01—Abstract
Summary
Summary of the 10-K filed February 24, 2022. Cited figures are marked; the original filing is the authoritative source.
Targa Resources Corp. (NYSE: TRGP) reported a 2021 turnaround in its FY2021 10-K, filed February 24, 2022.
Net income attributable to Targa was $71.2 milliona, compared with a net loss of $1,553.9 million in 2020, which had included $2.44 billion of impairments. Adjusted EBITDA rose 25% to $2,052.0 million, distributable cash flow rose 31% to $1,541.4 million, and adjusted free cash flow more than doubled to $1,133.7 million. Total revenues increased 105% to $16.9 billion, driven mainly by higher NGL, natural gas and condensate prices.
Gathering and Processing and Logistics and Transportation adjusted operating margins both grew, while the Other segment (mark-to-market hedge losses) swung to a $115.9 millionb loss. A $452.3 million impairment in South Texas weighed on 2021 results. Capital allocation and balance sheet actions were significant.
The company raised its quarterly common dividend to $0.35c per share (annualized $1.40), repurchased the Stonepeak DevCo JV interests for about $925 million, and agreed to sell its 25% GCX interest for about $857 million. It also replaced its existing credit facilities with a $2.75 billion revolver maturing in 2027. Total debt was about $6.6 billion at year-end, with $6.5 billion of senior unsecured notes, and the company's senior unsecured debt is rated BB+/Ba1/BB+, one notch below investment grade.
Management guided 2022 net growth capex of $700 to $800 milliond and maintenance capex of about $150 million, and new processing plants (Legacy II and Midway) were announced to meet producer demand. Key risks include commodity price volatility and hedge losses (the net derivative liability was $316.7 million), counterparty and customer credit exposure, the IRS audit of the CARES Act NOL carryback, COVID-19 uncertainty, climate and methane regulation, and the Vitol litigation over $129.0 million of prior payments plus $10.5 million in damages, which is under appeal. Refinancing and the GCX sale are expected to add liquidity in 2022, but leverage and rating-agency sentiment remain key watch items for investors.
02—Key points
Key Highlights
- Net income attributable to Targa turned positive at $71.2 million in 2021, versus a $1,553.9 million loss in 2020 that was driven by impairments.
- Adjusted EBITDA grew 25% to $2,052.0 million and adjusted free cash flow more than doubled to $1,133.7 million.
- Total revenues rose 105% to $16.9 billion, largely from higher NGL, natural gas and condensate prices, while fee-based midstream revenue grew 24% to $1.35 billion.
- Dividend raised to $0.35 per quarter ($1.40 annualized); $369 million remained under the $500 million buyback program at year-end.
- Portfolio simplification: $925 million repurchase of Stonepeak's DevCo JV interests and an agreed $857 million sale of the GCX stake, with proceeds expected in Q2 2022.
- Debt refinanced via a $2.75 billion revolver maturing February 2027; senior unsecured debt is rated BB+/Ba1/BB+, just below investment grade.
- Notable risks: a $452.3 million South Texas impairment, a $316.7 million net hedge liability, the IRS NOL audit, and the Vitol litigation with a $139.5 million judgment under appeal.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Targa Resources Corp. kept $0.00.
- Revenue$16.95B100.0%
- Cost of revenue−$13.73B81.0%
- Gross profit$3.22B19.0%
- Operating costs−$2.36B13.9%
- Operating income$864.8M5.1%
- Interest, other & tax−$793.6M4.7%
- Net income$71.2M0.4%
Where FY2021 revenue went
$16.95B- Cost of revenue: $13.73B, 81% of revenue
- Operating costs: $2.36B, 14% of revenue
- Net income: $71.2M, 0.4% of revenue
- Interest, other & tax: $793.6M, 4.7% of revenue
Kept 0.4% as net incomeNet income $71.2M · 0.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 24, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $16.95B$8.26B | +105.2% |
| Cost of Revenue | $13.73B$5.19B | +164.7% |
| Gross Profit | $3.22B$3.07B | +4.8% |
| Operating Income | $864.80M-$1.30B | +166.3% |
| Net Income | $71.20M-$1.55B | +104.6% |
| EPS (Basic) | $-0.07$-7.26 | +99.0% |
| EPS (Diluted) | $-0.07$-7.26 | +99.0% |
| Shares Outstanding (Basic) | 228.60M232.20M | −1.6% |
| Shares Outstanding (Diluted) | 228.60M232.20M | −1.6% |
05—Questions
Frequently Asked Questions
Why did Targa swing from a large loss in 2020 to a profit in 2021?
The 2020 loss of $1.55 billion was driven by a $2.44 billion impairment of Central and Coastal assets during the pandemic-driven commodity price collapse. In 2021 the impairment fell to $452.3 million, and stronger commodity prices and higher volumes lifted margins, producing $71.2 million of net income attributable to Targa.
Is the dividend sustainable, and how much cash does the company generate after capex?
The company reported distributable cash flow of $1,541.4 million and adjusted free cash flow of $1,133.7 million for 2021, covering the roughly $0.35 quarterly dividend and common and preferred payments. Adjusted free cash flow is after growth and maintenance capex. Management guides 2022 net growth capex to $700 to $800 million and maintenance capex to about $150 million, so future free cash flow depends on commodity prices and hedge outcomes.
How exposed is Targa to commodity prices and hedging losses?
Most fee-based contracts, including the Downstream business, reduce exposure, but percent-of-proceeds gathering contracts remain commodity-linked. The company hedges a portion of equity volumes, and the derivative book was a net liability of $316.7 million at year-end, implying hedge losses if prices keep rising. A 10% price increase would enlarge that liability to $458.3 million. Hedge settlements cost $787.5 million of revenue in 2021.
What is the status of the Vitol lawsuit and other contingencies?
In 2020 the district court awarded Vitol $129.0 million plus interest and $10.5 million in damages for start-up crude losses. Targa has appealed to the Fourteenth Court of Appeals, and the company retained the liability when it sold Targa Channelview in October 2020. The company has deferred $129.0 million of Vitol payments as revenue pending the outcome. The filing does not quantify a reserve for the appeal.
What are the main growth projects and their timing?
Targa is building the Legacy plant (275 MMcf/d, Permian Midland, expected Q4 2022), the Legacy II plant (275 MMcf/d, Permian Midland, Q2 2023), and the Midway plant (275 MMcf/d, Permian Delaware, Q3 2023, with the Sand Hills plant to be idled). The Heim plant (200 MMcf/d) began operations in Q3 2021. These projects target continued producer activity in the Permian, where the company has a large interconnected footprint.
06—Continue