01—Abstract
Summary
Summary of the 10-K filed February 18, 2021. Cited figures are marked; the original filing is the authoritative source.
Targa Resources Corp. (NYSE: TRGP) closed 2020 with a sharply weaker GAAP result but stronger underlying cash generation.
The company reported a net loss attributable to TRC of $1,553.9 milliona, driven primarily by non-cash pre-tax impairments of long-lived assets of $2,442.8 million, concentrated in Central (Mid-Continent) gathering and processing assets and the full impairment of Coastal operations. Revenues fell 5% to $8,260.3 million, but operating margin rose 35% to $2,375.4 million, supported by Logistics and Transportation growth from Grand Prix, Trains 6-8 and LPG export expansion, plus higher Permian volumes and realized hedge gains. Adjusted EBITDA increased 14% to $1,636.6 million and free cash flow turned positive at $574.9 million, versus a $1,334.5 million deficit in 2019, as growth capital spending fell sharply.
Management cut the common dividend to $0.10b per quarter in early 2020 (from $0.91), a move the company says frees roughly $755 million of annual cash flow for debt reduction, and it has been repurchasing stock under a $500 million program (about $91.5 million used through February 12, 2021). Total debt obligations were $7.76 billion at year-end. Liquidity was about $3.2 billion as of February 12, 2021, and both TRC and the Partnership were in covenant compliance.
Ratings remain non-investment grade (S&P BB, Moody's Ba3), and the company continues to refinance and extend its maturity profile, including a $1.0 billionc 4% note issuance in February 2021. Key forward-looking considerations include continued COVID-19-related demand uncertainty, commodity price volatility, and the pace of producer activity recovery in the Central region.
The company guided to 2021 net growth capex of $350 to $450 milliond and maintenance capex of about $130 million, and it expects the Heim Plant in the Permian to begin operations in Q4 2021. Investors will also need to weigh regulatory headwinds flagged in the filing, including the new administration's climate and leasing actions, and the pending Vitol litigation, where the company is appealing a $139.5 million award.
02—Key points
Key Highlights
- Net loss attributable to TRC of $(1,553.9) million, or $(7.26) per share, driven by $2,442.8 million in non-cash pre-tax impairments, primarily in Central and Coastal Gathering & Processing assets.
- Operating margin increased 35% to $2,375.4 million, led by Logistics & Transportation ($1,128.0 million, up 30%) on Grand Prix, Trains 6-8 and LPG export expansion.
- Adjusted EBITDA rose 14% to $1,636.6 million; distributable cash flow increased 24% to $1,172.8 million.
- Free cash flow swung to $574.9 million from a $(1,334.5) million deficit as growth capex fell to $597.9 million net.
- Common dividend reduced to $0.10/quarter (from $0.91), a move expected to free about $755 million in annual cash flow for debt reduction; $408.5 million remains under the $500 million buyback authorization.
- Total debt of $7.76 billion; ratings BB (S&P) and Ba3 (Moody's); liquidity of $3.2 billion as of February 12, 2021; 2021 net growth capex guided to $350-450 million.
- Pending Vitol litigation: court awarded $129.0 million plus interest and $10.5 million in damages in October 2020; the company is appealing.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2020, Targa Resources Corp. lost $0.19.
- Revenue$8.26B100.0%
- Cost of revenue−$5.19B62.8%
- Gross profit$3.07B37.2%
- Operating costs−$4.38B53.0%
- Operating income−$1.30B15.8%
- Interest, other & tax−$250.2M3.0%
- Net income−$1.55B18.8%
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 18, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $8.26B$8.67B | −4.7% |
| Cost of Revenue | $5.19B$6.21B | −16.5% |
| Gross Profit | $3.07B$2.55B | +20.4% |
| Operating Income | -$1.30B$192.90M | −775.8% |
| Net Income | -$1.55B-$209.20M | −642.8% |
| EPS (Basic) | $-7.26$-1.44 | −404.2% |
| EPS (Diluted) | $-7.26$-1.44 | −404.2% |
| Shares Outstanding (Basic) | 232.20M232.50M | −0.1% |
| Shares Outstanding (Diluted) | 232.20M232.50M | −0.1% |
05—Questions
Frequently Asked Questions
Why did Targa report a large net loss in 2020 if operating results improved?
The loss was driven mainly by non-cash impairments of $2,442.8 million recorded in Q1 2020, after commodity prices collapsed amid COVID-19 and oil supply shocks. These charges reduce the carrying value of gas processing and gathering assets in the Central (Mid-Continent) region and fully impair Coastal operations. They do not affect operating cash flow, which is why Adjusted EBITDA and free cash flow both improved.
Is the dividend cut permanent, and how safe is the current payout?
The board cut the quarterly dividend to $0.10 per share starting Q1 2020 and maintained that level for all four quarters of 2020 and the February 2021 payment. The company explicitly ties the reduction to debt reduction and free cash flow priorities, and the filing notes that dividends are not cumulative on common stock. Investors should expect dividend levels to depend on future cash flow, capex, and leverage targets, which the board sets with management's input.
How leveraged is Targa, and what is its refinancing risk?
Total debt was $7.76 billion at year-end 2020, with about $6.6 billion of fixed-rate senior notes and roughly $1.2 billion of variable-rate borrowings. Near-term maturities are modest, but the Securitization Facility ($350 million) matures in April 2021. Management used a February 2021 $1.0 billion 4% note issue to refinance the 5 1/8% notes and reduce revolver borrowings, and it was in covenant compliance at year end.
What growth projects should investors expect in the next 12 to 18 months?
The Heim Plant (200 MMcf/d cryogenic processing in the Permian Midland system) is expected to begin operations in Q4 2021. Train 8 and the Grand Prix Central Oklahoma Extension came online in late 2020, and the LPG export expansion reached an effective working capacity of about 12.5 MMBbl per month. Net growth capex for 2021 is guided to $350-450 million, so the growth investment cycle is much smaller than in 2019.
What are the main risks to the outlook?
Key risks include renewed weakness in commodity prices and producer activity, particularly in the Central region, and continued COVID-19 demand uncertainty. The filing also highlights new federal policy actions in January 2021 affecting oil and gas leasing, methane rules, and hydraulic fracturing, along with the potential for further impairments if conditions deteriorate. Litigation (Vitol) and counterparty credit exposure are additional items to monitor.
06—Continue