Good day, ladies and gentlemen, and welcome to the Targa Resources Corporation First Quarter 2018 Earnings Webcast and Presentation. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. Would now like to introduce your host for today's conference, Sanjay Lad, Director of Investor Relations.
Sir, you may begin.
Thank you, Heather. Good morning, and welcome to the Q1 2018 earnings call for Targa Resources Corp. The Q1 earnings release for Targa Resources Corp, Targa, TRC or the company along with the Q1 earnings supplement presentation are available on the Investors section of our website at targaresources.com. In addition, an updated investor presentation has also been posted to our website. Any statements made during this call that might include the company's expectations or predictions should be considered forward looking statements and are covered by the Safe Harbor provision of the Securities Act of 193319 34.
Please note that results could differ materially from those projected in any forward looking statements. For a discussion of factors that could cause actual results to differ, please refer to our recent SEC filings, including the company's annual report on Form 10 ks for the year ended December 31, and subsequently filed reports with the SEC. Our speakers for the call today will be Joe Bob Perkins, Chief Executive Officer Matt Molloy, President and Jen Neal, Chief Financial Officer. We will also have the following senior management team members available for Q and A. Pat McDonough, President, Gathering and Processing Scott Pryor, President, Logistics and Marketing and Bobby Muraro, Chief Commercial Officer.
Joe Bob will begin today's call, Matt will provide an update on commercial developments and business outlook, and Jen will then discuss Q1 2018 results and wrap up our prepared remarks before we open up for questions. I will now turn the call over to Joe Bob Perkins.
Thanks, Sanjay. Good morning, and thanks to everyone for joining. It's been a busy couple of months since our last earnings call, and I believe that the announcements that we made since mid February are examples of the strength of execution across our organization. Commercially, we announced significant additional Delaware Basin processing expansions supported by long term fee based agreements to provide gathering, processing, downstream transportation, fractionation and other related services with a well positioned investment grade energy company. Importantly, part of our expansion is to construct new high pressure rich gas gathering lines across some of the most attractive acreage in the Delaware Basin.
And that new pipe positioning is already bearing additional fruit, where otherwise we would not have been able to compete before. We've already contracted with additional producers, have verbal commitments from others and expect additional dedications over the coming months. We also announced that we are expanding our Grand Prix NGL pipeline further north into Southern Oklahoma. That expansion is supported by volumes from our current and future Arcoma plants and by a significant long term transportation and fractionation volume commitment from Valient Midstream. Valient is a private midstream company that put together a very attractive, very large dedicated acreage position in the Arkoma stack.
We issued $1,000,000,000 of senior notes at an attractive rate in a choppy high yield market in early April, which demonstrates the continued strong support of Targa's business by our high yield investors. We announced in early April that the 200,000,000 cubic feet per day joist plant has been successfully brought online. The Joyce plant was on time and on budget and provides much needed relief to a system that has been operating over capacity in the Midland Basin. We also recently brought the 60,000,000 cubic feet per day Oahu plant online in the Delaware Basin, adding incremental capacity as volumes continue to ramp in our Delaware systems. And this morning, Whitewater Midstream announced that Targa made a small 10% equity investment and secured strategic space on their project financed Delaware Basin to Waha pipeline.
Also in April, we announced that we retained Evercore to evaluate the potential divestiture of our petroleum logistics business and that process is ongoing. And this morning, we announced that we recently executed agreements to sell our inland barge business for about $70,000,000 That's an example of us identifying some less strategic assets that could be sold for an attractive valuation with the proceeds used to help fund our ongoing highly strategic capital program. These public announcements, coupled with year to date execution on multiple other fronts, support our key strategic initiatives, which include: investing in attractive projects that will leverage our existing infrastructure and further strengthen our competitive advantage proactively financing our growth program to maintain balance sheet strength and flexibility and continuing to identify and pursue additional opportunities to further integrate, strengthen and grow our existing asset base to further enhance an already attractive long term target outlook. Our capital program is expected to generate significant cash flow growth as the various highly visible projects become operational. The longer term outlook that we provided last June is even better today.
Looking back at the outlook provided at that time, the fundamentals are currently stronger, including more activity and higher oil and NGL prices than we developed the outlook nearly a year ago.
Plus,
we have had a year of additional commercial success that was not included in that outlook. And since that time, Targa has announced significant additional growth projects that were not included and that clearly leverage our existing asset base. We are well positioned to deliver attractive returns to Targa shareholders over the longer term, supported by our focus on execution and on continuing to provide best in class midstream services to our customers. With that, I'll now turn the call over to Matt, and Matt will provide an update on commercial and operational execution and our business outlook. Matt?
Thanks, Joe Bob, and good morning, everyone. Commercial activity and production in many of our operating regions continues to increase, and we expect this positive trend to progress throughout 2018 and beyond. Compared to the Q4, Q1 Permian inlet volumes increased 3% even with the freeze offs related impacts in January reducing 1st quarter average Permian inlet by approximately 2%. Volumes have since more than recovered with estimated average April Permian inlet volumes already 8% above the 1st quarter average. For our total field G and P, estimated average April inlet volumes were 5% above the 1st quarter average.
In the Permian, we continue to execute on our growth program and remain on track to add an incremental 710,000,000 cubic feet per day of new processing capacity in 2018. In the Delaware Basin, the 60,000,000 cubic feet per day Oahu plant is online, and we expect to begin commissioning our 250,000,000 cubic feet per day Wildcat plant later this month. Both plants are interconnected with multiple other plants and systems across our Permian Basin footprint. Our recently announced Delaware Basin expansion includes a 220 mile high pressure rich gas header system and 2 new 250,000,000 cubic feet per day cryogenic natural gas processing plants. The Falcon and Peregrine plants are scheduled to be completed in the Q4 of 2019 and the Q2 of 2020, respectively.
As part of the agreements underpinning the expansion, Targa will also provide transportation services on Grand Prix and fractionation services at its Mont Belvieu complex for a majority of the NGLs from the Falcon and Peregrine plants. Without our multi plant system that spans across the Permian Basin, Grand Prix and our fractionation assets and our reputation for best in class midstream customer service, we would not have been successful in executing these agreements. The integrated midstream service offering that we were able to provide to our producer customers in the Permian is exemplified by this deal. On the Midland side of the Permian, production growth continues at a rapid pace. We are running some of our Westech facilities above nameplate capacity to meet the processing needs of our customers, while also offloading to other Targa systems and third parties and the Joyce plant coming online provided some much needed system relief.
Our expectations for our 200,000,000 cubic feet per day Johnson plant are similar. It is anticipated to begin service in the Q3 and is also expected to be highly utilized when it comes online. As a result of the production trends that we're experiencing and continued production growth forecast from our customers, In the Q1, we announced that we are moving forward with construction of 2 new 250,000,000 cubic feet per day cryogenic plants in the Midland Basin. The Hobson plant will begin operations in the Q1 of 2019. The Hobson plant is being named after the late Steve Hobson, former Targa SVP of Operations and Engineering.
Steve played a key role in Targa's early history, development and growth and he is very much missed. After the Hobson plant, the Pembroke plant will begin operations in the Q2 of 2019. Similar to our other plants currently under construction, these plants will also be interconnected with multiple other plants and systems. A substantial majority of the NGLs from our newly announced Targa plants will be transported over time on Grand Prix to our fractionation assets in Mont Belvieu, LPG export facility on the Houston Ship Channel and other downstream outlets, further increasing the organic growth across Targa's integrated footprint. Moving to our Oklahoma assets, our 150,000,000 cubic feet per day Hickory Hills plant, which is part of our Centrahoma joint venture with MPLX, will support growing natural gas production from the Arkoma, Woodford Basin and is on track to begin operations in the Q4 of 2018.
In late March, we announced the extension of the Grand Prix pipeline into Southern Oklahoma, which will integrate Targa's GMP positions in South Oak and North Texas to Targa's Mont Belvieu complex. The extension is supported by significant long term transportation and fractionation volume dedication from Targa's existing and future processing plants in the Arkoma area and our South Oak system. Additionally, the extension is also supported by significant long term transportation and fractionation commitments from Valiant Midstream. Valiant is a leading private midstream energy company whose position in the highly prolific Woodford formation is backed by over 1,800,000 of committed gross acres within an area of mutual interest. Valient's initial system infrastructure, which is expected to phase in during the Q2 of this year, will span across multiple counties in Southern Oklahoma and will include the installation of a 200,000,000 cubic feet per day cryogenic processing plant and a high pressure trunk line spanning through the basin's liquid rich fairway.
In the Bakken, our outlook continues to strengthen as activity remains robust on our dedicated acreage and as we benefit from increasing production levels. Estimated April crude gathering volumes averaged about 140,000 barrels per day, representing a sharp increase over 1st quarter levels. Construction of the new 200,000,000 cubic feet per day plant at our existing Little Missouri facility through our fifty-fifty joint venture with Hess Midstream is well underway and will help meet Targa and Hess' growing production needs. The LM4 plant is on track to be complete in the Q4 of this year and is expected to be highly utilized over the next year after it commences operations in early 2019. Turning to our Downstream business.
The outlook for our Logistics and Marketing business continues to strengthen, supported by strong supply and demand fundamentals. We expect higher field GMP inlet volumes and increasing ethane recovery to drive higher fractionation volumes, and we expect this trend to continue in 2018 and beyond. In the Q1, our volumes increased 26% over last year's volumes. The 4th quarter outperformance and fractionation volumes that did not carry over into Q1 was attributable to the impacts of Hurricane Harvey as we fractionated some of our additional inventory in 4th quarter and also had higher third party spot volumes from fractionating some of the excess inventory build of our peers. We completed a scheduled turnaround of our CBF Trains 1 through 3 in early April.
For the remainder of the year and beyond, increasing GMP volumes are expected to result in increasing Y grade volumes available for fractionation. To accommodate this growth, our 100,000 barrels per day Train 6 fractionator is under construction and is expected to be highly utilized when it begins operations in the Q1 of 2019. Benzene volumes were lower in the Q1 and while we continue to receive take or pay payments related to the contract we have in place for benzene treating through 2018, we are going to repurpose our facilities into additional low sulfur natural gas treating over time given the increasing demand for LSNG. The EBITDA impact from these reported volume changes is de minimis. Shifting to our LPG export business.
We averaged 6,100,000 barrels per month of exports at Galena Park during the Q1, and April volumes were similar to Q1. Our long term outlook is largely unchanged as the long term fundamentals remain robust for U. S. LPG exporters, driven by international LPG demand growth and continued strength in growing LPG supply from the U. S.
We have an attractive multiyear contract position, and the interest in multiyear contracts continues. We are enhancing our capabilities and flexibility at Mont Belvieu and Galena Park to meet customer demand as we continue construction and add infrastructure at Mont Belvieu and Galena Park, including a rebuild of our oldest dock at Galena Park. These enhancements give us additional capability to export more LPG volumes depending upon vessel size and product mix. The Dock 2 rebuild will be concentrated during the 2nd and third quarters of this year and will have minimal impact on our operational capacity at Galena Park. Construction on Grand Prix continues and the project remains on time and on budget with the pipeline expected to be fully operational in the Q2 of 2019.
As announced in late March, volumes are currently expected to exceed 250,000 barrels per day in 2020. Grand Prix is expected to provide significant and increasing fee based earnings over the long term, and we are well positioned to stage incremental low cost expansions that would further enhance the project economics to target. We are well positioned to expand Grand Prix by adding pump stations prospectively when required. As an example, the estimated cost to fully expand Grand Prix capacity from 300,000 to 550,000 barrels per day from the Permian and 450,000 to 950,000 barrels per day in De Mont Belvieu would be less than 10% of the originally announced project cost, providing Targa with capital efficient growth opportunities that would generate attractive returns. As it relates to residue gas takeaway, Targa is one of the largest aggregators of natural gas in the Permian.
Our investment in GCX helped solve some of the gas takeaway constraints from the basin and will direct gas to premium markets. Additionally, our aggregated positions in excess of GCX are well positioned to negotiate reliable and competitive future gas takeaway for our producers. You may have also seen a press release from Whitewater Midstream yesterday that we are now a 10% equity owner in the Agua Blanca pipeline in the Delaware Basin. Construction of the pipeline is being largely project financed. So for a de minimis amount of capital, we secured an interest in an attractive project that enhances our ability to transport volumes in the Delaware to Waha.
With that, I will now turn the call over to Jen to discuss Targa's results for the
quarter. Thanks, Matt. Good morning, everyone. Targa's reported adjusted EBITDA for the Q1 was $307,000,000 which was 11% higher than the same period in 2017. Continued strong gathering and processing volume growth in the Permian, complemented by higher volumes in Badlands, South Tex and South Oak, along with higher commodity prices and higher fractionation volumes drove the increase in adjusted EBITDA over the prior year, partially offset by declining West Oak and North Texas volumes.
Reported net maintenance CapEx was $22,000,000 in the Q1 of 2018 compared to $25,000,000 in the Q1 of 2017. Distributable cash flow for the Q1 was $216,000,000 resulting in dividend coverage of about 1x. Sequentially, adjusted EBITDA for the Q1 decreased 7% over the 4th quarter. If we normalize and exclude EBITDA that shifted from Q3 to Q4 as a result of the impacts of Hurricane Harvey, adjusted EBITDA for the Q1 was about 4.5% lower than the 4th quarter. In our Gathering and Processing segment, operating margin decreased by $13,000,000 in the Q1 when compared to the Q4.
Higher natural gas inlet volumes in the Permian, South Tex, Badlands and Coastal were more than offset by lower NGL prices and higher operating expenses due to new assets and system expansions. 1st quarter Permian inlet volumes sequentially increased 3% from growth in each of our Permian Midland and Permian Delaware systems. And as Matt mentioned, volumes would have been higher by approximately 2% pro form a for the freeze offs experienced in January. Inlet volumes in South Texas sequentially increased 14% as we benefited from both volumes from Sanchez and from the producer contracts acquired with the Flag City assets. In the Bakken, 1st quarter crude oil gathered volumes were largely in line with the 4th quarter and were modestly impacted by the timing of well completions.
Permian crude volumes gathered in the Q1 were up 10% over the Q4. In our Logistics and Marketing segment, operating margin decreased $15,000,000 in the Q1 compared to the Q4 as higher wholesale propane operating margin was more than offset by lower fractionation volumes due to unusual outperformance in the Q4 as mentioned, lower treating volumes and higher OpEx. LPG export volumes were strong in the Q1 as we averaged 6,100,000 barrels per month of exports at Galena Park. Our first quarter results were consistent with our expectations we have no changes to our 2018 financial and operational outlook. We continue to expect Permian inlet volumes to ramp throughout 2018 as production growth continues and new target plants begin operations, and we expect the same volume growth trend to translate to our downstream fractionation business.
We expect adjusted EBITDA to also ramp throughout 2018 with 4th quarter adjusted EBITDA being the highest for the year. Moving now to other finance related matters. The fair value of the earn out payments for our Permian acquisition is currently estimated to be $373,000,000 with the entirety of the payment forecasted for April 2019. No payment is due related to the March 2017 through February 2018 measurement period. The $56,000,000 increase in the contingent consideration versus the 4th quarter estimate is attributable to an increase in underlying volume expectations and a shorter discount period.
During the Q1, we executed additional hedges and for 2018, we estimate that we have hedged approximately 90% of condensate, 85% of natural gas and 80% of NGL volumes based on our estimate of current equity volumes from our fuel G and P contracts. Our natural gas hedges include regional basis hedges. For 2019, we estimate that we have hedged approximately 65% of natural gas, 65% of condensate and 45% of NGL volumes based again on our estimate of current equity volumes from field gathering and processing. As Joe Bob mentioned, in April, we issued $1,000,000,000 of 5.7 8 percent senior notes due in April 2026. Net proceeds from the senior notes offering were used to reduce borrowings under our revolver at TRP and our accounts receivable facility.
Pro form a for the senior notes offering, our consolidated liquidity was approximately $2,700,000,000 On a debt compliance basis, TRP's leverage ratio at
the
end of the Q1 was approximately 3.9x versus a compliance covenant of 5.5x. Our consolidated reported debt to EBITDA ratio was approximately 4.6x. Our current 2018 net growth CapEx estimate remains unchanged from our previous update and is approximately $2,200,000,000 Full year 2018 maintenance CapEx is forecasted to be approximately $120,000,000 Consistent with our messaging since our November earnings call, we are focused on identifying the most attractive ways to fund our growth capital program given the visibility that we have to increasing EBITDA looking forward. Year to date, we received $87,000,000 of net proceeds from the sale of common equity under our ATM program and believe that the ATM is a useful tool for us given our liquidity as a C Corp. The execution of agreements to sell our barge business and the potential divestiture of our petroleum logistics business highlight our willingness to sell assets to deploy capital into more accretive opportunities.
Our confidence in our multifaceted financing approach supported by the DevCo joint ventures that we announced in early February, our notes offering in early April, which both demonstrate our continued access to private equity capital and public debt capital at attractive costs and significantly reduce our funding needs for 2018 2019. We continue to receive strong support and future interest from both sources to provide us with additional capital. We remain focused on executing on the projects that we have underway to bring our projects in a service on time and on budget and also continue to be focused on securing attractive sources of financing that enhance and maximize longer term shareholder value. As we look forward and consistent with the long term outlook that we published last June, our balance sheet and dividend coverage are expected to strengthen significantly as our projects underway are completed and our EBITDA increases, and we are very excited about the outlook for Targa and its shareholders. So with that, Heather, please open the line up for questions.
Thank Your first question comes from the line of Shneur Gershuni with UBS. Your line is
open.
Hi, good morning everyone.
Hi, Shneur.
Just wanted to start off, when you laid out your 5 year plan last June, you announced a series of projects since then. I realize each one of them is smaller in nature, but cumulatively, it's been a large capital increase. You've also signed a large acreage dedication at the same time. Directionally, I was wondering if you can give us some color on how your outlook on the 5 year plan has changed. Do you see getting to $2,000,000,000 in EBITDA earlier?
Or is there another way to characterize it? Do you expect it to go up by a couple of 100,000,000? I was just wondering if you can give us some color on that.
Yes, Shneur. And you're probably aware that we get that question often, and it's understandable that the markets would like a monthly update on our rarely given long range outlook. What we do put in the page in our investor presentation is the factors that have changed since about a year ago, and I described that briefly in my comments. Significantly better industry fundamentals, activity, expected production and commodity prices for NGLs and crude. Secondly, commercial success over the last year.
We continue to have traction leveraging our existing position and making that existing position better. And then, as you mentioned, a significant number of projects that were not included when we laid that outlook out in May of last year. And then we articulated those as they've occurred, as commercially we created the success, got the dedications and announced the projects on the midstream customers' needs. All of that is very positive good news. You've suggested that we probably get to the $2,000,000,000 sooner.
I think that, that's a very reasonable conclusion. But I'm not providing when we get to that. It's just directionally, it has to occur sooner. And I hope that satisfies investors on the phone call today. I know that many have done their own analysis and are coming to a conclusion similar to yours.
Great. As a follow-up specifically around the quarter, OpEx and G and A costs were up, especially sort of if you looked at relative to volumes and so forth. Is it fair to assume that these costs were associated with the start up of the new plants, and that will see operating leverage going forward as those plants ramp to full run rates?
That's right, Shneur. So I mean, I think when you think about the year using the Q1 as a decent run rate, just given that we had the Joyce plant come online, we've got some other plants that are coming online this year, is a reasonable assumption versus trying to exponentially grow it from here.
Okay, great. And then finally, the outrigger liability increased, can we assume it's fair to assume that it's due to a higher volume expectations? And you've also seem to have a lot of frac volumes continue to be up. Is capacity getting tight there? And again, could pricing be going up there as well also?
On the first piece of that related to the Permian acquisition, yes, the contingent liability or the contingent payment is higher now as a result of both volumes and just the fact that there's a shorter discount period related to the fair value as we move through time and get closer to the end of the second earn out payment as well. Yes.
And then on the frac side of things, we are seeing a large increase in Y grade volumes from our systems and that's happening for other systems as well. So fractionation capacity is indeed very tight in Mont Belvieu right now.
Great. Thank you very much guys. Appreciate the color.
Thanks, Shneur.
Thanks.
Thank you. Your next question comes from Christine Cho with Barclays. Your line is open.
Hi, everyone. Good morning. The gas pipes out of the Permian look like they're approaching full capacity and incremental takeaway isn't expected till second half of next year. Do you have an idea of what the producers behind your system are going to do? Should we think that this could potentially slow down growth?
Or is the plan to start flaring?
Question was sort of a broad generalization. I believe that it could result in increased flaring in the Permian. That's a natural conclusion to come to. But it's going to depend on each producer situation and locally where are you in the Permian relative to those takeaway. Also, we've done everything we can to try to provide for our producers driving with our high beam zone is the way we like to think about it, to both get them to liquid points and to get them out of the basin.
Targa is attempting to do that for the near and medium term, not just as many of our competitors are. But I like where we've positioned ourselves so far as a function of our large aggregated residue position in the basin.
And as a follow-up, like excuse me for my ignorance, but I'm under the impression that this flaring usually occurs at the wellhead. So curious as to why this doesn't happen at the back end of a processing plant with just the residue gas?
Yes. Now we're talking about air emissions regulatory frameworks. Targa as a midstream operator is going to live within our regulatory requirements just as the E and P customers were aware of are trying to live within their regulatory requirements. There are different regulatory requirements at the wellhead than at a centralized processing plant. And broadly speaking, producers can get temporary waivers on the ability to flare at the wellhead, and Targa will continue to comply with the emissions requirements that we're under in centralized gathering and processing facilities.
I see. Okay, that's very helpful. And then you guys have seen some big growth numbers in South Texas and the NGL volumes that it's turning out implies that the gas is much richer than what you've historically seen in that segment. Can you talk about what's driving that? Is that just as simple as the Flag City volumes are much richer?
And how should we think about the cadence of that growth going forward?
Yes. For the Y grade increase we've seen, if you're looking at the year over year volumes, a lot of that is more recovery. And so as we look at just our economics and producers' economics, you can see the Ethane. Yes, see. More ethane recovery.
So I think it's really more just a factor of what we're recovering at the plants more than the gas being richer.
I see. Okay. And then just two housekeeping items. Did you say that some of the volumes in the Permian were being offloaded to 3rd party plants? And if that was what I heard, could you quantify how much and for how long?
Yes. We gave a number in the Q4 about the offloads we had to third parties. It was what is it? It was $30,000,000 Yes, it was about $30,000,000 or so. We had some in the Q1.
We didn't quantify it. It's significantly less than that. So most of it, we were able to get on to our systems. When you look at the average for the quarter with Joyce coming on, it did provide some relief. But we didn't quantify for the Q1 what that was, but it was 30 in the Q4.
Thank you so much.
Thanks, Steve.
Thank you. And your next question comes from Colton Bean with Tudor, Pickering and Holt. Your line is open.
Morning, folks. Good morning, guys. Just wanted to check on the Delaware processing throughput. It looks like volumes were effectively flat quarter over quarter. So is that somewhat constrained until Oahu entered service?
Or is that primarily a result of weather impacts?
Yes. So I think that was potentially or it was partially related to the weather impacts. We were in the process of starting up Oahu as well. But we see the outlook really as strong as ever for the Delaware, and you can kind of see that with actually the payment that Jen mentioned increasing for next year, the earn out payment. So we think the outlook is as good, if not better, but it was impacted by weather in the Q1.
And I guess just to follow-up on that from an operational standpoint, is there a risk to greater seasonality production as you have more production coming from the Delaware with a significantly higher water cut?
That's an interesting observation. The higher water cut is problematic. The multi system systems connected to multi systems helps us as a midstream provider and we will be learning what it means for each of our E and P producers. What typically happens is they get better and better at handling it, and we would expect that.
And just to switch gears over to crude gathering. It looks like the updated presentation shows a pretty steep uptick for gathering in April versus Q1.
Do you
guys have any comments on what the driver of that was, whether it be Permian or Badlands and just kind of some comments there?
Yes. A significant uptick of that was in the up in the Badlands. We mentioned I think we said in script, it was 140,000 barrels a day. So it was a pretty big uptick up in the Badlands, but I think we saw some growth out in the Permian as well, more on the Midland side too.
And then just final one for me, probably on the fractionation front, Cigna. Appreciate that the 4th quarter saw an uplift from volume shifting from Q3. I think you had previously provided an adjusted number for Q4 and it looks like that was revised a bit further. So if you guys could just talk about kind of what the, that secondary revision was and how we should think about the trajectory over the course of the year?
Yes. So when we were looking at the numbers, Colton, part of what we revised was the fact that we also had a number of third party volumes running through our fracs in the 4th quarter related to those 3rd parties also having built inventory as a result of Hurricane Harvey. So we felt like that was a more accurate depiction of the Hurricane Harvey impact was to not just show the impact to Targa of inventory that moved into the 4th quarter, but also to quantify for you the impact of third party inventory that also moved into the 4th quarter.
Makes sense. All right. Appreciate the time. Okay, thanks.
Thank you. And your next question comes from TJ Schultz with RBC Capital Markets. Your line is open.
Hey, good morning.
Hey, good morning.
Hey, how far along in the process are you on the terminal and splitter asset sale program? Have bids been received at this point?
Yes. I guess I'd just say that that process is progressing. There is a lot of interest. So there's a lot of potential bidders that were have signed CAs. So that's as far as I'll kind of say as far as the process.
But early indications are that the progress is progressing very well and there's a lot of interest.
Okay. Thanks. The Galena Park dock rebuild, can you quantify what impact that will have on operational capacity for exports?
Let me provide a quick answer to that one. I noticed as we went through the script, it might have left a question. We were trying to point to our customers and others that the impact of the work would not be significant while it was going on. What we weren't trying to point to was that it was not debottlenecking or making things better. So I just thought I'd clarify with the intention of the script and Scott can add some more color to it.
Yes. Certainly, what we point to is the fact that we will have some downtime associated with that dock to rebuild during the second and third quarter. But again, from a contractual standpoint, our obligation to our customers and frankly, the ability to continue to spot sell where there is availability in the marketplace will continue throughout those quarters. So again, we see very minimal impact to us.
And we haven't quantified what positives it's providing. We're constantly working on adding effective capacity.
Okay. Thank you. Okay. Thanks, TJ.
Thank you. And your next question comes from Craig Shere with Tuohy Brothers. Your line is open.
Good morning.
Good morning, Craig. Hey, good morning.
I appreciate the continued robust outlook for the LPG market with exports. We're starting to hear more and more peers kind of talk about vertically integrating into that same area. Can you kind of opine on the potential enhanced competition that might develop and your competitive edge over the next 2, 3 years?
This is Scott, Greg.
What I
would say is, is again, when we look at the position that we have, again, integrated through our upstream production, now tied into pipelines that are connecting upstream to downstream through Grand Prix and the increased capacity that we will have over time through fractionation, the announcement of our Train 6, which is currently under construction, looking at additional permits in the future for fractionation expansion, all tied to our Galena Park facilities. We like our position, especially when you look at the ability to store it in Mont Belvieu. So I can't really concentrate or comment on what's going on with competition. I would just say that our integrated platform looks very attractive to the marketplace, and our customer service is very good as well. So we like our potential for growth in the future.
And we have the ability to expand at our own facility. And we constantly look at opportunities to do those things, and we're in a position that we like.
Are you looking at all at diversifying the product in future years?
Certainly, most of our concentration over the years since our first announced expansion back in 2013 has been more on propane. Over the years and the recent announcement with DOC2 and some of the integration with a new pipeline concentrates a little bit more on butanes where we see some growth opportunities. So we're enhancing those capabilities. We're always willing to look at other products. We've mentioned in the past the possibilities of increasing our abilities on ethylene.
But again, currently today, our concentration is on propane and butanes, but we don't write off any other potential products.
That's helpful. Thank you. And last question. Joe, Bob, in your prepared remarks, you kind of foreshadowed additional Permian acreage dedications expected in coming months. Without specifics, any kind of proportionality or bookend range that you can provide for some of this incremental commercial opportunity?
I'm very pleased with the traction we have on commercial activity around our assets. And in those prepared remarks and sometimes I go off script, I was trying to point to the benefits that the high pressure header associated with that very large investment grade energy company's dedication, that pipe running through that part of the Delaware would provide. And they're incremental to the first deal, but very attractive because they are incremental to the first deal and then leverage that pipe that's being put in place. Others we don't talk about, that the leveraging of existing assets, the leveraging of our footprint is very accretive, higher return than if we were out there working in the white space. That's our focus, and I'm proud of the team that's doing that.
Understood. Thank you.
Thank you. Your next question comes from Darren Horowitz with Raymond James. Your line is
On the logistics side, you had mentioned higher ethane recoveries and the opportunity for that to lead to higher frac volumes. From an ethane recovery perspective, what level is built into your guidance? And what pricing impact as we progress throughout this year do you think that's going to have on ethane frac spreads specifically net to your equity NGL interest?
Yes. Good question, Darren. So we had and we had that outlook. We had a significant amount of ethane recovery built into that longer range forecast. So and it's a mix.
Some of our plants are in full recovery, others are in partial rejection. And some oftentimes, if we have capacity constraints in areas, we'll go into rejection even if it's could be operational issues that lead to that. So it's a mix in that forecast. There is some upside. If we were going to go into full recovery mode, there would be some upside to that forecast.
And it's really going to benefit us, 1, on the frac side as we get more volumes through the fractionation. But once Grand Prix comes online, we'll get the kind of double benefit of getting additional fees for transportation and fractionation. So it's really kind of be going to those later years when Grand Prix is online, there's more upside, I'd say, in the post Grand Prix commencement than the pre.
Okay. And then if I could, just one quick financing question. Jim, as you think about derisking the funding gap, excluding any sort of petroleum logistics asset sale for the remaining 2018 equity requirement, do you think or maybe I should say, hypothetically, do you forecast that the ATM on a standalone basis can get you there? And then when think about the upcoming construct for financing 2019 growth CapEx, including the Outrigger earn out payment and how you guys are thinking about the call option on the DevCo asset JVs. What's the propensity to take on additional debt and up to what level from a coverage or ratio perspective are you comfortable?
Because obviously what you did in April is an extremely attractive cost of capital. So can you just give us some color there?
Sure. I think from our perspective, obviously the ATM is a very useful tool. It's been a bit of a game changer as a C corp versus an MLP just in terms of the daily liquidity that we have. So certainly if we wanted to just fund through the ATM over the course of the year, that's a tool that's available to us. I think you very consistently heard us say that we are going to use a multifaceted approach to our funding for 2018 2019.
You've seen us execute in a number of different ways already in terms of the DevCos, the more asset level or strategic joint ventures, obviously the barge sale and we do have the pet logs evaluation of a potential sale ongoing. So I think it will continue to be a multifaceted approach looking forward. We're very focused on being prudent and thoughtful given the visibility that we have to our long term EBITDA outlook and figuring out the way that we can most effectively and efficiently fund our capital program, and that will continue to be our focus. That's very much unchanged.
Colton, that was a very good question and a very good answer from Jen. Down I'm sorry, Darren. Down in the beginning of the question, there was a if you exclude the petroleum logistics sale. We were thinking that, that was the most likely scenario. We wouldn't have gone through the trouble of the process in the first place.
So there's likely to be some proceeds. Some of those assets are very likely to sell. That would have to be the expected case or we would we've got better things to do.
And then related to the DevCos, I mean, we very thoughtfully tried to put a structure together that gave us a lot of flexibility. And that's why we have a 4 year option period to buy the interest back. That's why we can buy the interest back in part or in whole. And I think sort of more consistent with target past practice would be to assume that we won't wait till the very end to take it out and we won't take it out all at once. We'll be very thoughtful and prudent about how we approach that as well.
Thank you.
Thanks, Darren. Thank you. Your next question comes from Vikram Baghri with Citi. Your line is
open. Hey, good morning.
Hey, guys. Quickly wanted to follow-up on an earlier question. The 25% inlet volume growth guidance that you have for Permian Basin, does that factor natural gas takeaway constraints in any way? And you mentioned you're taking steps to mitigate the impact of takeaway constraints on your customers. Anything you can share in terms of steps you've taken or things you can do to mitigate the impact?
Yes, sure. So when we gave the 25 percent Permian growth, that's a bottoms up build from our producers, and it was our expectation at those levels that we'd be able to get the gas move to market and away from market. We are one of the larger gas movers in the basin. We're constantly working on securing rights and access to various pipes. We think we've done a good job at serving our producers' needs.
It may get tight. As Joe Bob mentioned, there could be some potential flaring. We'll just have to see how the growth progresses and where the pinch points are. But we've done a proactive job at securing additional takeaway and capacity at various points in and around the Permian.
Okay, understood. And in terms of Midland Basin GPM, it ticked up in 1Q. Was that due to ethane recovery? Or was there something else going on which was onetime?
No. It was essentially more ethane recovery in Q1.
Okay. And the final question I had about the Permian Basin was, I wanted to get clarity around your contract with this IG rated company that signed up for GNP and downstream services. Is the contract for incremental production above current levels or some of the existing volumes could also be shifted to TRGP systems in the future? Anything you can share on that front?
Yes. I want to be careful getting into too much about any specific contract with any one producer. I think I'd just say we have a very attractive long term contract with this producer for significant volumes and that we expect will be falling down our system and we've announced capital associated with those expected volumes. So we feel very good that those volumes are going to be in fact available for us.
Understood. Thank you very much. That's all I had.
Okay. Thank you.
Thank you. Your next question comes from Jeremy Tonet with JP Morgan. Your line is open.
Good morning. Thanks for taking my question. In the slides you noted under LPG exports, strong first quarter exports from additional short term opportunities there. I was just wondering if you might be able to expand a little bit on what the dynamics were there and if that leads to an environment where you can kind of extend your contract profile?
We're constantly, Jeremy, looking at extending our contract portfolio. We've talked about a diversified portfolio on just about every call that we've had for earnings. The success that we saw in the Q1 resulted in demand that we've seen both in the Americas, Europe and other areas that we ship to or that we provide products to. We would expect that some of that could continue forward. I'm not going to lean into whether or not that has led to other long term contracts or anything like that.
But we also did give you an indication in the script today that the volumes that we saw in April were very similar to what we saw in the Q1.
And then just as far as the freeze offs, I'm wondering if you might be able to quantify the dollar impact there. I think you gave the volumes, but just wondering if you had that if you could share that.
No. I think you just have to kind of use your model and estimate for another 2% kind of growth in Permian, what that would relate to in op margin.
Fair enough. I'll stop there. Thank you.
Okay. Thanks, Jeremy. Thanks, Jeremy.
Thank you. Your next question comes from Sunil Sibal with Seaport Global Securities. Your line is open.
Yes. Hi, good morning guys and thanks for all the color on the call. Just had one clarification. So out of the $2,200,000,000 net growth CapEx for 2018, how much was spent so far in Q1? And then how should we think about the cadence for the remainder of the year?
I think it was around $400,000,000 to $500,000,000 for the Q1, Sunil. And then as you think about cadence through the year, that would indicate that potentially be fairly ratable.
Yes. And we'll be filing the Q, which will have the breakout for total CapEx, maintenance growth, and it will have growth in net in there as well.
Thank you. And your next question comes from Dennis Coleman with Bank of America. Your line is open.
Thank you. Good morning, everyone. Just a quick fact check for me. I'm sorry, I was scribbling quickly, but can you just review the expansion capability for Grand Prix? There was a bunch of numbers, I think, 300 to 550.
Sure. I'm going to go pull up my notes. He's pulling it up. The short one is you can see those expansion capabilities described on a page in our investor presentation and it's consistent with initial announcement where it had the unpumped capacity and then the pumped up capacity for the western leg and for the southern leg. And those were the capacities that he did.
And then we said for that, across that $1,300,000,000 worth of initial announced capital, that only less than a 10% increase was required to fully pump up those two segments of the pipe. But now you can give them the numbers. Yes. Okay, perfect. We're
in Slide 15.
Thank you. Slide 15 on the current deck.
That's fine. That's the 10% was what
I wanted to get back to the numbers and I'll check it on the slide. Okay.
I can only remember some of them, but I can remember most of
them. You got through them quickly.
Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Sanjay Ladd for closing remarks.
Great. Thanks to everyone that was on the call this morning, and we appreciate your interest in Targa Resources. Jen and I will be available for any follow-up questions you may have. Thanks, and have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you all may disconnect. Everyone have a wonderful day.