Targa Resources Corp (TRGP) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Targa Resources first-quarter 2015 earnings webcast and presentation. (Operator Instructions)

I would now like to introduce your host for today's conference call, Ms. Jennifer Kneale. You may began, ma'am.

Thank you, Kevin. I would like to welcome everyone to our first-quarter 2015 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 later today.

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 provision 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, 2014, and quarterly reports on Form 10-Q.

Speaking on the call today will be Joe Bob Perkins, Chief Executive Officer, and Matt Meloy, Chief Financial Officer. Joe Bob will start off with a high-level review of performance and highlights. He will then turn it over to Matt to review the Partnership's consolidated financial results, its segment results, and other financial matters. Matt will also review key financial matters related to Targa Resources Corp.

Following Matt's comments, Joe Bob will provide some concluding remarks, and then we will take your questions. There are also several other members of the management team available who may assist in the Q&A session.

With that, I will turn the call over to Joe Bob Perkins.

Thanks, Jen. Good morning to everyone. Before we turn to Targa's first-quarter results, I would like to remind you that we closed the acquisition of Atlas Pipeline Partners L.P. and Atlas Energy LP on February 27. Atlas Pipeline Partners is now Targa Pipeline Partners, or TPL; and we are still training ourselves to use the appropriate name and acronym internally and externally.

Given the end-of-February effective close, our first-quarter reported financials include one month of contributions from TPL; but we will also provide on this call some pro forma full-quarter data points. In many ways, pro forma full-quarter adjusted EBITDA, full-quarter adjusted distributable cash flow, and full-quarter coverage are more representative for the combined entity.

Under the terms of the merger agreement, net cash from operations did not leave the Targa Pipeline Partners system prior to closing, except for things like first-quarter distributions and one-time merger-related expenses. And therefore what we're calling pro forma full-quarter adjusted EBITDA, DCF, and coverage are more representative of the combined business performance. We will carefully label such pro forma numbers when we refer to them this morning.

So let's dive into results and highlights. Our reported first-quarter adjusted EBITDA was $258 million as compared to $234 million for the first quarter of last year. The Logistics Assets segment produced quarterly reported operating margin of $125 million, up 30% compared to last year, primarily driven by partial recognition of the renegotiated commercial arrangements related to our condensate splitter project with Noble, which we've discussed before, plus higher LPG exports as we benefited from a full-quarter contribution from the fully completed second phase of our LPG export facility.

In the Field Gathering and Processing segment, reported operating margin was $79 million, a decrease of 16% versus the first quarter of 2014, primarily due to significantly lower commodity prices, offset by an inclusion of one month of results from TPL and by increased volumes from almost all other business units. I would add that pro forma, all TPL business units also experienced higher volumes over last year.

Now, pro forma distributable cash flow, which includes contribution from TPL for the full quarter and includes deducts for the full-quarter TPL interest and maintenance expense, that pro forma distributable cash flow of $228 million resulted in pro forma quarterly distribution coverage of approximately 1.2 times, based on our first-quarter declared distribution of $0.82, or $3.28 on an annual basis.

Pro forma full-quarter adjusted EBITDA, excluding some one-time items was $314 million, with $126 million of pro forma operating margin coming from our Field G&P segment. As I said, we believe the pro forma estimates are very representative for the combined entity.

Compared to first quarter of 2014, the Partnership's first-quarter distribution represents an 8% increase. At the TRC level, compared to the first quarter of 2014, the first-quarter dividend of $0.83, or $3.32 annualized, represents a 28% increase.

Now, as part of the Atlas mergers, we amended our Partnership agreement to reallocate certain IDR cash flow from the General Partner pro rata to the Limited Partners. For the first quarter, the announced distribution includes the $9.375 million IDR giveback transfer, which reallocates that $9.375 million of IDR cash flow from the GP pro rata to the LP unitholders.

When we announced our first-quarter 2015 distributions and dividends, we also provided a revised outlook for 2015. Given the continued uncertainty around producer activity in a lower commodity price environment, we have certainly reviewed multiple forecasts, multiple inputs and outcomes, and of course, consistent with how we always approach dividend and distribution declarations, we have run multiple multiyear commodity price and volume scenarios, including flat price cases, strip price cases, and cases with other price forecasts, along with our best attempts to understand producer activity and volume expectations across each of those price outlooks; and we continue to do that analysis.

With that ongoing analysis, we provided a likely range for selected dimensions of our revised outlook. We said that we currently believe that Field Gathering and Processing operations would likely have a flat to low single-digit 2015 average volume growth compared to the first-quarter 2014 volumes.

Now with the publication of this quarter, I can provide you a little more information on our Field G&P volumes. I just said that volumes were up for Q1 2015 versus Q1 2014 for essentially all of our Field Gathering and Processing business units. Also, total Field G&P volumes in Q1 2015 were higher than Q4 2014, but were lower in several of our field systems due to cold weather and related freeze offs.

I'm happy to say that current total Field G&P volumes are higher than the first quarter and that essentially all of our systems across the combined Companies are higher than the first quarter at today's current volumes. And all -- I'll repeat, all -- of our Texas and Permian Basin business units are up on current volumes versus the first quarter. So that's good news.

We also said that the Logistics and Marketing 2015 operating margin may be modestly lower than the 2014 operating margin. In the first quarter of 2015, we exported approximately 5.8 million barrels per month of LPGs. We currently continue to see interest in long-term contracts for LPGs but, given the current market dynamics, expect that activity in 2015 may be lower than the back half of 2014 activity, also with lower fee margins than the back half of 2014.

We exported less volumes in the first quarter of 2015 versus the fourth quarter of 2014, impacted by more challenging market dynamics, including international price pressures, issues with ship availability, and high vessel freight costs impacting our customers and other international buyers.

So the overall result of our analyses for the Targa businesses in 2015 is a range of expectations of 4% to 7% distribution growth at TRP in 2015 relative to 2014. That range of distribution growth with approximately a 1 times coverage.

At TRC, we therefore expect 25%-plus of dividend growth in 2015 over 2014, with approximately 1 times coverage. Underneath that TRC expectation, we expect an effective cash tax rate of 5% to 10% for 2015; and going forward at TRC we will continue to benefit from depreciation associated with the Atlas mergers and expect an annual effective cash rate less than 15% in the near term beyond 2015.

That wraps up my initial comments. And now 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. As mentioned, reported adjusted EBITDA for the quarter was $258 million compared to $234 million for the same period last year. The increase was driven by the addition of TPL, higher Gathering and Processing volume, partial recognition of our renegotiated commercial arrangements related to our condensate splitter project with Noble, and higher LPG exports, offset by significantly lower commodity prices.

Overall, reported operating margin increased 9% for the first quarter compared to the first quarter last year. I will review the drivers of this performance in segment reviews.

Reported net maintenance capital expenditures were $20 million in the first quarter of 2015 compared to $14 million in the first quarter of 2014. Included in the revised outlook for 2015 provided in April was an expectation for $110 million of reported net maintenance CapEx in 2015, which includes 10 months of maintenance CapEx related to the TPL systems.

Turning to the segment level, I'll summarize the first quarter's performance on a year-over-year basis. Starting with the Logistics and Marketing division, first-quarter reported operating margin increased 19% compared to the first-quarter 2014, driven by partial recognition of our renegotiated commercial contract arrangements related to our condensate splitter project with Noble, and higher LPG and fractionation activity.

For the quarter, we loaded an average of 5.8 million barrels per month of LPG exports, compared to 3.5 million barrels per month during the first quarter of 2014. Fractionation volumes increased by 9% in the first quarter of 2015 versus the same time period last year.

Turning to the Gathering and Processing division, reported operating margin decreased by 28% compared to last year, primarily due to significantly lower commodity prices, partially offset by one month of contribution from TPL and by volume increases at essentially all of our Field G&P business units.

First-quarter reported 2015 natural gas plant inlet volumes for the Field Gathering and Processing segment were 1,488 million cubic feet per day, an increase of over 74% compared to the same period in 2014. We benefited from the inclusion of one month of TPL volumes and growth at essentially all of our Field G&P business units.

The overall increase in natural gas inlet volumes was also due to the addition of the 200 million cubic feet per day High Plains plant and SAOU in the Permian Basin and the 200 million cubic feet per day Longhorn plant in North Texas, both of which were completed in the second quarter of 2014, plus the addition of our 40 million cubic feet per day Little Missouri 3 plant in our Badlands operations in North Dakota that was placed in service during the first quarter.

Crude oil gathered increased to 101,000 barrels per day in the first quarter, a 35% increase versus the same time period last year as a result of producer activities.

Let's now move briefly to capital structure and liquidity. We were very active in the capital markets in the first quarter, utilizing the debt and equity markets successfully across our capital structure to maintain our strong liquidity position.

As of March 31 we had $840 million of outstanding borrowings under the Partnership's $1.6 billion senior secured revolving credit facility due 2017. With outstanding letters of credit of $25 million, availability at quarter end was approximately $735 million. At quarter end we had borrowings of $198 million under our accounts receivable securitization facility.

From January through April 2015, we received gross proceeds of approximately $200 million from equity issuances including General Partner contributions and $155 million of net pro1ceeds under our at-the-market equity program, which allows us to periodically sell equity at prevailing market prices. 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, TRP's total leverage ratio at the end of the first quarter was 3.5 times.

Next I'd like to make a few comments about our fee-based margin, hedging, and capital spending programs for the year. For the first quarter of 2014, our operating margin was 76% fee-based. We continue to expect operating margin to be at least 65% to 70% fee-based during 2015.

Since our fourth-quarter earnings call in mid-February we have entered into some additional hedge contracts including costless collars. For non-fee-based operating margin, relative to the Partnership's current estimate of equity volumes from Field G&P, we estimate that we have hedged approximately 65% of remaining 2015 natural gas, 60% of our remaining 2015 condensate, and approximately 30% of remaining 2015 NGL volumes. For 2016, we estimate that we have hedged approximately 35% of natural gas, 30% of condensate, and approximately 15% of NGL volumes.

Moving on to capital spending we estimate approximately $700 million to $900 million of reported growth capital expenditures in 2015. This includes 10 months of CapEx spending for TPL.

Next I'd like to make a few brief remarks about the results of Targa Resources Corp. Targa Resources Corp.'s standalone distributable cash flow for the first quarter was $52 million, and TRC declared approximately $47 million in dividends for the quarter, resulting in dividend coverage of approximately 1.1 times.

On April 21, TRC declared a first-quarter cash dividend of $0.83 per common share, or $3.32 per common share on an annualized basis, representing an approximately 28% increase over the first quarter of 2014. On March 12 we priced a successful underwritten public offering of 3.25 million shares of TRC common stock; an additional 487,500 shares of TRC common stock were purchased through the exercise of the green shoot, resulting in total gross proceeds of approximately $340 million.

As of March 31, we had $460 million of outstanding borrowings and $210 million of availability under TRC's $670 million senior secured revolving credit facility; and $242 million of outstanding borrowings under TRC's senior secured term loan due 2022; resulting in a 2.7 times debt compliance ratio.

As mentioned by Joe Bob earlier, we expect a 5% to 10% effective cash tax rate for TRC for the full year in 2015 and in the near-term beyond 2015 an annual effective cash tax rate less than 15%.

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

Thanks, Matt. Thank you to my team and for a few listeners sending me an email correcting a speaking error. I really apologize. Before I go on to some more color, I want to correct to that.

As I repeated our volume guidance from a few weeks ago, I should have said that we believed that Field Gathering and Processing operations will likely have flat to single-digit 2015 average volume growth compared to fourth-quarter 2014. Apparently in an inability to read, I said first-quarter 2014. We did not change our guidance.

But that's actually kind of a nice opportunity -- in case you got distracted by my inability to read -- to repeat that we are also saying, just sharing the facts with you, that you can see now Q1 2015 versus Q1 2014 volumes were up across Field Gathering and Processing. There were a few business units in Gathering and Processing that were little down due to the normal seasonal cold weather and freeze-offs that affected them.

But I also added that current volumes today, over the last week, that those current volumes, which aren't published anywhere, are up in total in the Field Gathering and Processing versus what we just published for Q1. That's true for essentially all of our systems across the combined Companies, and it is true for all of our Texas and Permian Basin business units. And that's when I said that's good news.

The volume in those business units has exceeded our first of year expectations, and that is supportive of our strong beliefs about 2015 in the multiple scenarios we've run. Now with a little bit more color, and then I will wrap it up for your Q&A, please feel free to email any other questions you have about my ability to read.

On the downstream side, our Train 5 is under construction and is expected to be operational by mid 2016. We are also working closely with Noble as they evaluate whether to move forward with a new terminal with significant storage capacity at Patriot, a condensate splitter at Channelview as originally announced, or both projects.

Repeating what I think I said before, the renegotiated agreements with Noble have resulted in increased opportunity for Targa versus the original deal, without Targa taking on any additional risk. We expect Noble decisions on the project or projects later this year.

Turning to our Gathering and Processing division, we have spent a substantial amount of time reviewing all of our potential projects, as appropriate sizing and timing is obviously dependent on our view of future expected producer activity levels. In North Dakota, we completed our 40 million cubic feet a day Little Missouri 3 Badlands expansion in the first quarter. We continue to review the appropriate sizing and timing of additional plant capacity and related infrastructure in North Dakota and in the Permian Basin, and have included ranges for potential 2015 CapEx for both of these areas in our growth CapEx forecast.

We are also spending capital in 2015 on a number of other high-returning G&P projects that individually require relatively small capital outlays. Examples of that kind of work include additional compression at Stonewall, Oklahoma, to increase capacity to 200 million cubic feet a day. That project was originally expected to be completed in the first quarter of this year; it will now be done late in the second quarter.

Another example would be adding infrastructure to increase our reach into the Delaware Basin, to move increasing volumes to available processing capacity across our multi-plant Versado system. And we remain very enthusiastic about opportunities across our entire Permian Basin footprint, where volumes to date have been better than our first-year expectations, where opportunities for smaller, high-return projects are expected to continue, and where the supersystem creates opportunities to meet customer needs with greater capital efficiency.

As to what many refer to as our development backlog, we continue to pursue an additional $3 billion plus of growth projects that we have discussed publicly, and of course there are other projects that are not public that we are working on. The public ones include Train 6, where we've applied for a permit and have passed the first public notice period with a design similar to Trains 4 and 5.

We do not currently have a timeline for Train 6. Like some of the other projects on this list it's a matter of when, not if, we will need additional fractionation at Mont Belvieu.

In addition to Train 6, the other when, not if, projects included on our investor slide are Train 7 and of course additional G&P expansion programs.

The potential target ethane export project has a little different characterization. We believe that there will be another ethane export project on the Gulf Coast and believe that we have a good shot at it.

Discussions are active, including new inquiries; but offtake decisions for new infrastructure are developing more slowly in the current environment. We are not the only candidate for the second Gulf Coast ethane project, but we have a good shot at it.

We are now approximately 70 days into our merger with Atlas and are pleased with the performance of the employees and assets, particularly in this uncertain environment. When we announce the mergers, we provided expectations of synergies, and we have realized a sizable amount of synergies through interest and G&A savings alone.

We are already witnessing the potential from the breadth of relationships and opportunities that our increased asset footprint affords, which for me is the most important as I think about Targa's long-term opportunities. We are on track to realize our initial announced synergy expectations, and we do not expect to provide an ongoing checklist of individual line items related to synergies going forward.

You will see our combined results. Our day-to-day operations across multiple areas are managed as one Targa business with one collective Targa goal to work collaboratively, spend capital efficiently, and drive our bottom-line results.

The current environment continues to be challenging as the volatility in commodity prices creates uncertainty around producer activity levels. We believe that the combination of our asset footprint and our fee-based margin positions us well to continue to deliver results.

As I said earlier, given everything we know today, we are projecting 4% to 7% distribution growth at TRP and 25% dividend growth at TRC for 2015. Importantly, managing our businesses prudently today with the same multiyear view will position us to continue to perform in the future.

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

(Operator Instructions) Shneur Gershuni, UBS.

Hi, good morning, guys. I guess my first question -- and maybe you touched on this in your prepared remarks. But given that you have had the assets now for about two months with respect to Atlas and so forth, and it sounds like so far the flavor has been positive rather than negative, but is there any way to give us some color in terms of incremental opportunities that you were talking about, beyond what you were thinking about when the assets were put together? You had mentioned high-return, low-multiple type projects. Can you give us a little bit of a sense of where those returns would shake out and so forth in how they relate? Just a little bit more color would be great.

I understand the question, Shneur. Targa standalone, frequently had high-return projects that didn't hit the radar scope of our investors or the large Board-approved projects. When we put these together, we have even more of those.

The Atlas standalone list was the same, and the combined list comes up with things that weren't on either one of the individual lists. Even in this price environment, and maybe even more so in this price environment, because we don't have to run as hard for some of those big projects, we've got engineers and commercial people, operations people looking for those opportunities, and we can certainly fund high-return opportunities, whereas Atlas by itself may have had a little bit more cash constraints.

Our people like going after those opportunities. And that collaborative effort across the teams just keeps turning them up. I expect it will continue to be exceeding our expectations.

Now, I know you would like more numbers around that; but you asked for more color around it.

Okay. As a follow-up question, a lot of your peers talked about it during their fourth-quarter calls, about pulling out the playbook from the last time we had a commodity collapse and efforts that they were taking to reduce costs and so forth. I recognize that you were in the process of going through the merger and so forth.

Can we expect a similar playbook out of Targa, especially with opportunities as you look at rationalizing both sets of businesses?

I'm quite sure that other companies use the term playbook as well. We used the term playbook in an employee presentation in December of last year that became public because it happened to have the word Atlas in it; and I think we talked about it in our year-end call.

We absolutely are using that playbook in coming up with other ways of attacking it. I think because of the experience and the urgency of the situation post-Thanksgiving of last year, I'm very proud of our employees.

If you look at our financial results, just the published stuff, you can see traction on the cost-reduction scenario. It doesn't show up everywhere; but what I know is we're making real and significant progress on operating expense reduction, G&A reduction, maintenance capital reduction, all without reducing safety or reducing our ability to meet environmental regulations.

And additionally we tell people to think about the small dollars to spend to retain the options to grow. But we are still getting the cost and cash savings.

So I am proud of the efforts. I am not comparing myself to others, but internally we intend to keep working on that through 2015 and 2016.

Great. One last final question. Your distribution growth rate for NGLS is fairly wide. You had a pro forma coverage ratio of 1.2 times. Is it fair to assume that if you hold this ratio throughout the balance of the year that we can see the growth rate towards the top end of that range?

We gave you a range that we thought was a likely range. I feel pretty good about it.

Yes, we made our best estimate given current conditions, prices, volumes that we are seeing. We thought we would be at about a 1.0 times distribution coverage. So with that 1.0 distribution coverage, we thought we would be at a 4% to 7%.

So it is maybe a bit of a wide range, but finding clarity on where things are going to shake out for the balance of the year, we wanted to give ourselves some cushion.

Great. Thank you very much, guys.

Brian Lasky, Morgan Stanley.

Hi, good morning, everyone. Just to start out, have you guys disclosed what the benefit of the commercial arrangement renegotiation was within your Logistics segment for the quarter?

No.

Is that a number we can get, or no? Just order of magnitude.

The way I would like to put it is we've got a very important commercial arrangement with Noble.

Okay.

We've got a close relationship with them. You probably could assume that we've got some confidentiality arrangements with them. Sometimes in confidentiality arrangements, what you say publicly is driven by what you are required to say.

Working with our accountants and auditors, we publish what we believe is appropriate for disclosure.

Fair enough. In terms of -- I was just wondering if you could just talk about the change in your tax rate at the TRC level within your most recent guidance, and then how that could potentially change. Maybe just walk through the major moving parts there.

Yes, I would say there's really two large buckets. One of them is the additional benefit from the depreciation we will get from approximately the $1.6 billion amortization of, let's call it goodwill over 15-year straight line in conjunction with closing the Atlas ATLS acquisition. So that's one piece.

The other piece is the amount of taxable income that flows up from NGLS up to TRC through its ownership in the LP unit. And with the EBITDA and taxable income being lower than previous expectations, when we put the merger estimates out there for EBITDA and income and the like, taxable income is down from there as well.

So it's really those two buckets that brought our tax rate down. It was close to about 0% in Q1; we will expect that to increase over the year; and we are currently expecting give or take 5% to 10%, although probably more -- probably closer to the low side of that range.

Got it. So relative to your previous guidance that you provided post the merger, the second bucket there is the biggest delta. So if your taxable income goes up here, you would expect to migrate back toward the previous level there?

Yes, and it's also IDR growth and distribution growth at the Partnership. So whereas the previous estimates were 11% to 13%, now 4% to 7% distribution growth, the lower associated IDR associated with that, you get no depreciation.

That is all taxable income with the IDRs. So with the lower distribution profile that also brought the tax rate down.

Got it; makes sense. Then in terms of your volumes, you guys mentioned in your deck the volumes could be down in 2016 relative to 2015. I was just wondering what assumptions were baked in there. Maybe if you guys can just break it up by region how you are thinking of volume trajectories from the balance of the year, particularly in the Bakken which was obviously up pretty strong in the first quarter here.

Yes, I would say it reflected our current discussions we've had with our producers across the multiple basins. So we're having producer discussions out n in the Permian and Mid-Continent, South Texas, North Dakota, across all of our systems, and that factored in our best estimates given those producer discussions that we had. And it pointed to potentially lower 2016 volumes versus 2015.

Then just one final one from me. In terms of -- you guys had mentioned a couple different factors for why your export volumes came in where they did. How much of it do you think was driven by the environment versus ship availability and pricing and the other factors that you mentioned there?

I think it's a combination.

Yes, when we describe the environment and market dynamics, it's including that full combination: global prices, ship availability. Ship availability and supply/demand impact the freight cost.

So it's intertwined, and I don't think I can break it apart for you.

Okay. Then just in terms of frac volumes, was there anything specific this quarter that occurred?

No, nothing specific. frac volumes across CBF are impacted by volumes out in the field, which we saw. The weather, cold weather can impact volumes. It hit our fields a little bit, too, and it will hit the associated NGL production.

We have our own maintenance work like everyone else, but I wouldn't say there was anything out of the norm at all particularly for our Q1.

Perfect. I will jump back in the queue. Thank you.

Brandon Blossman, Tudor, Pickering.

Good morning, gentlemen. Just a relatively big-picture question here. As we see liquids inventories start to move up or beyond uncharted territories and we had the release on force majeure at Hattiesburg, can you just outline what this year and maybe the next hold as far as NGL supply/demand and the process of maybe taking a little breather here on production growth versus export terminal capacity builds?

Actually I'm going to ask you to ask the question again. Maybe I just didn't hear the last part correctly.

I am just looking for a near-term supply/demand outlook on liquids as we move through this year: volume growth versus export terminal capacity growth.

Well, the export terminal capacity across the US has expanded. There are now three LPG export facilities in the Gulf Coast, and those are connected to the market hub.

Our crystal ball on supply for LPGs across the US and supplies for LPGs to the US Gulf Coast comes with a pretty wide range. We try to work multiple scenarios for it.

Broadly, I think your question somewhat provided the directional answer; and that is, decreasing number of wells being drilled, and either slower growth or slightly reduced production depending on where you are looking specifically, has lowered overall supply. But the export terminals still are highly necessary for balancing supply to US demand and then to global demand.

You used a term I think of something like a cooling down of US driven supply. That helps with the inventory problem you were talking about, and it slows the need for additional export facilities, but it probably says that the export facilities are still necessary to balance supply and demand.

That's what exports from the US have always done. But I probably don't have anything more specific than that for you.

Fair enough. Appreciate the color, though. Then second question down at the micro level, Buffalo expansion, presumably tied to Pioneer's plans for the back half of this year. Can you just -- so you pushed that project, the incremental capacity, out into 2016. Is Pioneer -- or just how does that sync up with the potential for Pioneer to add another 12 rigs in the back half of this year?

Does that timeline change? Or is that anticipating that ramp back up in activity?

Our official timeline of sometime in 2016 is unchanged. We have some options for capacity out there, not only the Buffalo plant but there is also a 45 million a day Benedum plant out in that area. And then potential to connect to the legacy Targa SAOU systems for capacity as well.

So we will be working through all of those scenarios and trying to come up with what not only meets Pioneer's needs but the other producers in the area.

Again, thanks for the color. Helpful. Thanks, guys.

Sunil Sibal, Global Hunter Securities.

Hi, good morning, guys; congrats on a good, solid quarter. A couple of questions for me, changing the track a little bit.

I was curious with regard to your ethane export project. Do you think the slowing down of discussions, is it primarily driven by Brent price or the other factors, like slow demand in Asia and all that, which is contributing to that?

I think it's multiple factors and uncertainties have slowed it down. Some of those are related. But I still believe it's a question of if, not when. And it certainly will be driven by customers.

Sure. Any guess you would like to take in terms of where you need to see Brent prices to be for discussions to become really active again?

No, I think it is more complicated than just Brent pricing.

Okay. Fair enough. Then just one clarification with regard to where your current volumes are tracking in the Field G&P. It seems like you had some weather disruptions in the Q1 which impacted those volumes. That has of course been resolved.

Ex- those disruptions, would you say you're still tracking higher, or even with the Q1 volumes?

We believe that we are up on almost every business unit, no matter how you parse it.

Right.

Yes.

And we are up over -- current volumes are up over Q1. They are also up over Q4 as well.

Okay; no, that's helpful. Then lastly on the Badlands side, on the crude gathering volumes, any specific trends you are seeing currently with all the activity level going on?

We were, of course, seeing some reduced activity in completions in that area. You saw sequentially the volumes down a bit, up in that region. Part of it is due to the cold weather and just being the winter; there is less activity in the first quarter.

So far, I'd say currently we are seeing volumes not continuing that decline. So far we are at or above where we were in the first quarter.

We will see if that holds, but that is what we really have seen here over the last few months.

And we continue to have opportunities for backlog volumes. Can't quantify them; not going to quantify them for you. But we are working hard on projects to help with that on the gas side and the crude side.

All right. That's very helpful, and that's all I had.

J.R. Weston, Raymond James.

Hi, good morning, guys. Just thinking about the Field G&P segments, what do you think are maybe the geographic segments that you are most concerned about, just on the inlet volume side? And then maybe asking another way, with all your discussions you've been having with producers, what are some of the areas that maybe they are thinking are a little bit higher on the cost curve? Would it be maybe the Western or Southern Oklahoma segments, or somewhere else?

My biggest concern as the way you described it continues to be North Dakota, because it is hard to see where pricing shakes out and what that means for longer-term activity in the Bakken. I think it's got greater challenges because of the differential to WTI, as well as where WTI might shake out.

But it also has some compensating opportunities: more cost reduction available to help producer activity levels. But we aren't a whole lot smarter than the past few months when we talked about this. We are trying to work through multiple uncertainties, understanding and getting a better understanding by basin of how producers are likely to drive their activity levels relative to different price scenarios. But the price scenarios are still uncertain.

Okay, sure. Thank you. Then maybe switching gears a little bit to the downstream segments, are you guys seeing anything at all in terms of more opportunities with butane? Just with the overall move in crude and purity product pricing the last six to nine months, maybe exporting a little bit more butane as a portion of overall LPG exports, or maybe moving a little bit further downstream and getting into some products like maybe high-purity isobutylene or something like that, where you can arbitrage maybe the, I guess, pricing there between normal butane and isobutylene. Or then also capture the fee for loading either one onto the vessels through your docks.

Yes, I don't have specific projects to describe like that. I would go back to your comment on butane. We have opportunities to export butane, have some long-term options with our shippers to do so. We continue to export butane every quarter.

These changes one month to the next about where is the best arbitrage will drive our shippers' requests to use those options. And we are prepared to provide that service: propanes, butanes, and we sometimes look at other projects.

Okay, great. Thank you. That's all I had.

T.J. Schultz, RBC Capital.

Hey, good morning. Maybe, Matt, can you just expand on the distribution coverage outlook, against the interim 1 times this year? As volumes are trending higher and I guess the simple readthrough is that you may trend higher or to the higher end of your revised distribution growth range, can you get there -- to the higher end of that range -- and have some excess coverage? Or what is your view on coverage?

You've said before you would have comfort with a 1 times coverage for a period of time if you have a view that prices are going to improve. So are you still comfortable there? Or has that view on commodity prices changed at all into 2016?

I think I'd just say we baked into that assumption flat to low single-digit volume growth. Yet where we stand today maybe things are looking a bit better; but it's still early in the year.

I think we're still comfortable that at a 4% to 7% distribution growth range we've covered almost all the likely outcomes for our distribution growth for the year. And under a range of those scenarios we get to around 1.

If we are on the high side of that I think we are still around 1, maybe a little higher. If we are in the low side of some of those estimates, maybe we are at 1 or maybe a little bit below. But we didn't put a range on distribution coverage because it does -- it takes a fair amount of op margin change to move that needle from around 1.

Okay. Maybe just clarify for me the comments on volume. I guess the press release two weeks ago read a little bit more conservatively on volumes than what I think I am hearing today, that it seems like things are exceeding your expectations. So I guess if you could just clarify that for me.

And T.J., I think the point we wanted to do draw was in several of our systems Q1 was sequentially lower than Q4. So we didn't want to just give you that information and not provide you an update.

We aren't seeing that continued decline we saw in Q1. The Q1 decline we saw in some of our field volumes was due to seasonal weather effect. So we are a bit higher than that.

That doesn't mean we're bullish on where volumes are going to be now through the rest of the year. We just wanted to share that data point, that you shouldn't necessarily just draw a straight line as things have peaked and rolled over. It is still early and we will have to see where volumes shake out.

And just in case anyone is parsing the text or parsing the answers to the questions, T.J., we haven't changed our outlook from the time we gave guidance with the last distribution declaration. We did provide some additional information.

And consistent with when we gave distribution declaration additional outlook/guidance, we had seen volumes behave better than our first of year expectations. That was into that guidance of multiple scenarios and what we should provide as a likely occurrence for distributions and dividends. Does that help a little?

Yes. No, that does; I appreciate the clarification. Just one last thing I think to follow up. I guess like some constraints for export on ship availability. Is that something that continues as a headwind, or how much of a constraint are the ships?

Supply/demand are impacting ship availability for our customers and other international buyers. With the current fleet, we know of some of the fleet being moved to longer hauls. If you take a portion of the fleet and it is taking longer hauls you suddenly have less capacity, right? Because the turnaround takes longer.

There are other ships coming on that will relieve the constraint on ships, probably lower vessel freight costs over time. It is a market dynamic.

And we tried to use that term, challenging market dynamics, some of which will get better for our customers and other international buyers over time.

Okay. Thank you very much.

John Edwards, Credit Suisse.

Yes, good morning, everybody. If I could ask about just on your distribution guidance, just parse that a little bit. So you are basically saying 4% to 7% given a range of commodity price scenarios and volume scenarios that you are considering. I don't think, unless I missed it, I don't think you've given us any guidance beyond that.

But I am just thinking -- if you were looking at, say, at the upper end of your range, would you hold back a little bit so you could, say, smooth it out going forward? Or how are you thinking now about the three-year outlook, if you will?

Sorry, Joe Bob and I were just --

-- fighting over who would answer the question.

(laughter) back and forth on who's going to answer the question. Of course, we look -- first thing, we are not going to provide 2016 or beyond guidance. But I would say with each quarterly distribution recommendation we make, we look out multiple years; and we are trying to move the distribution growth rate and dividend growth rate appropriately smooth.

So we are looking out one, two, three, four, even five years under multiple scenarios: growth scenarios, sensitivity scenarios. So of course we look at those years, but I'm not going to provide -- we're not going to provide any early indication into 2016 yet.

Okay. All right; that's helpful. That's it for me. Thank you.

Michael Blum, Wells Fargo.

Good morning, guys. A couple of quick questions. One, maybe just one more question on the coverage. Can you -- so now you have Atlas inside the family, so to speak, I understand what's going on in 2015. But in terms of your long-term target for coverage, where would you say that is now?

Yes, I would say that remains unchanged in the 1.1 to 1.2 times target distribution coverage.

Michael, I think there one could make an argument that the increased scale and diversity might be worthy of a lower target than that; but we haven't changed to that target. And, boy, that sounds a whole lot like a phrase I used with the rating agencies right after the announcement and then the next one.

There is sort of agreement about that, but we haven't changed it. And heck, we are probably not that smart.

Yes, and we think it is still appropriate. It makes sense.

It still works.

Yes.

Okay. And the thought for this year, having a 1 times coverage is that we're in a low commodity price environment?

Yes.

Okay. Another question. Just a comment you made in talking about the LPG export business, you talked about anticipating for this year lower fee margins. I just want to know, does that mean you are seeing lower spot margins? Or is that that you -- as you are signing up short-term contracts they're at lower rates? Just trying to --

Understand the question. We tried to signal about as much as we want to do commercially; but that is an appropriate conclusion to come to. That with near-term lower demand for the short-term contract volumes, those lower spot margins have probably been under more pressure than the term margins.

We got the benefit of some of those higher short-term contract margins in the back half of 2014, and we were therefore contrasting what we're likely to report in 2015 back to the second half of 2014. And I think you have come to the right conclusion.

Okay, great. Then last question. Just looking at the trend in volume in the Permian, both at SAOU and Sand Hills -- we can keep the Atlas stuff out of this for now. So you saw volumes sequentially down, but now you are seeing them uptick here in I guess early second quarter.

I guess, what do you attribute that to?

As you go through the pieces there, Michael, I know you're pointing to Sand Hills. Sand Hills is essentially full. So there are some minor moves, a few million a day up and down, but it's full and it has been basically full.

So we're moving 20 plus million a day -- closer to probably 25 million a day over on the pipeline over to High Plains SAOU. And then we've seen SAOU quarter-to-quarter relatively flat; down slightly due to some weather and seasonal effects; but we are back up a little bit now.

Okay, great. Thank you.

Broadly, Permian Basin activity has been pretty darn good given the price environment and the uncertainty, and our volume increases have been robust. We are looking for little ways to create capacity.

I like using the little ways because they don't hit your radar scope. How can we add capacity to the Sand Hills system, perhaps with small plant, tack-on plant, small acquired plant. Heck, we're adding capacity to the Sand Hills system by moving gas from Sand Hills to the High Plains. That's added capacity on the east side; it doesn't help a lot on the west side.

And we move gas around. We now have an expanded and increasingly over time interconnected footprint of the supersystem. That allows us to create ways to add small capacity for the benefit of the Sand Hills opportunities.

But that's not the only place that's growing. I can't tell you how happy I am to see the growth in Versado. Michael, you remember how many years we went saying it's flat to slightly down. We are just building up existing capacity there.

Got it. Thank you, Joe Bob.

Jerren Holder, Goldman Sachs.

Hi. Just wanted to start off with -- is there any change as far as the commodity hedging strategy now that you have Atlas combined in there?

No, I would say no change to our strategy. I think going forward we will put in I would say a maybe slightly more programmatic approach, a disciplined approach to be putting some on quarter to quarter.

But it will be the similar -- you hedge more volumes in the first year and then declining volumes in year two and three for crude NGLs and natural gas.

I know before you guys had for ethane and propane, you were leaving those mainly open. Is that how we should think about it still, going forward?

I would say for NGLs even in ethane and propane we could possibly add some hedges and look to add some hedges down there. I don't know that we will get all the way to made up in our target range: call it 75% year one, 50% year two, 25% year three. I don't know that we get all the way there (multiple speakers)

Not for ethane or propane; I would say somewhere in between.

Not for ethane, but probably more than zero.

Okay, that's helpful. Just in terms of M&A strategy, obviously there are a lot of assets out there; and of course there have been buyers or potential bidders for you guys as well.

How has that strategy changed on bought angles, at all? How should we think about the Targa approach in this environment?

How has it changed on what?

How should we think about your current M&A strategy in this environment, whether or not you would be looking at some of the midstream assets that are out there? Or is the focus just more internally integrating the Atlas system and getting through this environment?

I don't -- our strategy is not really any different. We look at acquisitions every day. In this environment, kind of a little uncertain; everyone trying to be a little conservative and prudent.

The acquisitions we like the best are smaller tack-on ones because that won't have any real impact on our leverage and has an immediate impact on our cash flows. Those are wonderful ones when you find them.

Strategic acquisitions that make the current businesses we have better, that gets most attention. A step-out without leverage to our existing assets, we still look at, but it gets less of our attention today.

And all of that is fairly natural. Also in this cycle the buyers and sellers -- before everything starts getting rosier, that may be the time for some of the best bargains, and we wouldn't want to not be looking for them.

Thanks, that's helpful. Then lastly, I know you mentioned on the synergies that you see in the G&A; this is definitely an area where you've seen like immediate savings. The run rate that we are seeing here in first quarter, should we use that as to -- maybe in the next few quarters use that as a guideline? Or should we expect that number to go up, down over time? How should we think about that?

Well, Q1 is going to be tough, because we only had one month of TPL in there. So I think you could look at APL's previous G&A and then you will have to -- it will be lower than that, because they have some allocation from ATLS that are going to be going away.

There is a line item you can see that essentially says New York and Philadelphia G&A charges on it. That's not there anymore; but you just have not seen enough and we aren't going to be working the synergy spreadsheet for you. It will be shown in our overall results, and we are encouraged by how that will all work out.

All right, thank you.

Andy Gupta, HITE Hedge.

Hi, congratulations on your quarter. A couple of questions. One is in South Texas. I was curious if you can give some more color on activity there. You've got a really good plant that can potentially use some volumes. What are you seeing in terms of prospects for that?

I understand the question. Our new employees on the TPL side were used to providing business unit by business unit detail, and with South Texas being one of a dozen business units listed there I am not going to go into more detail, other than to say -- based on our past statements -- we feel good about South Texas: what we paid for it, upside potential from where currently exists, and a stronger ability to compete there as the combined companies than Atlas owning it by themselves. If there is anything to announce there of substance or materiality, we will report that in due course; but not how it's going.

Understood. No, thanks for that color. One last question is, in terms of funding plans for your growth CapEx, can you give us a sense of -- given where your leverage levels are, how do you plan to fund this? Would it be through an ATM? Do you plan to come to market for equity, or it's going to be more debt?

(laughter) Sorry. Our growth CapEx for the year is about $700 million to $900 million in growth capital. We've -- our target is about 50% debt, 50% equity. And if you look over the last several years, we've been pretty good at staying to that target.

But in any given year, we can vary those percentages. So in a year like this it will likely be more skewed to the equity side.

I would just say on equity raises, we have been active in the ATM. We've had good success there. But I am not going to handicap or tip my hat on what we may or may not do.

We have all options available to us, and we'll continue to look at all available options and what the best way to raise that equity is.

The ATM has been working. And with the ATM working that makes those other options even more available if you wanted them.

Yes. This is great. Thank you so much.

This concludes the question-and-answer portion of today's conference. I would like to turn the call back over to Joe Bob Perkins.

Thank you, operator. Thank you, everyone, for your patience and interest in what may be our record long call. If you have any other questions feel free to give Jen, Matt, me or any of the rest of the team a call. Have a good day.

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