Good day, and thank you for standing by. And welcome to Targa Resources First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After this presentation, there will be a question and answer session. If you would like I would like to hand the conference over to your speaker today, Sanjay Ladd, Vice President of Finance and Investor Relations.
Please go ahead, sir.
Thanks, Carmen. Good morning, and welcome to the Q1 2021 earnings call for Targa Resources Corp. The Q1 earnings release along with the Q1 earnings supplement presentation for Targa Resources that accompany our call are available on our website, targetresources.com in the Investors section. In addition, an updated presentation has also been posted to our website. Statements made during this call that might include Targa Resources' expectations or predictions should be considered Forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.
Actual results could differ materially from those projected in forward looking statements. For a discussion of factors that could cause actual results to differ, Please refer to our latest SEC filings. Our speakers for the call today will be Matt Molloy, Chief Executive Officer and Jen Neal, Chief Financial Officer. Additionally, the following senior management team members will be available for Q and A. Pat McDonough, President, Gathering and Processing Scott Pryor, President, Logistics and Transportation and Bobby Mararo, Chief Commercial Officer.
And with that, I'll now turn the call over to Matt.
Thanks, Sanjay, and good morning. During the quarter, our overall business continued to perform very well, Led by our position in the Permian Basin and our integrated NGL business and positive aggregate benefits from the winter storm, We continue to execute on our key strategic priorities, including prioritizing free cash flow towards debt reduction as we reduced our debt balance by $383,000,000 quarter over quarter. The severe weather from the February winter storm impacted us Across our operations during the Q1. Over a 10 day period around the storm, we experienced on average a 50% reduction Our gathering and processing and downstream system volumes. Our overall system volumes quickly rebounded and returned to around pre storm levels later in the Q1.
Those operational impacts were offset by storm related benefits elsewhere in our business, which resulted in an aggregate margin benefit of about $30,000,000 for the quarter. Let's now turn to our operational performance and business outlook. Starting in the Permian, we remain on track and expect our average Total 2021 Permian inlet volumes to increase between 5% 10% over last year. We are seeing increasing activity levels Across both our Midland and Delaware footprints with our current Permian inlet gas volumes ahead of pre storm levels, Averaging about 2,700,000,000 cubic feet per day. With our Permian Midland system running close to capacity, Our new 200,000,000 cubic feet per day time plant will much needed and remains on track to begin operations early in Q4.
We continue to evaluate the timing of our next Midland plant, which we estimate would cost about $150,000,000 and could be needed as We currently have adequate processing capacity in Permian Delaware to accommodate our anticipated Near to medium term growth. Moving on to the Badlands, our gas and crude volumes during the Q1 each sequentially decreased 6%, largely due to the winter conditions in North Dakota. We are seeing completions increase across our system And are having increasing producer dialogue around a ramp in activity levels. Turning to our Central region, Which continues to largely be in decline, gas inlet volumes in the Q1 were further impacted by the effects of the winter storm. We are currently seeing a modest uptick in completions and activity levels, which could mitigate some of the decline.
Across our Gathering and Processing business, our margins are also benefiting from the inherent tailwinds associated with higher commodity prices and the upside participation embedded in our fee floor arrangements as a result of our recontracting efforts. Shifting to our Logistics and Transportation segment. Our Grand Prix pipeline continues to perform very well. Current Grand Prix deliveries into Mont Belvieu are Approximately 380,000 barrels per day and we expect volumes to continue to ramp from here. We continue to estimate full year 2021 average deliveries into Mont Belvieu to increase over 25% from 2020 average throughput.
Our fractionation volumes in Mont Belvieu rebounded from the winter storm, and we are once again seeing higher volumes of around 630,000 barrels per day. In addition to the winter storm impact, lower sequential frac volumes were also attributable to some minor repairs and recall that 4th Quarter 2020 frac volumes benefited from working down inventory as a result of scheduled maintenance performed in the second half of twenty twenty. In our LPG export services business at Galena Park, 1st quarter volumes averaged 8,500,000 barrels per month And we're down 23% sequentially. 4th quarter 2020 volumes benefited from the very strong export fundamentals, which enabled us to capture Some shorter term volumes during the prior quarter. The impact from the winter storm combined with periods of fog along the Houston Ship Channel during the Q1 Also contributed to the sequential volume decline.
The outlook for full year 2021 and beyond remains strong, And we expect our LPG export volumes to be higher during the Q2 over Q1 levels. Taking into consideration our Q1 results, strong business performance and continued focus around cost management, Coupled with a stronger estimated commodity price outlook for the balance of 2021, we are increasing our full year estimated 2021 adjusted EBITDA to be between $1,800,000,000 to $1,900,000,000 2021 adjusted EBITDA is now estimated to be Poised to continue to benefit from an overall recovery, and we have the ability to capture growth volumes from the Permian Without having spent much incremental CapEx on Grand Prix, fractionation or LPG export facilities. This puts Targa in a position to generate strong returns forward and increasing free cash flow after dividends available to reduce debt and further strengthen our financial position. With that, I will now turn the call over to Jen.
Thanks, Matt. Good morning, everyone. Targa's reported quarterly Adjusted EBITDA for the Q1 was $516,000,000 increasing 18% over the 4th quarter. The aggregate net benefit from the winter storm, Lower operating and G and A expenses and higher commodity prices drove the sequential increase in adjusted EBITDA. Commodity prices meaningfully increased quarter over quarter.
And while we are significantly hedged, our Gathering and Processing segment gross margin Directly benefits from higher prices across our unhedged equity exposure and to the extent prices are above our fee floors. During the Q1, Targa generated free cash flow of $336,000,000 which as Matt mentioned, was utilized to reduce our aggregate debt balance And our consolidated reported debt to EBITDA ratio was approximately 4.3x at the end of the first quarter, which is a reduction from 4.7x@yearend2020. We did make a reporting change that you may have noticed. Beginning in the Q1 of 2021, we now include certain fuel and power costs previously included in operating expenses In product purchases and fuel, to better reflect the direct relationship of these costs to our revenue generating activities and align with our evaluation of the performance of the business. Prior periods have been updated to reflect this change.
We remain significantly hedged for 2021 and continue to add hedges for this year and beyond. Relative to when we last reported in February, We added incremental hedges across most commodities as we benefited from higher prices, particularly in the prompt year. You can find our usual hedge disclosures in our quarterly earnings supplement presentation. As Matt mentioned, we are increasing our full year Assume full year 2021 WTI crude oil prices averaged $60 per barrel, NGL prices averaged $0.60 per gallon And Henry Hub and Waha natural gas prices averaged $2.75 $2.65 per MMBtu. Given the strength of 1st quarter adjusted EBITDA and the seasonality of some of our businesses, we expect 2nd quarter adjusted EBITDA to be lower then ramping through the back half of the year, providing significant momentum heading into 2022 as we expect to end 2021 with reported leverage of around 4x.
Also, we would expect aggregate OpEx and G and A to be higher in the 2nd quarter as some costs shifted from the Q1 related to the winter storm. In Q2, aggregate OpEx G and A is estimated to more closely approximate the 4th quarter. We continue to be very proud of the organization's efforts on reducing costs, and this will continue to be an area of focus across the company. Our 2021 CapEx estimates remain unchanged With net growth CapEx to be between $350,000,000 $450,000,000 and net maintenance CapEx of approximately $130,000,000 There is no change to our near term capital allocation strategy to continue to improve our leverage ratios and simplify our corporate structure. We are making significant progress on advancing towards our long term consolidated leverage ratio target of 3 to 4 times as we continue to focus on improving our corporate ratings and becoming investment grade.
There is no change to our assumption that we will repurchase the in the Q1 of 2022, which would generate additional EBITDA in 2022 and beyond and be about leverage neutral. Shifting to Targa's focus around sustainability and ESG, we continue to advance our efforts in internal initiatives in this area. We recently announced the formation of a sustainability committee at the Board level, which will report to the Board on a quarterly basis. Targa has also joined the One Future Coalition, and we plan to publish our next sustainability report in the fall. Finally, I would like to echo Matt's comments.
Target continues to benefit from the strength of our integrated business, and we remain exceptionally well positioned for the long term. On behalf of management, we would all like to say thank you To all of our Targa team for continuing to prioritize safety and providing best in class service to our customers. And with that, I will turn the call back over to Sanjay.
Thanks, Jen. We ask that you kindly limit to one question and one follow-up and please reenter the Q and A line up if you have additional questions. Carmen, would you please open the lines for Q and A?
Thank you. And our first question will be Jeremy Tony with JPMorgan. Please go ahead.
Hi, good morning.
Hey, good morning. Good morning.
I think you touched on this a bit during the prepared remarks, but just wanted to kind of dive in a bit more when it comes to capital allocation A few different things that can happen here, be it lowering leverage outright, the press that can be kind of brought in, simplifying to bring in OpCo. Just wanted to see kind of how you think about these different priorities at this point? And also, I guess, if activity levels are starting to tick up, I mean, do you see pressure on CapEx moving up to kind of facilitate that? Or do you think it's really these other measures I mentioned first are top priority?
Sure. Yes. Thanks, Jeremy. I'll touch on capital allocation and then let Jen kind of fill in some additional comments there. Our overall capital allocation priority is on leverage reduction.
You saw us do that in the Q1. That's going to be our priority To try and make progress towards getting ratings increases towards investment grade and getting into our target 3 to 4 times. So that is going to be our overriding Priority there. And then on your second point in terms of CapEx pressure, with increasing volumes, we are optimistic that Permian volumes are Continue to grow year over year. We do have capacity out in the Permian Delaware.
So we really think in terms of CapEx pressure where you're going to see it is on that Permian Midland side. And I mentioned in my remarks, we're evaluating right now the timing of when we may need to add another So we're going to need the Heim plant to come on. We do have some ability to stretch beyond nameplate and provide us some cushion for that next plant, But we're evaluating right now that next plant. And that's to the tune of about $150,000,000 which would be spread out So it's manageable. We can still continue to generate free cash flow, deleverage and make progress in all of our goals even in an environment And then Jen, you want to add in any more on the capital allocation?
Or
I'd just say, Jeremy, that being ahead of schedule Essentially gives us more flexibility. And so from our perspective that flexibility doesn't change the base plan that we articulated in our remarks and that Matt just reiterated, which is really reducing leverage, improving our ratios and then We're trying to find both taking out the DevCo and redeeming the TRC preferred. So those will continue to be our areas of focus, which is very consistent with how we've been talking about
That's helpful. Thank you for that. And then maybe kind of shifting gears, You've seen changes recently out of DC with the 45Qs kind of more credit happening there supporting initiatives such as carbon capture. And it seems like where our processing plants stand on the cost curve for carbon capture, the 45Qs could possibly make that economic given the purity of the Just wondering if you had any thoughts on that side, if that's something you could see Targa doing at some point in the future or any other
Yes, sure. Yes, in terms of the broader energy transition, we think NGL's We're going to be here for decades to come, and we're really well positioned within that environment. That said, we will continue to look at other opportunities. We mentioned on our previous calls, we'll evaluate are there some renewable projects that we could either support or help underwrite with commitments to off takes on electricity, So we have folks internally that are looking at can we aggregate CO2 and either sell the CO2 or sequester it and just put it downhole. So we are evaluating that.
I would say that does fit what seems like more of our core competency, gathering CO2, putting it into pipe And then moving it. So we are looking at that. I'd say we're in the early stages of that. And whether the 45Q credits are enough or not, Yes. I'd say right now it's still too early.
We're in the scoping and seeing if something could work out there. But we are evaluating that as that one seems it may have more potential. But for any additional capital that we would spend, whether it's carbon capture or anything else, it would have to generate Strong returns relative to our other organic growth opportunities. And if so there may be some projects that we help support and we can find other sources The capital, if it's not meeting our threshold.
That's quite encouraging to hear. Thank you.
Okay. Thank you, Jeremy.
Our next question comes from Shneur Gershuni with UBS. Your question please.
Hi, good morning everyone. Maybe to start off, just kind of wanted to talk about your guidance a little bit here. Jen, definitely appreciate the color around Timing for 2Q as to why your guidance is not even higher and don't take this as I'm complaining of guidance increase is good. Last quarter, you had mentioned that the high end of the range was achievable without any changes in volume expectations. Is that Still the case and within the context of the guidance question, we're just wondering if you can talk about The performance of the fee floors as well too and are there any elements of conservatism within your guide?
Sharon, this is Jen. I don't recall saying that we could meet the high end of our guidance range without changing any of our But I think that the guidance range that we put out today is one that is Higher for a variety of factors. We've actualized the Q1. We did benefit from the storm to the tune of $30,000,000 which is certainly additive. And then as we look forward over the rest of the year, I think just a continued expectation of strong operating performance.
Matt gave some color on where our volumes sort of sit today. And again, I think we just feel better about the base performance of our business as a result of where volumes And really the fact that it feels like maybe there's light at the end of the tunnel around COVID. So that's providing, I think, a little bit of a as well just in terms of more macro stability and how that relates to Targa. Clearly, to the extent that we continue to benefit From higher commodity prices, that will be additive to what we published today. To the extent that we have higher commodity prices As a result in more activity levels, then that could obviously increase our expectations for volumes for this year.
So there are a lot of Factors at play, but I think that it feels like we've got a lot of momentum right now and that momentum is creating a lot of flexibility and that's what we're really excited about. And importantly, it's really the base business that's creating a lot of that momentum along with just continued management of costs Related to our base business activities, which again, the organization has done a really good job of doing. We haven't provided a lot of color around exactly where sort of the fee floors are set and what the upside at different commodity prices means related to our fee floors. But what we have done is consistent with what we published in February, the commodity price sensitivity That we have for our business that we published also in our earnings supplement and broader presentation today, that encompasses Our expectations for additional margin from not only just direct commodity price appreciation on unhedged volumes, but also If prices move higher, what that would mean for our fee floors. And then there are a variety of other factors that are also included in there.
So I do think that that's a pretty good sensitivity related to performance of aggregate target business in higher commodity price environments.
Perfect. Really appreciate all the color there. Maybe following up on the momentum theme here, Just sort of thinking about the simplification process as it unfolds, you talked about in your prepared remarks that you have not changed The expectation around the DevCo, does that mean despite the momentum, the IRR and the Moa cats Change or you're just not updating the timeline? And maybe as we think about the whole simplification process, Your leverage and liquidity are certainly there for the DevCo at this stage right now. Should we be thinking about prefs as the next simplification step or is Right sizing the dividend, something on the radar screen.
Just any color with respect to your thoughts there would be great.
We've talked a little bit about the EBITDA expectations from the DevCo buy in. And so there you've got Train 6 And GCX, which are relatively stable cash flows, those essentially have been full since they came online. So really the upside Asset that's within the DevCos is Grand Prix. And so from our perspective, certainly Grand Prix is continuing to perform phenomenally well, But it's not changing that base case assumption that we'll pick out the DevCos in a single tranche in Q1 of 'twenty two, which It's an assumption that I think has been well received. It's easy, I think, for investors and potential investors to understand, and it is consistent with what our base plan is, and that Clearly, the second part of what we characterize as our corporate simplification Prioritization is redeeming the TRC preferred and that sets down to $105,000,000 at the end of the Q1 of 2022.
And I think if you look at where our balance sheet is expected to be at that point in time, we have a lot of flexibility. And our continued outperformance would just enhance that flexibility. And so I think you're absolutely right that, that is definitely a priority. And that is, again, very consistent What we've laid out over the last many quarters, which is our simplification isn't really complete until the TRC prep is also redeemed.
All right. Perfect. And I guess the upside to the dividend would be further down the road.
Yes. I think once we kind of achieve our target leverage ratio, hit the simplification that Jen talked about, Then the best way to return capital, look at our free cash flow and whether it's more organic growth or dividend or share repurchase That will be evaluated with the Board and then decided about what the right appropriate way to distribute that is.
Perfect. Thank you very much everyone. Really appreciate the color and have a safe day.
Okay. Thank you. Thanks, Sher.
Thank you. Our next Question comes from Michael Blum with Wells Fargo. Please go ahead.
Thanks. Good morning, everyone. I had a question on the guidance. Propane, as you know, I'm sure propane inventories are somewhat depleted. And do you think we could Domestic demand drive prices higher in the back half of the year as you head towards winter, potentially narrow the arb, which could impact Exports, just curious how you're thinking about that scenario as the year plays out and what exactly is factored into guidance?
Yes, sure, Michael. Yes, we have seen really strong NGL prices across the board. And you're right on propane, inventories are low, We've seen strong pricing there. That could have some impacts for the shorter term kind of uncontracted Volumes as we go through the remainder of the year. We have significant contracts in place.
We feel good about our base business for the remainder of the year on the export side. But if there is some strength in pricing there, we do have upside exposure through our GMP business. So we have some Offsets there. So overall, higher NGL prices, generally speaking, are going to benefit Targa. There may be some offset to some shorter term opportunities in I think overall, higher propane prices, other NGL prices is likely going to be a positive for us.
Great. And then I wonder if you can just talk a little bit about Pioneer's sort of tuck in acquisition of Double Point. At At least my understanding is that acreage is already dedicated to you, but just curious if there's any ancillary benefits or incremental upside there from that transaction
Yes, sure. I'm going to we don't like to talk about Specific customers and contracts that we have in place. So I'm going to answer that more generally, Michael. I think as Some of our larger customers in general are growing, whether it's in the Delaware or Permian, Midland side. As they grow, we have good relationships with those Larger customers, I think in the short term, it's not going to be have any material impact really positive or negative for us.
But over the longer The larger guys, the relationships we have with our customers continue to increase. Over the longer term, it is a good thing For us, so the consolidation on the upstream side longer term is we view it as a net positive for us.
Great. Thank
you. Okay. Thank you.
Our next question is from Colton Bean with Tudor Pickering Holt Company, please go ahead.
Good morning. So just looking at the business mix there on Page 9 of the presentation, Looks like marketing may have been north of $100,000,000 for Q1. So can you just walk us through the marketing results last quarter and then how
Colton, this is Jen. We generally are a little bit opaque About the benefits that we get within the marketing business just because there tend to be a lot of moving pieces each quarter, and we tend to have marketing benefits each quarter. So I'm not going to really get into the specifics here, but you'll recall in 2020 that we benefited from being able to enter Into trades when there was a lot of contango in various commodity markets. And so you're seeing some of that be realized As we really moved through time going back to earlier in 2020, and in particular, we did benefit in the Q1 from that. And then there were also some storm related benefits, which again, we're not going to get into the specifics of, but those were also factored into the outperformance for the marketing business.
Got it. So some of that or it sounds
like a decent portion was already in the works in 2020. It wasn't necessarily And then maybe just to ask Shneur's question a little bit more pointed. I think on the updated EBITDA guide at the midpoint, it looks like it implies just under $450,000,000 for the remaining 3 quarters. So if we back out that $30,000,000 from Q1, still a little bit lower. So just is that
That's primarily the Delta that I think you're looking for is we do expect that we'll see higher aggregate OpEx and G and A in the second quarter. And then we'll be continuing to try to manage those Costs as we move forward through the year, but little bit dependent on volumes and also just dependent on higher costs. And there are some Elements that we need to purchase for our operations where we are seeing some increases in costs. But our guys are doing a really, really good job of managing costs lower Everywhere across our businesses. So we'll continue to look for outperformance in that realm as we move through the rest of the year.
And there is some seasonality in our NGL business On the wholesale refinery services side, which generally has a better Q4 and Q1 as there's more sales in the winter. So there is some, All things equal, softness in the Q2 relative to the Q1 because of that. But Jim's right, I'd say it's largely probably more on the OpEx But then partially due to some seasonality as well.
Understood. Appreciate the detail.
Okay. Thank you.
Thank you. Our next question is from Christine Cho with Barclays. Please go ahead.
Thank you. I actually have a follow-up to the propane question. Given that inventories are depleted and Earlier in the quarter, we saw propane prices at Conway trading at a nice premium and I suspect that we can see that later again this year. Can you remind us if you're able to benefit from higher Conway prices? Would that just be from any supply that you Physically have hitting that hub from your Mid Con operations?
Or is there any other way to, I don't know, physically bring up Volumes from Mont Belvieu benefit from your pipeline that you now have?
Christine, this is First off, just to reiterate some of the things that Matt was saying. Certainly from an inventory perspective, which is leading to what Michael's question was, Inventories across the industry stand at about 41,000,000 barrels with the most recent inventory stats. We didn't have much of a build from the last stats, Again, just a week on week. That puts us below where we were this time last year, but certainly that has helped increase the prices, which is I think it will take some time before we see some of the pricing across the globe to reflect some of that activity. But Increased prices, obviously, is going to help sustain some increased growth on the production side of things.
As it relates to Conway, on the margin, we have Opportunities to bring products down from Conway, recognizing that we've got the pipe in place, but it is predominantly a wide grade pipeline, but there are some opportunities on the margin So I think relatively speaking though, we're going to continue to see increased production from the Permian And that's going to help us translate into larger volumes of Y grade coming into our systems. And I think it will help Shore up inventories over time. But again, depending upon what we see from an export perspective. And just touching base on that Just a little bit. Certainly, our volumes were down from the Q1 relative to the Q4.
But as Matt alluded to in our comments, We certainly see that our 2nd quarter export volumes will be up over our Q1 volumes.
Okay. And then just going on to CapEx for the new Midland plant. Is that going to be newbuild or are you moving around one of your other plants? And can you remind us the lead time on that? So if you want it Potentially in second half of next year, when would you have to start spending money?
Sure. Yes, we're evaluating and We kind of have evaluated and are continuing to evaluate the best plant to put in for the next plant. Right now, the reason I said $150,000,000 I think we're leaning towards putting in a new build there. Just for timing and just other factors that makes the most So we think it's likely going to be a new build. So that $150,000,000 reflects new build.
And then depending on infrastructure, one of the Lead time long lead time items is getting electricity out of these plants as these are typically electric plants. But I'd say think of it as kind of 18 months or so, 12 to 18 months depending on how much how far you have to go And the like. So that gives us confidence that we'd be able to do something in the back half of twenty twenty two.
And when would you so like how much Could that impact CapEx this year?
Yes, really depending on when we green light and say we're seeing enough strength in volumes, It could have some impact to CapEx this year. We didn't change our CapEx guidance. We had really strong performance on our growth CapEx in Q1. So I think it remains to be seen whether we need to update our CapEx or not depending on the timing of that plant because we do have a range in there.
Got it. Thank you.
Thank you.
Our next question comes from John McKay with Goldman Sachs. Your question please.
Hey, thanks for the time. I wanted to
circle back on CapEx. We've seen a pretty big increase in steel prices over the last couple of months. I imagine you're largely covered for 2021. But just curious if you could talk about maybe the impact on 2022 CapEx
and just generally, how we should think about input costs potentially going up?
Yes. And we have seen some input costs increase. So you're right, Steel and just a number of other commodities have increased significantly. That will have some upward pressure on cost. But I'd say what we're seeing now is more than an offset on the labor side, with it's not in the heated environment we were in 24 months ago.
So Being able to negotiate rates on the labor and contracting side is offsetting that. So that's why the $150,000,000 we said for the plant, I think for our last plant, new bill we indicated was around 165 So all in, it is a net benefit with this lower level of activity.
That's helpful. Thanks. Maybe just a follow-up. M and A across the market
is picking up again slightly at least on
the asset side. Can you just
kind of talk a little bit about what you're seeing,
how you're thinking about maybe corporate M and A more generally and then also if there's any updates on the non core sales side. Thanks.
Sure. For us as we look out, there are a number of smaller Acquisitions that are out there and I guess available. We still look at it here. It's a really high hurdle For us to go and acquire something, we have good opportunities on the organic side. And our focus, as we talked about earlier, is on reducing our leverage and simplifying.
So that's really going to be our focus now. We have a really good footprint on the GMP side that's feeding our downstream business. So we're not in a position where We have a need to go and do something to utilize our downstream assets. We have a really good footprint. So I think we're going to be patient there and continue To evaluate those opportunities and look at them relative to our organic growth opportunities and our Leverage targets and goals.
That said, I mean, we always look at things. So there may be something that's bolt on relatively small that could work for us. I'd just say it's still, it's a relatively high hurdle for us as we are focused on reducing our leverage.
Related to non core asset Sales, there's no update. We don't have any processes underway right now. But as always, they're looking across the portfolio to see if there's anything that makes sense for us to divest.
All right.
That's great. Thank you very much.
Okay. Thank you.
Our next question comes from Tristan Richardson with Truist Securities. Please go ahead.
Hey, good morning, guys. I appreciate all the comments. You covered a lot of ground this morning. I just wanted to follow-up on one earlier question on the updated financial guidance. I mean, Jen, you talked about it extensively.
It seems to capture your new commodity assumptions as well as impacts from the storm and OpEx adjustments. But Thinking about the volume side, as we continue to see price response on the part of producers, does that offer Incremental opportunity this year versus your volume guide that we should think of is pretty consistent with where it was even at the beginning of this year.
Yes. I would say we are seeing some increase in activity from some of the smaller producers we have On our systems, so if we are here in the 60s, I think the longer that we're here, the more kind of response you're going to see from those folks. Yes, I still think from our larger customers on the supply side, don't see a lot Change in what they're telling us in terms of their volume expectations for this year. If we hang around here for the duration of this year, I could see potentially in late 2021, but probably really into 2022, maybe there's additional ramp in from some of our larger customers. But in the aggregate, I'd say that there is some potential upside to this year.
To really get the larger guys moving, it's more about what's their free cash flow targets, their debt reduction plans and the like. So And I'd also point out, we are holding to our volume guidance. We saw a significant I mean, we significantly underperformed in the Q1 because of the winter storm. So there's some kind of implied strength in the remaining part of this year because the Q1 was way under our expectations, but we still feel good about our overall Volume range.
That's helpful. Thanks, Matt. And then I guess just thinking, Jen, you noted no update on the non core side, obviously containing more of the portfolio. I guess we've seen some healthy markers on gas assets in the market. So I guess to the extent you have the capacity you need locked up for the foreseeable time frame, just curious on how strategic or how core You view your equity stake on the long haul gas side?
Tristan, we've been fairly open that our minority That is one of the assets that is in the DevCo, so that clearly complicates Any process that we might want to undertake in the relative short term, but that's definitely something that we will continue to evaluate, particularly as we think about Taking out the DevCos and then owning that full interest again in Gulf Coast Express, that's certainly one of the assets that we've previously identified
Our next question comes from Keith Stanley with Wolfe Research. Please go ahead.
Hi, thanks. Most of my questions have been answered. I just wanted to clarify on the preferred stock when the takeout Steps down to 105 percent. Was it Q1 2022 or 2023?
No. It steps down from 110 to 100 and 5 in Q really the end of Q1 of 2022.
Okay. So when you think about timing, do you think you'd have financial capacity, However, you're going to take that out with, I assume, debt and cash to do that pretty early in 2022 or would you need to wait A little since you're kind of absorbing the DevCo at the same time. I'm just trying to get a sense of when the big simplification items could be complete.
Frankly, it's something that we are continuing to assess, Keith. So continued outperformance this year will give us more flexibility and more Capacity to potentially redeem parts or more of the TRC preferred earlier. I think our ability to effectively take out the DevCo and the TRC prep is largely dependent on where our leverage And what our passing looks like with the rating agencies, I think that's a big component that we'll be continuing to assess As we move through the rest of this year and into next year. So would we have the liquidity to do it and the ability to do it Concurrent or around the same time in 2022, I think, yes. But what are the implications of that with the rating agencies Related to our leverage ratios, etcetera, is something that we'll be continuing to assess again as we move through the rest of this year and into next year.
Got it. Thank
you. Okay. Thank you. Thank you.
Thank you. Our next question is from James Carreker with U. S. Capital Advisors. Please
Thanks for the question. Just wanted to circle back and try to maybe unpack Q1 results a little bit more. If I look sequentially EBITDA was up $80,000,000 versus Q4. You talked about the $30,000,000 storm impact, But G and P volumes were down, frac volumes down, export volumes down. So Are there some other buckets that could help explain exactly where the remainder of that delta is coming from?
James, this is Jen. I think if you look sequentially, we certainly benefited from lower costs and we've talked about that a lot this morning. We also benefited from the $30,000,000 of what we characterize as an aggregate net benefit. So that takes into account All of the negatives associated with lower volumes and we were still able to generate an additional $30,000,000 I talked a little bit earlier in one of the questions about additional marketing And essentially additional realized margin from marketing. So that's a small part of the sequential benefit Quarter over quarter as well.
And so I think those are really the large component pieces. Sanjay, am I missing anything?
Just On non controlling interest, production being lower quarter over quarter as a result of some of the joint venture assets.
That's right. To Sanjay's point, the non controlling interest cutback was lower in the Q1 than it was in the 4th quarter, and that's because our joint ventures were largely impacted on the negative side from some of the volume variances Quarter over quarter as a result of the winter storm and a lot of the aggregate net benefits that we've talked about was really more at sort of the corporate level.
And so I guess some of these, I guess non storm related marketing margins, I guess was there Something that led to those opportunities being available that is not related to the weather?
We generally have marketing benefits that we're able to realize each quarter and it's really dependent on market dynamics, etcetera for what we benefit and where we benefit across our businesses when you look at a quarter by quarter basis. So as I mentioned, in the Q1, we did benefit Some realized gains associated with contango trades that we entered into when there was steep contango in various commodity The markets back in 2020 and some of that was realized in the Q1. Some of that was also realized in the 4th quarter, But there was more sequential benefit in the Q1 than the Q4.
Yes. I guess I'm just struggling because I guess wouldn't you have known Those commodity trades when putting out your prior guidance. So I'm just I'm trying to, I guess, also bridge the gap between old guidance, new guidance, Volume is flat, commodity prices up a little bit, dollars 30,000,000 storm impact. So I guess what else Was kind of new information in this revised guidance?
I think that New information in the revised guidance was a lot of different elements, some of which we've talked about on the call. But I think there's also, Frankly, just less conservatism in our guidance because we're now 1 quarter through the year. So we've got 1 quarter that's actualized where we Actually had additional benefits from the winter storm that we previously had not expected. I think we also again feel like there's good Stability related to where we are in terms of COVID and the potential future impacts on our business as a result of COVID. And then there is continued commodity price tailwinds and we were seeing, I think, pretty steep backwardation And in commodity price markets, when we came out with our guidance, so to the extent that we're able to continue to realize the benefits of those as we move Through the rest of the year, that's certainly a benefit, and we're also seeing some of the benefits from higher prices on volumes, which To Matt's point is why we haven't changed any of our volume guidance despite volumes being lower in the Q1 than we certainly would have expected when we first came out with guidance.
Okay. Thank you for the color.
Thanks, James. Okay. Thanks.
Thank you. Our next Question is from Sunil Sibal with Seaport Global. Please go ahead.
Yes. Hi, good morning. Thanks for all the color on the call.
I just wanted
to explore the capital allocation part a little bit. So it seems like getting back getting to IG is a higher priority. I was curious, the way credit markets price your debt seems like they already give you a fair bit of credit of the asset diversity And the quality of the asset, so are there any significant benefits beyond the financial benefits for transitioning to IG in terms of the Strategic benefits or any operational or contractual benefits that you expect to realize?
We have been a very strong high yield credit, Sunil, and I think have definitely benefited from that. But as we look forward, The benefits to becoming investment grade and being a strong investment grade credit are more than just financial. Our ability to issue longer Term debt, for instance, is a positive. The fact that generally the market for investment grade debt stays open versus We have had to successfully sort of reopen the high yield market more than once through Targa's history. So those are also financial benefits.
But I think Just in terms of working with counterparties, being investment grade is a benefit as well. It changes that dialogue a little bit, makes it a little bit easier. And so I think that we see a lot of both intangible and tangible benefits. And that's why This has always been a priority of ours. We've always just articulated that we expected the business to sort of get to investment grade naturally over time As our growth capital spending came down, as our leverage ratios improved, as we benefited from increasing EBITDA, higher fee based margins, more fee floors, So a lot of our efforts over the last couple of years have really been to set up this path to investment grade and we certainly think it's one that we're Today and one that we think is important to us over the long term.
We've all lived through a difficult last many years and I think Being Investment Grade has shown its benefits to those credits that have been strong investment grades through a lot of volatility.
Okay. Got it. Thanks for that. And then on your Permian contracts, I think couple of Is that still kind of the right way to think about it? Or has there been more changes in that mix?
I'd say we continue to make progress on adding fee floors and fee based components to our Permian contract. I think last time we gave the update, it was about 65 I think we're continuing to make progress and move that higher. So a lot of those arrangements are So they are still percentage of proceeds. They just have a minimum. And so earlier last year, we were kind of underneath that fee floor now for a lot of those contracts we So they're still POP, but they just have a minimum associated with them.
And so I'd say we're at kind of 65% plus Now, and we'll continue to make progress as we move forward.
Thank you. And I will pass the call back to Sanjay Ladd for any final remarks.
Great. Well, we thank everyone for participating in this morning's call and appreciate your interest in Targa Resources. The IR team will be available for any follow-up questions
And this concludes today's conference call. Thank you for your participation and you may now disconnect.