Targa Resources Corp (TRGP) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Targa Resources first quarter 2013 earnings and webcast presentation. At this time we are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time.

(Operator Instructions)

I would now like to introduce (inaudible) Chris McEwan.

Thank you operator. I'd like to welcome everyone to our first quarter 2013 investors call for both Targa Resources Corp and Targa Resources Partners LP. Before we get started, I'd 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. Other management team members are available for the q and a. Joe Bob and Mat will be comparing the first quarter 2013 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 that might include the Company's or the Partnership's expectations or predictions should be considered forward-looking statements, and are covered by the Safe Harbor provisions of the Securities Act of 1933 and 1934. Please note that actual could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause results to differ, please refer to our SEC filings, including the Company's and the Partnership's annual report ion form 10k for the year ended December 31st, 2012, and quarterly reports on form 10-Q.

With that, I'll turn it over to Joe Bob.

Thanks, Chris. Good morning, and thanks to everyone for participating. For today's call, I'll start off with a high level review of performance highlights. We'll then turn it over to Matt to review the Partnership's consolidated financial results, 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 will get to questions and answers.

Our reported first quarter adjusted EBITDA was $132 million, as compared to $145 million, first quarter of last year. This was a 9% decrease in EBITDA compared to the first quarter last year, however, given the backdrop of approximately 30% lower NGL prices compared to the first quarter of 2013 versus 2012, the results show the long-term benefits of increasing fee-based margin contribution to our business mix, the benefits of growth in our field G&P, and the growth in the export volumes. I should also point out that the first quarter NGL prices were just slightly lower than those assumed in our 2013 guidance, so the first quarter results are tracking our full-year outlook just fine. The fee-based logistics asset segment produced record quarterly operating margin of $56 million, up 31% compared to last year, primarily driven by higher fees for services across the segment, higher LSNG and Benzene treating volumes, and increased LPG export activity, which benefits both the logistic assets and marketing and distribution segments. The strong results for logistics assets segment were achieved despite somewhat lower fractionation volumes caused by third-party ethane rejection and third-party pipeline curtailments. Those somewhat lower volumes were partially mitigated by fracker pay minimum volume commitments

Marketing and distribution increased compared to the first quarter of 2012 driven by the higher LPG export activity that I just mentioned and by higher wholesale propane margins that resulted both from a colder winter this year, and from logistics-related opportunities. Continued strong producer activity in the field gathering and processing segment led to increased volumes compared to the first quarter of 2012. This is also the first quarter that we are including results from Targa Badlands, our Bakken Shale crude oil and gas-gathering operation. This business, which is really a growth project in process, is reported in our field gathering and processing segment. Badlands generates predominantly fee-based margin and is one of the key contributors to our multi-year forecasted increase in fee-based margin. I will give you some more color on Badlands later in the call.

Distributable cash flow for the quarter of approximately $86 million resulted in distribution coverage of approximately 0.9 times. Based on our first quarter declared distribution of $0.6975, or $2.79 on an annual basis. Second quarter distribution coverage could be similar to, or potentially somewhat lower, than the first quarter due to historic seasonality in the downstream business. This coverage profile is consistent with the guidance we gave on the fourth quarter earnings call for distribution coverage to be approximately 0.9 times in the first half of '13, given the impact of the highly visible, high-capital growth projects, and the Badlands acquisition. CBF Train 4 and the International Export project will start contributing significant margin in the back half of the year along with Badlands. Consistent with previous guidance, we continue to expect 2013 coverage to average about 1.0 for the full year, and over time expect coverage to return to our long-term target of 1.2 times.

The Partnership's First Quarter distribution of $0.6975, or $2.79 annualized, represents a 12% increase compared to the first quarter of 2012. Up at the TRC level, the first quarter dividend of $0.495 cents, or $1.98 annualized, represents a 36% increase compared to last year. Given Q1 performance, we are comfortable with our EBITDA guidance, and comfortable we will deliver on our distribution and dividend goals for 2013.

That wraps up my initial comments, and I will hand it over to Matt.

Thanks, Joe Bob. I would like to add my welcome, and thank you for joining our call today.

Adjusted EBITDA was $132 million, compared to $145 million for the same period last year. The decrease was primarily the result of lower operating margins in our gathering and processing division, driven primarily by lower NGL and condensate prices, partially offset by a 31% increase in our logistics and marketing division, due primarily to higher LPG export activity, higher fractionation fees and increased wholesale propane margins. Overall operating margin decreased 8% for the first quarter compared to last year. I will review the driver of this performance in our segment review. Gross maintenance capital expenditures were $21.7 million in the first quarter of 2013, compared to $16.5 million in 2012. Adjusting for the non-controlling interest portion of maintenance capital expenditures and certain reimbursements from TRC to the Partnership, net maintenance capital expenditures were $18.8 million in the first quarter of 2013, compared to $14.3 million in 2012.

Turning to the segment level, I will summarize the first 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 26% compared to last year, driven by lower NGL and condensate prices and higher operating expenses, due to additional compression and maintenance costs associated with system expansion and the addition of Badlands. These effects were partially offset by increased natural gas plant inlet volumes, higher natural gas prices and margin contribution from Badlands. Please note that these segment results do not include the mitigating impact of our hedging program, even though the hedging program is primarily associated with this segment.

First quarter 2013 natural gas plant inlet for the field gathering and processing segment was 729 million cubic feet per day, an 11% increase compared to the same period in 2012. The addition of natural gas inlet volumes at Badlands contributed to the overall increase while three Targa systems had significant year-over-year increases. North Texas increased 16%, SAOU increased 21% and Sandhills increased 5% over the first quarter 2012. Volumes at Versado decreased 5% from last year driven primarily by curtailment caused by maintenance on a third-party pipeline. For the segment, NGL prices decreased 32%, while condensate prices decreased 14% and natural gas prices increased by 21% compared to the first quarter of 2012.

Turning now to the coastal gathering and processing segment, operating margin decreased 49% in the first quarter compared to last year. The decrease was primarily driven by lower commodity prices, less favorable frac spread and lower throughput volumes in NGL production. Inlet volumes were up at LOU driven be the addition of the Big Lake plant, but were lower across our coastal straddle plants, especially from the shutdown of Yscloskey and Calumet plants, which contributed approximately 280 million cubic feet per day to inlet volumes for the segment in the first quarter of 2012 but accounted for less than 1% of total company operating margin. We are beginning to capture some of the volumes that previously went to Yscloskey at our more efficient cryogenic VESCO plant and expect this substitute capture to continue to improve. We expect to transition the vast majority of the process able Yscloskey volumes to Venice. NGL volumes were down at VESCO and remain constrained due to damage incurred at a third-party pipeline, This constraint should be repaired in the next month or so.

Next I will provide an overview of the two downstream segments, starting with the logistics asset segment. As Joe Bob mentioned in the opening, first quarter operating margin was a record and increased 31% compared to the first quarter 2012, driven by higher fractionation fees, LPG export activity, treating volumes and petroleum-logistics activities. Fractionation volumes declined 12%, driven by third-party ethane rejection and certain third-party pipeline curtailments. The effect of lower supplies available for fractionation was partially mitigated by volume deficiency payments under our standard frac-or-pay contracts. We continue to see high levels of export activity at our Galena Park Marine terminal on the Houston ship channel. We loaded approximately 45,000 barrels per day of LPG for export in the first quarter, more than double the 22,000 barrels per day loaded in the first quarter of 2012. That's 45,000-barrel per day volume corresponds at over 1.3 million barrels per month.

In the marketing and distribution segment, operating margin for the segment increased 30% over the first quarter 2012, due primarily to the significantly higher LPG export activity, increased truck and barge transportation opportunities, and higher wholesale propane margins driven by the colder winter in 2013. These positives were partially offset by decreased NGL prices. With that, let's now move briefly to capital structure and liquidity.

As of March 31, we had $565 million in outstanding borrowings under the Partnership's $1.2 billion senior-secured revolving credit facility due 2017. With outstanding letters of credit of $53 million, revolver availability was about $582 million at quarter end. Total liquidity, including approximately $102 million of cash on hand, was $684 million. At quarter end, we had borrowings of $111 million under our accounts receivable securitization facility. As of the end of April, we had $147 million borrowed under this facility. Through the end of the first quarter, we received net proceeds of approximately $105 million from equity issuance's, under our at-the-market equity program which allows us to periodically sell equity at prevailing market prices. Based on Q1 experience, we believe the ATM could meet our equity needs over the course of the year. The program allows us to match the timing of the equity issuance's more closely to our capital spending profile. Total funded debt on March 31 was approximately $2.5 billion, or about 56% of total capitalization for our first quarter compliance debt-to-EBITDA ratio which provides adjusted EBITDA credit for material growth, projects that are in process but not yet complete, and includes other adjustments, was 3.8 times.

Next, I would like to take a few -- make a few comments about our fee-based margin, hedging and capital spending programs for the year. We continue to expect operating margin to be over 50% fee-based during 2013, and 55% to 65% during 2014 and beyond, driven by our fee-based expansions including fractionation, LPG exports and crude gathering. During the first quarter, we added some additional hedges for natural gas and condensate, and more recently, added some additional natural gas hedges. For the non-fee based operating margin relative to the Partnership's current equity volumes from field gathering and processing, we estimate that we currently have hedged approximately 60% of remaining 2013 natural gas, and 50% of remaining 2013 combined NGL and condensate. We are less hedged than in previous years, primarily on ethane and propane, but our diversity in fee-based improvements reduce the need to hedge commodity prices to previous percentages across all commodities. Moving on to capital spending, we estimate approximately $1 billion of gross capital expenditures in 2013, and expect maintenance CapEx net to our interest to be approximately $75 million.

Next I'll make a few brief remarks about the result of Targa Resources Corp. On April 16th, TRG declared a first quarter cash dividend to $0.495 per common share, or $1.98 per common share on an annualized basis, representing an approximately 36% increase over the annualized rate paid with respect to the first quarter of 2012. TRC stand-alone distributable cash flow for the first quarter 2013 was $25 million, and it declared $21 million in dividends for the quarter. As of March 31, TRC had $72 million in borrowings outstanding under its $150 million senior-secured credit facility and $11 million in cash, resulting in total liquidity of approximately $89 million.

That concludes my review, so now I will turn the call back over to Joe Bob.

Thanks, Matt.

To wrap-up our prepared remarks, I would like to review some highlight of the on-going business and 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 are increasing volumes to both our gathering and processing and logistics and marketing divisions. These Dynamics have allowed us to execute over $1.7 billion of announced growth investments to be placed in to service in 2013 and 2014. Approximately 75% of that total $1.7 billion will provide primarily fee-based margin. By the way, we are very proud of how our people are executing on these projects an impressive on-time and on-budget track record.

Now I will provide a quick status update of some of those growth projects currently underway. Our 100,000-barrel per day CBF Train 4 expansion has been delivered on time and on budget and is currently being commissioned. Capacity of Train 4 will be utilized to process y grade in advance of the base Train 4 contracts which began in August, and also to assist while CBF conducts required safety inspections, with certain pressure vessels associated with trains 1, 2, and 3 during May through July. Consistent with an estimated timing included in our 2013 fiscal year guidance, we expect CBF Train 4 to meaningfully contribute to third quarter operating margin and to be fully contributing to operating margin in the fourth quarter of 2013. Our expanded international export project remains on budget and is ahead of schedule which might allow us to service a few spot cargos before the term contracts we have signed beginning in October. We expect the project, which will enable us to load a total exports in excess of 3 million barrels per month to be in service during the third quarter of this year. We also expect to be on time and on budget for additional capability, for the third quarter of 2014, bringing total capability in excess of 5 million barrels per month. We continue to see strong demand for capacity reservations, under multi-year take-or-pay contracts.

Shifting to petroleum logistics, we continue to work on expansion opportunities around our existing terminals. During the first quarter we completed a very interesting and technically challenging project at our sound terminal in Tacoma, connecting the terminal to an important local products pipeline, adding additional storage, and adding ethanol, bio-diesel and gasoline-blending capabilities. Since last year, our sound facility has handled manifest rail cars of Bakken crude for Washington state refineries. Although this service was temporarily interrupted due to issues raised by a state regulator, we have resumed the services and are working with the regulator to resolve any remaining issues. If some of those issues remain, we do not see any material financial impact. Shifting together into processing, a 200 million a day Longhorn plant in north Texas is expected to be placed in service in Q4 2013, assuming a near-term approval of its greenhouse gas permit. I know you've heard that before, but everything is complete on the permit, and the public notice period is over. Assuming there are no adverse comments, and we do not expect any, we expect to receive the permit within a few weeks.

As you know, Permian Basin producer activity is very high. Producers are drilling more horizontal wells in the Wolfberry for our SAOU system. Similarly, the Cline is experiencing significant activity in and around our system. Sandhills continues to benefit from the Wolfberry on the east side of the system, Bone Springs and Avalon on the west side, and continued success in other formations in the center. In addition, the producers continue to improve their drilling and completion techniques across the entire Permian Basin, and that continues to have positive results for our systems. The recent completions of two 30-million-a-day expansions, one at SAOU and one at Sandhills are up and running, and are expected to be fully utilized in the near future. The 200 million-a-day High Plains plant at SAOU announced in the fourth quarter of 2012 and is still on track to be finished in mid-2014, and has all required permits. Given the level of current and expected future producer activity in the Permian Basin, we continue to evaluate and work on additional Permian Basin processing capacity expansion opportunities.

The Badlands acquisition is very similar to our other growth projects, and is still very early in the growth capital investment phase. We continue to work hard integrating and growing the Badlands asset. Some of our construction efforts this winter were more difficult due to the North Dakota winter, which was significantly colder and longer than last year. However, we are even more enthusiastic about the long-term potential of these assets than when we purchased them late last year. While still aided by a transition services agreement from the seller, we have made significant recent integration process progress on all fronts, including hiring additional field personnel, project managers and commercial representatives.

Our commercial strategy is about providing connectivity, to best serve our producer customers. This connectivity strategy really has two focuses, one, building the backbone in lateral's and making connections to producer wells in closest coordination with their drilling plans, and two, providing multiple interconnections from our system to pipeline, truck and rail delivery points to allow our producers the option to ensure take-away, and to optimize the price for their production. We currently have seven or more such interconnects in place or pending in the near term, with more in the works. Largely because of our ability to deliver on the connectivity strategy and partially because we've got our first [luber] advantage, we have also been very successful with our commercial efforts to add acreage dedications and other commitments. So far this year we signed contracts, or added contract dedications, for approximately 40,000 incremental acres, providing further expansion to additional markets. We are also negotiating documentation for deals with a very high probability of adding more than 3 to 4 times that much acreage again, and we are working on other deals that could add even more acreage and connectivity. We continue to expect to spend approximately $250 million or more in 2013 to expand the system to serve acreage dedications and to provide connectivity and take-away options for our producer customers.

In addition to our announced capital expenditures program, we continue to develop other projects, some of which are known in the industry and have been referenced in our investment materials. Although they are not officially approved by our Board, those projects include CBF Train 5, unit train facility projects to receive transported crude oil, and other potential gas gathering and processing projects, particularly in Permian basin. We are still optimistic about these potential projects. We expect the impact from our highly visible growth projects to provide the margin, scale and diversity that will support continued distribution growth in 2013, 2014 and beyond. As you can tell from our comments today, we are very pleased with the strong performance across businesses in the current environment, and we are equally excited about the expansion projects we have under way and the prospects for adding to our growth portfolio. This solid performance underpins our comfort with our guidance, including EBITDA and distribution and dividend growth.

So with that, we will open it up for questions, and I'll turn it back to the operator.

(Operator Instructions)

Our first question comes from Bradley Olson with Tudor Pickering.

So obviously you guys have already talked about a dock expansion and have been very active down on the ship channel, but in light of two dynamics that have emerged over the last quarter, one of those being a proposal of a pipeline to take Y-grade from the Marcellus down to the Gulf Coast, the second of those being a dislocation in US butane prices, do you see opportunities -- incremental opportunities to expand given that you already have the footprint that I think some folks coming out of the Marcellus are looking for? And do you see an opportunity to expand what has been mostly a propane-focused export expansion into the butane side of things?

Thanks, Brad. I was actually getting some additional input, and I'm glad, because I would have forgot to mention it. You are right. Those are two very interesting and important dynamics. First, we have been expecting more Marcellus y-grade -- Marcellus and Utica y-grade, to come to the Gulf Coast. It started with the Enterprise project, and the Boardwalk Williams project is the best of those to turn around. That brings only opportunities for us and the Gulf Coast, and that product showing up comes to Targa assets that are very well-positioned to help. The dynamic, y-grade trying to get to market and getting to Mont Belvieu and Galena Park, benefit us. We were expecting it, and are working with parties who are also expecting it. The dislocation in butanes, yes, we have been seeing that, and we are working with other parties. You are aware of our Patriot Dock acquisition, which allows us to expand our Galena Park capabilities, and remove any bottlenecks that might occur as we try to handle multiple LPGs from Galena Park and expand our ability to do so. I think I'd probably leave it at that, but the commercial opportunities continue to increase and those are two dynamics that we think are favorable.

That's very helpful. On the Bakken or the Badlands side of your business, when you made the acquisition you discussed roughly $250 million of additional capital expenditures that were needed to get the system where you wanted it. In light of any dynamics that you've observed in the last 180 days or so, do you see incremental opportunities beyond that original $250 million? Have you been -- has there been any developments in the Bakken that have contrasted or compared with your original model case, and whether those be field gathering or an expansion of potential rail-loading facilities?

Well, that was a lot of questions, Brad. (laughter) I'll will try to hit them all. First of all, the $250 million that we described when we first made the acquisition was consistent with what was on the drawing board for 2013. It's not getting the system to where we want to get it. We are going to be doing that in '13 and '14. I see more opportunities, not less opportunities, than when we acquired it, and I'm not trying to be subtle, but we have been saying $250 million or more for 2013 and we haven't yet given guidance for 2014. We will do that in fall of this year.

Has anything changed relative to our model of the Bakken, and announcements in the Bakken? Well, I do -- I try to follow the entire Bakken, but we have continued discussions with contracted producers and prospective producers in and around our system and I'm more focused there. I can't share that. I do view every public announcement from those producers with a highlighted part about what is happening in and around our system, and I'm looking at the person who actually helps me do that work. Here is where I come out, is the activity in and around our system is better than we thought it was going to be, number one. Number two, the number of completions per drilling unit in and around our system are better than we thought it was going to be over time. And number three, the productivity of all of the completions that we are seeing are better than we thought it was going to be when we made the acquisition.

So if my enthusiasm is a little too loud, those are the reasons. It's just the information has gotten better on all three of those.

Okay. Great, that's helpful, and just one last question. Condensate pricing in your field gathering and processing segment falling -- have fallen about 15%, year-on-year, is that, as you think about the build-out of your Patriot acquisition, is condensate exports or condensate handling a potential avenue that you can pursue going forward? And that's it for me, thanks.

Yes. When we made the announcement of the possibilities of Patriot, we said refined projects and NGLs, and you are correct. Condensate is one of the things that we are talking about. That's Patriot. I should also say that Patriot works nicely with the Galena Park, but we also have a channel-view facility on the ship channel that has those same opportunities.

Our next question comes from Darren Horowitz with Raymond James.

Joe Bob, I just have one question for you as it relates to your commentary around what you are seeing in the Permian. Whether or not it's the Wolfberry activity, or the Cline, or what's driving a lot of those inland volumes through Sandhills. How much more capacity, as you are talking with producer, do you think is going to be necessary in order to keep the market affectively at balance without degrading price?

The producer opportunities seem to increase every time I look, and the Permian Basin is one of the most economic basins in the country and in the world. But when we say degrading price, we have two levels. US -- increases in US production really is not degrading global prices because it's cost competitively advantage. At the same time, there could be temporary dislocations in oil prices, by market sub hub. The Permian Basin is pretty well connected for moving oil out. I think that's one thing that producers have enjoyed about it. WTI has various discounts relative to Brent that's against the global, but WTI's ability to get out of the Permian is being improved as we speak. We aren't yet involved in any of those projects, but feel good about them. Anything else?

That's all I had, Joe Bob. I appreciate it.

Our next question comes from Stephen Maresca with Morgan Stanley.

Good morning, everybody.

How are you doing? Good morning.

I'm doing well, thanks. Question on the -- you mentioned, Joe Bob, three million barrels a day a month by third quarter 2013 export. Is that all propane, or is that a mix?

In fact, one of my colleagues was saying during the very first question I should have clarified part of that butane question is, we typically -- typically is probably an okay word -- have 25% to 30% of those total exports being butane, the rest being propane. As we come on for the VLGCs in the third quarter, most of the off-take agreements provide options for butane to be a part of the cargos, and I would expect that they would be.

What do you have to do to go from that 3 to 5, in terms of infrastructure or CapEx, and how likely is that?

To go from 3 to 5?

Yes, you mentioned it going to 5 million by third quarter '14.

It's a 100% likely, first of all. Second of all, those are round numbers, and my capability maybe a little larger than that in the third quarter of 2013, and a little larger than that in the third quarter of 2014, so I don't want to mislead anyone. The types of project things we have to do is increase some pipeline capacity and improve our dock space. We had some refrigeration as well. Mike, what did I leave off?

That's the high level, and we are always adding utilities and making sure it all runs well.

All of those contracts have been let, and all of it is under construction.

Mike does not let us say expect on time and on budget unless he is really expecting on time and on budget, and I want to say it again. I'm really proud of our execution on all of these projects. We're establishing a really good track record.

You mentioned also still being able to get multi-year take-or-pay contracts. Is the market shifting all, or are you able for all of this export majority, or what would that be? 90% or more? Is it under these type of multi-year take-or-pays?

Well, I haven't announced percentages that are under those take-or-pays. The existing capacity has multi-year contacts, but we have also been able to handle more than we thought we could. So we had spot cargos, as well. The 2013 third quarter expansion for international-grade propane, along with butanes, is completely contracted, but we maybe able to work some spot volumes in above that. We see very high demands for contracting and have already -- contracting volumes that will begin in 2014 associated with that additional expansion.

And then final question, shifting gears to Badlands, appreciating you haven't had it for a long while yet. But what -- can you discuss a little bit of impacts of rail up in that region for this business going forward? Just love to hear some thoughts on that.

I'm borrowing a quote that I liked a lot; someone else created it. To a great extent, the Badland system is agnostic to how crude leads. But being agnostic, we're going to give producers the way to get out, that they want, at any particular time, which is to connect them by pipe better than they currently are if they want it to go by truck, if they want it to go by rail, or if they want it to go from available pipeline capacity out of the area. Our connectivity strategy is all about that. Right now, crude going from our system may leave in a truck, may leave in a pipe, it may ultimately go away on rail, and our anticipation is to agree with the industry view that rail has a long-term future for the Bakken. Leaving the Bakken, we are preparing for rail, leaving the Bakken, to catch it either on the west coast or the east coast and help people with that as well.

Okay. Thanks very much, guys.

Our next question comes from T.J. Schultz with RBC Capital Markets.

Sorry if I missed this, but did you or can you provide the margin impact that Badlands had on field G&P during the First Quarter?

No, I didn't provide that, and I would also say that whatever is in the queue is probably not as helpful as you would like it to be. What I did say is that when you look, going forward for the rest of 2013, the combination of Badlands and other things going on with projects -- CBF Train 4 coming on, the export facilities coming on, is perfectly on track with the guidance we provided you all last fall.

Okay, thanks. I guess to follow-up on the Patriot terminal again. Is the current thought to take more domestic grade propane through Patriot, or is there an opportunity for more butanes there? And as you look at optimizing the opportunities there, the initial investment was relatively modest. Can you give us any idea of what type of growth capital would be required to develop some of these capabilities.

First of all, our initial thoughts in January that we shared with you was a strategy of both working refined products and LPGs in conjunction with Galena Park. That's still our strategy, because we are in commercial discussions with potential customers that will back the additional capital investment. I wouldn't want to go in to more detail than that, but that still is our strategy, which is refined products and over time, being able to help Galena Park with additional LPGs. That's all we would want to share, but it was -- it is a very complimentary asset with a lot of commercial interest.

Okay, thanks. Fair enough. Just lastly, the rail unloading and barge loading project at Tacoma. I think you said you are back to taking manifest trains. When would you expect to be able to start unit train capabilities there?

I haven't announced when we might start unit train capabilities there, but what we have said is we are continuing to work on it.

Fair enough, thanks guy.

Our next question come from Michael Blum with Wells Fargo.

Hey Michael, good morning.

Good morning. Curious if you could expand, you said part of the slight down-tick in frac volumes was third-party pipeline contaminants. Are you talking about NGL lines into Belvieu? I was wondering if you could expand upon that to the extent that you can?

Yes. NGL pipeline capacity in to Belvieu experienced constraints in the first quarter. They were just full. That is -- I'm sorry, what did you say? They were full, and one of them in particular that we saw had to go down for maintenance for also a little longer than they had planned.

There was a second part to your question?

No, that was the first question. The second question is a similar question on constraints, but in the Permian. Are you seeing constraints as it relates to natural gas take away -- associated gas take away out of the Permian through your system or just in general?

Broadly in the Permian Basin as volumes have increased, people have been working around the natural gas system, which was designed for a lot more that it's currently producing. Compressor stations had been taken away, and pipes had been de-rated. I think you will see people working on that over time. There are some constraints, and there's also a nitrogen issue out there that we are seeing.

Last question, is really just a point of clarification. When you talk about these increased dedications in and around the Badland system, are you talking about associated gas, oil, both, a mix? What exactly?

Well, I won't give you exactly right now. We have -- we announced an initial acreage dedications of oil, separate from gas. Part of the reason is a lot of the gas is already committed. We have more oil than we have oil and gas, and we have a little bit I think of maybe just gas. Of the acreage dedications that occurred in the first quarter that I just announced, I didn't give specificity about oil relative to gas, but so far it's primarily oil.

Thank you very much.

Our next question comes from Matt Niblack with HITE.

I'm sorry; I didn't get the name.

This is Matt Niblack with HITE. It's two quick questions. First one is, when you think about your propane and butane exports business, it seems to be a market that's accelerating? If you think three to five years down the line, what is your vision for the kind of volume in each one of those products you could see going through your system here?

My vision in -- a lot -- many of those volumes go through our system whether they get exported or not. We have announced capability of providing five million barrels a day by the end of 2014. That's the capacity. My vision is we wouldn't have built that if we didn't think we could use a significant portion of that capacity.

5 million a month.

Sorry, I was talking. That's five million barrels per month which is how we tend to think about it. I also think about barrels per ship but that's a little more complicated to describe.

Given the volume of NGL production ramp in this country and the strategic location that you have, is there another leg beyond that, that you can leverage with your assets?

Potentially.

Okay. Given the significance of your CapEx program over the course of the coming year or two and the opportunities that you have, how urgent is your need to come back to equity markets, and have you thought about alternatives such as pipes that may reduce the need for the LP to do overnights?

We are always thinking about it, but Matt is the person who thinks the most. He gets up in the morning -- (laughter)

Thanks, Joe Bob. In Q1, I would say we were pleased with the amount of equity we raised, $105 million through the ATM program. At that rate, we don't necessarily even see that as a ceiling. There was some pretty light activity in March and just trading volumes. Raising $100 million or so on a quarterly basis gets us a long way to the equity needs for the CapEx program we have for this year.

Okay. So if that continues to be successful, it's possible you wouldn't even need to do it overnight?

If we are able to raise the amount we need in the ATM -- but it's based on market conditions. So I will just say during -- if Q1 is a good proxy of how we are able to raise money, yes it puts us in pretty good position to use the ATM for the balance of our equity over the year.

Fantastic, thank you.

Our next question comes from Louis Shamie with Zimmer Partners.

Hi, good morning, everyone.

Good morning.

So my question is around the Badlands asset. We saw CenterPoint make a step out and announce that they were going to build a crude oil facility up around that same area. Can you talk a little bit about the competitive environment there, and the advantages that you might have versus others who may try to get business in that area?

We don't expect to be participating without competition in a very attractive area. [I saw] the CenterPoint open season for non-existing assets also. We have other competition there. I want to put us in a position, and working very hard to put us in a position, of being the midstream provider that is doing the best in the area to meet the producers' needs. We have, though admittedly, very new assets, assets in place, a connectivity strategy that gets them very soon to seven different points for delivery. That's -- I hate to ever say competitive advantage, but that's a pretty good head start, and the producer-customers that we have already have dedicated to the system and are adding acreage, or are considering dedicating to the system, I think, see that as an advantage to their needs.

Okay, that's great. In terms of Train 5 of the CBF, what is the outlook there?

Sometimes our federal government helps us in ways that don't benefit business or customers. The outlook for there is for us to go to our board, get that approved, and build it once we have a permit, as Mike announced last fall. I still feel very good about the project. I don't feel very good about the process that's gotten us to getting the permit, but our competitors are facing some of the same issues.

Okay, great. Thank you very much.

Our next question comes from Eli [Gracier] with Millennium.

Good morning, it's Steve Gambuzza, and thank you for taking my question. I just wanted to clarify some of the comments around the LPG export capacity. I know you have gone through this, but I was a little bit confused looking at a couple of different numbers and units. Would you mind just reviewing briefly the various increments of capacity that come on-line and when over the course of the next two years?

Sure. Speaking in barrels per month, we currently have capability of over 1 million barrels per month of domestic grade propane or butane exports loading medium-size or smaller ships. Beginning in the third quarter of 2013, we will have added a significant chunk of capability which adds an incremental 2 million plus barrels per month, of international-grade propane, or butanes, on the LGCs, very large ships. Similarly in the third quarter of 2014, we will add another 2 million barrels per month plus of international-grade propane or butanes for servicing export needs.

Okay. Great. I believe you made reference to the fact that the phase one expansion was proceeding a little bit ahead of schedule, and it was possible that it might come on and be able to service some spot barrels before your contracts become effective in the third quarter. Is that correct?

That's pretty well known in the industry, and I just wanted to go ahead and recognize that. We are already having discussions with our current customers and potential other customers -- we'll probably give it to our current customers, for those spot cargos.

Okay. When -- what month do you expect it to come on-line, and when -- what month do the contracts for the capacity begin?

We did say what month the contracts begin. I did it -- there is only a little bit of time before that in the quarter.

Which month is that, that you said?

We said contract month was October.

Okay. Great, thank you very much, appreciate it.

Our next question comes from Jeremy Tonet with JP Morgan.

Good morning, Jeremy.

I had a question around ethane rejection, and are you seeing that much in you areas of operation on a gathering and processing side? And then with the fractionators, the volumes came in lower this morning of this quarter because of the ethane rejection there, although you are covered by the take-or-pay commitments there. I was just wondering if that trend has continued into this quarter, and how you think that might trend over the course of the year?

Okay. First let's start in the gathering and processing, and you said did we see ethane rejection in our systems. Starting with the Targa systems, we've had -- we barely had to react to constraints, but had to react to pipeline constraints on the margin. We were in super-good position because we had foreseen some of this and gotten additional pipeline capacity while waiting for the new pipelines to come on. So almost no rejection from Targa gathering and processing systems. We have ways we can work it by getting rid of liquids in local markets and that sort of thing. We did see in other gathering and processing systems, because we can see the pipelines coming in to our Mont Belvieu facilities, that other parties, particularly from the Permian, for example, we're having to reject because it impacted what was the ethane content coming into Mont Belvieu. And the mid-continent in Rocky Mountains, we saw economic rejection, not a function of pipeline constraints but probably a function of economic rejections. We weren't pulling those levers. We were just observing it, and I think I agree with industry news that it was occurring.

Moving to our fractionation volumes, that resulted in slightly lower fractionation volumes, but the primary driver for that was the pipeline constraint for maintenance. In it, they weren't off very much, and it wasn't even hardly economically significant, certainly not as economically significant as the rolling up of fractionation rates. But you are also correct. It was partially mitigated by the take-or-pay contracts, and those take-or-pay we've described as typically 90% of volumes. It's not surprising that some customers might not be ramped up to their total volume commitment level yet, while expecting to ramp-up to that quickly. We are largely covered by the -- frac or pay is probably a better term than take-or-pay -- largely covered by the frac-or-pay commitments until those volumes pick up to full expectations.

That's helpful color, thank you.

I'm not showing any further questions at this time. I'd like to turn the conference back to our hosts for closing remarks.

Well, we really do appreciate your time, appreciate your questions. If you've got any other questions, please feel free to contact Chris, Matt, myself or any of us. Thank you again for your time and we look forward to speaking with you again soon.

Well ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.