01—Abstract
Summary
Summary of the 10-K filed February 15, 2024. Cited figures are marked; the original filing is the authoritative source.
Targa Resources Corp. (NYSE: TRGP) reported a strong 2023 with adjusted EBITDA of $3,530.0 milliona, up 22% from $2,901.1 million in 2022, and distributable cash flow of $2,617.2 million, up 15%.
Consolidated net income attributable to Targa rose 13% to $1,345.9 millionb, though net income attributable to common shareholders fell 7% to $835.8 million because of a $510.1 million premium paid to repurchase noncontrolling interests, most notably the Grand Prix Transaction. Revenue declined 23% to $16.06 billion, driven by lower NGL, natural gas and condensate prices, while fee-based midstream revenue rose 13% to $2.10 billion. Gathering and Processing and Logistics and Transportation operating margins grew to $2.08 billion and $1.95 billion, respectively.
The company is in a heavy growth phase. Growth capital expenditures rose to roughly $2.2 billionc in 2023, and management expects $2.3 to $2.5 billion of net growth capex in 2024 for projects including multiple Permian cryogenic plants, the Daytona NGL Pipeline and fractionation Trains 9 and 10. Adjusted free cash flow fell to $392.7 million from $1,101.5 million, reflecting this spending.
Management also proposed raising the quarterly common dividend to $0.75d for Q1 2024, and bought back $373.7 million of stock in 2023 with $770.1 million remaining under the authorization. Balance sheet and credit profile improved. S&P upgraded Targa to BBB in February 2024, and total debt was $13.07 billion at year-end, with $11.53 billion fixed-rate.
Liquidity was $2.72 billion. Key risks include commodity price volatility, reliance on Permian drilling activity, rising interest costs (interest expense rose to $687.8 million), regulatory and climate-related pressures on the fossil fuel sector, and the pending Vitol litigation, where the company has appealed a judgment of $129.0 million plus interest.
02—Key points
Key Highlights
- Adjusted EBITDA rose 22% to $3.53 billion, and distributable cash flow rose 15% to $2.62 billion, driven by Permian growth and fee-based margin expansion.
- Net income attributable to Targa Resources Corp. increased 13% to $1.35 billion, but net income to common shareholders fell 7% to $835.8 million due to a $510.1 million premium on repurchase of noncontrolling interests (Grand Prix Transaction).
- Total revenues declined 23% to $16.06 billion on lower commodity prices, while fee-based midstream service revenues grew 13% to $2.10 billion.
- Growth capex reached about $2.2 billion in 2023, with 2024 net growth capex guided to $2.3–$2.5 billion, which compressed adjusted free cash flow to $392.7 million from $1.10 billion.
- Acquired the remaining 25% of Grand Prix (Blackstone) for about $1.05 billion and the remaining 50% of Carnero for $27.0 million; Grand Prix is now 100% owned.
- S&P upgraded Targa to BBB in February 2024; year-end total debt was $13.07 billion with $2.72 billion of liquidity.
- Board intends to raise the quarterly common dividend to $0.75 per share for Q1 2024 (from $0.50), and $770.1 million remains under the 2023 share repurchase program.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Targa Resources Corp. kept $0.05.
- Revenue$16.06B100.0%
- Cost of revenue−$10.68B66.5%
- Gross profit$5.38B33.5%
- Operating costs−$2.76B17.2%
- Operating income$2.63B16.4%
- Interest, other & tax−$1.79B11.1%
- Net income$835.8M5.2%
Where FY2023 revenue went
$16.06B- Cost of revenue: $10.68B, 66% of revenue
- Operating costs: $2.76B, 17% of revenue
- Net income: $835.8M, 5.2% of revenue
- Interest, other & tax: $1.79B, 11% of revenue
Kept 5.2% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 15, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $16.06B$20.93B | −23.3% |
| Cost of Revenue | $10.68B$16.88B | −36.8% |
| Gross Profit | $5.38B$4.05B | +33.0% |
| Operating Income | $2.63B$1.73B | +51.9% |
| Net Income | $835.80M$1.20B | −30.1% |
| EPS (Basic) | $3.69$3.95 | −6.6% |
| EPS (Diluted) | $3.66$3.88 | −5.7% |
| Shares Outstanding (Basic) | 224.60M227.30M | −1.2% |
| Shares Outstanding (Diluted) | 226.00M231.10M | −2.2% |
05—Questions
Frequently Asked Questions
Why did net income to common shareholders decline even though net income attributable to Targa rose?
The company paid a $510.1 million premium, net of tax, to repurchase noncontrolling interests, primarily in the Grand Prix Transaction. That premium is deducted from earnings available to common shareholders, so common net income fell 7% to $835.8 million despite a 13% increase in net income attributable to Targa.
Will free cash flow recover as growth spending winds down?
Adjusted free cash flow dropped to $392.7 million in 2023 because of heavy growth capex. Management expects 2024 net growth capex of $2.3–$2.5 billion across Permian processing plants, Daytona NGL Pipeline and Trains 9 and 10. Free cash flow should improve as projects enter service in 2024–2025, but the timing and magnitude depend on those projects and on commodity prices.
How exposed is Targa to commodity prices?
Targa hedges a portion of its equity volumes and relies on fee-based contracts, which mitigate price risk. A hypothetical 10% decline in natural gas, NGL and crude prices would raise the fair value of its derivatives to $192.0 million, while a 10% increase would reduce it to a $42.8 million liability. Revenues fell 23% in 2023 because of lower prices, showing that exposure remains meaningful.
What are the main debt and interest rate risks?
Total debt was $13.07 billion, of which about $1.25 billion was variable rate. A 100-basis-point rise in rates would increase annual interest expense by about $12.5 million. Interest expense, net, rose to $687.8 million from $446.1 million. The company has no interest rate hedges, and its variable-rate exposure includes the TRGP Revolver, Commercial Paper and the Securitization Facility.
What is the status of the Vitol litigation?
Vitol was awarded $129.0 million plus interest from a 2020 trial court judgment. In September 2022 the Fourteenth Court of Appeals upheld the return of those payments but eliminated Vitol's damages for crude losses and demurrage ($10.5 million). The Texas Supreme Court denied review in October 2023, but Targa is seeking rehearing, so the appeal remains pending. Accrued interest through year-end would have been about $55.5 million, and the company retained this liability from its sale of Targa Channelview.
06—Continue