Targa Resources Corp (TRGP) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Targa Resources Year End 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode and later we will conduct a question and answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Chris McEwan.

Thank you, Operator. I'd like to welcome everyone to our fourth quarter and full year 2012 investor call for both Targa Resources Corp. and Targa Resources Partners LP. Before we get started, I would like to mention that Targa Resources Corp., TRC, or the Company and Targa Resources Partners LP, Targa Resources Partners, or the Partnership, have published their joint earnings release, which is available on our website, www.targaresources.com. We will also be posting an updated investor presentation to the website after the call. Speaking on the call today will be Joe Bob Perkins, Chief Executive Officer, and Matt Meloy, Chief Financial Officer. Joe Bob and Matt are going to be comparing the fourth quarter and full-year 2012 results to prior period results, as well as providing additional color on our results, business performance, and other matters of interest.

I would like to remind you that any statements made during this call might include the Company's or the partnership's expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbors provisions of the Securities Acts of 1933 and 1934. Please note that actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings, including the partnership's annual report on Form 10-K for the year ended December 31, 2011 and quarterly reports on Form 10-Q. With that, I'll turn it over to Joe Bob Perkins.

Thanks, Chris. Welcome and thanks to everyone for participating. Besides Matt and myself, there are several other members of the management team who will be available to assist in the Q&A session. For today's call, I'll start off with a high-level review of performance and highlights. We'll then turn it over to Matt to review the partnership's consolidated financial results, it's segment results, and other financial matters for the partnership. Matt will also review key financial matters related to Targa Resources Corp. Following Matt's comments, I'll provide some concluding remarks and then we'll take your questions.

We're really pleased to announce a 2012 was a record year for Targa on many fronts. Record adjusted EBITDA of $515 million, record distributable cash flow of $354 million, over $540 million of organic growth CapEx, 13% distribution growth at the partnership, and a 36% dividend growth at TRC. The underlining fundamentals of our business are strong as we were able to achieve full year 2012 EBITDA within our initial guidance range, despite 25% lower NGL prices than our guidance assumptions, despite an $8 million impact from Hurricane Isaac and despite $6 million worth of transaction-related expenses for the Bakken Shale Midstream acquisition. These results included-- record operating margin for our Logistics and Marketing division, which was up 29% compared to 2011, driven by higher fractionation fees; record LPG export [service] volume, which benefits both our logistics assets and our marketing and distribution segments; contribution from our petroleum and logistics terminals that we acquired 2011; and increased treating fees resulting from our benzene treating project placed in service early in 2012. A very good year for the Logistics and Marketing division.

We also saw continued strong producer activity across our Field Gathering and Processing segment, despite the fall in NGL prices. Natural gas plant inlet volumes for our Field Gathering and Processing segment increased 12% with volumes up of in all four business units-- North Texas, Sandhills, SAOU, and Versado. As you are probably aware, activity in our three Permian Basin business, like much of the Permian Basin, is very high; driven by oil prices and improved technology. We are also pleased to announce the closing of our strategic acquisition of midstream assets serving producers in the Bakken Shale. This $950 million acquisition closed at the end of the day on December 31 and it had no impact on our results of operations for 2012, other than the transaction costs related to the acquisition.

Going forward, we will be calling this business Targa Badlands and results will be reported in our Field Gathering and Processing segment. We've only owned this business for 45 days, but our people are working hard, with the assistance of a very good transition service agreement, members of the Saddle Butte team, to continue the construction projects, meet customer needs, further commercialize the facilities and integrate the businesses. This new acquisition will provide us with additional business diversity, scale, and long-term growth. Badlands expands the Targa footprint into one of the fastest-growing crude oil basins in the world where we will handle crude oil, natural gas, and NGLs, while adding rapidly growing, fee-based EBITDA. We are excited about the long-term growth outlook for these assets and expect to invest $250 million in 2013 to bring us additional fee-based accretion in 2014 and beyond.

As mentioned previously, we spent a record $540 million of organic growth CapEx in 2012. Importantly, we placed in service projects totaling approximately $200 million of growth capital during the year of 2012. For 2013, we will set another record by spending approximately $1 billion in growth CapEx and we will place in service projects totaling over $1.1 billion of organic growth capital during 2013. The majority of that $1.1 billion to be placed in service in 2013 will and fee-based margin and it will be online and contributing to EBITDA in the back half of the year; meaning we should exit 2013 with a much higher rate EBITDA than we have begun 2013. Due to this large capital spending program and the timing of several major projects slated to come online in the back end of 2013, we continue to expect the first half 2013 distribution coverage to be weaker than historical averages.

As we stated previously, the Badlands acquisition is expected to be dilutive to 2013, then accretive in 2014 and beyond, as we work to expand the assets, do the construction, and increase the operating margin over time. For the first half of 2013, we expect our distribution coverage to be around 0.9 times, given the impact of the Badlands acquisition on 2013. We expect distribution coverage to improve in the second half of 2013, averaging about 1 times for the full year. We are excited about the long-term growth outlook for our businesses and expect to soon return to our long-time target coverage ratio of 1.2 times. With high visibility and confidence on the 2014 performance and our strong balance sheet and liquidity, we believe we're on the right path.

We also increased the partnership's full year 2012 distribution 13% over 2011, consistent with our original 2012 full-year distribution guidance given in the fall of 2011 as a 10% to 15% increase; a little past the midpoint. At the TRC level, our full-year 2012 dividends of $1.64 represented 36% growth over 2011, also just past the midpoint of our original 30% to 40% growth guidance given for 2012. We continue to expect to deliver full-year 2013 distribution growth of 10% to 12% at the partnership and expect to exceed 30% TRC dividend growth for 2013. That wraps up my initial comments and I'll hand it over to Matt.

Thanks, Joe Bob. I'd like to add my welcome and thank you for joining our call today. Joe Bob discussed some full-year 2012 records and highlights, so let's turn our attention to Q4 results. Adjusted EBITDA for the quarter was $131 million, or $137 million excluding $6 million in acquisition fees and expenses related to our acquisition of Badlands. This compares to a $146 million for the same period last year. The decrease was primarily the result of lower operating margins in our Gathering and Processing division, driven by weaker commodity prices partially offset by a 29% increase our Logistics and Marketing division, largely due to higher LPG export activity. Operating margin decreased 6% for the fourth quarter compared to last year.

I will review the drivers of this performance in our segment review. Please note, as Joe Bob mentioned, the Badlands acquisition did not contribute to 2012 operating results. We will include the Badlands results beginning in the first quarter of 2013. Gross maintenance capital expenditures measures were $19.6 million in the fourth quarter of 2012 compared to $24.6 million in 2011. Adjusting for the non-controlling interest portion of maintenance CapEx and certain reimbursements from TRC to the partnership, net maintenance CapEx were $18.2 million in the fourth quarter of 2012 compared to $17.1 million in 2011.

Turning to the segment level, I'll summarize the fourth quarter performance on a year-over-year basis. We'll start with our Gathering and Processing segments. Field Gathering and Processing operating margin decreased by approximately 32% compared to last year, driven by lower NGL and natural gas prices and by higher operating expenses due to additional compression and maintenance costs associated with system expansions. These effects were partially offset by increased natural gas plant inlet volumes. Please note that these segments do not include the impact of our hedging program, even though the hedging program is primarily associated with this segment.

Fourth quarter 2012 natural gas plant inlet for the Field Gathering and Processing segment was 720 million cubic feet per day; a 14% increase compared to the same period in 2011. All of the Field Gathering and Processing business units were up on volume for the quarter, as well as for the year, as Joe Bob mentioned. Natural gas inlet volumes increased by approximately 19% at both North Texas and SAOU, 5% and Sandhills, and 10% at Versado. These increases were attributable to new well connects across the system and less downtime for operational issues. For the segment, NGL prices decreased 39% while condensate prices decreased 9%, and natural gas decreased 5% compared to the fourth quarter of 2011.

Turning now to the Coastal Gathering and Processing segment, operating margins decreased 57% in the fourth quarter compared to last year. The decrease was primarily driven by lower commodity prices, less favorable frac spread and lower throughput volumes. Volumes were up at VESCO and LOU, but were lower at our other coastal straddle plants, especially from the shutdown of the Yscloskey plant, which had previously contributed to inlet volumes for the segment, but had a minimal impact to operating margin. We are beginning to capture some the volumes that previously went to Yscloskey at our more efficient, cryogenic Venice plant and expect to substitute capture to continue to improve.

Next, I'll provide an overview of the two segments in the downstream business. Starting with the Logistics Assets segment, fourth quarter operating margin increased 32% compared to the fourth quarter of 2011, due to higher fractionation and treating volumes and higher export volumes, partially offset by increased operating expenses driven by higher system maintenance costs. Export activity at our Galena Park Marine Terminal on the Houston ship channel increased again this quarter with LPG export volumes of 1 million to 1.5 million barrels per month currently being loaded onto small and medium-size vessels. In the Marketing and Distribution segment, operating margin for the segment increased 25% over the fourth quarter 2011, due primarily to favorable wholesale marketing opportunities driven by regional supply conditions and increased LPG export service activity.

With that, let's now move briefly to capital structure and liquidity. At December 31, we had $620 million of outstanding borrowings under the partnership's $1.2 billion senior secured revolving credit facility, due 2017. With outstanding letters of credit of $45 million, revolver availability was about $535 million at year-end. Total liquidity, including approximately $68 million of cash on hand, was approximately $603 million. Total funded debt on December 31 was approximately $2.4 billion or about 56% of total capitalization and our year-end compliance debt-to-EBITDA ratio was 3.8 times.

On October 25, we issued $400 million note offering of 5.25% notes due May 2023. The proceeds were used to call all of our outstanding 8.25% notes, due 2016 and to reduce borrowings on our revolving credit facility. On November 15, we issued a public offering of 10.9 million common units at $36 per share, resulting in $393 million of proceeds including the contribution by TRC to maintain its 2% GP interest. The proceeds were used to partially fund the Badlands acquisition. On December 4, we issued a $200 million note offering of 5.25% notes due May 2023 as an addition to our existing $400 million aggregate principal amount of the 5.25% notes. The proceeds were used for general partnership purposes, including funding a portion of the Badlands acquisition.

We have already had a productive start to 2013 financing activities. On January 10, we closed on a $200 million accounts receivable securitization facility, which increases our liquidity and provides a lower cost funding source relative to other outstanding debt. As of the end of January, we had $171 million of outstanding borrowings under this facility. Through January, we have received net proceeds of approximately $65 million from equity issuances under our at the market equity program, which allows us to periodically sell equity at prevailing market prices. Pro forma for the accounts receivable securitization facility and equity issued in January, our current revolver availability is approximately $770 million, leaving us with ample flexibility to fund our growth investments in 2013. On a debt compliance basis, which provides us adjusted EBITDA credit for material growth projects that are in process, but not yet complete and makes other adjustments, our pro forma total leverage, including the financings in January 2013, was 3.5 times, in the middle of our stated 3 to 4 times on a compliance basis.

Next, I'd like to make a few comments about our hedging and capital spending programs for the year. We expect operating margin to be over 50% fee-based during 2013 and 55% to 65% during 2014 and beyond. For the non-fee-based operating margin relative to the partnership's current equity volumes from Field Gathering and Processing. We estimate we have hedged approximately 50% of 2013 natural gas and 50% of 2013 combined NGL and condensate. We are less hedged than in previous years, but our diversity and fee-based improvements reduce the need to hedge commodity prices to previous percentages across all commodities. Furthermore, we do not have much appetite for hedging ethane or propane program at the current forward prices. We do not want to lock in pricing at these levels. We may hedge butanes and natural gasoline and we will likely hedge more natural gas and condensate.

Moving on to capital spending, we estimate approximately $1 billion of growth capital expenditures in 2013, with $1.1 billion of growth CapEx placed in service. We expect maintenance capital net to our interest to be approximately $75 million for the year.

Next, I will make a few brief remarks about the results of Targa Resources Corp. On January 15, TRC declared a fourth quarter cash dividend of $0.4575 per common share or $1.83 per common share on an annualized basis, representing an approximately 36% increase over the annualized rate paid with respect to the fourth quarter of 2011. TRC standalone distributable cash flow for the fourth quarter 2012 was $24.7 million and a declared $19.4 million in dividends for the quarter. At year-end, TRC had $82 million in borrowings outstanding under its $150 million senior secured credit facility and $8 million in cash, resulting in total liquidity of $72 million. That concludes my review, so I'll now turn call back over to Joe Bob.

Thanks, Matt. To wrap up the final portion of our prepared remarks, I would like to review some highlights of our growth project activity. As you know, our growth opportunities are being driven by the underlying industry dynamics of shale and resource play development, which is increasing business for both our Gathering and Processing division and our Logistics and Marketing division. These dynamics have allowed us to announce over $1.7 billion of growth investments to be placed in service in 2013 and 2014. $1.3 billion of that total $1.7 billion growth investment over the next two years will be providing primarily fee-based margin, which further insulates us from commodity price volatility. Here is a quick status update on some of the growth projects currently underway that I know you're following.

Our 100,000-barrel per day CBF Train 4 expansion will be placed into service in the second quarter of this year, as expected. During the course of construction, we have strategically increased selected scope to accommodate future growth, raising the total budget to $385 million from $360 million announced previously. This minor increase in expenditures significantly advantages future projects. Our expanded international export project remains on time and on budget. We expect the project, which will enable us to load in excess of 3 million barrels per month, to be in service during the third quarter of this year. When completed, we will be able to load in excess of 5 million barrels per month during the third quarter of 2014.

We have already entered into multi-year take or pay contracts for the majority of the capacity of the project and have seen longer terms for the most recent contracts. Our 200 million cubic feet a day Longhorn plant in North Texas is expected to be placed in service in the third quarter of 2013, assuming a near-term approval of its greenhouse permit. We believe that everything is complete on the permit and expect it soon, but have been disappointed with the speed of final federal approval. We'll let you know when we get the permit. The 200 million cubic feet a day High Plains plant at SAOU, announced in the fourth quarter of 2012, is still on track to be finished on time in mid-2014 and has all required permits. Given the level of producer activity and future focus in the Permian Basin, we are very excited about this project and the recent completions of two 300 million cubic feet a day expansions -- two 30 million cubic feet a day expansions in SAOU and Sandhill. Sometimes I can talk better than I can read.

As I mentioned in my opening remarks, we are busy at work integrating Badlands into Targa. Badlands is also an early-stage growth project. In addition to our integration and commercialization efforts, we expect to spend approximately $250 million in 2013 to expand the system and to provide additional connectivity to both rail and pipeline take away options for our producer customers and to secure further acreage dedications.

We recently completed a $35 million expansion of our sound terminal in Tacoma to greatly enhance our ability to serve the local and regional markets. The project connected the terminal to an important local products pipeline, added 225,000 barrels of storage and added ethanol and gasoline blending to the truck loading rack to increase the clean fuels available to the Puget Sound market. At Sound, we are also handling railcars of Bakken crude for Washington State and West Coast refineries. In addition to these announced projects, we continue to develop other projects that have not yet been officially approved by our Board, some of which are known in the industry and have been referenced in our investor materials. Those ongoing projects with some visibility include CBF Train 5, a unit train facility and others.

We are still optimistic about these projects. We expect the impact from these highly visible growth projects and others like them to provide the margin, scale, and diversity that will support continued distribution growth in 2013 and beyond. Even with the acquisition of Badlands, we continue to have substantial liquidity to fund our current announced slate of growth projects and to provide us flexibility to further expand our diversified midstream platform for even longer-term growth. 2013 will be a transformational year for Targa. We have approximately $1.1 billion in growth capital that will be placed in service and be up and running by the fourth quarter.

The majority of these new projects in service will contribute fee-based margin. These projects are expected to be completed at attractive EBITDA multiples, meaning that our run rate EBITDA in the fourth quarter of 2013 will be a step change from where we ended 2012 and where we are today. This enhanced end of year 2013 EBITDA performance should result in a 2014 EBITDA growth in excess of 25% over 2013. As I mentioned earlier than the call, we continue to expect to deliver full-year 2013 distribution growth of 10% to 12% at the partnership and expect to exceed 30% TRC dividend growth for 2013. With that, we'll open it up to questions and I'll turn it back over to the operator.

(Operator Instructions)

Bradley Olson, Tudor, Pickering, Holt.

First question, about the results reported in the Marketing segment. You noted in the press release this morning that a decent piece of the increase was a result of activities at the LPG export dock. I was hoping that you might be able to just qualitatively walk-through how much of that was due to maybe contract roll-over, a new higher fee structure, or any market-based opportunities that you guys were able to take advantage of during the quarter?

Thanks Brett. First of all, I think everybody is wondering if the first note out gets the first question. There's no correlation, but yours was the first one I saw this morning. I know you would like more color on that. I think the right color to provide is that things are going well in that whole segment, that we have had additional margin performance coming from exports, more volumes and attractive contracts. We also had very good performance in our wholesale division. This is a good season for wholesale and they have managed to use their assets; rolling assets like trucks, railcar's, people who are very good at responding to opportunities to meet customer needs and capture margin there as well.

Great. Thanks. As far as the CapEx, the CapEx outlook that you provided, that was very helpful and just kind of building on one of the comments you made about a potential unit train facility, can you discuss in any further detail how you're thinking about the integration of some of the coastal terminal assets that you own with the Bakken assets as you think about being able to provide services on the loading and unloading side for crude by rail?

Brad, you know, and others that follow us know that we actually were working on the coastal terminals well before we were working on the Bakken and those projects were getting started beforehand. Now we find we're talking to the same customers and different groups of the same customers about both handling their supply in the Bakken and handling their linkage to the coast, East Coast and West Coast. That provides us insights. I don't want to overwork the synergies other than that, but we're happy to be working with customers on both ends of the pipe, so to speak.

Great. Last question for me, we've started hearing, in these quarterly earnings call from some of the producers, in areas like the Eagle Ford and the Permian about perhaps some discounts developing in the condensate market versus the crude oil market. Given the fact that you already have a logistics footprint on the Gulf Coast and already have the logistics to move exports through your facilities, do you see any potential growth opportunities for Targa, if we do see a dislocated Gulf Coast condensate market to play a role in helping provide liquidity for producers or maybe even provide them with export outlets?

Mike was starting to tell me what to say on that one. He knows it better than I do, so he's going to jump in here.

We are working on two projects right now with both aggregator's and producers with initial engineering work being done on condensate stabilizers to make that product more merchantable. It will be out there so that we can use our trucks and potentially use our barges up and down the Texas Gulf Coast between Bellevue and Corpus Christi and other places. It's a very dynamic situation right now. We certainly want to help the producers make sure that they have a home for their condensate.

Great. Thanks guys.

John Edwards, Credit Suisse.

I'm just curious, on the Badlands, how is that going to be reported? Will that be a separate segment or is it going to go into one of your existing segments?

It's going to go in the Field Gathering and Processing segment.

Okay. All right. I was just curious, on the $250 million of CapEx you identified there, was that already inherent with the acquisition or was that projects that you immediately identified when you acquired it? Also, I was just curious, what's the outlook you expect that to grow over time?

Okay. The $250 million is the same number that we announced when we announced the acquisition based on the work that we had done to that point. It's also very indicative of what we expect to spend in 2013 and if we spend more than that, that's good news. We have re-prioritized those dollars someone since we've taken ownership 45 days ago. But it is an opportunity-rich environment. We are trying to get as much done as quickly as possible for 2013. We will have additional capital expenditures in 2014. I don't have a number for that for you now, but it's of similar magnitude and probably a little bit less would be a reasonable expectation. If it's more, it's a good thing.

Okay. That's great. Where are you now for 2013 EBITDA guidance?

We did not change our guidance at all.

Before we announced the Badlands acquisition, it was $540 million to $570 million and then we raised that by 10% to 15%, which gives you a range of about $600 million to $650 million.

Okay. Great. That's very helpful. This is the last question. In terms of the backlog of opportunities that you're evaluating, if you can give us any insight on that?

I think the easiest way to describe backlog, and Mike smiles because every time we get in front of people like our investor day, we were talking about projects we hadn't even planned to talk about. But what is not approved by our Board and that we're working on looks a whole lot like the suite of projects that are already on our disclosure list. The two that I just mentioned, CBF Train 5, people know we are working on. We've put in our investor material and described publicly. We've described that we are working on unit train projects publicly and you can assume that we're also working on other gathering and processing projects.

Okay. Great. Thank you very much.

Michael Blum, Wells Fargo.

One, can you just talk about across your system if you're rejecting ethane in the fourth quarter and now and to the extent you're willing to quantify that?

Sure. Let me talk about what we know about ethane rejection. First of all we have the advantage of [sifting] at Mont Belvieu and seeing a lot of pipes coming in. We know that ethane rejection is going on based on decreasing ethane content that we can observe, without pointing to any pipes. We can conclude that that's certainly occurring in the Mid-Continent and Rocky Mountains. I can also say you can go to our Field Gathering and Processing plants, SAOU, the Permian plans, North Texas, Targa is not rejecting ethane. I can't speak for other parties, but you asked to what extent we are rejecting in our Field Gathering and Processing, we aren't rejecting at all.

Okay. Turning to hedging for a second, the fact that you're not hedging the ethane and propane right now, does that imply that your view is that prices will improve this year or conversely, that there isn't a lot of downside? The second part of that question is, given that you mentioned that as the fee-based component of your cash flow is increasing, does that mean that going forward, we should expect this level of hedging as a new steady state?

This level of hedging that Matt just described was a mix of the various components. We provide all kinds of disclosure by component on what our hedging looks like. But I think it is fair to say that, at the forward prices, not the current prices, we're at $0.25 ethane right now and the forward curve on ethane isn't very pretty, that we do believe that there is more upside than downside relative to the forward price curves. Okay? Not relative to current, because that's what you'd get to hedge at is the forward price curves. And feel this same way, to a certain extent off of propane, we've got export projects coming online this year on propane and you didn't have much of a winter. That's just how we view it. If you think about us running multiple price scenarios, there's just not a whole lot of downside relative to the upside and we're going to be less hedged in ethane and propane than we have been in the past. We will probably be more hedged than we are today on the rest of the barrel and on condensate.

Okay. That's helpful. My last question, in the press release, you mentioned that, in the fourth quarter there were some operational issues at Gulf Coast fractionator's. I just wondered, to the extent you can provide any detail there and where that stands today?

Everyone on the line probably knows that we don't operate Gulf Coast fractionators and I hate to be the spokesman, instead of the operator being the spokesman. What we said in our material is accurate and I know that efforts are continuing, although Targa is not operator, we are in touch with them and we even try to help provide resources at times.

Okay. Great. Thank you.

[Justin Agnew], Robert W. Baird

Our questions have been answered, thank you.

(Operator Instructions)

Helen Ryoo, Barclays.

Just starting off with the LPG question, I think, Joe Bob, you mentioned that the activity was very robust and that -- the question is, are you pretty much maxed out on your current capacity or should we expect to see the export activity volume increasing even before the expansion comes on line in the third quarter? If it does, should it continue to benefit the Logistics and Marketing business?

Okay. Our current activity and results is just what we can export of HD5, domestic grade propane prior to this major project that's coming on. We're trying to provide the ability to export as much as possible, working very hard to do that. I would say that the activity and interest has increased, but we can only get so much across our docks. We have been pleasantly surprised by how much we have been able to get across our docks and I think it's reasonable to expect that to continue up into the first phase of the expansion coming on in the third quarter of this year. The third quarter of this year, similarly, interest and activity and desire for that has increased. When it first comes on, we've got it contracted as much as it can be contracted and then we will be working to become even more efficient about getting more across the dock, which may open up a little more room or room for some spot cargo. It's my understanding that the only other dock in the Gulf Coast doing that has seen similar activity and desire and demand, so to speak.

Are you fully contracted out on your 2013 expansion and also for your '14?

Yes.

Okay. Then your '14 expansion, I guess your plan is to still keep, not contract out the whole capacity, but keep some for your own accounts? Is that still the plan?

No. I remember that coming up, I believe, in the last call. To clarify it a bit, we're trying to contract as much as we can based on known ability to meet that demand because those are firm contracts. Our ability to get stuff across the dock may allow us to get additional spot cargoes beyond what we've contracted. When it comes on '13, it's fully contracted. Maybe we can squeeze a little bit more across. When the additional part comes on in '14, it's essentially contracted. There may be a little bit more that we can contract because we're learning all the time about what we can get across the dock. We also acquired an existing dock that will require some investment and we're looking at plans, different ways to use that dock to perhaps expand our ability to do LPG contracts. For example, maybe we handle the domestic grade propane of Patriot while handling more international grade propane of Galena Park.

Okay. That was the other question, I guess the Patriot facility, is that a site where you could use as an expansion of the LPG export facility? It sounded like it may be used a little bit differently, not for exports.

What we said in the release and what I say again today is it is very flexible facility because it's close to ours and can be interconnected with the big facilities that are connected to Mont Belvieu and our grid and our storage. At the same time, we might very well be using it for two purposes -- helping out on the domestic grade propane and what it originally hit our radar scope on was opportunities associated with our Petroleum and Logistics business and very close relation to a major hub pipeline there.

Okay. All right. That's very helpful. Another question I had was regarding your Longhorn plant, if it's coming online this year? Just wondering, it seems that there are some producers who are [conducting] activity in the Barnett Combo play and is that affecting maybe your expectation on how quickly this plant will fill up?

I think that's probably fair. It's less that it's un-economic in the Barnett from my perspective. You have producers who also have Permian opportunities and that's just going gang busters. Maybe they're moving dollars to the Permian in lieu of North Texas, for example. I believe you've really hit the right summary. It's still going to be an attractive project or us and may just fill up slower than we had initially anticipated.

Okay. That's it for me. Thank you very much.

Darren Horowitz, Raymond James.

Joe Bob, just one question, as you think about the bid for propylene and the growing divergence between our finer grade supply and (inaudible) grade demand, how do you guys think about possibly adding some propylene-splitting capacity or even looking at PDH in order to meet that demand? You've got, as you just mentioned, HD5 supply and it seems like it would be a natural extension of your downstream value chain. A little color there would be helpful.

We understand. We've got a lot on our plate. It is unlikely, certainly in the near-term, that we would be integrating in that direction. Instead, what we'll try to do is make the needs of customers who are working in that direction. Mike, do you see it any differently?

There's a number of PDH plants that have already been announced on the Gulf Coast, maybe more to come. There's a ton of international projects. Our focus is to supply product, not to get into that. That is not in our focus line. We don't have that experience in-house, we'd have to go out and get it.

Okay. Thank you.

Selman Akyol, Stifel Nicolaus.

I appreciate all of the color. Two questions for me -- first of all, in the Marketing and Distribution segment, you guys referenced the timing of a third party wholesale contract settlement. I was wondering if we could get some additional detail around that so we can get a run rate?

We've had some additional operating margin periodically, really over the last year or so on the settlement. It's hit in the second quarter before and here in Q4.

The fact is, it is a settlement and I just can't say much more about it. I didn't mean to -- it's a good question. I'd be asking the same question. We're just stuck with what we can say about it.

All right. Fair enough. The other question I have is, can you just talk a little bit about your appetite for doing other acquisitions? Do you have enough? Would you just prefer to continue on the internal growth or would you be looking for other acquisitions to propel 2014 and beyond?

Our answer's really always the same on that one. We look at a lot of things, we benefit at looking at those things. But an acquisition for Targa that is accretive, that nicely fits into our existing business, and doesn't overwork our current talent pool, that's a needle in the haystack. We found that with the Badlands acquisition. We hadn't done a major acquisition for five years when we did that.

We did little acquisitions, but people barely noticed, that were as big as our first acquisition. The acquisition of the three petroleum logistics terminals was $0.25 billion dollars, which was as big as our first acquisition and it barely hit the radar scope. We'll do smaller ones that kind of have a fit, but I don't see a major acquisition in the future. I could be surprised, but it's not a goal or objective of ours.

All right. Thank you very much.

(Operator Instructions)

I just got corrected, I misspoke again. I said $250 million, I should have said $150 million, which was approximately the same size as the $250 million SAOU/LOU acquisition.

At this time, I am showing no additional questions, so I'll turn it back to Management for any closing statements.

I just want to say thank you for your time. We appreciate your interest. If you have any follow-up questions, please feel free to contact Matt or any of us. Have a good day.

Ladies and gentlemen, this does conclude your conference. You all may disconnect and have a good day.