Targa Resources Corp. is moving forward with two major projects based on its outlook for increasing Permian Basin natural gas production and resulting natural gas liquids (NGL) supply growth.
High utilization rates at the 250 MMcf/d Pembrook processing facility in the Permian’s Midland sub-basin “necessitates moving forward with Pembrook II,” CEO Matt Meloy said during the first quarter earnings call.
The new facility could begin operations in the fourth quarter of 2025, he added. “We’re already looking at when we’ll need the next plant after Pembrook II.”
Targa emerged from 1Q2024 with record volumes on its Permian midstream systems despite some hiccups this winter. Operational upsets associated with harsh weather impacted January volumes, according to Meloy. From there, however, in-basin volumes increased significantly throughout the quarter, “which helped drive record results and sets us up well looking forward,” he said.
The CEO noted that if pipeline maintenance events create further constraints impacting Targa’s systems, volumes and regional natural gas prices may be impacted.
“We have done a good job of managing our Permian gas takeaway positions to ensure surety of flow from our producers as the market awaits some relief when the Matterhorn Express Pipeline comes on later this year,” Meloy said.
He acknowledged, however, that prior to Matterhorn initiating service and adding incremental natural gas takeaway capacity, “gas markets will remain tight.” That means prices could remain lower until more capacity is available to move gas to markets.
Natural gas prices at the Waha Hub in West Texas, the Permian benchmark, have been clawing their way back toward positive territory since sinking to negative $3.000/MMBtu lows in March. NGI’s Daily Cash Market data showed Waha averaged 27.0 cents Friday, down 20.0 cents day/day.
“There are pluses and minuses for us when we have really weak Waha prices,” Meloy said.
While some of the volumes on Targa’s systems are protected by floors, hybrid and fee-based contracts, “we still have some length on gas. So when you have negative prices, that’s a negative for us,” Meloy said.
However, Targa also has some marketing flexibility when it comes to moving gas both within and out of the basin. “There could be some positives there,” Meloy said. “Overall, we would prefer higher Waha prices than lower. It’s good for our customers. It’s good for our business.”
Until additional pipeline capacity comes online in the Permian, Targa is adding compression throughout the rest of the year “that is solely focused on production that we know is getting drilled and being brought online,” according to management.
In addition, the Houston-based midstreamer is progressing the 275 MMcf/d Greenwood II processing plant in the Midland, which is expected to begin operations in the fourth quarter.
Meanwhile, repairs continue at the Greenwood I plant, which suffered about $10 million in damages from a fire in April. The facility is expected to be back online in June, but its downtime is not expected to impact second quarter volumes.
“With 19 plants and a broad footprint across the Permian Midland, we are leveraging our operational flexibility to move gas around to handle all existing volumes and planned production growth to continue to be able to provide reliable service to our producer customers while the plant is down,” Meloy said.
In the Permian’s Delaware sub-basin, work is progressing on the 230 MMcf/d Roadrunner II, which is on track to begin operations in June. Targa’s 275 MMcf/d Bull Moose facility under construction is on track to come online in the second quarter of 2025.
“We continue to expect increasing Permian volumes as we move through the rest of the year as we benefit from new compression and plants coming online,” Meloy said.
Transportation, Fractionation Adds
The Daytona pipeline is currently under construction. The $650 million project, which is expected to be online by year end, would transport volumes from the Permian and connect to the existing segment of the Grand Prix pipeline in North Texas to move volumes to Mont Belvieu, TX.
Targa would own 75% of Daytona, while Blackstone Energy Partners would hold 25%.
NGL pipeline transportation volumes averaged 718,000 b/d in 1Q2024 compared with 537,000 b/d in the same period in 2023. Fractionation volumes averaged 797,000 b/d, including the impacts of scheduled maintenance at Targa’s Mont Belvieu complex. That compares with 759,000 b/d in 1Q2023.
Targa is starting the Train 9 fractionator, and construction continues on Train 10 both in Mont Belvieu. Each has a capacity of 120,000 b/d. Meanwhile, increasing NGL production growth to Mont Belvieu supports moving forward with Train 11 at the facility, Meloy said. The 150,000 b/d fractionator is expected to commence operations in the second half of 2026.
Targa reported net income of $275 million for 1Q2024, below the $497 million in the same quarter a year ago. The company also declared a 50% increase to its quarterly cash dividend, which is now $3.00/share on an annualized basis.
