trgp-8k_20200220.htm
false 0001389170 0001389170 2020-02-20 2020-02-20

  

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):

February 20, 2020

TARGA RESOURCES CORP.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

 

 

Delaware

(State or other jurisdiction

of incorporation or organization)

 

001-34991

(Commission

File Number)

 

20-3701075

(IRS Employer

Identification No.)

 

811 Louisiana, Suite 2100

Houston, TX 77002

(Address of principal executive office and Zip Code)

 

(713) 584-1000

(Registrants’ telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

 

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock

TRGP

New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging Growth Company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

 


   

Item 2.02

 

Results of Operations and Financial Condition.

 

On February 20, 2020, Targa Resources Corp. (the “Company”) issued a press release regarding its financial results for the three months and year ended December 31, 2019. A conference call to discuss these results is scheduled for 11:00 a.m. Eastern time (10:00 a.m. Central time) on Thursday, February 20, 2020. The conference call will be webcast live and a replay of the webcast will be available through the Investors section of the Company’s web site (http://www.targaresources.com). A copy of the earnings press release is furnished as Exhibit 99.1 to this report, which is hereby incorporated by reference into this Item 2.02.

 

The press release and accompanying schedules and/or the conference call discussions include the non-generally accepted accounting principles (“non-GAAP”) financial measures of distributable cash flow, gross margin, operating margin and adjusted EBITDA. The press release provides reconciliations of these non-GAAP financial measures to their most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net cash provided by operating activities, net income (loss) or any other GAAP measure of liquidity or financial performance.

 

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any filing under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.

 

 

Item 9.01

 

Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit

 

 

Number

 

Description

Exhibit 99.1

 

Targa Resources Corp. Press Release dated February 20, 2020.

 

 

 

Exhibit 104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Targa Resources Corp.

 

 

Date: February 20, 2020

By:

/s/ Jennifer R. Kneale

 

 

Jennifer R. Kneale

 

 

Chief Financial Officer

(Principal Financial Officer)

 

trgp-ex991_34.htm

Exhibit 99.1

811 Louisiana, Suite 2100

Houston, TX 77002

713.584.1000

 

Targa Resources Corp. Reports Fourth Quarter and Full Year 2019 Financial Results

and Provides 2020 Operational and Financial Outlook

 

 

HOUSTON – February 20, 2020 - Targa Resources Corp. (NYSE: TRGP) (“TRC”, the “Company” or “Targa”) today reported fourth quarter and full year 2019 results.

 

Fourth Quarter and Full Year 2019 Financial Results

 

Fourth quarter 2019 net income (loss) attributable to Targa Resources Corp. was ($112.8) million compared to ($106.4) million for the fourth quarter of 2018. The fourth quarter of 2019 included a pre-tax non-cash loss of $229.0 million from the impairment of property, plant and equipment from a continuing decline in natural gas production across the Barnett Shale in North Texas and Gulf of Mexico due to the sustained low commodity price environment. The fourth quarter of 2018 included a pre-tax non-cash loss of $210.0 million from the impairment of goodwill. For the full year 2019, net income (loss) attributable to Targa Resources Corp. was ($209.2) million compared to $1.6 million for 2018.

 

The Company reported record adjusted earnings before interest, income taxes, depreciation and amortization, and other non-cash items (“Adjusted EBITDA”) of $465.2 million for the fourth quarter of 2019 compared to $332.8 million for the fourth quarter of 2018. For the full year 2019, Adjusted EBITDA was a record $1,435.5 million compared to $1,291.1 million for 2018 (see the section of this release entitled “Targa Resources Corp. - Non-GAAP Financial Measures” for a discussion of Adjusted EBITDA, distributable cash flow, gross margin and operating margin, and reconciliations of such measures to their most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”)).

 

On January 16, 2020, TRC declared a quarterly dividend of $0.91 per share of its common stock for the three months ended December 31, 2019, or $3.64 per share on an annualized basis. Total cash dividends of approximately $212.0 million were paid on February 18, 2020 on all outstanding shares of common stock to holders of record as of the close of business on January 31, 2020. Also on January 16, 2020, TRC declared a quarterly cash dividend of $23.75 per share of its Series A Preferred Stock. Total cash dividends of approximately $22.9 million were paid on February 14, 2020 on all outstanding shares of Series A Preferred Stock to holders of record as of the close of business on January 31, 2020.

 

The Company reported distributable cash flow for the fourth quarter of 2019 of $327.8 million compared to total common dividends paid of $212.0 million and total Series A Preferred Stock dividends paid of $22.9 million, resulting in dividend coverage of 1.4 times. For the full year 2019, distributable cash flow of $947.2 million resulted in dividend coverage of approximately 1.0 times on total common and total Series A Preferred Stock dividends paid with respect to 2019.

 

Fourth Quarter 2019 - Sequential Quarter over Quarter Commentary

 

Fourth quarter 2019 Adjusted EBITDA of $465.2 million increased approximately 33 percent over the third quarter of 2019, driven by meaningful contributions from recently completed growth projects and favorable market conditions in both Targa’s Logistics and Transportation and Gathering and Processing (“G&P”) segments. Targa also benefited from approximately $35 million of certain one-time items during the fourth quarter, which included adjustments to certain operating and general and administrative expense estimates and partner related reimbursements. Strong financial performance in the Logistics and Transportation segment was led by the first full quarter of operations from Targa’s Grand Prix NGL Pipeline (“Grand Prix”), as the pipeline’s throughput into Mont Belvieu averaged 266 thousand barrels per day during the fourth quarter. Fractionation volumes in the fourth quarter increased as Targa’s fractionation complex in Mont Belvieu resumed operating at a high utilization rate following completed maintenance in the third quarter. Liquefied petroleum gas (“LPG”) export volumes in the fourth quarter increased as Targa’s recently completed enhancement projects increased its flexibility and loading capabilities at its Galena Park facilities. Targa’s marketing businesses outperformed in the fourth quarter due to optimization of liquids and gas arrangements. Higher results in the G&P segment were attributable to strong volume performance in the Permian region and the Badlands, combined with higher average commodity price realizations.

 


 


 

Capitalization and Liquidity

 

The Company’s total consolidated debt as of December 31, 2019 was $7,822.4 million including $435.0 million outstanding under TRC’s $670.0 million senior secured revolving credit facility. The consolidated debt included $7,387.4 million of Targa Resources Partners LP’s (“TRP” or the “Partnership”) debt, net of $49.1 million of debt issuance costs, with $370.0 million outstanding under TRP’s accounts receivable securitization facility, $7,028.5 million of outstanding TRP senior notes, net of unamortized premiums, and $38.0 million of finance lease liabilities.

 

Total consolidated liquidity of the Company as of December 31, 2019, including $331.1 million of cash, was over $2.7 billion. As of December 31, 2019, TRC had available borrowing capacity under its senior secured revolving credit facility of $235.0 million. TRP had $88.2 million in letters of credit outstanding under its $2.2 billion senior secured revolving credit facility, resulting in available senior secured revolving credit facility capacity of $2,111.8 million. In addition to the availability under its senior secured revolving credit facility, the Partnership also had $30.0 million of availability under its accounts receivable securitization facility.

 

Financing and Asset Sales Update

 

In November 2019, the Partnership issued $1.0 billion aggregate principal amount of 5½ percent Senior Notes due March 2030, resulting in net proceeds of $990.8 million. The net proceeds from the issuance were used to repay borrowings under its credit facilities and for general partnership purposes.

 

During the first quarter of 2020, the Company closed on the sale of its Permian Delaware crude gathering and storage business for approximately $134 million. Targa continues to evaluate and execute asset sales to reduce leverage and focus on its core operations and as previously disclosed, the Company has engaged Jefferies LLC to evaluate the potential divestiture of its crude gathering business in the Permian Midland, which includes crude gathering and storage assets. The sale process is ongoing and the potential divestiture is predicated on third party valuations adequately capturing the Company's forward growth expectations for the assets. No assurance can be made that a sale will be consummated.

 

2020 Operational and Financial Expectations

 

Targa estimates that 2020 average Field Gathering and Processing natural gas inlet volumes will increase approximately 10 percent over 2019 average Field G&P natural gas inlet volumes. In the Permian Basin, Targa estimates average G&P natural gas inlet volumes will increase approximately 20 percent over 2019 Permian G&P average natural gas inlet volumes. In the Badlands, Targa estimates 2020 average natural gas volumes and average crude gathered volumes will be higher than average 2019 volumes. Targa estimates that these volume increases will be partially offset by modestly lower volumes in the Central region. In its Logistics and Transportation segment, Targa estimates Grand Prix volume deliveries into Mont Belvieu to average between 275 to 300 thousand barrels per day, and expects both full year 2020 average fractionation volumes and LPG exports to be higher over 2019.

 

For 2020, Targa estimates full year Adjusted EBITDA to be between $1,625 million and $1,750 million, with the midpoint of the range representing an 18 percent increase over full year 2019 Adjusted EBITDA. Targa’s full year Adjusted EBITDA outlook assumes natural gas liquids (“NGL”) composite barrel prices average $0.45 per gallon, crude oil prices average $52 per barrel and Henry Hub and Waha natural gas prices average $2.00 and $0.50 per million British Thermal Units (“MMbtu”) for the year. Targa expects approximately 80 percent of its margin to be fee-based in 2020.    

 

Targa’s estimate for 2020 net growth capital expenditures remains unchanged from its previous estimate range of $1.2 billion to $1.3 billion, based on announced projects and other identified spending, with the midpoint of the range representing a 45 percent decrease over full year 2019 net growth capital expenditures. Net maintenance capital expenditures for 2020 are estimated to be approximately $150 million.

 

Management Succession Update

As announced on July 25, 2019, and effective on March 1, 2020, Matthew J. Meloy, current President, will become Chief Executive Officer and will be elected to the Board of Directors. Joe Bob Perkins, current Chief Executive Officer, will remain as a member of the management team and will become Executive Chairman of the Board of Directors. James W. Whalen, current Executive Chairman, will retire from the management team and will continue to serve on the Board of Directors.

 

Also effective March 1, 2020 and continuing the succession and transition in leadership contemplated under Targa’s ongoing management succession plan developed with and approved by Targa’s Board of Directors, Regina L. Gregory will become Executive Vice President, General Counsel and Secretary. Paul W. Chung, current Executive Vice President, General Counsel and Secretary, will remain as a member of the management team and will become Executive Vice President and Senior Legal Advisor.

 

 

 


 

 

Conference Call

 

The Company will host a conference call for the investment community at 11:00 a.m. Eastern time (10:00 a.m. Central time) on February 20, 2020 to discuss fourth quarter and full year 2019 results and present its 2020 outlook. The conference call can be accessed via webcast through the Events and Presentations section of Targa’s website at www.targaresources.com, by going directly to https://edge.media-server.com/mmc/p/c8rc77dw or by dialing 877-881-2598. The conference ID number for the dial-in is 1191436. Please dial in ten minutes prior to the scheduled start time. A webcast replay will be available at the link above approximately two hours after the conclusion of the event.


 


 

Targa Resources Corp. – Consolidated Financial Results of Operations

 

 

Three Months Ended December 31,

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

 

(In millions)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of commodities

$

2,139.1

 

 

$

2,297.4

 

 

$

(158.3

)

 

 

(7

%)

 

$

7,393.8

 

 

$

9,278.7

 

 

$

(1,884.9

)

 

 

(20

%)

Fees from midstream services

 

334.8

 

 

 

300.4

 

 

 

34.4

 

 

 

11

%

 

 

1,277.3

 

 

 

1,205.3

 

 

 

72.0

 

 

 

6

%

Total revenues

 

2,473.9

 

 

 

2,597.8

 

 

 

(123.9

)

 

 

(5

%)

 

 

8,671.1

 

 

 

10,484.0

 

 

 

(1,812.9

)

 

 

(17

%)

Product purchases

 

1,702.8

 

 

 

2,008.6

 

 

 

(305.8

)

 

 

(15

%)

 

 

6,118.5

 

 

 

8,238.2

 

 

 

(2,119.7

)

 

 

(26

%)

Gross margin (1)

 

771.1

 

 

 

589.2

 

 

 

181.9

 

 

 

31

%

 

 

2,552.6

 

 

 

2,245.8

 

 

 

306.8

 

 

 

14

%

Operating expenses

 

192.1

 

 

 

183.3

 

 

 

8.8

 

 

 

5

%

 

 

792.9

 

 

 

722.0

 

 

 

70.9

 

 

 

10

%

Operating margin (1)

 

579.0

 

 

 

405.9

 

 

 

173.1

 

 

 

43

%

 

 

1,759.7

 

 

 

1,523.8

 

 

 

235.9

 

 

 

15

%

Depreciation and amortization expense

 

252.7

 

 

 

208.7

 

 

 

44.0

 

 

 

21

%

 

 

971.6

 

 

 

815.9

 

 

 

155.7

 

 

 

19

%

General and administrative expense

 

57.2

 

 

 

80.0

 

 

 

(22.8

)

 

 

(29

%)

 

 

280.7

 

 

 

256.9

 

 

 

23.8

 

 

 

9

%

Impairment of property, plant and equipment

 

229.0

 

 

 

 

 

 

229.0

 

 

 

 

 

 

243.2

 

 

 

 

 

 

243.2

 

 

 

 

Impairment of goodwill

 

 

 

 

210.0

 

 

 

(210.0

)

 

 

(100

%)

 

 

 

 

 

210.0

 

 

 

(210.0

)

 

 

(100

%)

Other operating (income) expense

 

63.8

 

 

 

(12.2

)

 

 

76.0

 

 

NM

 

 

 

71.3

 

 

 

3.5

 

 

 

67.8

 

 

NM

 

Income (loss) from operations

 

(23.7

)

 

 

(80.6

)

 

 

56.9

 

 

 

71

%

 

 

192.9

 

 

 

237.5

 

 

 

(44.6

)

 

 

(19

%)

Interest expense, net

 

(96.0

)

 

 

(61.6

)

 

 

(34.4

)

 

 

(56

%)

 

 

(337.8

)

 

 

(185.8

)

 

 

(152.0

)

 

 

(82

%)

Equity earnings (loss)

 

23.1

 

 

 

0.9

 

 

 

22.2

 

 

NM

 

 

 

39.0

 

 

 

7.3

 

 

 

31.7

 

 

NM

 

Gain (loss) from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.4

)

 

 

(2.0

)

 

 

0.6

 

 

 

30

%

Gain (loss) from sale of equity-method investment

 

3.5

 

 

 

 

 

 

3.5

 

 

 

 

 

 

69.3

 

 

 

 

 

 

69.3

 

 

 

 

Change in contingent considerations

 

 

 

 

20.9

 

 

 

(20.9

)

 

 

(100

%)

 

 

(8.7

)

 

 

8.8

 

 

 

(17.5

)

 

 

(199

%)

Other income (expense), net

 

0.1

 

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

 

(0.1

)

 

 

(100

%)

Income tax (expense) benefit

 

77.9

 

 

 

32.3

 

 

 

45.6

 

 

 

141

%

 

 

87.9

 

 

 

(5.5

)

 

 

93.4

 

 

NM

 

Net income (loss)

 

(15.1

)

 

 

(88.0

)

 

 

72.9

 

 

 

83

%

 

 

41.2

 

 

 

60.4

 

 

 

(19.2

)

 

 

(32

%)

Less: Net income (loss) attributable to noncontrolling interests

 

97.7

 

 

 

18.4

 

 

 

79.3

 

 

NM

 

 

 

250.4

 

 

 

58.8

 

 

 

191.6

 

 

NM

 

Net income (loss) attributable to Targa Resources Corp.

 

(112.8

)

 

 

(106.4

)

 

 

(6.4

)

 

 

(6

%)

 

 

(209.2

)

 

 

1.6

 

 

 

(210.8

)

 

NM

 

Dividends on Series A Preferred Stock

 

22.9

 

 

 

22.9

 

 

 

 

 

 

 

 

 

91.7

 

 

 

91.7

 

 

 

 

 

 

 

Deemed dividends on Series A Preferred Stock

 

8.7

 

 

 

7.7

 

 

 

1.0

 

 

 

13

%

 

 

33.1

 

 

 

29.2

 

 

 

3.9

 

 

 

13

%

Net income (loss) attributable to common shareholders

$

(144.4

)

 

$

(137.0

)

 

$

(7.4

)

 

 

(5

%)

 

$

(334.0

)

 

$

(119.3

)

 

$

(214.7

)

 

 

(180

%)

Financial data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (1)

$

465.2

 

 

$

332.8

 

 

$

132.4

 

 

 

40

%

 

$

1,435.5

 

 

$

1,291.1

 

 

$

144.4

 

 

 

11

%

Distributable cash flow (1)

 

327.8

 

 

 

214.0

 

 

 

113.8

 

 

 

53

%

 

 

947.2

 

 

 

942.4

 

 

 

4.8

 

 

 

 

Growth capital expenditures (2)

 

359.7

 

 

 

962.7

 

 

 

(603.0

)

 

 

(63

%)

 

 

2,566.8

 

 

 

3,192.7

 

 

 

(625.9

)

 

 

(20

%)

Maintenance capital expenditures (3)

 

40.2

 

 

 

54.6

 

 

 

(14.4

)

 

 

(26

%)

 

 

141.7

 

 

 

135.0

 

 

 

6.7

 

 

 

5

%

 

(1)

Gross margin, operating margin, Adjusted EBITDA, and distributable cash flow are non-GAAP financial measures and are discussed under “Targa Resources Corp. – Non-GAAP Financial Measures.”

(2)

Growth capital expenditures, net of contributions from noncontrolling interests, were $2,201.7 million and $2,612.8 million for the years ended December 31, 2019 and 2018. Net contributions to investments in unconsolidated affiliates were $80.0 million and $113.4 million for the years ended December 31, 2019 and 2018.

(3)

Maintenance capital expenditures, net of contributions from noncontrolling interests, were $134.9 million and $127.9 million for the years ended December 31, 2019 and 2018.

NM

Due to a low denominator, the noted percentage change is disproportionately high and as a result, considered not meaningful.

 

Three Months Ended December 31, 2019 Compared to Three Months Ended December 31, 2018

 

The decrease in commodity sales reflects lower NGL and natural gas prices ($673.7 million) and lower crude marketing volumes ($36.9 million) partially offset by higher NGL, condensate and natural gas volumes ($523.9 million) and higher condensate prices ($28.1 million). The increase in fees from midstream services was primarily due to higher export, transportation and storage fees.

 

The decrease in product purchases reflects lower NGL and natural gas prices, partially offset by increases in volumes.

 

Higher operating margin and gross margin in 2019 reflect increased segment results for both Gathering and Processing and Logistics and Transportation. See “Review of Segment Performance” for additional information regarding changes in operating margin and gross margin on a segment basis.

 

Depreciation and amortization expense increased primarily due to higher depreciation related to major growth projects placed in service, including additional processing plants and associated infrastructure in the Permian Basin, Grand Prix and Train 6.

 

 


 

General and administrative expense decreased primarily due to lower compensation and benefits costs and lower professional services, partially offset by higher insurance costs.

 

The impairment of property, plant and equipment in 2019 included a partial impairment of gas processing facilities and gathering systems associated with the North Texas and Coastal operations in the Company’s Gathering and Processing segment, and an asset write-down associated with certain treating units within the same segment. The impairment resulted from a continuing decline in natural gas production across the Barnett Shale in North Texas and Gulf of Mexico due to the sustained low commodity price environment. The Company did not recognize any impairments of property, plant and equipment in 2018.

 

The Company did not record any goodwill impairment charges for 2019 as the fair values of all reporting units exceeded their accounting carrying values. The Company recognized impairments of goodwill totaling $210.0 million during the three months ended December 2018 related to the remaining goodwill associated with the acquisition of Atlas Energy L.P. and Atlas Pipeline Partners L.P. in 2015 (collectively the “Atlas mergers”).

 

Other operating (income) expense in 2019 consisted primarily of a loss associated with the sale of the Company’s crude gathering and storage business in Permian Delaware. The 2018 gain consisted primarily of the gain on exchange of a portion of the Company’s Versado gathering system, partially offset by the loss on disposal of the benzene saturation component of the Company’s LSNG hydrotreater.

 

Higher interest expense, net, in 2019 was primarily due to higher average borrowings and lower capitalized interest resulting from the commencement of operations of Grand Prix.

 

Equity earnings increased in 2019 primarily due to increased earnings from Gulf Coast Express Pipeline LLC (“GCX”) and Little Missouri 4 LLC (“Little Missouri 4”), resulting from the commencement of operations of GCX Pipeline and LM4 Plant in the third quarter.

 

During 2019, the Company closed on the sale of an equity-method investment that resulted in a gain during the fourth quarter of $3.5 million.

 

During 2019, the Permian Acquisition contingent consideration earn-out period ended and resulted in a final payment in May. During 2018, the Company recorded income of $20.9 million resulting primarily from a decrease in fair value of the contingent consideration liability.

 

The increase in income tax benefit during 2019 was due to a higher pre-tax loss, additional benefits from an accrual to actual adjustment for the state income tax provision and higher deductions related to share-based awards vesting during 2019.

 

Net income attributable to noncontrolling interests was higher in 2019 due to the sale of ownership interests in Targa Badlands and increased earnings allocated to interests holders in Grand Prix, GCX, and Train 6.

 

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

 

The decrease in commodity sales reflects lower NGL and natural gas prices ($3,296.9 million) and lower petroleum products volumes due to the sale of certain Petroleum Logistics terminals in the fourth quarter of 2018 ($63.8 million), partially offset by higher NGL, crude marketing, natural gas, and condensate volumes ($1,433.4 million) and the favorable impact of hedges ($68.0 million). Fees from midstream services increased primarily due to higher export and crude gathering fees.

 

The decrease in product purchases reflects lower NGL and natural gas prices, partially offset by increases in volumes.

 

Higher operating margin and gross margin in 2019 reflect increased segment results for both Gathering and Processing and Logistics and Transportation. See “Review of Segment Performance” for additional information regarding changes in operating margin and gross margin on a segment basis.

 

Depreciation and amortization expense increased primarily due to higher depreciation related to major growth projects placed in service, including additional processing plants and associated infrastructure in the Permian Basin and Grand Prix.

 

General and administrative expense increased primarily due to higher compensation and benefits costs and higher information technology costs resulting from increased staffing levels, and higher insurance costs.

 

 


 

The impairment of property, plant and equipment in 2019 included a partial impairment of gas processing facilities and gathering systems associated with the North Texas and Coastal operations in the Company’s Gathering and Processing segment, and an asset write-down associated with certain treating units within the same segment. The impairment resulted from the continuing decline in natural gas production across the Barnett Shale in North Texas and Gulf of Mexico due to the sustained low commodity price environment. The Company did not recognize any impairments of property, plant and equipment in 2018.

 

The Company did not record any goodwill impairment charges for the year ended December 31, 2019, as the fair values of all reporting units exceeded their accounting carrying values. The Company recognized impairments of goodwill totaling $210.0 million during 2018 related to the remaining goodwill associated with the Atlas mergers.

 

Other operating (income) expense in 2019 consisted primarily of a loss associated with the sale of the Company’s crude gathering and storage business in Permian Delaware. The 2018 expense consisted primarily of the loss on sale of certain Petroleum Logistics terminals and the loss on disposal of the benzene saturation component of the Company’s LSNG hydrotreater, partially offset by the gain on sale of the Company’s inland marine barge business and the gain on exchange of a portion of the Company’s Versado gathering system.

 

Higher interest expense, net, in 2019 was primarily due to higher average borrowings, partially offset by higher capitalized interest related to the Company’s major growth investments. During 2018, the Company recognized non-cash interest income resulting from a decrease in the estimated redemption value of the mandatorily redeemable interests, primarily attributable to the February 2018 amendments to such arrangements.

 

Equity earnings increased in 2019 primarily due to earnings from GCX and Little Missouri 4, resulting from the commencement of operations of GCX Pipeline and LM4 Plant in the third quarter.

 

During 2019, the Company closed on the sale of an equity-method investment that resulted in a gain of $69.3 million.

 

In 2019, the Company recorded expense of $8.7 million resulting from an increase in the value of the Permian Acquisition contingent consideration liability. The increase was primarily attributable to the elimination of discounting and an increase in actual gross margin through the end of the earn-out period. The earn-out period ended and resulted in a final payment in May 2019. During 2018, the Company recorded income of $8.8 million resulting from the decrease in fair value of the contingent consideration. The decrease was primarily attributable to lower forecasted volumes for the remainder of the earn-out period, partially offset by a shorter discount period.

 

During 2019 the Company recorded income tax benefit from pre-tax loss, whereas in 2018 the Company recorded income tax expense due to pre-tax income. Other factors attributable to the change were additional benefits from an accrual to actual adjustment for the state income tax provision and higher deductions related to share-based awards vesting during 2019.

 

Net income attributable to noncontrolling interests was higher in 2019 due to the sale of ownership interests in Targa Badlands and increased earnings allocated to interests holders in Grand Prix, GCX, and Train 6.

 

Review of Segment Performance

 

The following discussion of segment performance includes inter-segment activities. The Company views segment operating margin and gross margin as important performance measures of the core profitability of its operations. These measures are key components of internal financial reporting and are reviewed for consistency and trend analysis. For a discussion of operating margin and gross margin, see “Targa Resources Corp. ― Non-GAAP Financial Measures ― Operating Margin” and “Targa Resources Corp. ― Non-GAAP Financial Measures ― Gross Margin.” Segment operating financial results and operating statistics include the effects of intersegment transactions. These intersegment transactions have been eliminated from the consolidated presentation.

The Company operates in two primary segments: (i) Gathering and Processing; and (ii) Logistics and Transportation.

In the fourth quarter of 2019, we renamed the Logistics and Marketing segment as “Logistics and Transportation.” The updated name better describes the business composition and activity of the segment given the recent completion of Grand Prix. The change in naming convention did not impact previously reported results for the segment.

 

Gathering and Processing Segment

 

 


 

The Gathering and Processing segment includes assets used in the gathering of natural gas produced from oil and gas wells and processing this raw natural gas into merchantable natural gas by extracting NGLs and removing impurities; and assets used for crude oil gathering and terminaling. The Gathering and Processing segment's assets are located in the Permian Basin of West Texas and Southeast New Mexico (including the Midland, Central and Delaware Basins); the Eagle Ford Shale in South Texas; the Barnett Shale in North Texas; the Anadarko, Ardmore, and Arkoma Basins in Oklahoma (including the SCOOP and STACK); and South Central Kansas; the Williston Basin in North Dakota (including the Bakken and Three Forks plays); and the onshore and near offshore regions of the Louisiana Gulf Coast and the Gulf of Mexico.

 

The results of commodity derivative activities related to the Company's equity volume hedges that are designated as accounting hedges are now reported in the Gathering and Processing segment. These hedge activities were previously reported in Other. The Company's prior period segment information has been updated to reflect the change. There was no impact to the Company's Consolidated Statements of Operations.

 

The following table provides summary data regarding results of operations of this segment for the periods indicated:

 

 

 

Three Months Ended December 31,

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

Gross margin

$

 

403.9

 

$

 

365.4

 

$

 

38.5

 

 

 

11

%

$

 

1,496.0

 

$

 

1,377.5

 

$

118.5

 

 

 

9

%

Operating expenses

 

 

114.2

 

 

 

110.4

 

 

 

3.8

 

 

 

3

%

 

 

489.6

 

 

 

438.3

 

 

51.3

 

 

 

12

%

Operating margin

$

 

289.7

 

$

 

255.0

 

$

 

34.7

 

 

 

14

%

$

 

1,006.4

 

$

 

939.2

 

$

67.2

 

 

 

7

%

Operating statistics (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plant natural gas inlet, MMcf/d (2),(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Permian Midland (4)

 

 

1,638.9

 

 

 

1,260.7

 

 

 

378.2

 

 

 

30

%

 

 

1,489.1

 

 

 

1,141.2

 

 

 

347.9

 

 

 

30

%

Permian Delaware

 

 

740.7

 

 

 

477.8

 

 

 

262.9

 

 

 

55

%

 

 

599.7

 

 

 

443.9

 

 

 

155.8

 

 

 

35

%

Total Permian

 

 

2,379.6

 

 

 

1,738.5

 

 

 

641.1

 

 

 

 

 

 

 

2,088.8

 

 

 

1,585.1

 

 

 

503.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX (5)

 

 

279.4

 

 

 

365.4

 

 

 

(86.0

)

 

 

(24

%)

 

 

321.2

 

 

 

389.6

 

 

 

(68.4

)

 

 

(18

%)

North Texas

 

 

224.9

 

 

 

247.4

 

 

 

(22.5

)

 

 

(9

%)

 

 

226.9

 

 

 

244.1

 

 

 

(17.2

)

 

 

(7

%)

SouthOK (6)

 

 

606.1

 

 

 

574.1

 

 

 

32.0

 

 

 

6

%

 

 

606.1

 

 

 

555.7

 

 

 

50.4

 

 

 

9

%

WestOK

 

 

315.3

 

 

 

354.0

 

 

 

(38.7

)

 

 

(11

%)

 

 

330.2

 

 

 

351.6

 

 

 

(21.4

)

 

 

(6

%)

Total Central

 

 

1,425.7

 

 

 

1,540.9

 

 

 

(115.2

)

 

 

 

 

 

 

1,484.4

 

 

 

1,541.0

 

 

 

(56.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badlands (7), (8)

 

 

156.2

 

 

 

90.4

 

 

 

65.8

 

 

 

73

%

 

 

116.7

 

 

 

85.1

 

 

 

31.6

 

 

 

37

%

Total Field

 

 

3,961.5

 

 

 

3,369.8

 

 

 

591.7

 

 

 

 

 

 

 

3,689.9

 

 

 

3,211.2

 

 

478.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coastal

 

 

698.6

 

 

 

731.1

 

 

 

(32.5

)

 

 

(4

%)

 

 

748.3

 

 

 

726.2

 

 

 

22.1

 

 

 

3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

4,660.1

 

 

 

4,100.9

 

 

 

559.2

 

 

 

14

%

 

 

4,438.2

 

 

 

3,937.4

 

 

 

500.8

 

 

 

13

%

NGL production, MBbl/d (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Permian Midland (4)

 

 

236.7

 

 

 

169.2

 

 

 

67.5

 

 

 

40

%

 

 

209.1

 

 

 

153.4

 

 

 

55.7

 

 

 

36

%

Permian Delaware

 

 

99.7

 

 

 

58.9

 

 

 

40.8

 

 

 

69

%

 

 

78.6

 

 

 

53.5

 

 

 

25.1

 

 

 

47

%

Total Permian

 

 

336.4

 

 

 

228.1

 

 

 

108.3

 

 

 

 

 

 

 

287.7

 

 

 

206.9

 

 

 

80.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SouthTX (5)

 

 

34.4

 

 

 

47.0

 

 

 

(12.6

)

 

 

(27

%)

 

 

41.6

 

 

 

51.1

 

 

 

(9.5

)

 

 

(19

%)

North Texas

 

 

26.3

 

 

 

28.2

 

 

 

(1.9

)

 

 

(7

%)

 

 

26.8

 

 

 

28.1

 

 

 

(1.3

)

 

 

(5

%)

SouthOK (6)

 

 

72.1

 

 

 

57.6

 

 

 

14.5

 

 

 

25

%

 

 

67.1

 

 

 

54.7

 

 

 

12.4

 

 

 

23

%

WestOK

 

 

19.3

 

 

 

22.4

 

 

 

(3.1

)

 

 

(14

%)

 

 

21.6

 

 

 

20.5

 

 

 

1.1

 

 

 

5

%

Total Central

 

 

152.1

 

 

 

155.2

 

 

 

(3.1

)

 

 

 

 

 

 

157.1

 

 

 

154.4

 

 

 

2.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Badlands (8)

 

 

18.3

 

 

 

11.8

 

 

 

6.5

 

 

 

55

%

 

 

13.8

 

 

 

10.8

 

 

 

3.0

 

 

 

28

%

Total Field

 

 

506.8

 

 

 

395.1

 

 

 

111.7

 

 

 

 

 

 

 

458.6

 

 

 

372.1

 

 

86.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coastal

 

 

46.1

 

 

 

45.9

 

 

 

0.2

 

 

 

 

 

 

46.8

 

 

 

43.6

 

 

 

3.2

 

 

 

7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

552.9

 

 

 

441.0

 

 

 

111.9

 

 

 

25

%

 

 

505.4

 

 

 

415.7

 

 

 

89.7

 

 

 

22

%

Crude oil gathered, Badlands, MBbl/d

 

 

189.0

 

 

 

167.3

 

 

 

21.7

 

 

 

13

%

 

 

172.6

 

 

 

146.8

 

 

 

25.8

 

 

 

18

%

Crude oil gathered, Permian, MBbl/d (9)

 

 

74.9

 

 

 

68.2

 

 

 

6.7

 

 

 

10

%