of the amount of deferred tax assets that we believe does not meet the more-likely-than-not criteria of being realized.

 

We established a valuation allowance against our deferred tax assets during the nine months ended September 30, 2020, primarily due to the tax consequences of the impairment of long-lived assets. See Note 4 – Property Plant and Equipment and Intangible Assets. The Company recognized the valuation allowance as an ordinary item in its estimated annual ETR. After the valuation allowance, we have a net deferred tax liability of $131.1 million. We will continue to evaluate the sufficiency of the valuation allowance based on current and expected earnings and other factors and adjust accordingly. The valuation allowance decreased by approximately $15.5 million from June 30, 2020.

 

Note 16 — Other Operating (Income) Expense

 

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

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

(Gain) loss on sale of disposition of business and assets (1)

$

58.0

 

 

$

0.5

 

 

$

58.0

 

 

$

3.6

 

Write-down of assets (2)

 

13.5

 

 

 

17.9

 

 

 

13.5

 

 

 

17.9

 

Other

 

0.7

 

 

 

 

 

 

2.3

 

 

 

0.2

 

 

$

72.2

 

 

$

18.4

 

 

$

73.8

 

 

$

21.7

 

 

 

(1)

In October 2020, we recognized a loss of $58.3 million for the three and nine months ended September 30, 2020 to reduce the carrying value of our assets in Channelview, Texas in connection with the October 2020 Sale. See Note 4 – Property, Plant and Equipment and Intangible Assets for further details.

(2)

Related to the write-down of certain assets to their recoverable amounts.

 

Note 17 — Supplemental Cash Flow Information

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

Cash:

 

 

 

 

 

 

 

 

 

Interest paid, net of capitalized interest (1)

$

 

315.9

 

 

$

 

228.4

 

Income taxes (received), net of payments

 

 

(44.4

)

 

 

 

0.3

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

 

Impact of capital expenditure accruals on property, plant and equipment, net

 

 

(194.7

)

 

 

 

(150.9

)

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

 

 

1.9

 

 

 

 

21.7

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

 

Changes in accrued distributions to noncontrolling interests

 

 

3.9

 

 

 

 

73.8

 

 

(1)

Interest capitalized on major projects was $31.1 million and $50.5 million for the nine months ended September 30, 2020 and 2019.

 

Note 18 — Segment Information

 

We operate in 2 primary segments: (i) Gathering and Processing, and (ii) Logistics and Transportation (also referred to as the Downstream Business). Our reportable segments include operating segments that have been aggregated based on the nature of the products and services provided.

 

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 purchase and sale, gathering and terminaling. The Gathering and Processing segment's assets are located in the Permian Basin of West Texas and Southeast New Mexico (including the Midland, Central and Delaware Basins); the Eagle Ford Shale in South Texas; the Barnett Shale in North Texas; the Anadarko, Ardmore, and Arkoma Basins in Oklahoma (including the SCOOP and STACK) and South Central Kansas; the Williston Basin in North Dakota (including the Bakken and Three Forks plays); and the onshore and near offshore regions of the Louisiana Gulf Coast and the Gulf of Mexico.

 

26


 

Our Logistics and Transportation segment includes the activities and assets necessary to convert mixed NGLs into NGL products and also includes other assets and value-added services such as transporting, storing, fractionating, terminaling and marketing of NGLs and NGL products, including services to LPG exporters; and certain natural gas supply and marketing activities in support of our other businesses. The Logistics and Transportation segment also includes the Grand Prix NGL pipeline (“Grand Prix”), as well as our equity interest in Gulf Coast Express Pipeline LLC (“GCX”), a natural gas pipeline transporting volumes from West Texas to the Gulf Coast. Grand Prix connects our gathering and processing positions in the Permian Basin, Southern Oklahoma and North Texas with our downstream facilities in Mont Belvieu, Texas. The associated assets are generally connected to and supplied in part by our Gathering and Processing segment and, except for pipelines and smaller terminals, are located predominantly in Mont Belvieu and Galena Park, Texas, and in Lake Charles, Louisiana.

 

Other contains the 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 September 30, 2020

 

 

 

Gathering and Processing

 

 

Logistics and Transportation

 

 

Other

 

 

Corporate

and

Eliminations

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

$

135.7

 

 

$

1,616.5

 

 

$

88.6

 

 

$

 

 

$

1,840.8

 

Fees from midstream services

 

 

126.2

 

 

 

148.1

 

 

 

 

 

 

 

 

 

274.3

 

 

 

 

261.9

 

 

 

1,764.6

 

 

 

88.6

 

 

 

 

 

 

2,115.1

 

Intersegment revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

 

611.9

 

 

 

37.4

 

 

 

 

 

 

(649.3

)

 

 

 

Fees from midstream services

 

 

1.7

 

 

 

8.5

 

 

 

 

 

 

(10.2

)

 

 

 

 

 

 

613.6

 

 

 

45.9

 

 

 

 

 

 

(659.5

)

 

 

 

Revenues

 

$

875.5

 

 

$

1,810.5

 

 

$

88.6

 

 

$

(659.5

)

 

$

2,115.1

 

Operating margin

 

$

261.0

 

 

$

280.4

 

 

$

88.6

 

 

$

 

 

$

630.0

 

Other financial information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (1)

 

$

8,929.4

 

 

$

6,841.2

 

 

$

78.2

 

 

$

203.3

 

 

$

16,052.1

 

Goodwill

 

$

45.2

 

 

$

 

 

$

 

 

$

 

 

$

45.2

 

Capital expenditures

 

$

63.6

 

 

$

69.0

 

 

$

 

 

$

4.0

 

 

$

136.6

 

 

 

(1)

Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.

 

 

 

Three Months Ended September 30, 2019

 

 

 

Gathering and Processing

 

 

Logistics and Transportation

 

 

Other

 

 

Corporate

and

Eliminations

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

$

292.3

 

 

$

1,403.1

 

 

$

(101.2

)

 

$

 

 

$

1,594.2

 

Fees from midstream services

 

 

173.0

 

 

 

135.3

 

 

 

 

 

 

 

 

 

308.3

 

 

 

 

465.3

 

 

 

1,538.4

 

 

 

(101.2

)

 

 

 

 

 

1,902.5

 

Intersegment revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

 

534.0

 

 

 

34.9

 

 

 

 

 

 

(568.9

)

 

 

 

Fees from midstream services

 

 

1.9

 

 

 

7.4

 

 

 

 

 

 

(9.3

)

 

 

 

 

 

 

535.9

 

 

 

42.3

 

 

 

 

 

 

(578.2

)

 

 

 

Revenues

 

$

1,001.2

 

 

$

1,580.7

 

 

$

(101.2

)

 

$

(578.2

)

 

$

1,902.5

 

Operating margin

 

$

246.5

 

 

$

228.9

 

 

$

(101.2

)

 

$

 

 

$

374.2

 

Other financial information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (1)

 

$

12,326.5

 

 

$

6,475.0

 

 

$

2.9

 

 

$

114.1

 

 

$

18,918.5

 

Goodwill

 

$

46.6

 

 

$

 

 

$

 

 

$

 

 

$

46.6

 

Capital expenditures

 

$

230.3

 

 

$

301.2

 

 

$

 

 

$

10.8

 

 

$

542.3

 

 

(1)

Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.

 

27


 

 

 

Nine Months Ended September 30, 2020

 

 

 

Gathering and Processing

 

 

Logistics and Transportation

 

 

Other

 

 

Corporate

and

Eliminations

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

$

512.9

 

 

$

4,172.0

 

 

$

215.9

 

 

$

 

 

$

4,900.8

 

Fees from midstream services

 

 

354.5

 

 

 

432.2

 

 

 

 

 

 

 

 

 

786.7

 

 

 

 

867.4

 

 

 

4,604.2

 

 

 

215.9

 

 

 

 

 

 

5,687.5

 

Intersegment revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

 

1,444.3

 

 

 

140.1

 

 

 

 

 

 

(1,584.4

)

 

 

 

Fees from midstream services

 

 

4.9

 

 

 

23.8

 

 

 

 

 

 

(28.7

)

 

 

 

 

 

 

1,449.2

 

 

 

163.9

 

 

 

 

 

 

(1,613.1

)

 

 

 

Revenues

 

$

2,316.6

 

 

$

4,768.1

 

 

$

215.9

 

 

$

(1,613.1

)

 

$

5,687.5

 

Operating margin

 

$

753.7

 

 

$

806.0

 

 

$

215.9

 

 

$

 

 

$

1,775.6

 

Other financial information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (1)

 

$

8,929.4

 

 

$

6,841.2

 

 

$

78.2

 

 

$

203.3

 

 

$

16,052.1

 

Goodwill

 

$

45.2

 

 

$

 

 

$

 

 

$

 

 

$

45.2

 

Capital expenditures

 

$

218.0

 

 

$

375.5

 

 

$

 

 

$

16.8

 

 

$

610.3

 

 

(1)

Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Gathering and Processing

 

 

Logistics and Transportation

 

 

Other

 

 

Corporate

and

Eliminations

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

$

847.4

 

 

$

4,508.5

 

 

$

(101.1

)

 

$

 

 

$

5,254.8

 

Fees from midstream services

 

 

549.1

 

 

 

393.3

 

 

 

 

 

 

 

 

 

942.4

 

 

 

 

1,396.5

 

 

 

4,901.8

 

 

 

(101.1

)

 

 

 

 

 

6,197.2

 

Intersegment revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

 

 

1,896.5

 

 

 

117.0

 

 

 

 

 

 

(2,013.5

)

 

 

 

Fees from midstream services

 

 

5.3

 

 

 

20.1

 

 

 

 

 

 

(25.4

)

 

 

 

 

 

 

1,901.8

 

 

 

137.1

 

 

 

 

 

 

(2,038.9

)

 

 

 

Revenues

 

$

3,298.3

 

 

$

5,038.9

 

 

$

(101.1

)

 

$

(2,038.9

)

 

$

6,197.2

 

Operating margin

 

$

716.8

 

 

$

565.0

 

 

$

(101.1

)

 

$

 

 

$

1,180.7

 

Other financial information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (1)

 

$

12,326.5

 

 

$

6,475.0

 

 

$

2.9

 

 

$

114.1

 

 

$

18,918.5

 

Goodwill

 

$

46.6

 

 

$

 

 

$

 

 

$

 

 

$

46.6

 

Capital expenditures

 

$

1,068.7

 

 

$

1,197.5

 

 

$

 

 

$

38.7

 

 

$

2,304.9

 

 

(1)

Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.

 

28


 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Sales of commodities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue recognized from contracts with customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas

 

$

351.1

 

 

$

305.3

 

 

$

893.9

 

 

$

934.2

 

NGL

 

 

1,312.9

 

 

 

1,160.5

 

 

 

3,382.0

 

 

 

3,752.4

 

Condensate and crude oil

 

 

54.4

 

 

 

178.7

 

 

 

217.8

 

 

 

488.4

 

Petroleum products

 

 

13.2

 

 

 

11.5

 

 

 

69.8

 

 

 

87.5

 

 

 

 

1,731.6

 

 

 

1,656.0

 

 

 

4,563.5

 

 

 

5,262.5

 

Non-customer revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative activities - Hedge

 

 

19.2

 

 

 

41.5

 

 

 

139.4

 

 

 

106.1

 

Derivative activities - Non-hedge (1)

 

 

90.0

 

 

 

(103.3

)

 

 

197.9

 

 

 

(113.8

)

 

 

 

109.2

 

 

 

(61.8

)

 

 

337.3

 

 

 

(7.7

)

Total sales of commodities

 

 

1,840.8

 

 

 

1,594.2

 

 

 

4,900.8

 

 

 

5,254.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees from midstream services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue recognized from contracts with customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering and processing

 

 

123.7

 

 

 

171.6

 

 

 

347.1

 

 

 

543.7

 

NGL transportation, fractionation and services

 

 

43.8

 

 

 

45.8

 

 

 

116.7

 

 

 

122.0

 

Storage, terminaling and export

 

 

96.6

 

 

 

84.6

 

 

 

285.5

 

 

 

254.7

 

Other

 

 

10.2

 

 

 

6.3

 

 

 

37.4

 

 

 

22.0

 

Total fees from midstream services

 

 

274.3

 

 

 

308.3

 

 

 

786.7

 

 

 

942.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

2,115.1

 

 

$

1,902.5

 

 

$

5,687.5

 

 

$

6,197.2

 

 

(1)

Represents derivative activities that are not designated as hedging instruments under ASC 815.

 

The following table shows a reconciliation of reportable segment operating margin to income (loss) before income taxes for the periods presented: 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Reconciliation of reportable segment operating

margin to income (loss) before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering and Processing operating margin

$

 

261.0

 

 

$

 

246.5

 

 

$

 

753.7

 

 

$

 

716.8

 

Logistics and Transportation operating margin

 

 

280.4

 

 

 

 

228.9

 

 

 

 

806.0

 

 

 

 

565.0

 

Other operating margin

 

 

88.6

 

 

 

 

(101.2

)

 

 

 

215.9

 

 

 

 

(101.1

)

Depreciation and amortization expense

 

 

(203.7

)

 

 

 

(244.3

)

 

 

 

(647.3

)

 

 

 

(718.9

)

General and administrative expense

 

 

(58.6

)

 

 

 

(69.9

)

 

 

 

(180.6

)

 

 

 

(223.5

)

Impairment of long-lived assets

 

 

 

 

 

 

 

 

 

 

(2,442.8

)

 

 

 

 

Interest expense, net

 

 

(97.7

)

 

 

 

(89.1

)

 

 

 

(292.4

)

 

 

 

(241.8

)

Equity earnings (loss)

 

 

18.6

 

 

 

 

10.0

 

 

 

 

54.1

 

 

 

 

15.9

 

Gain (loss) on sale or disposition of business and assets

 

 

(58.0

)

 

 

 

(0.5

)

 

 

 

(58.0

)

 

 

 

(3.6

)

Write-down of assets

 

 

(13.5

)

 

 

 

(17.9

)

 

 

 

(13.5

)

 

 

 

(17.9

)

Gain (loss) from financing activities

 

 

(13.7

)

 

 

 

 

 

 

 

47.4

 

 

 

 

(1.4

)

Gain (loss) from sale of equity-method investment

 

 

 

 

 

 

65.8

 

 

 

 

 

 

 

 

65.8

 

Change in contingent considerations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8.8

)

Other, net

 

 

0.7

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

(0.2

)

Income (loss) before income taxes

$

 

204.1

 

 

$

 

28.3

 

 

$

 

(1,757.6

)

 

$

 

46.3

 

 


29


 

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, 2019 (“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 infrastructure companies in North America. We own, operate, acquire, and develop a diversified portfolio of complementary domestic midstream infrastructure assets.

 

Our Operations

 

We are engaged primarily in the business of:

 

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

 

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

 

gathering, storing, terminaling and purchasing and selling crude oil.

 

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

 

Our Gathering and Processing segment includes assets used in the gathering and purchase and sale 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 purchase and sale, gathering and terminaling. The Gathering and Processing segment's assets are located in the Permian Basin of West Texas and Southeast New Mexico (including the Midland, Central and Delaware Basins); the Eagle Ford Shale in South Texas; the Barnett Shale in North Texas; the Anadarko, Ardmore, and Arkoma Basins in Oklahoma (including the SCOOP and STACK) and South Central Kansas; the Williston Basin in North Dakota (including the Bakken and Three Forks plays); and the onshore and near offshore regions of the Louisiana Gulf Coast and the Gulf of Mexico.

 

Our Logistics and Transportation segment includes the activities and assets necessary to convert mixed NGLs into NGL products and also includes other assets and value-added services such as transporting, storing, fractionating, terminaling, and marketing of NGLs and NGL products, including services to LPG exporters and certain natural gas supply and marketing activities in support of our other businesses. The Logistics and Transportation segment also includes the Grand Prix NGL pipeline (“Grand Prix”), as well as our equity interest in Gulf Coast Express Pipeline LLC (“GCX”), a natural gas pipeline transporting volumes from West Texas to the Gulf Coast. Grand Prix connects our gathering and processing positions in the Permian Basin, Southern Oklahoma and North Texas with our downstream facilities in Mont Belvieu, Texas. The associated assets, including these pipelines, are generally connected to and supplied in part by our Gathering and Processing segment and, except for the pipelines and smaller terminals, are located predominantly in Mont Belvieu and Galena Park, Texas, and in Lake Charles, Louisiana.

 

Other contains the unrealized mark-to-market gains/losses related to derivative contracts that were not designated as cash flow hedges.

 

Recent Developments

 

Response to Current Market Conditions

 

During the nine months ended September 30, 2020, global commodity prices declined due to factors that significantly impacted both supply and demand. As the COVID-19 pandemic spread and travel and other restrictions were implemented globally, the demand for commodities declined substantially. Additionally, certain major oil producing nations significantly increased their oil and gas production late in the first quarter which further contributed to the surplus production of commodities. Despite these nations subsequently agreeing to reduce global commodity supplies and global economies beginning to re-open, commodity prices remain weak relative to historical levels and continue to remain volatile. Reduced economic activity due to the COVID-19 pandemic, combined with uncertainty around global commodity supply and demand, has contributed to depressed crude oil, condensate, NGL and natural gas prices.

 

30


 

Furthermore, the decline in commodity prices led many exploration and production companies to reduce planned capital expenditures for drilling and production activities and also led to some companies shutting in wells in the first half of 2020. Such price and activity declines negatively impacted our operations by (i) reducing investments by third parties in the development of new oil and gas reserves, therefore reducing volumes coming onto our systems in the future, (ii) decreasing volumes processed in our facilities and transported on our pipelines and (iii) reducing the prices we receive from the sale of commodities. While commodity prices remain low relative to historical levels and uncertainties associated with the impacts of COVID-19 continue, production from wells that were previously shut-in during the first half of 2020 across our operating areas has largely resumed. Though energy demand has begun to recover compared to the first half of 2020, the pace and scope of recovery is uncertain at this time and may extend beyond 2020.

 

These circumstances have caused significant market volatility and business disruption. In our Gathering and Processing areas of operation, producers have reduced their drilling activity to varying degrees, which may lead to lower volume growth in the near term and reduced demand for our services. Producer activity also generates demand in our Downstream Business for transportation, fractionation, storage and other fee-based services, which may decrease in the near term.

 

There has been, and we believe will continue to be, significant volatility in commodity prices and in the relationships among NGL, crude oil and natural gas prices. Due to the recent volatility in commodity prices, we are uncertain of what pricing and market demand will be throughout 2020, and, as a result, demand for our services may decrease. Across our operations, particularly in our Downstream Business, we benefit from long-term fee-based arrangements for our services, regardless of the actual volumes processed or delivered. The significant level of margin we derive from fee-based arrangements, combined with our hedging arrangements, helps to mitigate our exposure to commodity price movements. For additional information regarding our hedging activities, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk.”

 

Due to the significant decline in commodity prices and the increased volatility in the broader market, the ability of companies in the oil and gas industry to seek financing and access the capital markets on favorable terms or at all has been negatively impacted. In these conditions, investors may be more likely to limit the amounts of their investments as well as seek more restrictive terms and higher costs on any financing. While these effects have increased the costs of debt and equity financing for the Company and others in our industry, we believe we have sufficient access to financial resources and liquidity necessary to meet our requirements for working capital, debt service payments and capital expenditures through the remainder of 2020 and beyond.

 

In a response to current market conditions, in the first quarter of 2020, we announced that our Board of Directors approved a reduction in the Company’s quarterly common dividend to $0.10 per share for the quarter ended March 31, 2020 from $0.91 per share in the previous quarter. This reduction provided for approximately $755 million of additional annual direct cash flow, resulting in significant free cash flow available to reduce debt. We also reduced our estimated 2020 net growth capital expenditures to about $700 million from our previously disclosed ranges of $700 million to $800 million in the first quarter of 2020 and $1.2 billion to $1.3 billion in the fourth quarter of 2019. The vast majority of spending is for major ongoing growth capital projects where the capital is already predominantly spent. We continue to work through numerous internal initiatives to respond to current market conditions, including identifying and implementing cost reduction measures such as reducing or deferring non-essential operating and general and administrative expenses.

 

We believe that our long-term strategy, combined with our high-quality asset portfolio, allows us to generate attractive cash flows even in a low commodity price environment. Geographic, business and customer diversity enhances our ability to generate sufficient cash flows to fund our requirements. Our assets are positioned in strategic oil and gas producing areas across multiple basins and provide services under attractive contract terms to a diverse mix of customers across our operational areas. Our contract portfolio has attractive rates and term characteristics, including a significant fee-based component, especially in our Downstream Business. Our Gathering and Processing segment contract mix also has components of fee-based margin, such as fee floors and other fee-based services which mitigate against low commodity prices.

 

We are currently experiencing no material issues with potential workforce disruptions, and we remain focused on safeguarding employee health and safety and ensuring safe and reliable operations in response to COVID-19. Additionally, we are currently experiencing no material supply chain disruptions as a result of the COVID-19 pandemic, and our relationships with our major customers continues to be strong. However, if any of these circumstances change, our business could be adversely affected. Further, as there is significant uncertainty around the breadth and duration of the disruptions to global markets related to the aforementioned current events, we are unable to determine the extent that these events could materially impact our future financial position, operations and/or cash flows.

 

Gathering and Processing Segment Expansion

 

Permian Midland Processing Expansion

 

In November 2020, we announced the transfer of an existing cryogenic natural gas processing plant from our North Texas

31


 

system to our Permian Midland system. The former Longhorn Plant will be relocated to, and installed in Reagan County, Texas, in 2021 as a new 200 MMcf/d cryogenic natural gas processing plant (the “Heim Plant”). The Heim Plant will process natural gas production from the Permian Basin and is expected to begin operations in the fourth quarter of 2021.

In August 2019, we announced that we began construction of a new 250 MMcf/d cryogenic natural gas processing plant in the Midland Basin, the Gateway Plant, which commenced operations in the third quarter of 2020.

Permian Delaware Processing Expansions

In March 2018, we announced that we entered into long-term fee-based agreements with an investment grade energy company for natural gas gathering and processing services in the Delaware Basin and for downstream transportation, fractionation and other related services. The agreements are underpinned by the customer's dedication of significant acreage within a large, well-defined area in the Delaware Basin. In addition to high-pressure rich gas gathering pipelines and a natural gas processing plant, the Falcon Plant, which were placed into service in 2019, we commenced operations of a second 250 MMcf/d cryogenic natural gas processing plant, the Peregrine Plant, in the second quarter of 2020.

 

We provide NGL transportation services on Grand Prix and fractionation services at our Mont Belvieu complex for a majority of the NGLs from the Falcon and Peregrine Plants.

Logistics and Transportation Segment Expansion

 

Grand Prix NGL Pipeline Extension

 

In February 2019, we announced an extension to our Grand Prix NGL pipeline system (the “Central Oklahoma Extension”), which will extend from Southern Oklahoma to the STACK region of Central Oklahoma where it will connect with The Williams Companies, Inc. (“Williams”) Bluestem Pipeline, linking the Conway, Kansas, and Mont Belvieu, Texas, NGL markets. In connection with this project, Williams has committed significant volumes to us that we will transport on Grand Prix and fractionate at our Mont Belvieu facilities. The Central Oklahoma Extension is expected to be operational by the end of the fourth quarter of 2020. Transportation volumes on the Central Oklahoma Extension accrue solely to Targa’s benefit and are not included in Grand Prix Pipeline LLC (“Grand Prix Joint Venture”), a consolidated subsidiary of which Targa owns a 56% interest.

 

Fractionation Expansion

 

In November 2018, we announced plans to construct two new 110 MBbl/d fractionation trains in Mont Belvieu, Texas (“Train 7” and “Train 8”). Train 7 commenced operations in the first quarter of 2020 and Train 8 commenced operations in the third quarter of 2020. In January 2019, Williams committed to Targa significant volumes which Targa will transport on Grand Prix and fractionate at Targa’s Mont Belvieu facilities (including Train 7). Williams was also granted an option to purchase a 20% equity interest in the fractionation train, which was originally wholly owned by Targa. Williams exercised its initial option and executed a joint venture agreement with us with respect to Train 7 in the second quarter of 2019. Certain fractionation-related infrastructure for Train 7, such as storage caverns and brine handling, will be funded and owned 100% by Targa.

LPG Export Expansion

 

In February 2019, we announced plans to further expand our LPG export capabilities of propane and butanes at our Galena Park Marine Terminal by increasing refrigeration capacity and associated load rates. With the additional infrastructure, we increased our effective export capacity up to 15 MMBbl per month in the third quarter of 2020, depending upon the mix of propane and butane demand, vessel size and availability of supply, among other factors. 

 

Asset Sales

In October 2020, we executed agreements to sell our assets in Channelview, Texas for approximately $58 million (the “October 2020 Sale”). The sale closed in the fourth quarter of 2020.

In November 2019, we executed agreements to sell our crude and storage business in Permian Delaware for approximately $134 million. The sale closed in the first quarter of 2020.

 

Financing Activities

On November 2, 2020, the Partnership redeemed the $559.6 million remaining balance of its 5¼% Senior Notes due 2023.

In the third quarter of 2020, the Partnership issued $1.0 billion of 4⅞% Senior Notes due 2031, resulting in net proceeds of $991.0 million. A portion of the net proceeds from the issuance were used to fund the concurrent cash tender offer (the “Tender Offer”) and

32


 

redemption payments for the Partnership’s 6¾% Senior Notes due 2024 (the “6¾% Notes”), with the remainder used for repayment of borrowings under the Partnership’s senior secured revolving credit facility.

We accepted for purchase all the notes that were validly tendered as of the early tender date, which totaled $262.1 million and redeemed the remaining aggregate principal amount of the 6¾% Notes, which totaled $318.0 million. We recorded a loss due to debt extinguishment of $13.7 million comprised of $11.1 million premiums paid and a write-off of $2.6 million of debt issuance costs.

Additionally, during the first half of 2020, the Partnership repurchased a portion of its outstanding senior notes on the open market, paying $239.8 million plus accrued interest to repurchase $303.3 million of the notes. The repurchases resulted in a $61.1 million net gain, which included the write-off of $2.4 million in related debt issuance costs.

We or the Partnership may retire or purchase various series of our outstanding debt through cash purchases and/or exchanges for other debt, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

In the second quarter of 2020, we amended the Partnership’s accounts receivable securitization facility (the “Securitization Facility”) to decrease the facility size from $400.0 million to $250.0 million to more closely align with our expectations for borrowing needs given current commodity prices and to extend the facility termination date to April 21, 2021.

Share Repurchase Program

In October 2020, our Board of Directors approved a share repurchase program (the “Share Repurchase Program”) for the repurchase of up to $500 million of our outstanding common stock. As of November 2, 2020, we have repurchased 4,505,507 shares at a weighted average price of $16.33 for a total net cost of $73.6 million. There is approximately $426 million remaining under the Share Repurchase Program. We may discontinue the Share Repurchase Program at any time and are not obligated to repurchase any specific dollar amount or number of shares.

Corporation Tax Matters

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides corporate taxpayers an expanded five-year net operating loss carryback period for losses earned in tax years 2018 through 2020. Additionally, the CARES Act allows corporate taxpayers to request an immediate refund of alternative minimum tax credits. We requested a cash refund from the Internal Revenue Service (“IRS”) of approximately $44 million related to the CARES Act provisions and received the refund in the second quarter of 2020.

The IRS notified us on April 3, 2019, that it will examine Targa’s federal income tax returns (Form 1120) for 2014, 2015 and 2016. We are cooperating with the IRS in the audit process and do not anticipate material changes in prior year taxable income.

 

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 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, the impact of our commodity hedging program and its ability to mitigate exposure to commodity price movements, 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 contracts. Our growing capital expenditures for pipelines and gathering and processing assets underpinned by fee-based margin, expansion of our downstream facilities, continued focus on adding fee-based margin to our existing and future gathering and processing contracts, as well as third-party acquisitions of businesses and assets, will continue to increase the number of our contracts that are fee-based. Fixed fees for services such as gathering and processing, transportation, fractionation, storage, terminaling and crude oil gathering are not directly tied to changes in market prices for commodities. Nevertheless, a change in market dynamics such as available commodity throughput does affect profitability.

33


 

 

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, distributable cash flow and free 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, connected by third-party transportation and Grand Prix, to our Downstream Business fractionation facilities and at times to our export 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 and our NGL pipelines. 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, remain relatively stable and independent of the volumes through our systems, but may increase with system expansions and will fluctuate depending on the scope of the activities performed during a specific period.

 

Capital Expenditures

 

Our capital expenditures are classified as growth capital expenditures, business acquisitions, and maintenance capital expenditures. Growth capital expenditures improve the service capability of the existing assets, extend asset useful lives, increase capacities from existing levels, add capabilities, and reduce costs or enhance revenues. 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.

 

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.

 

Non-GAAP Measures

 

We utilize non-GAAP measures to analyze our performance. Gross margin, operating margin, Adjusted EBITDA, distributable cash flow, and free cash flow are non-GAAP measures. The GAAP measure most directly comparable to these non-GAAP measures is net income (loss) attributable to TRC. These non-GAAP measures should not be considered as an alternative to GAAP net income attributable to TRC and have important limitations as analytical tools. Investors should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. Additionally, because our non-GAAP measures exclude some, but not all, items that affect net income, and are defined differently by different companies within our industry, our definitions may not be comparable with similarly titled measures of other companies, thereby diminishing their utility. Management compensates for the

34


 

limitations of our non-GAAP measures as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating these insights into our decision-making processes.

 

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:

 

service fees related to natural gas and crude oil gathering, treating and processing; and

 

revenues from the sale of natural gas, condensate, crude oil and NGLs less producer payments, natural gas and crude oil purchases, and our equity volume hedge settlements.

Logistics and Transportation segment gross margin consists primarily of:

 

service fees (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, third-party transportation costs and the net inventory change.

 

The gross margin impacts of mark-to-market hedge unrealized changes in fair value 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.

 

Adjusted EBITDA

 

We define Adjusted EBITDA as net income (loss) attributable to TRC before interest, income taxes, depreciation and amortization, and other items that we believe should be adjusted consistent with our core operating performance. The adjusting items are detailed in the Adjusted EBITDA reconciliation table and its footnotes. Adjusted EBITDA is used as a supplemental financial measure by us and by external users of our financial statements such as investors, commercial banks and others to measure the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and pay dividends to our investors.

 

Distributable Cash Flow and Free Cash Flow

 

We define distributable cash flow as Adjusted EBITDA less distributions to TRP preferred limited partners, cash interest expense on debt obligations, cash tax (expense) benefit and maintenance capital expenditures (net of any reimbursements of project costs). We define free cash flow as distributable cash flow less growth capital expenditures, net of contributions from noncontrolling interest and net contributions to investments in unconsolidated affiliates. Distributable cash flow and free cash flow are performance measures used by us and by external users of our financial statements, such as investors, commercial banks and research analysts, to assess our ability to generate cash earnings (after servicing our debt and funding capital expenditures) to be used for corporate purposes, such as payment of dividends or retirement of debt.

 


35


 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In millions)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to TRC

 

$

 

69.3

 

 

$

 

(47.3

)

 

$

 

(1,587.5

)

 

$

 

(96.4

)

Net income (loss) attributable to noncontrolling interests

 

 

 

102.9

 

 

 

 

79.4

 

 

 

 

116.5

 

 

 

 

152.7

 

Net income (loss)

 

 

 

172.2

 

 

 

 

32.1

 

 

 

 

(1,471.0

)

 

 

 

56.3

 

Depreciation and amortization expense

 

 

 

203.7

 

 

 

 

244.3

 

 

 

 

647.3

 

 

 

 

718.9

 

General and administrative expense

 

 

 

58.6

 

 

 

 

69.9

 

 

 

 

180.6

 

 

 

 

223.5

 

Impairment of long-lived assets

 

 

 

 

 

 

 

 

 

 

 

2,442.8

 

 

 

 

 

Interest (income) expense, net

 

 

 

97.7

 

 

 

 

89.1

 

 

 

 

292.4

 

 

 

 

241.8

 

Equity (earnings) loss

 

 

 

(18.6

)

 

 

 

(10.0

)

 

 

 

(54.1

)

 

 

 

(15.9

)

Income tax expense (benefit)

 

 

 

31.9

 

 

 

 

(3.8

)

 

 

 

(286.6

)

 

 

 

(10.0

)

(Gain) loss on sale or disposition of business and assets

 

 

 

58.0

 

 

 

 

0.5

 

 

 

 

58.0

 

 

 

 

3.6

 

Write-down of assets

 

 

 

13.5

 

 

 

 

17.9

 

 

 

 

13.5

 

 

 

 

17.9

 

(Gain) loss from sale of equity-method investment

 

 

 

 

 

 

 

(65.8

)

 

 

 

 

 

 

 

(65.8

)

(Gain) loss from financing activities

 

 

 

13.7

 

 

 

 

 

 

 

 

(47.4

)

 

 

 

1.4

 

Change in contingent considerations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.8

 

Other, net

 

 

 

(0.7

)

 

 

 

 

 

 

 

0.1

 

 

 

 

0.2

 

Operating margin

 

 

 

630.0

 

 

 

 

374.2

 

 

 

 

1,775.6

 

 

 

 

1,180.7

 

Operating expenses

 

 

 

181.9

 

 

 

 

200.2

 

 

 

 

565.1

 

 

 

 

600.8

 

Gross margin

 

$

 

811.9

 

 

$

 

574.4

 

 

$

 

2,340.7

 

 

$

 

1,781.5

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In millions)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to TRC

 

$

 

69.3

 

 

$

 

(47.3

)

 

$

 

(1,587.5

)

 

$

 

(96.4

)

Income attributable to TRP preferred limited partners

 

 

 

2.8

 

 

 

 

2.8

 

 

 

 

8.4

 

 

 

 

8.4

 

Interest (income) expense, net

 

 

 

97.7

 

 

 

 

89.1

 

 

 

 

292.4

 

 

 

 

241.8

 

Income tax expense (benefit)

 

 

 

31.9

 

 

 

 

(3.8

)

 

 

 

(286.6

)

 

 

 

(10.0

)

Depreciation and amortization expense

 

 

 

203.7

 

 

 

 

244.3

 

 

 

 

647.3

 

 

 

 

718.9

 

Impairment of long-lived assets

 

 

 

 

 

 

 

 

 

 

 

2,442.8

 

 

 

 

 

(Gain) loss on sale or disposition of business and assets

 

 

 

58.0

 

 

 

 

0.5

 

 

 

 

58.0

 

 

 

 

3.6

 

Write-down of assets

 

 

 

13.5

 

 

 

 

17.9

 

 

 

 

13.5

 

 

 

 

17.9

 

(Gain) loss from sale of equity-method investment

 

 

 

 

 

 

 

(65.8

)

 

 

 

 

 

 

 

(65.8

)

(Gain) loss from financing activities (1)

 

 

 

13.7

 

 

 

 

 

 

 

 

(47.4

)

 

 

 

1.4

 

Equity (earnings) loss

 

 

 

(18.6

)

 

 

 

(10.0

)

 

 

 

(54.1

)

 

 

 

(15.9

)

Distributions from unconsolidated affiliates and preferred partner interests, net

 

 

 

28.2

 

 

 

 

14.0

 

 

 

 

81.6

 

 

 

 

33.4

 

Change in contingent considerations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.8

 

Compensation on equity grants

 

 

 

16.4

 

 

 

 

16.1

 

 

 

 

49.5

 

 

 

 

49.0

 

Risk management activities

 

 

 

(88.3

)

 

 

 

100.7

 

 

 

 

(214.2

)

 

 

 

100.8

 

Severance and related benefits (2)

 

 

 

 

 

 

 

 

 

 

 

6.5

 

 

 

 

 

Noncontrolling interests adjustments (3)

 

 

 

(9.2

)

 

 

 

(8.9

)

 

 

 

(211.7

)

 

 

 

(25.6

)

TRC Adjusted EBITDA

 

$

 

419.1

 

 

$

 

349.6

 

 

$

 

1,198.5

 

 

$

 

970.3

 

Distributions to TRP preferred limited partners

 

 

 

(2.8

)

 

 

 

(2.8

)

 

 

 

(8.4

)

 

 

 

(8.4

)

Interest expense on debt obligations (4)

 

 

 

(98.2

)

 

 

 

(88.0

)

 

 

 

(289.5

)

 

 

 

(247.0

)

Cash tax refund

 

 

 

 

 

 

 

 

 

 

 

44.4

 

 

 

 

 

Maintenance capital expenditures

 

 

 

(27.3

)

 

 

 

(31.0

)

 

 

 

(67.7

)

 

 

 

(101.5

)

Noncontrolling interests adjustments of maintenance capital expenditures

 

 

 

3.9

 

 

 

 

2.1

 

 

 

 

1.6

 

 

 

 

6.0

 

Distributable Cash Flow

 

$

 

294.7

 

 

$

 

229.9

 

 

$

 

878.9

 

 

$

 

619.4

 

Growth capital expenditures, net (5)

 

 

 

(105.4

)

 

 

 

(448.4

)

 

 

 

(518.5

)

 

 

 

(1,946.2

)

Free Cash Flow

 

$

 

189.3

 

 

$

 

(218.5

)

 

$

 

360.4

 

 

$

 

(1,326.8

)

 


36


 

 

 

(1)

Gains or losses on debt repurchases, amendments, exchanges or early debt extinguishments.

(2)

Represents one-time severance and related benefit expense related to our cost reduction measures.

(3)

Noncontrolling interest portion of depreciation and amortization expense (including the effects of the impairment of long-lived assets on non-controlling interests).

(4)

Excludes amortization of interest expense.

(5)

Represents growth capital expenditures, net of contributions from noncontrolling interests and net contributions to investments in unconsolidated affiliates.

 

The Company has completed a number of announced growth capital projects since early 2019, and this has resulted in lower growth capital expenditures in 2020 and a transition to free cash flow. The following table details construction and project completion timing of our announced major growth capital projects:

 

 

 

Three Months Ended

 

 

March 31, 2019

 

June 30, 2019

 

September 30, 2019

 

December 31, 2019

 

March 31, 2020

 

June 30, 2020

 

September 30, 2020

Major Growth Capital Project (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering & Processing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hopson Plant (2)

 

UC

 

C

 

 

 

 

 

 

 

 

 

 

Falcon Plant (3)

 

UC

 

UC

 

C

 

 

 

 

 

 

 

 

Pembrook Plant (2)

 

UC

 

UC

 

C

 

 

 

 

 

 

 

 

Little Missouri 4 Plant (4)

 

UC

 

UC

 

C

 

 

 

 

 

 

 

 

Peregrine Plant (3)

 

UC

 

UC

 

UC