01—Abstract
Summary
Summary of the 10-K filed February 22, 2023. Cited figures are marked; the original filing is the authoritative source.
Targa Resources Corp. (NYSE: TRGP) reported a transformative 2022 for investors, anchored by roughly $6.4 billiona in acquisitions and a sharp rise in cash generation.
Net income attributable to Targa rose to $1,195.5 millionb from $71.2 million, helped by a $435.9 million gain on the sale of its GCX interest, while Adjusted EBITDA climbed 41% to $2,901.1 million and distributable cash flow rose 48% to $2,278.7 million. Revenue grew 23% to $20.9 billion, driven largely by higher commodity prices and the July 2022 Delaware Basin (Lucid) acquisition for about $3.5 billion, plus the April 2022 South Texas acquisition for $201.9 million. The balance sheet expanded materially and leverage increased.
Total debt obligations rose to about $11.5 billionc (from $6.6 billion), funded by new senior notes, a $1.5 billion term loan, commercial paper, and borrowings under a $2.75 billion revolver. Management states it was in compliance with debt covenants and has sufficient liquidity (about $2.5 billion as of February 17, 2023). Adjusted free cash flow was roughly flat at $1,101.5 million, as growth capital spending rose to $1,177 million net.
Early 2023 brought further commitments, including the $1.05 billiond Grand Prix buyout and a $1.7 billion notes offering, with 2023 net growth capex guided to $1.8-1.9 billion. Key risks for investors include the heavy debt load and variable-rate exposure (a 100 bp rise would add about $36 million to interest expense), a net derivative liability of $255.8 million, a pending Vitol litigation with about $129 million principal plus interest at stake, a FERC investigation of the Badlands waiver, and the potential future impact of the corporate alternative minimum tax. The company is also exposed to commodity price volatility, though fee-based contracts and hedging mitigate part of that exposure.
02—Key points
Key Highlights
- Revenue rose 23% to $20.9 billion in 2022, while net income attributable to Targa increased to $1,195.5 million from $71.2 million, aided by a $435.9 million gain on the GCX sale.
- Adjusted EBITDA increased 41% to $2,901.1 million and distributable cash flow increased 48% to $2,278.7 million, reflecting the Delaware Basin and South Texas acquisitions.
- Adjusted free cash flow was roughly flat at $1,101.5 million, as growth capex increased to $1,177.2 million net.
- Major acquisitions in 2022 included the approximately $3.5 billion Lucid/Delaware Basin acquisition and the $201.9 million South Texas (Southcross) acquisition, followed in January 2023 by the $1.05 billion purchase of Grand Prix's remaining 25% interest.
- Total debt rose to about $11.5 billion from $6.6 billion; variable-rate exposure totals $3.6 billion, and senior unsecured ratings are BBB-/Baa3/BBB-.
- Capital program is significant: 2023 net growth capex is guided at $1.8-1.9 billion, with multiple Permian processing plants (Legacy II, Greenwood, Midway, Wildcat II, Roadrunner II) and Train 9 fractionation and the Daytona NGL Pipeline under construction.
- Returned capital to shareholders via $379.7 million in dividends and $224.8 million in share repurchases, and redeemed all Series A Preferred Stock for $973.4 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Targa Resources Corp. kept $0.06.
- Revenue$20.93B100.0%
- Cost of revenue−$16.88B80.7%
- Gross profit$4.05B19.3%
- Operating costs−$2.32B11.1%
- Operating income$1.73B8.3%
- Interest, other & tax−$533.5M2.5%
- Net income$1.20B5.7%
Where FY2022 revenue went
$20.93B- Cost of revenue: $16.88B, 81% of revenue
- Net income: $1.20B, 5.7% of revenue
- Operating costs: $2.32B, 11% of revenue
- Interest, other & tax: $533.5M, 2.5% of revenue
Kept 5.7% as net incomeNet income $1.20B · 5.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 22, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $20.93B$16.95B | +23.5% |
| Cost of Revenue | $16.88B$13.73B | +23.0% |
| Gross Profit | $4.05B$3.22B | +25.7% |
| Operating Income | $1.73B$864.80M | +99.9% |
| Net Income | $1.20B$71.20M | +1579.1% |
| EPS (Basic) | $3.95$-0.07 | +5742.9% |
| EPS (Diluted) | $3.88$-0.07 | +5642.9% |
| Shares Outstanding (Basic) | 227.30M228.60M | −0.6% |
| Shares Outstanding (Diluted) | 231.10M228.60M | +1.1% |
05—Questions
Frequently Asked Questions
How did Targa's profitability change in 2022?
Net income attributable to Targa Resources Corp. rose to $1,195.5 million from $71.2 million in 2021. The improvement reflected higher commodity prices, acquisition-driven volume growth, and a $435.9 million gain on the sale of its 25% GCX interest. Operating income rose to $1,729.0 million from $864.8 million, and 2021 included a $452.3 million impairment that did not recur in 2022.
How much debt does Targa carry and is it manageable?
Total debt obligations were about $11.5 billion at year-end 2022, up from $6.6 billion, after funding the Delaware Basin acquisition and other transactions. Management reports compliance with covenants, a consolidated leverage ratio covenant of no more than 5.50x, and about $2.5 billion of liquidity as of February 17, 2023. The main concerns are the $3.6 billion of variable-rate debt, interest expense of $446.1 million, and ratings currently at the low end of investment grade.
What are the biggest risks to Targa's cash flows?
The most significant risks cited include commodity price volatility, though fee-based contracts and hedges mitigate part of it; a net hedge liability of $255.8 million; dependence on producer drilling activity and volume growth; potential FERC action on pipelines that currently operate under waivers (including a FERC investigation of the Badlands system); the Vitol lawsuit with about $129 million in principal plus interest at stake; and possible future CAMT tax impacts. Management also flags climate-related regulation, methane fee legislation, and cybersecurity risks.
What growth projects are expected to drive future results?
Targa is building or has announced several Permian gas processing plants of 275 MMcf/d each (Legacy II in Q2 2023, Greenwood in late Q4 2023, Midway in Q2 2023, and Wildcat II in Q1 2024), plus the 230 MMcf/d Roadrunner II plant in Q2 2024. It is also constructing a 120 MBbl/d fractionator (Train 9, Q2 2024), reactivating the 135 MBbl/d GCF facility (Q1 2024), and building the Daytona NGL Pipeline by the end of 2024. Together these support the company's guidance for $1.8-1.9 billion of 2023 net growth capex.
Is Targa returning capital to shareholders?
Yes. Common dividends were $0.35 per share per quarter throughout 2022, up from $0.10 in 2021, and total dividends paid were $379.7 million. Targa repurchased 3.41 million shares for $224.8 million in 2022, leaving $143.8 million under its $500 million program. It also redeemed its Series A Preferred Stock in May 2022. Management notes that future dividends depend on financial results, capital spending, and debt covenants.
06—Continue