Good afternoon, everyone. My name is Jeremy Tonet. I cover the midstream, and utility space here at JPMorgan . This afternoon, we are very excited to kick off with Targa, one of our truly favorite picks in the midstream space. See significant value with our price target anyways. We're very excited to have the management team here. Jennifer Kneale is gonna walk through some slides, and some prepared comments. If there's time remaining, we could open up for any Q&A.
Perfect. Thanks, Jeremy. Thanks, everybody, for being here this afternoon. Also, joining me up here, I've got Scott Pryor, who runs our downstream business, and then also Sanjay Lad, who runs our Investor Relations business. Really excited to be here today. We think that we've got a very exciting, and compelling story going on at Targa that is continuing to unfold. We'll walk you through a lot of material here in this presentation, and then hopefully we'll have some time to take any questions as well. Turning to slide 2, this is just our corporate structure. We are a C corp. Just a reminder, any forward-looking statements that we make, please refer to our disclosures right here, and any additional questions that you have, you can find information either on our website, or you can give Sanjay, Scott, or myself a call.
If we turn to talking a little bit about Targa's unique investment proposition, I mean, let's step back for a second, and talk a little bit about what Targa is. In our view, Targa is one of the leading integrated downstream or, sorry, leading integrated midstream companies in our space. We believe that we've got what we would characterize as best-in-class Permian Basin assets as the largest gatherer, and processor across both the Midland, and Delaware Basins within the Permian. Then we've got NGL pipeline assets that link those assets to what we would also characterize as best-in-class downstream assets, led by the second-largest fractionation position in the NGL market hub in Mont Belvieu, also a significant propane, and butane export facility on the U.S. Gulf Coast.
When you think about the big themes that are being talked about related to U.S. energy, we believe that we check all of the boxes around where you would want to be positioned thematically. At the end of the day, for us, we think that will translate into significantly growing best-in-class EBITDA year- over- year, over- year, over- year as we look forward, an increasing dividend, reducing share count, and that's part of what we think makes Targa a very compelling investment proposition right now. Turning to the next slide 4, this is just an attempt to show you where we positioned at Targa along the value chain. As one of the largest gatherers, and processors of natural gas in the Permian Basin, there, our largest customers are really the who's who in the producing community, drilling for oil in the Permian Basin.
We're there largely at the wellhead to gather what is coming out of the well on the natural gas mix liquid side. We take that to a processing facility, separate it into residue natural gas, move the remaining natural gas liquids through the rest of the Targa value chain. I think a big part of what we believe uniquely positions us is our wellhead-to-water strategy. If we are connected to a producer's wellhead, likely for that life of that well, we will be touching a molecule multiple times. We'll be able to charge a fee for gathering, for processing, for then moving those volumes down our NGL transportation line, for fractionating, and then also having those molecules available for export or to sell into the domestic petrochemical industry.
Again, multiple opportunities to touch the same molecule, which is part of what we think creates a significant margin expansion opportunity at Targa. Turning to slide 5, this is just a look at our assets. Where are we? Where are we not? Again, talked a little bit about our Permian Basin position, and also our Mont Belvieu position. We also have gathering, and processing assets elsewhere in the United States, in the Bakken, in Oklahoma, in North Texas, in South Texas, and then some infrastructure in Louisiana as well. Turning to slide 6, Targa is a predominantly fee-based business, about 85% of our margin comes from fee-based contracts or fee-based arrangements. Essentially, 100% of our downstream business, the business that Scott manages, is all fee-based.
On the Gathering, and Processing side, where about 55% of our overall Targa margin comes from, the vast majority of that is fee-based as well, either direct fee-for-service, volume times fee, or within some of our contracts, we actually are paid by our producers in the commodities. That's where we essentially go long, natural gas,, and natural gas liquids. Within those contracts, we've also put in what we characterize as fee-based arrangements, which means that because we're paid in the commodity, if commodity prices are too low, and not sufficient enough to generate an attractive return for us, then we will also receive a fee payment from those producers, essentially to get paid at an adequate rate of return for our continued investment in our Gathering, and Processing business.
Now, within the Permian Basin, that for us, historically, if you went back certainly 10 years ago, even five years ago, would have been a much more commodity price-exposed part of our business. Now, because of fee-based arrangements, and also because we've made two significant acquisitions, Outrigger in 2017, and then Lucid Energy in 2022, those were all fee-based contracts. We've added a lot of fee-based margin to our underlying gathering, and processing business as well. Turning to Slide 7, this is part of what we think is what makes Targa a compelling investment proposition to be considered. I think that if we took these bars further out in time, although not providing advanced guidance here, I don't think the story would look that dissimilar. We expect a profile of increasing EBITDA.
We've got millions of acres dedicated to us from producers in the Permian Basin. We believe that to the extent those producers continue to be active, we will be able to invest in our business, and generate a very strong rate of return that will translate into increasing EBITDA as we move through time. You can see the right-hand side of the page, the finance person is very, very proud of as I stand here today. We've also really worked very hard over the last many years to create a very stable, strong balance sheet. Became investment grade in February, March, across all three rating agencies last year. That's something that we are very proud of. Now we've got a long-term leverage ratio target of 3x-4x . At the end of the first quarter, leverage ratio was 3.5x .
Sitting very nicely within that long-term leverage ratio target range, and again, have good visibility to our leverage ratio, improving as we move through time from both a combination of increasing EBITDA, and as we move through our growth capital spend cycle that we're in right now, would also expect to be able to, as we generate free cash flow from those assets, be able to just reduce the overall quantum of leverage in the Targa system. Turning to Slide 8, we also believe that we offer our investors a very attractive value proposition because of what I mentioned earlier, an increasing common dividend to our shareholders.
We've been able to increase our dividend from $0.40 per share back in 2021 to $1.40 in 2022, for 2023, announced that we expect to pay our common shareholders a dividend of $2.00 per common share. I think that we will be able to significantly increase that dividend as we move forward through time as well. We expect to have the EBITDA generation, the free cash flow generation, that would support a significantly increasing dividend to our shareholders as we move through time. We also put in place in the fourth quarter of 2020, what we characterized as an opportunistic share repurchase program. I think that we are held to a very high standard by our board of directors. Are we truly opportunistic?
Are we repurchasing shares when we believe that the market is giving us that opportunity? I think we've been able to demonstrate that track record since the fourth quarter of 2020, and would expect to continue to be opportunistic with the repurchase of common shares as we move forward through time. This is also an important part of how we expect to and how we have been returning capital to our shareholders. Turning to Slide 9, we're investing in what we would characterize as a lot of very attractive projects, really across the value chain, but it all starts with the Permian Basin. The Permian Basin is where this year we guided to an expectation of 10% volume growth for 2023 relative to the fourth quarter of 2022. That volume growth needs infrastructure to support the gathering and processing of it.
We currently have five gathering and processing plants under construction in the Permian Basin. We also, to support that increasing Permian volume growth of natural gas liquids, have announced an expansion, our Daytona NGL transportation line, which will further link up volumes from the Permian Basin down into Mont Belvieu, where we are also moving forward with our Train 9, and Train 10 fractionators, we'll have those volumes available for export, and sale into the petrochemical market. We are currently in the process of finishing a 1 million barrel per month expansion on the export side. A lot of growth capital projects underway. Our downstream projects tend to be very lumpy. Daytona NGL Pipeline, for example, that's a $650 million project. Our fractionators tend to average around $450 million.
Currently, we're working our way through a large capital spend cycle, but as we get to the back half of that in 2024, we've got new plants coming online. Train 9 fractionator will be online. At the end of the year, Daytona will be online. Last major project that we've got announced, and underway right now, our Train 10 fractionator will be online in the first quarter of 2025. Means that after the lumpiness of that downstream capital, we would expect our growth capital to come down, free cash flow to increase significantly as we utilize the available capacity across all of those new assets. That's part of what we're really excited about as well. This was a slide on page 10 that was very important to us to include for the first time in February.
As we think about investing across our value chain, and what we would characterize as very attractive growth capital projects, how do we prove to you all that they are, in fact, very attractive growth capital projects? In February, when we put out our 2023 guidance, we also put out this slide for the first time, which says that essentially over the last four years, we've demonstrated a 26% return on invested capital for those investments. We believe that the investments that we've made over the last several years are really across that core value chain, largely supporting Permian growth on the gathering, and processing side through transportation, fractionation, and export assets. That's the fair way of what we're investing in today. We believe that we will be able to continue to generate attractive rates of return like this, really across commodity price cycles.
Because we are 85% fee-based, and then in that remaining 15% of commodity price exposure, have fee floors in place. Slide 11, 2023, the Targa momentum continues. As mentioned this year, as part of guidance, we said that we'd expect a 20% increase in Permian natural gas volumes year-over-year, 24% increase in EBITDA year-over-year at the midpoint of our EBITDA guidance, increase the dividend 43% to our current levels. Also have that opportunistic share repurchase program underway, and in the first quarter, bought back a little bit more than $50 million of common shares, while also making a billion-dollar acquisition of the remaining 25% interest in our Grand Prix NGL Pipeline that we did not already own.
At the end of the day, what is exceptionally foundational to us, we've got a very strong and flexible investment-grade balance sheet that we believe will allow us, as we move through time, to continue to invest in the business, and also return a lot more capital to our shareholders. We believe that we've got best-in-class positioning in our space and really across the energy industry from that perspective. Slide 12 just highlights all of our financial, and operational estimates for 2023. I'm not going to go through this in detail, largely because now that we're at the end of June, a lot of you have turned your heads towards 2024 anyway. I think this just highlights the positioning that we're in.
We are investing a significant amount of capital. Midpoint of growth capital guidance is $2.1 billion for this year. I talked about the lumpiness of the projects that we have under construction right now. They will provide a lot of capacity to us that we will be able to utilize as we move forward through time. One of the additions that we also made to this slide is the disclosure with the big red arrows there at the bottom. Part of what we're trying to highlight with this disclosure is, if you went back to Targa five or ten years ago, I talked about the fact that we used to have a lot more commodity price exposure than we do currently, because, again, so much more of our business is fee-based today, plus those fee floors that I've talked about.
We said, okay, if we take guidance, we've got a guidance price deck that's in the bottom left half of the page. If we took all of those commodity prices, and we reduced them by 30%, there's no magic to the 30% number, just sounded meaningful enough that it was going to demonstrate what we were trying to demonstrate. If we reduce commodity prices by 30% to the downside, our expectation is that that would be about a $60 million decrease to EBITDA versus the midpoint of our guidance range, all things else being held equal on the volume side. If we had a 30% increase in prices, we would expect to make about a $100 million more relative to our guidance.
We now have in place contract structures, fee-based nature of our business, where we've got more asymmetric risk to the upside than we do to the downside. That is very, very different for those of you that haven't been following the Targa story as closely. If you followed us five years ago, there would be a lot more downside at risk there than there is today. We've worked very hard to minimize the downside risk that we have to lower commodity prices. That means that even if we're in an environment that looks anything like today's, which has low gas prices. We do expect gas prices to move higher, particularly as all those LNG expansions come on-line over time. We've also got depressed natural gas liquids prices right now, particularly for ethane, and propane.
Even a commodity price environment that looks anything like today's, nothing about the value proposition I'm talking about changes. We believe that we will be able to continue to deliver significant year-over-year increases in EBITDA and an increased return of capital to our shareholders, even in a lower commodity price environment, because so much of our business is now fee-based. We get into slide 14 in a lot more detail here around our assets. I'm not gonna go into these in significant detail. I certainly want to leave time for questions. Slide 14 just highlights our Permian Basin footprint. Again, largest natural gas gatherer, and processor in the Permian. Permian is the basin that continues to show the most activity.
When activity gets pulled back, it generally gets pulled back in the Permian last. When activity in terms of rig increases come back as a result of a price appreciation or whatever it may be, generally comes back to the Permian first. I think if you want exposure to energy in the United States, you want exposure to the Permian. We very deliberately have really focused on a Permian strategy to bring those gathering, and processing volumes into our system that we can then leverage through our downstream assets. Slide 15 just goes a little bit to Permian Basin fundamentals. We think the outlook for the Permian Basin, if you take almost any forecast, looks very strong over the next 5+ years. At Targa, we've been able to demonstrate through the last 5+ years, a very strong record of outperforming whatever Permian Basin expectations are.
Again, we think this leaves us really well-positioned going forward to benefit from continued growth. Our leading gathering, and processing system, again, has translated into a significant increase in growth in Permian inlet volumes. Those blue bars in the bottom are our actual volumes as we've moved through 2018 through 2022. Then in 2023 plus, if you take a view of just continued activity in the Permian, that should again translate to significant growth for Targa in our Permian Basin gas gathering, and processing volumes, which again, will then double benefit, translate into significant growth on our downstream assets as well. Our NGL pipeline transportation, relatively new business for Targa. We very deliberately made the decision to construct the largest single project in Targa's history, our Grand Prix NGL Pipeline, that came fully in service in the third quarter of 2019.
You can see on this page that the growth in NGL transportation volumes that we are seeing on Grand Prix, that has necessitated the acceleration of moving forward with our Daytona NGL Pipeline, has really been driven by volumes that we manage through our system. As we add each incremental gas gathering, and processing plant, talked about the fact that we've got five under construction right now. For each plant that we add, a new $275 million a day of plant, is about 35,000-40,000 barrels a day of liquids that we can move through Targa's downstream system. When I say that gas gathering and processing is really where it starts, that's a meaningful amount of volumes that we then manage through the Targa value chain, and can point to Targa assets.
You can see the growth as we've brought new plants online, what that has translated to on the NGL transportation side. Similarly on page 18, NGLs from Targa's Permian plants, that drives significant volumes through both our transportation assets and our fractionation assets. You can see the increase in Permian natural gas liquid volumes that we've had on the left-hand side of that page. As we move to slide 19, LPG fundamentals are supportive of increased exports. I think that we've talked very openly that we had very strong exports at Targa in the first quarter of 2023. There is seasonality to that business, so quarter-over-quarter, we would expect exports to be down.
When we think about the long-term fundamentals for exports, there really isn't a home in the United States for increasing volumes of propane and butane, and as natural gas liquids volumes increase, we're going to have more propane and butane. Where does it go? An increasing amount of that growth of propane and butanes is moving across docks to the rest of the world. Very important feedstock for PDH plants around the world. Also, very important feedstocks to help move or bring populations further out of poverty in terms of nations where people are continuing to burn wood and dung in their homes.
Being able to switch to much cleaner fuels like propane and butane, a very important part of the Targa story. I think the U.S. will increasingly play a very important role in bringing more propane and butanes to the rest of the world, as well as LNG. LNG, we don't have any direct export exposure, although certainly a lot of the natural gas volumes that are coming out of the Permian are ultimately making their way on the LNG perspective onto ships and moving around the world. We believe that Targa is well-positioned to support global energy needs. Again, there are billions of people that are still burning wood and dung in their homes. Very, very dirty fuel sources.
We believe that continuing to provide natural gas, propane, and butanes out of the US will be increasingly important to the rest of the world. We think we are very well situated to continue to help support that transition around the world. Sustainability is something that we take very, very seriously at Targa. Slide 21 highlights some of our current sustainability highlights. I think that we've done an excellent job of increasing our disclosures around what we do and why we do it. We've also set targets related to methane intensity across both our Gathering and Boosting segment, as well as our processing segment. We are working our way very well towards meeting those goals and exceeding those goals. Sustainability is something that we take very, very seriously. We believe that everybody is an important part of making the world a better place to live.
There are a lot of elements to that. As I mentioned, there are still billions of people in the world that are still living in energy poverty, which means they don't have access to cheaper fuel sources. They don't have access to cleaner fuel sources, and we believe that Targa can be an important participant in helping to further bring some of those nations out of the energy poverty situation that they're in. Slide 22, a lot of words on this page, so I will not go into the details. Again, it just goes to, how are we focused across environmental, safety, governance, and social? How are we focused on managing our company better, doing better for ourselves, for our company, for the communities that we live in, and for the communities that we support?
This provides a lot of information around those details, and certainly, please read our sustainability report for a lot of additional detail above and beyond this slide. Key takeaways. This goes back to the initial page that I showed you. We certainly are biased, but believe that Targa offers a really compelling investment proposition. We're really excited about the projects that we are investing in. They're very much down the fairway of our core, wellhead-to-water integrated strategy, where we are able to touch a molecule multiple times. We believe that is positioning us to deliver to our shareholders best-in-class EBITDA growth, increasing dividend, reducing share count, strong balance sheet.
Really, thematically, we believe that we are positioned to continue to benefit from increasing volumes out of the basin that keeps on giving, the Permian Basin, bringing those volumes through the rest of our integrated strategy that will put us in great stead as we move forward through time. With that, Mr. Jeremy?
Sounds good.
Questions?
We can look to work in any questions the audience might have, maybe just starting off, you know, capital allocation, obviously, something that's very topical, and Jen, as CFO, best positioned to opine there. Targa's made great strides in recent years and has the investment-grade balance sheet. There's a lot of calls as far as, you know, being opportunity-rich, as far as volatility in the market and potential buyback opportunities. You know, how do you balance, I guess, all these competing objectives for Targa Capital?
We don't really see them as competing objectives. We believe that we can provide our shareholders and best position our company for the short, medium, and long term with an above-all approach, which we thankfully have an incredibly supportive board. It's not that the board says, "If you do X, then you can go do Y, then you can go do Z." It's really, what are the best opportunities in front of us? Which means that we're often doing a combination of X, Y, and Z.
If I take you back to March of 2020, when commodity prices really dislocated as concerns around COVID became rampant, and as also we saw OPEC make the decisions that they made around increasing supply into that environment, that was an opportunity where our balance sheet wasn't exactly where we wanted it to be, our debt traded down to $0.60 on the dollar. We went to the board, and we said: We'd like to be able to go and buy back a bunch of our debt. Had the support to do that.
Similarly, in 2020, the back half of 2020, when all of a sudden, energy stocks traded down significantly, and it felt like we were going to stop using hydrocarbons as a world, we believed that there was a real disconnect in how investors were viewing the future of Targa and what we believed were the very strong underlying fundamentals of our business. Went to our board and got the authority to institute a share repurchase program, the first one in Targa's history. Since then, we've really executed on a strategy that says what's foundational to us is maintaining a very strong balance sheet, which for us, means having a long-term leverage ratio target well within that 3 to 4 times Targa range. Really a strong preference to exist more in the 3 to 3.5 times range.
If we've got that, then it's really where can we continue to invest in the business? Where can we also think to take advantage of market dislocations, whether that be on the equity side or previously on the debt side? How do we also provide our investors with a stable and increasing return of capital, which we can do through an increasing dividend, also potentially supplemented by repurchases? It's really that all of the above approach that we've been able to do over the last couple of years, and then you're just pulling the different levers based on where the best opportunity exists within all of those parameters.
That's very helpful there. There's been recent announcements in the space regarding potential for combinations, and there could be consolidation more in the space at this point in time. How does Targa think about that or fit in? I mean, Targa's done bolt-ins in the past that's expanded the platform, but just any updated thoughts as far as where Targa thinks on that side?
You've seen us being an acquirer before. The Lucid acquisition, that's a deal that closed August first of 2022. It was a $3.55 billion transaction that, because of the strength of our balance sheet, we were able to do through a combination of cash and debt capacity. I think at this point in time, the bar for us at Targa on M&A over really the short and medium term is exceptionally high. We have the assets that we want to have. We believe we've got the best-in-class system across the Midland Basin, Delaware Basin. That's where we want to be. We want the most exposure to the Permian. We've got that today, and that's driving meaningful volumes through the rest of our integrated system. There isn't a basin that we wanna be in.
There aren't assets outside of what is already core to us that we want to be doing. I think you'll see us continue to focus on a very deliberate strategy of executing organically. We also have millions of acres dedicated to us, so we also have a growth profile going forward through time that says that we don't need to go and do something. Ultimately, Targa being acquired, that's not something that we control, but of course, anybody that comes to talk to us, we will take that to our board, and at the end of the day, it is our job to assess any and all opportunities that would make Targa, either standalone or combined, a stronger enterprise for our shareholders.
That's helpful there. Maybe one last one, if I could put to Scott on LPGs. Clearly, a long runway of needs in emerging markets to increase, you know, energy there, given consumption. We've seen some recent, I guess, softness in LPG prices or export trends. Just wondering, any thoughts you could share on the market at this point?
Yeah, I believe on the propane side, we've seen propane prices here in the U.S. have come down significantly, where they were, say, the fourth quarter of last year. We see inventories that are higher than what we've seen over the course of the last couple of years, so high inventories have really depressed the prices. We have been in what was really a flat to backwardated market, you know, really looking out in the future. What we've seen of late, is we've seen the market has really now shifted to more of a flat to contango-type marketplace, which I think will help going forward.
The inventories will, you know, at some point, will start coming down as we move more toward into the wintertime, and then some of the demand that we've seen overseas starts to strengthen. You know, really, for us, when we think about the growth of the LPG export business, it really is stemming from the growth that we will see in the Far East and then the developing nations that Jen talked about in India, Africa, those areas that are really have energy poverty, as she said. Those will develop over time. That takes infrastructure investment, both on a state-owned basis as well as third parties that would come in and develop import facilities, and then you have to have investments that will allow that product to become mobile and get it into the interior of those countries.
The biggest growth, again, that we see, really in the Far East, comes from China, comes from Indonesia, places like that, and the growth that we see in China is really coming from PDH plants. PDH plants are large consumers of propane. They take that product, they turn it into propylene products, which helps to offset volumes that may not be yielded from the, from the petrochemical side. We continue to see China add PDH plants. Their operating rates have been depressed over the last six months or so, but we're starting to see improvements in those, moving from roughly 70% to upwards of 80% operating rates. As they add the new PDH plants, that may marginalize some of the less efficient ones, but again, they'll have the capacity to step up as the economy improves.
I think long term, again, the incremental supply of propane and butane that moves to the marketplace is going to really originate from the U.S. Gulf Coast.
Got it. That's super helpful. Really appreciate the presentation. I think that takes us out of time, though. Thank you so much.
Thanks, Jeremy.
Targa team.
Thanks, everybody.
Thank you all.
Much appreciate it.