Targa Resources Corp (TRGP) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Targa Resources Corporation to acquire Targa Resources Partners LP and third-quarter 2015 earnings webcast. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference, Ms. Jennifer Kneale. Ma'am, please begin.

Thank you, Liz. I'd like to welcome everyone to our joint call this morning to discuss the announcement that Targa Resources Corp. has executed an agreement to acquire all the outstanding public units of Targa Resources Partners LP and to review our third-quarter 2015 results for both Targa Resources Corp. and Targa Resources Partners LP.

Targa Resources Corp., TRC or the Company, and Targa Resources Partners LP, TRP, Targa Resources Partners, or the partnership, together Targa, have published the press release and the presentation related to the merger announcement in our joint earnings release and updated quarterly investor presentation on the events and presentations section of our website at www.targaresources.com.

During the initial prepared remarks of this call, we will be referencing some slides from the investor presentation regarding the merger and you may wish to have it available.

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.

Joe Bob Perkins, Chief Executive Officer, and Matt Meloy, Chief Financial Officer, will be our speakers today and other members of the management team are available to assist in the Q&A session as needed. Joe Bob will first discuss the merger and, as mentioned, will reference some pages from our investor slides posted to our website. He will then cover a high-level review of third-quarter performance and highlights and will then turn it over to Matt to review the Partnership's consolidated financial results, 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.

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

Thanks, Jen. Welcome and thanks to everyone for joining.

I am proud and excited to have the opportunity to discuss this morning's announcement that Targa Resources Corp. will be acquiring all the outstanding public common units of Targa Resources Partners LP in an all-stock per unit transaction at a ratio of 0.62 TRC common shares per common unit of Targa Resources Partners.

As shown on page 4 of the presentation that Jen mentioned, the TRP unit price implied by the exchange ratio results in an 18% premium to its volume-weighted average price during the 10 trading days ended November 2, 2015, and coincidently results in an 18% premium over the closing price yesterday. This transaction will be immediately accretive to TRC shareholders.

Following completion of this all-equity transaction, all of the outstanding common units of TRP will be owned by TRC and will no longer be publicly traded. The incentive distribution rights of TRP will be eliminated. All of TRP's outstanding debt and the new Series A Preferred Units will remain outstanding and no additional financing is required for the transaction.

This is a transformative transaction that provides immediate and long-term benefits for TRC and TRP investors and changes the opportunity profile for Targa across various commodity price environments. Over the last year, this industry and Targa have been faced with challenging commodity prices and significant uncertainty related to future commodity prices, which have driven Targa to assess all our strategic alternatives and to accelerate our thinking on the structure that positions Targa most successfully for the future.

In the past, we valued the flexibility and optionality of two public entities, including the possibility that TRC might selectively provide support to TRP through foregoing IDRs, purchasing TRP units, or other measures as mutually beneficial to TRP and TRC. Now we believe that the near-term and long-term benefits of this buy-in transaction outweigh that potential flexibility.

With the consolidation, we are a stronger Targa, better positioned for both lower commodity price environments and for better price recovery commodity price environments.

Let me pause for a quick aside about two scenarios used to illustrate that improved positioning. In this presentation and ultimately in the related proxy, you will see two scenarios and ranges of results based on those two scenarios. The base-case scenario uses recent research analysts' consensus price forecasts and suggests a steady recovery in commodity prices between now and 2018. The second scenario is a sensitivity case based on lower commodity prices, which indicates a much slower and less significant price recovery through 2018.

For each scenario, we have adjusted the related forecast assumptions regarding CapEx, capital needs, and various other factors. The prices and CapEx assumptions are shown in the appendix of the investor presentation. These two scenarios are indicative of the uncertainty the industry currently faces, and this powerful transaction announced today better positions Targa for these two scenarios and for pricing environments between and across those two scenarios to the benefit of TRC and TRP investors in a number of important ways. Those ways are summarized on page 5 of the presentation.

First, Targa is better positioned by improving our coverage and credit profile. Pro forma for this transaction, Targa coverage is 1 or greater in both scenarios, compared to coverage of less than 1 on a standalone basis. The improved pro forma coverage creates over $400 million of incremental cash flow coverage over three years in our base scenario and over $600 million of incremental cash flow coverage in the price sensitivity scenario, where standalone coverage dropped to 0.76. This additional cash flow coverage supports our dividend outlook and reduces our external financing needs.

This transaction also creates a simplified one public entity C-Corp structure that should attract a broader universe of investors and allows us to access a deeper pool of capital to finance our future growth. And this transaction improves our cost of capital through the elimination of IDRs, creating a lower cost of equity that improves our competitive position and improves our net returns for expansion and acquisition opportunities.

Additionally, the tax attributes of the merger will drive continued low TRC cash taxes, zero taxes, for an extended period of time.

The result of the strengthened coverage and credit profile, simplified structure, and an improved cost of capital is a stronger long-term growth outlook, a stronger long-term growth outlook for Targa's continued success in a lower for longer price environment and in a higher price recovery set of environments. We have tried to illustrate this stronger positioning on pages 6 through 9 of the investor presentation.

For the consensus pricing base case, for the pro forma merged Targa we estimate 15% dividend growth at TRC in 2016 and more than 10% compound annual growth through 2018, as shown on the top of page 6. Pro forma dividend coverage in this illustrative scenario is 1.13 times in 2016 and at least 1.05 times in 2017 and 2018, as shown on the bottom of page 6, up from something like 0.9 in the standalone TRP case.

The standalone coverages are shown in the blue bars, while the green bars show the improved coverage pro forma for the transaction, and we will continue with that color pattern.

In the lower commodity price environments, we also expect continued pro forma TRC dividend growth, as shown on the top of page 8. Under our price sensitivity scenario, we estimate 10% TRC dividend growth in 2016 and modest growth through 2018. Importantly, even under this scenario we expect dividend coverage of at least 1 time through 2018, as shown on the bottom of page 8.

With that as a quick overview, let's discuss improved coverage, dividend growth, and leverage again in a little more detail. Standalone under the consensus pricing scenario on page 6, TRP's EBITDA growth is offset by lower hedge settlements, the rolloff of the IDR giveback associated with Atlas mergers, and growing interest expense from coverage shortfalls, as you all know. As I said, the result for TRP standalone would be distribution coverage around 0.9 times from 2016 through 2018, assuming flat distribution of $3.30 per common unit on an annualized basis.

Under the price sensitivity scenario, back on page 8, where TRP's estimated EBITDA is lower than the previous scenario and DCF is also impacted by the rolloff of the IDR giveback and by growing interest expenses from coverage shortfall at these lower prices, then TRP standalone distribution coverage would decline from an estimated 0.86 times in 2016 to 0.76 times in 2018, again assuming a flat distribution.

Instead, for pro forma new Targa for the sensitivity price scenario, dividend growth is at least 10% in 2016, with modest growth thereafter.

As mentioned, combining TRP and TRC will result in between $400 million and $600 million of incremental cash flow coverages across the two price scenarios, which is significant. These funds protect coverage and could be used to reinvest in our business or to reduce outstanding borrowings. As an equity-only transaction, as mentioned earlier, no additional financing is required and Targa's existing leverage profile will be reduced over time as a result of the increased retained cash flow.

These leverage profile improvements are illustrated on pages 7 and page 9 of the investor presentation. Looking at the top of page 7, for the consensus pricing scenario, pro forma compliance leverage is reduced by 0.3 times in 2018.

Moving to the price sensitivity case, pro forma compliance leverage is reduced by 0.5 times in 2018, as shown on page 9. As mentioned earlier, all of TRP's outstanding debt will remain outstanding and we will retain the same compliance covenants. You will see similar leverage benefits for consolidated leverage on pages 7 and 9 for the respective price cases.

As a result of this deleveraging, our financial flexibility will be enhanced going forward, positioning us to better capitalize on investment opportunities in the market in whatever price environments we find ourselves.

I would also add that the new, stronger Targa will be managed by the same team with the same thought process regarding our long-term leverage targets of 3 to 4 times debt to EBITDA and our long-term coverage targets of 1.1 to 1.2. We will be working to achieve those long-term targets regardless of the ultimate price path that we may encounter in the future.

Across our footprint, that footprint as shown on page 11, we are continuing to identify and pursue projects with compelling returns and firmly believe that the new Targa after the buy-in will be best positioned to capitalize on those opportunities to drive higher long-term value to our shareholders, even in uncertain commodity price environments.

We have great assets, great people, and a significant opportunity set in front of us. This transaction will enable us to fully execute on those opportunities to the benefit of our stakeholders, regardless of the commodity price environment.

And if I may, a brief word to our employees who are hearing about this transaction and the new, stronger Targa for the first time this morning. Nothing changes about your job focus or how we will manage the Company, except that we will be better positioned for any of the uncertain price environments that we may face. Targa has a bright future and I thank you for your hard work and dedication.

So what is next? Our current expectation is that our initial S-4 draft will be filed later this month and we expect TRC shareholder and TRP unitholder meetings and voting approval to occur in the first quarter of 2016, with closing expected shortly thereafter.

Now we have obviously got a lot remaining to cover on this call today and probably a significant amount of questions for both the transaction and our third-quarter performance, so we're going to shift gears.

Targa's reported third-quarter adjusted EBITDA was $306 million, as compared to $249 million for the third quarter of last year. This 23% increase was driven primarily by the inclusion of TPL operations, which more than offset lower commodity prices.

Our distributable cash flow for the quarter of $221 million resulted in distribution coverage of approximately 1.1 times, based on our third-quarter declared distribution of $0.825, or $3.30 per common unit on an annualized basis.

Operating margin for our field gathering and processing segment was 35% higher than the third quarter of 2014, again driven by the inclusion of TPL, which more than offset lower commodity prices.

On a sequential basis, natural gas inlet volumes and field G&P were slightly lower in the third quarter versus the second quarter, with increases in some areas offset by decreases in others. Based on current activity levels, we expect fourth-quarter field G&P volumes to be similar to second- and third-quarter levels, resulting in approximately 5% growth in 2015 average volumes versus the fourth quarter of 2014, as communicated earlier this year. And we expect 2016 field G&P volumes to exceed 2015.

Moving downstream, the logistics and marketing division operating margin was 9% lower versus the third quarter of 2014, driven by lower LPG exports and fractionation margin. LPG export volumes were 11% lower in the third quarter of 2015 versus the same quarter last year. On a sequential basis, LPG export volumes were 12% higher versus the second quarter of 2015 as a result of increased demand likely impacted by greater ship availability.

For the fourth quarter, we expect LPG export volumes to exceed 5 million barrels per month, which was our previous guidance. Fraction volumes were 7% lower in the third quarter of 2015 versus the third quarter of 2014. Over three quarters in 2015, fractionation volumes have bounced around, largely a result of volume variability as individual company and plant decisions are made to continue to reject or sometimes recover ethane, economic decisions given daily market prices, plant capabilities, and company-specific obligations.

Targa recently began to recover ethane again at some of our plants, given the plant-specific economics, and we have third parties that are making similar decisions. Also, we had some contracts roll, but given we are essentially full and the [hill] is essentially full, those volume changes are really on the margin and are being replaced with Targa's increasing equity volumes from our plants and from additional volumes from new or existing contracts.

Across Targa's operations, we are focused on continuing to identify and capture opportunities to reduce operating expenses and capital costs. Best practices in both of these areas are being shared across the Company and we believe there are opportunities for continued smart savings moving forward across both G&P and downstream. Smart savings, of course, means without impacting safety, compliance, or necessary preventative maintenance.

Our performance in the third quarter highlights the diversity and resiliency of our business mix. There were some pluses and minuses, but overall it was a strong performance quarter in the context of continued weakness in commodity prices.

That wraps up my long 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.

As Joe Bob mentioned, adjusted EBITDA for the quarter was $306 million, compared to $249 million for the same period last year. The increase was driven by the addition of TPL's operations. Overall operating margin increased 11% for the third quarter, compared to the same time period last year, and I will review the drivers of this performance in the segment reviews.

Net maintenance capital expenditures were $27 million in the third quarter of 2015, compared to $22 million in the third quarter of 2014, driven by the inclusion of TPL operations.

Turning to the segment level, I will summarize the third-quarter performance on a year-over-year basis, beginning with our downstream business. In our logistics and marketing division, third-quarter operating margin decreased 9% compared to the third quarter of 2014, driven by lower LPG export and fractionation margin, offset by partial recognition of the payment received from Noble related to our condensate splitter project and increased terminalling and storage activities.

We loaded an average of 5.6 million barrels per month of LPGs for exports, compared to 6.3 million barrels per month of LPGs in the third quarter of 2014, resulting in lower operating margin compared to the same time period last year. Fractionation volume decreased by 7% versus the same time period last year, as described by Joe Bob earlier, and overall operating margin from fractionation was lower.

In our gathering and processing division, our field gathering and processing segment operating margin increased by 35% compared to last year, largely driven by the inclusion of TPL. Third-quarter 2015 natural gas plant inlet volumes for the field gathering and processing segment were 2.6 billion cubic feet per day. The overall increase in natural gas inlet volumes was due to the inclusion of TPL volume in west Texas, south Texas, South Oak, and West Oak, and increases in volumes in SAOU, Versado, Sand Hills, and the Badlands. Volumes were lower in north Texas as a result of reduced producer activity.

Crude oil gathered increased to 109,000 barrels per day in the third quarter, a 10% increase versus the same time period last year. For the field gathering and processing segment, commodity prices were down across the board, with NGL prices decreasing by 59%, condensate prices decreasing by 53%, and natural gas prices decreasing by 35% compared to the third quarter of 2014.

Our hedging activities, which mitigate a portion of these price swings, are included in our other operating segment.

In our coastal G&P segment, operating margin was down 59% in the third quarter of 2015 versus the same time period last year, as Gulf of Mexico and onshore Gulf Coast volumes, as well as commodity prices, continue to decrease.

Let's now move to capital structure, liquidity, and other matters. As of September 30, we had $435 million of outstanding borrowings under the Partnership's $1.6 billion senior secured revolving credit facility due 2017. With outstanding letters of credit of $11 million, revolver availability was over $1.1 billion at quarter-end.

Total liquidity, including approximately $93 million of cash on hand, was over $1.2 billion. At quarter-end, we had borrowings of $136 million under our Accounts Receivable securitization facility. In August, we reduced the size of the facility from $300 million to $200 million. Year to date, we received net proceeds of approximately $500 million from equity issuances, including general partner contributions and $121 million from our recently completed offering of 9% Series A Preferred Units.

On the debt side, in early September we issued $600 million of 6-3/4 senior notes due 2024 and used the proceeds to pay down our revolver borrowings.

We are proud of the execution of our recent transactions in the debt and equity capital markets as we continue to demonstrate access to capital in the current environment.

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 compliance leverage ratio at the end of the third quarter was approximately 4 times debt to EBITDA.

Next, I would like to make a few moments about our fee-based margin hedging and capital spending programs for 2015. For the third quarter of 2015, our operating margin was approximately 72% fee based. We added some hedges using costless collars and swaps during the third quarter and since quarter-end, and for non-fee-based operating margin relative to TRP's current estimate of equity volumes from field gathering and processing, we estimate that we have hedged approximately 65% of remaining 2015 natural gas, 55% of remaining 2015 condensate, and 20% remaining NGL volumes.

For 2016, based on our estimate of our current equity volumes, we estimate that we have hedged approximately 40% natural gas, 40% of condensate, and approximately 20% of NGL volumes.

Moving on to capital spending, we estimate approximately $700 million to $800 million of growth capital expenditures in 2015, and at this point in the year, we expect to be at the low end of the range. Recently, we provide an expectation of $600 million of growth CapEx in 2016.

Next, I will make a few brief remarks about the results of Targa Resources Corp. Targa Resources Corp. standalone distributable cash flow for the third quarter of 2015 was $54 million and TRC declared approximately $51 million in dividends for the quarter, resulting in dividend coverage of over 1 times. On October 20, TRC declared a second quarter cash dividend of $0.91 per common share, or $3.64 per common share on an annualized basis.

As of September 30, TRC had $445 million of outstanding borrowings and $225 million of availability under TRC's $670 million senior secured credit facility and $160 million outstanding under TRC's senior secured term loan, resulting in a 2.6 times compliance leverage ratio.

At TRC, we expect a 0% to 5% effective cash tax rate for both 2015 and 2016.

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

Thank you, Matt.

I know that most of the listeners are hoping I will be brief, but I do have a few more remarks. On October 5, we issued a press release providing you with our preliminary financial outlook for 2016 for TRP and TRC, and in the context of TRC acquiring TRP, we have provided you with a lot of additional details on our outlook for 2016 and beyond this morning. We would like to give you a little more color on the project that we also announced in the early October release, as well as our asset outlook for 2016.

Also in that October 15 release, we announced the execution of a joint venture agreements with Sanchez Energy to invest approximately $125 million of growth CapEx for a 50% ownership interest in a new 200 million cubic feet per day plant in La Salle County and approximately 45 miles of high-pressure gathering pipelines that will connect Sanchez Energy's existing Catarina gathering system to the plant in south Texas.

The projects are supported by attractive fee-based contracts, volume commitments, and acreage dedications. SN has an initial 125 million cubic feet per day minimum volume commitment for the first five years and has dedicated all production from the Catarina Ranch acreage for 15 years.

Our outlook for 2016 in both the press release published on October 5 and the merger announcement this morning included the following asset performance assumptions in the consensus pricing scenario -- growth CapEx of approximately $600 million, flat to low single-digit growth in 2016 field G&P inlet volumes compared to average 2015 inlet volumes, and over 5 million barrels per month of LPG export volumes predominantly under contract.

As we project our 2016 estimates in the context of industry uncertainties, we believe that our 2016 field G&P volume growth expectations are reasonable, given our year-end volumes and producer activity levels. Some areas will have volume increases likely offset by other areas with volume decreases.

A little more color. In the Permian Basin, we expect volume increases across our systems. Activity in volume growth around WestTX continues, necessitating the completion of the 200 million cubic feet per day Buffalo plant in the first half of 2016. We're also in the process of connecting WestTX and SAOU, which will be completed early in 2016. Sand Hills was connected to SAOU in the third quarter of 2014 and we recently completed a Sand Hills connection to WestTX.

Producers remain active around Versado and we are benefiting from volumes from the Bone Spring's formation in the Delaware Basin to the south/southwest and shallow horizontal [San Andres] activity in the northeast. We have available capacity in Versado and are spending capital on additional pipeline and compression infrastructure expansions with attractive returns.

And Sand Hills is effectively full, but we are able to move volumes through to SAOU via the Midland County Pipeline and to WestTX with a new connection to increase flexibility across our systems.

An increase in volumes for our Permian Basin systems will be partially offset by declines in our Oklahoma and north Texas systems as producers continue to reduce activity levels. There is potential upside in that area for additional scoop activity in South Oak.

In the Badlands, in the context of lower producer activity impacting the basin and, to a lesser extent, impacting our system, our volume profile will be dependent on our producer activity, but also on the pace of progress on the reservation relative to acquiring ready-to-construct right-of-way as we attempt to build out our infrastructure to capture crude volumes currently being trucked and natural gas volumes being flared from our dedicated acreage.

And 2016 volumes will be up in south Texas. As mentioned earlier, we have entered into joint venture agreements with Sanchez. This joint venture is an example of an attractive standalone project for Targa, leveraging our existing asset base, supported by a significant acreage dedication and a long-term fee-based contract. Sanchez's results to date on their acreage are encouraging and volumes are likely to grow well beyond the minimum volume commitment levels, given SN's drilling commitments to the Harrison Ranch.

Additionally, we will benefit from increasing SN volumes in our Silver Oak facilities as Sanchez's existing midstream contracts roll off prior to completion of the La Salle County plant.

So even at high summary, there are obviously a lot of moving pieces heading into 2016 in the gathering and processing area, but we believe that the expected pluses and minuses will result in average 2016 field G&P volumes being higher than average 2015 volumes.

Shifting to downstream, construction on Train 5 continues, which should be in service mid-2016. We continue to work closely with Noble on whether to move forward with a new terminal at Patriot, a condensate splitter at Channelview with modified timing, or some combination of both projects. We expect clarity on go-forward plans by the end of the year or by the first part of 2016.

Relative to LPG exports, some of the same positive factors that impacted Q3 volumes are expected to continue in Q4 and including improved shift availability, Targa competitive advantages relative to our ability to load smaller and medium-sized ships, and competitive propane pricing relative to world market opportunities and the like.

After going back and rereading what I said at the end of the second quarter this year, I think a lot of those same messages hold true. We have been operating in an uncertain environment and I am incredibly proud of our execution across the Targa footprint. We cannot control commodity prices, but our day-to-day focus is on safety, meeting customer needs, cost savings, and efficiency of capital spending without sacrificing customer service or ignoring low-cost options which may benefit Targa in the event of increased activity in the future.

Our continued execution across our well-positioned, diversified asset base has resulted in a relatively strong nine months of performance for Targa, given the commodity price environment. Our future execution across our footprint is dependent on our ability to continue navigating through uncertain environments, and that ability to navigate will be significantly enhanced by the merging of TRC and TRP.

After much, much time examining strategic alternatives for Targa in these multiple price environments and uncertainties, I'm convinced that our announced transaction this morning is the best course of action for Targa stakeholders, with stronger positioning in enhanced growth and recovery price scenarios and better positioning and better performance in lower commodity price environments.

I want to thank our Boards and the TRP conflicts committee for their detailed analysis of those same factors and for their approval of this important next step in the Targa story.

Operator, I'm guessing we probably have a pretty good queue of questions ready to go, so let's open up the line.

Okay, and just before we open that up, I just have one last comment. At TRC, when I went through the tax rate for TRC, I said we expected 0% to 5% effective cash tax rate for 2015 and 2016. That was in the standalone K, so in the previous guidance. I just want to be clear, pro forma for the announced buy-in transaction, we would expect no taxes at TRC for the foreseeable future.

And with that, we can open it up to questions.

(Operator Instructions). Lee Cooperman, Omega Advisors.

Interesting call. Your first words were basically you were proud and excited about the transaction and I noticed the stock is down 8%, TRGP. What do you think people are missing, though you were quite comprehensive in your remarks, but what do you think they are missing in the market reaction, number one?

Number two, is there a breakup fee for either party associated with this transaction? Three, did the advisors that worked through this transaction with you expect this type of market reaction? And those would be my principal questions. But thank you very much for any help you could be.

Thank you, let me start at the top, I think, and come back on if I don't address them all.

First of all, we have a rule as we are doing these calls that no one looks at the market ticker. We are giving a call based on nine months of performance and we're making a strategic move for Targa for the long term. So, I don't know what the near-term market reaction is missing, but I hope that the longer-term market reaction is focused on that long term, that stronger Targa for multiple various price environments and how we will perform better than standalone, and that's what we're trying to talk through.

The advisors, the conflicts committee, and the Board were all focused on that, and I think we will figure out what the market is missing over the next days, weeks, and months.

There is a breakup fee. It is a normal breakup fee. It is a sort of normal breakup fee, call it, starts with a C, my favorite word for that, a customary breakup fee. It is less than $100 million and it will appear in the proxy.

Did I miss anything? I am looking around the table. Okay.

Who pays the $100 million? Who gets the $100 million, which party?

It is reciprocal and it is not exactly $100 million and it's slightly different. TRC has the ability to extend it over time and you'll see that in the proxy.

That's okay. Thank you.

Jeremy Tonet, JPMorgan.

Congratulations on the strong quarter. I was curious when you were evaluating this transaction, the collapse here versus other strategic combinations, if you could speak to that at all, if that was something that you guys evaluated or had any appetite to do or how this stacks up versus that.

Okay. I would say that Targa throughout its history has constantly been evaluating strategic alternatives at any point in time across important milestones, and since the Thanksgiving of last year with a significant commodity price drop and figuring out what that new environment might look like and with continued uncertainties, that strategic assessment has accelerated.

Many strategic alternatives were reviewed, really starting at the very first part of the year. Of late and recent weeks and recent months, this one, like everybody has written about or even talked to us about, this buy-in transaction has been on the list and compared to those other alternatives. I really believe that the approval by both Boards and the conflicts committee indicates that they, following management's recommendation, believe that this alternative was superior to the others. I hope that answers your question.

That's very helpful. Thank you.

Just a question on taxes. I know you said that you are not expecting to pay taxes for a long time here, but I was just wondering if you could help us think through how you are targeting coverage in the later years as far as that 1.05 coverage versus step-up in taxes in the future, if you are starting at a 0% in the near term. If you could walk us through your philosophy there, that would be helpful.

Yes, sure, Jeremy. Just first on the tax piece, because of the basis step-up that will be happening inside TRC, we see zero taxes, Joe Bob said, for the foreseeable future. It is well beyond five years we don't estimate being a taxpayer, and depending on what EBITDA and other assumptions you use because of the step-up inside TRC, we think we will be in a low to zero tax position for a very long time, through our five-year plus forecast horizon and then even beyond that.

So, TRC is going to be in a good tax position going forward with this transaction.

And then coverage, our long-term coverage target is still going to be 1.1 to 1.2 times. We know the cases that we laid out had lower coverage than that. Joe Bob mentioned in his remarks we're going to be working towards finding additional projects and trying to improve on that forecast that we gave to try and get our coverage back to those target levels, but right now, just with the assumptions that we put in and the forecast that the Board's looked at, it resulted in some declining coverage over time.

We're going to try and do better than those forecasts. Those forecasts have $600 million of growth CapEx, approximately, by year. We have a lot of other opportunities that might be able to add some economic projects to help fill in some of that.

That's great, thanks. And then just one last one for me, if I could, and I will hop back in the queue. Did you preview the deal with the rating agencies? And if you did, did you have any initial responses there?

Yes, we spoke to the rating agencies. We would expect them to be coming out shortly with their view. Given that the financing structure is essentially the same yesterday as it will be pro forma the transaction, we don't see a material difference happening. I think over time the improved credit profile, because the higher retained cash flow is going to be a net positive to the rating agencies, but is essentially the same capital structure before the deal and after the deal.

Great, thanks. I will hop back in the queue.

Brandon Blossman, Tudor, Pickering, Holt & Co.

Joe Bob, as you talked with the Board about the rollup transaction, was this just a gradual evolution that tipped it in the balance or in favor of this way forward, this path forward, or was there something specific that you can point to that changed over the last, call it, six to nine months that led you in this direction?

The strategic assessments have been going on for some time and the buy-in transaction has been on that list. It gave me two choices. I would say the choice of a gradual evolution was the better of the two. Dialogue, analysis would say that there was not a deal there until this weekend.

The TRP conflicts committee, the TRC Board, and later the TRP Board following management's recommendation were first analyzing it as a possibility among many, and then came to agreement that they should consider it specifically for a short period of time, and I am pleased to say across the weekend we believed that we could make it happen, and yesterday into last evening worked on the specific details that were contingent to both sides supporting it.

Okay, fair enough. And then probably a good (multiple speakers)

That weekend description should still sound like I think your gradual evolution towards the answer.

Fair enough. And then as you think about equity needs beyond -- it sounds like you're good for 2015 but beyond 2015, any general color that you would be willing to share around equity needs and a path forward on that? And then specifically, any comments that you are willing to share on the preferred equity market relative to your experience in the market recently?

Sure. Relative to funding needs for 2016, we've typically targeted about a 50% mix of debt, 50% equity, and in the forecast in that consensus case, that is approximately what we assume for those leverage metrics targets for the forecast period, so we're pretty close to that 50-50 in that environment.

And then, of course, we will look and make a determination on a year-by-year basis. Some years will be more debt, some years will be more equity, and we will just have to make the best judgment at the time.

We issued preferred at NGLS. Issuing NGLS common was getting, in our view, was not the lowest cost of capital and the best means to issue, so we went out with a preferred equity issuance earlier this year at NGLS and we raised $125 million.

So, I would say that is something that we will continue to look at, and if it makes sense and to lower fee for capital, then our other alternative is something we will consider. So that could be a piece of the additional equity needs for 2016 as well.

Okay, Joe Bob, Matt, thank you very much.

T.J. Schultz, RBC Capital Markets.

You have listed before, I think, $3 billion to $4 billion of additional opportunities in various stages of development. So if more projects now conceivably cross your return threshold, can you put any numbers around what you may be able to extend this backlog to or are there projects that maybe had been delayed to where you now have some level of confidence on exceeding that $600 million per year of growth CapEx in a better commodity environment that you have laid out?

I think the last part of the question, you started answering it or at least from my perspective. The delay in those projects -- most of them are when, not if, kind of projects -- have been more driven by commodity prices and producer activity and downstream activity than delayed by our cost of capital for the bulk of them, and the ones that have visibility, that's certainly the case.

So I think levels of capital investment are indicated in those example scenarios. We have more CapEx in the base-case consensus scenario than we do in the lower-priced scenario and that's how I think it will play out. I am pretty sure that we will not experience either one of those smooth commodity price curves and that activity will be a function of where we are in the price curves and where we are in the forwards.

Okay, got it. And then, it sounds like you still want to get debt leverage to 3 to 4 times. If you could just discuss that goal in the context of what you laid out in the different scenarios through 2018 when you might envision getting to sub 4 times leverage and the emphasis that you would place there versus coverage or growth in the dividends.

Yes, good question. If you look at the presentation, in that consensus pricing case we have 4.3 and it is relatively flat debt to EBITDA forecast. That's pretty close to the high end of our target. We would prefer that number to be 4.0 or lower, so it is something we will have to look at, whether it is -- have to watch. If EBITDA could come in a little bit stronger than our forecast or we may issue a little bit more equity for our CapEx, maybe more than 50-50. But at 4.3, we're not -- I'm a lot more comfortable between 3 and 4, but 4.3 doesn't give us any -- a huge concern over here, either.

Particularly relative to forecasting that we believe has some conservative elements.

Right.

Okay, great. Thanks, guys. I will leave it there.

Shneur Gershuni, UBS.

A lot of my questions have been asked and answered, but I have a few follow-ups and actually one operational question as well, too. From the way I look at it, it appears like your cash flow metrics are improving, so it sounds like the agency should be -- view it positively and so forth.

But I guess the real question I have is less than a month ago, you came into the marketplace to do an offering. You did the preferreds and so forth. What changed in that month that you decided you needed to take these steps to improve cash flow even further? I was just wondering if you can give us that color. Is this defensive in nature? I'm just trying to understand the process, where you were at the beginning of October versus where you were this weekend when you made this decision.

Yes, I'm glad someone asked that question because it can appear, based on what you see publicly, that it was sequenced the way you just described it. That's not the case.

The strategic alternative assessment has been going on well across that October 5 announcement, across the issue of the retail preferred, and management and the Board, on things that the Board is clear on things that they had to approve, were managing the Company the way we needed to manage the Company if no strategic alternative levers were pulled.

In fact, the retail preferred was on the strategic alternative levers for a long time. That's a good move, regardless of doing this buy-in or not doing this buy-in. It is an additive tool to the overall capital structure at a cost of equity that was significantly cheaper than NGLS.

So, please out there don't interpret that something changed from the time we were doing those financings. For example, right after Labor Day when we did notes, we needed to do notes. It was good timing, nice window.

For example, the retail preferred. We wanted to put that club in our golf bag and be able to use it later, and Matt said he is going to continue to use that later if it works with our other equity opportunities.

Okay, so it's fair to conclude no change in your assumptions on the base business over the last month. It's just your process evolved effectively.

(multiple speakers). I also am glad you asked the questions about whether it was defensive. The defensive nature of this is related to trying to manage, and we have been trying to manage since the first part of the year, what we look like in a lower for longer.

This is a stronger Targa in lower for longer. And we're not planning on lower for longer, but we want to be ready and positioned for it, and this move positions us for those kind of price scenarios, just as it positions us well for improvements in the higher price, better recovery price scenarios.

Okay, and maybe if I can ask an operational question. When I look at your OpEx and SG&A numbers for this quarter, it is certainly better than what we were expecting and it seems like an interesting trend. Do you expect us to see continued improvements in OpEx and SG&A savings in 4Q and throughout 2016, something similar to what we are seeing in the E&P space on capital efficiencies?

Two things. One, you get to see our numbers rolled up together, okay? And beginning in the first part of the year, we are going to add Buffalo and we're going to add Train 5, and there is going to be additional OpEx coming with those just by that very nature. We got to hire some operators for them, for example.

However, yes, I expect continued operating expense and capital improvements across the Company. I expect -- I expect, now I'm doing forecasting -- oh well, I believe that we will largely offset those increases for Buffalo and Train 5 with the cost savings that we are achieving because everybody is very focused on it. We have got area managers working together. Mike, was it three weeks ago we had our --

Right.

-- maybe third area manager meeting of the year. Those guys are sharing best practices across the entire footprint, very focused, and in every one of those actions, I see the energy of here is the good ideas I have been doing. What have you been trying to do about this? Wow, I bet I could do that also.

That's why I believe that there will continue to be cost savings by asset and potentially even cost savings despite bringing on more assets. G&A is not dissimilar.

Okay, great. Thank you very much and congratulations, guys.

Gabe Moreen, Bank of America.

Just a specific follow-up question on the credit ratings question, is there an expectation on your part that TRGP's rating gets shifted around here at all?

I think there is a pretty good opportunity for them to either equalize or upgrade possibly TRC since we will have the -- it will all be one credit family. So, I think they're going to come out with more specifics around that and we will have to have subsequent discussions once we get through close how they're going to look at that. But, yes, I think there is an opportunity for the TRC standalone ratings to potentially improve.

Thanks, Matt. And then a follow-up to the tax savings questions, I realize there is a bunch of different scenarios, but one in some instances when you have these rollup transactions, management has been willing to give an aggregate cash tax savings number expected over a period of time. Is that something you would be willing to do or is that just too difficult, given the different scenarios out there?

Good question. We talked about that. I think where we are more comfortable is saying we just don't expect to be a cash taxpayer for an extended period of time. You are right. There is a bunch of different ways to calculate that PV, how long, what scenario, how much CapEx you spend and the like. So I think we're just more comfortable saying we don't expect to be a cash taxpayer.

And that means across multiple scenarios.

Right.

Got it. Thanks, Matt.

And then last one for me, and Joe Bob, in terms of having a lower prospective equity cost of capital hopefully here after the rollup, does it change your approach in terms of deploying CapEx and hurdle rates here, given that you won't have the IDR structures in the burden there?

We have been pretty open on these calls that with the higher cost of capital that we were experiencing with NGLS, we had sent the signal to our organization to insist upon higher returns in their contractual negotiations, their asset planning projects, and I believe that they have done so.

I still believe that the bulk of major projects meet our thresholds in either world, but there are some others, smaller ones, medium-sized ones, that probably don't come to us and I am aware of projects that we would have done in the past that would not be brought to us in the recent higher cost of capital environment.

So I believe it's a positive, a positive over time, but we had an earlier question that said, how much more projects are you going to do because of that? I think that's an overly aggressive way of trying to model it. Instead, the projects we are doing will bring us higher net returns and some projects on the margin that might not have been brought forward for approval are likely to come forward.

Understood. Thanks, Joe Bob.

Sachin Shah, Albert Fried.

Congratulations on the deal. I know you guys mentioned how you guys review the strategic alternatives, but just wanted to understand the premium that is being paid here. I know it is all units are stock, but just wanted to go through that process. You mentioned that because of commodity prices being where they are and you are expecting them to forecast them to be where they are, that might have an influence on it. So just wanted to understand that a little bit better.

And then, also, it seems pretty simple, unitholder vote, HSR, and that's pretty much it. So I just wanted to confirm that. Thank you.

From the backside to the front side of those questions, yes, the approvals are not expected to be a big deal on the regulatory front. We are they on the acquisition and HSR should be quickly terminated. It's just a taxing opportunity at this point.

As far as the premium, management, all conversations with our Boards and the conflicts committee recognize that premium is a result, not an objective as we were discussing this. It's the exchange ratio that is the economic trait and that 0.62 exchange ratio was -- ratios around that were evaluated by both sides. I'm not going to describe the trade-off of things in the scheme of things, but in reality the premium, this 18% premium, was a function of what day we got the deal done on it, not an objective.

Okay, thank you. Congratulations again.

John Kiani, [Teilinger Capital].

Thanks for providing the additional outlook to 2017 and 2018. It is helpful. Can you please explain what you are assuming for the LP GX-IV volumes in that business and also pricing as well in the 2017 and 2018 time frame in your forecast in the consensus to lower case, at least directionally compared to what we are seeing today, please?

Yes, and I will start with the easier answer. In the presentation, if you flip through it, we have the commodity price assumptions laid out for both the consensus pricing and the strip. It is on page 6 and it is on page 8, so we have got the WTI, NGL, and natural gas.

For the LPG exports, we have given guidance for next year, for 2016. We would expect 5 million or more barrels per month for 2016. We have not given and we don't have in our assumptions an assumption for 2017 and 2018, so we aren't giving that color for 2017 and 2018, but just 2016.

Got it. Okay, so there is obviously some assumption you all made in both scenarios for the LPG export business in 2017 and 2018 on both price and volume, but you're just not going to disclose that at this time.

Right, we will share 2016 with you.

Got it, okay. And I have a second question that is unrelated, please. Can you just talk through the thought process and how you got comfortable with the credit exposure when you entered into the Eagle Ford JV with Sanchez Energy? Just considering the Company's credit rating and what their bonds yield, in the teens and whatnot, could you just talk through how you are planning to manage the credit exposure and what your thought process was in getting comfortable with that?

Sure, we took a look at Sanchez's financials, had discussions with their management, cash forecasts. Yes, they have got today significant cash in the balance sheet and they're in good position to continue drilling for an RVO and extended period of time to continue to drill.

We have also -- through the 50-50 ownership in the processing plants and in the assets, they are going to be incentivized and whether it is them or another party if they were -- if there was any transaction, they would be incentivized to continue to flow down the assets that we own because the other party owns 50%. So Sanchez is incentivized to flow through the gathering and through the processing, and anyone else that owned those assets would be incentivized to flow down those gathering pipes and the processing plant.

I see. Do you have any type of guarantee from them? Is it at the project level? Is it at the corporate level? How do you think about managing your credit exposure in general in the event of the outlook changing?

John, you know the team here. We've got a very strong financial and risk management team. You should assume that we have done everything we can within contracts, et cetera, to protect ourselves.

I was having discussions with our Board that there was a great deal of thought and creativity that went into those agreements, but we have gotten CAs on what is actually in those agreements. It was mitigated to the maximum extent possible is probably the right way to put it.

And we feel good about this as a standalone project.

Sanchez, I understand what people are saying about their -- where their equity is and what the credit might look like. They're a very good operator and they have got very good success in what people thought was a less productive part of the Eagle Ford, and we will benefit greatly from those volume commitments and the drilling requirement that is associated with the original shale lease, this is public, for Sanchez or whoever else to hold onto that lease. So in the scheme of things, big picture, this is a good deal for Targa.

Got it. Thanks, Joe Bob; thanks, Matt.

John Edwards, Credit Suisse.

Just to follow up on some of the other questions, I am just curious in terms of making this announcement on the restructuring. How much did the leverage and relatively low distribution coverage weigh on the decision and on the decision to announce it at this time?

I think those numbers certainly were important factors in the decision, which is why we took you through pages 6 through 9 in some detail. It certainly managed -- was a big part of management's recommendation because entering into this transaction creates that stronger Targa, regardless of price environment.

I feel really good about this next future step for Targa and what it looks like. I don't feel very good about my ability to predict commodity prices. And I believe that the Boards and the TRC conflicts committee looking at those factors or similar factors reached a similar conclusion, that all of our stakeholders were better off regardless of the commodity price scenario you pick with this new transaction.

Okay. All right, so it sounds like it has been weighing on the process for some time because you said you have been looking at this since almost a year ago. And so that (multiple speakers)

I don't know that I would describe weighing on the process. Our forecasts, which we forecast and re-forecast all the time, have done the best we can to contemplate what does Targa look like in a variety of price scenarios. These are two illustrative ones, and coverage and leverage are something we're trying to manage all the time.

Okay. All right, thanks. My other questions have been asked. Thank you.

Faisel Khan, Citigroup.

I understand you don't want to give us the MPV or PV of the tax situation that occurs from this transaction, but can you give us the deferred tax asset that is created from this transaction or the tax basis step-up so that we can calculate the MPV on our own?

I don't have -- we are working through, obviously, the accounting impact of what will go on the books, but just simplistically, the total transaction value is about $12 billion for the total transaction. Then you back off the units that we already own that won't be receiving the step up and then you can just put that on an amortization schedule.

So, we assume most of the step-up would be getting seven-year makers and then there is some that is going to be straight lined over a longer period of time, call it 14, 15 years.

Okay, great. That's what I was looking for.

And then on your POP contracts, can you discuss a little bit about what is going on with some of those contracts? And what I mean by that is some of your other peers have talked about collecting revenues on ancillary services that they may have not been collecting revenues on before in some of those POP contracts because of the common language that exists in some of those contracts. Can you talk a little bit about if you have those same sort of opportunities and if those are things that are taking place in the current oil and NGL price environment?

Well, I know it may be a new topic, but it is a very old thing for Targa to be managing our gathering and processing contracts to add fees to POP, and I think we publicly described it for at least nine or 10 years. Constantly doing that. When you get in a different price environment, there may be more opportunities to try to do that, so it has been a constant effort for us and we haven't described it as anything new or different.

Trying to be fee based where we can, like North Dakota, some people are now trying to switch from POP to fee based in North Dakota, which means they will look more like our contracts. And as we look at POP contracts coming up where we have attractive competitive position, we are trying to improve those terms, both on the terms of the POP and on the fee.

We talk of a POP contract anytime it has a POP component, but some of ours are really hybrids. They may be -- the margin impact may be as large on the fee side as it is on the POP side in the current contract forms. And that effort continues.

And Joe, just to the extent that you have been working on this with your legacy contracts at Targa for the last several years, what about with the Atlas contracts? How much more work is there to do on that area?

The TPL set of assets are now being managed as one family. In their history, they had switched some from POP to fee at a time that was important for them to do so, and those efforts continue.

I think there are still opportunities there for additional fees or -- and/or improved POP, just as there are additional opportunities for that as contracts come up and as new acreage dedications are achieved and as new contracts are reached as we extend our systems.

Okay, thanks for the time.

Mike was telling me to remind everybody that much of our P&P portfolio is already primarily fee, essentially 100% fee. I mentioned the Badlands, much of Oklahoma, south Texas is all fee. Okay, next question.

Jerren Holder, Goldman Sachs.

Thanks for taking the call. I just wanted to clarify maybe the price sensitivity scenario, and what exactly is that based on? Is that just forward curve pricing or something else, and based on the forward curve, do you still get the growth and coverage metrics?

Yes, that was based on the forward curve some time ago when we pulled that. Say gas was around $3, crude was $47 going to low and then the mid-$50s. And then for the NGL, we used -- we looked at the forward curve as well, but then increased prices, you will see it increasing with the crude oil contango.

So I would say it was a strip base, but it wasn't just simply a strip on this day and we used it. We have looked at it over a period of time and then made the adjustment to NGLs.

Got it, and I guess given the long-term coverage target has got a 1.1, 1.2 times, and just in both scenarios we are moving away from that. How do you think about growing the dividend, whether it is 15%, 10%, whatever the metric is versus, say, getting back to that 1.1 to 1.2 times sort of target sooner, just given the variability in the earnings model from commodity prices and volumes?

I would say it would -- how we think about any year's coverage really does depend on our longer-term view for where coverage is going.

So if we are able to add projects and we are able to add EBITDA and it is a relatively healthier environment as we're looking out, it is not necessarily a target of 1.1 to 1.2 in 12 months or 24 months out. We will look out several years. We will look at our project backlog, look at the environment, and then make an assessment for how much of that coverage we would want to distribute and then how much we would want to keep.

And so, that decision we will make on a quarterly basis, but we will take all those factors, given the environment, given price contango, project backlog, and the like, and just have to make that call as we go throughout this forecast.

Thanks. And then last one from me, the compliance, the leverage compliance covenants, and so there is -- I guess there is the 5.5 times at TRP, but at TRC, there isn't any. Can you talk a little bit about that evolving as -- on a pro forma business?

So at TRP, there is the 5.5 covenant and that remains unchanged. And that's going to be the governor or that's where we would -- we will have less room under our compliance, being low 4s relative to a 5.5.

Once this buy-in occurs, all of the cash flows will be flowing out of TRP up through TRC and will be available for that credit facility at the TRC level. So pro forma for this transaction, it is going to be under 1 times debt to EBITDA. So if you are okay on compliance at TRP, you're going to be okay on compliance at TRC.

So that's why we didn't highlight or talk about it. It's a 4 times -- it steps down over time, but it is 4.75 down to 4 times debt to EBITDA up at TRC standalone and pro forma for this will be less than 1.0.

And I guess, going forward, you can just raise debt at TRC and not have to do it at the TRP level?

Yes, so we have -- we would have options and flexibility there, whether we wanted to raise debt at TRP or TRC. I would say likely raising an incremental notes offering, given most of our notes are at -- or all of our notes are at TRP. That would likely be our primary funding mechanism and place that we would go, but we have issued debt at TRC before, so that is an option. But we would be able to -- or we should be able to do either.

Okay, great. Thank you.

Michael Blum, Wells Fargo.

I think we have covered mostly everything. Just one question remaining for me. Joe Bob, I think in your prepared remarks you said that one of the benefits of this transaction was it would reduce your external financing needs going forward. And I guess I'm just trying to understand what you meant by that.

On the first level, Michael, covering that not negative, but less than 1 coverage, and increasing interest expense relative to that by saving the $400 million to $600 million in these two illustrative scenarios is a benefit to our external capital needs.

Okay. Great. Thank you.

Chris Sighinolfi, Jefferies.

I appreciate the color this morning and for you taking my question. I just had a couple of quick follow-ups, one operational in nature. Was just curious what drove the large sequential step-up in South Texas Inlet volumes. Didn't know if it was a change in reporting convention, given the joint venture. And as a related question, we didn't see the same step-up in total liquids production there, so I was just wondering what sort of drove that discrepancy, if you had a quick explanation?

That sequential step-up was not driven at all by the Sanchez arrangement, and I actually need to look back at the numbers. I don't think it was very large. There was not an NGL increase because NGLs are primarily take in kind from the current Silver Oak facilities.

Okay. I will follow up afterwards with Jen (multiple speakers) on that. And then, just two quick questions on the transaction itself. Matt, appreciate all the prior color you have offered previous questioners. Was curious with regard to slide 9 in your presentation deck. I think you had mentioned $600 million of growth capital in each of these years. I just didn't know if I looked at the price sensitivity portion of that slide presentation if that was also true under that scenario, and then if you had any color in terms of financing assumptions that you had assumed. I know you went back and forth with Jerren around opportunities, but are you assuming additional leverage to finance this or something other than that?

Okay, so to your first question is what is the CapEx amount in that price sensitivity case. So the $600 million I mentioned was for the Street consensus price case, the higher price case. In the price sensitivity case, if you look on page 15 we outline the growth CapEx assumptions and it is about $400 million in 2017 and $225 million in 2018, so there is less CapEx assumed in the price sensitivity case.

Oh, perfect. Sorry I missed that. And did you have -- had you said earlier how you were planning to finance that or is it just a wait-and-see?

I think what I said earlier was for the price consensus case, that it was approximately 50-50 is the assumption that we use in the model. Going forward, I would say in the price sensitivity case, it is a slightly -- it is a bit of a higher ratio. We did a little bit more equity financing for the price sensitivity case and a similar dollar amount.

Okay, perfect. And then, finally, and I realize this may sound a little obtuse, but is there anything that limits or precludes you from creating an MLP again in a future period?

Good question and I did ask that, and no, there's nothing specifically that prohibits us from doing another MLP.

Okay. Thanks a lot for the time this morning.

Andy Gupta, HITE Hedge.

Couple of quick questions for me. One is on LPG exports. Could you help us understand how you are thinking about the competitive nature here? Several projects are coming online towards the end of this year into next year. What are you seeing in terms of utilization and specifically how it might impact yourselves? You have got a very good facility down there in the Houston Ship Channel. Are you seeing any impact on potential margins in 2016 or beyond?

I would say we're in -- we feel like we're in a good position to continue to meet customers' needs through our facility. We took that into consideration when we came out with our expectations for 2016 of 5 million barrels a month or higher. We know there is additional capacity coming online, but that was taken into account in our numbers.

We've said we're 4.2 million barrels per month or greater contracted for 2016, so we feel like for 2016 we're in good position. We have a good set of assets and a good track record of being able to deliver and meet our customers' need.

How about margin with increased competition? Do you expect some erosion there or now compared to 2015?

We said on our last call, with a similar question, it depends on how you are describing erosion. Long-term margins are similar to the way they have been in our short history of having VLTC shipments from our facility.

The spot margins were higher in the first part of 2014 than they have been in 2015, but beyond that, we haven't given a whole lot of color. What you see is the results, the economic results, of volumes continuing. They are similar on that margin to the extent you can calculate them and I think that's not a whole lot of erosion. The big erosion was super [spiked] spot opportunities back in 2014 to support our current levels today.

Sure, that makes sense. And on leverage, one quick follow-up. Your target of trying to get to 4X, would you consider that on a consolidated basis?

Yes, so our leverage target since we went public with the DRP in February 2007, it was 3 to 4 times debt to EBITDA, and so for right now what we are saying is we're just going to leave that unchanged at the TRP level, target the 3 to 4.

As we move forward in time, does that evolve to a consolidated look as we have discussions with agencies? Possibly. But I think right now we will just stick with our 3 to 4 times leverage target at TRP.

Great, well, thanks and congrats again.

Sunil Sibal, Seaport Global Securities.

All of my questions have been answered. Thanks for your time.

Brandon Blossman, Tudor, Pickering, Holt & Co.

Matt, just real quick, on the two forecast scenarios --

Brandon, we can't hear you.

Matt, on the two forecast scenarios, is there any different assumptions on volume throughput between the two cases?

Good question. We assumed essentially the same volumes. We ran the volume outlook using that price sensitivity case, using that lower strip case, and came up with where we thought volumes would be for the next several years. And then we did -- it's a price sensitivity. There are some other adjustments Joe Bob talked about, but it's essentially a price response to get to that higher price case.

Okay, very --

There is some -- there is some more CapEx, there is higher CapEx, so there is projects related to the EBITDA fee, you could say. There is some volume assumption with that, but generally speaking it is more or less a price sensitivity.

Okay, helpful. Thank you.

Charles Marshall, Capital One.

Thanks for taking my call. Just two quick questions regarding the ATM program. Did you issue any equity this quarter?

In the ATM, we did not issue any since our call last. I think we had a small piece before our earnings call in July, but we have been effectively out of the ATM at NGLS since our last earnings call.

Okay, appreciate that. And then, just related to the ATM again --

The retail preferred equity.

Yes, but not ATM. Yes. (laughter).

Got it. And then, just on a pro forma basis, what happens with an ATM program? Will TRGP have a similar program?

You know, the ATMs worked well for us at NGLS, so that's something that we will take a hard look at for does that make sense up at TRGP. We have had good success at NGLS using that, so that's certainly something we will consider at TRGP.

Okay, thanks, and just one last one for me. I guess more of a follow-up to previous questions, given the lower expected cost of capital on a pro forma basis, how does your opportunity set or appetite change for potential M&A now going forward versus your opportunities that you're taking a look at in this current environment in the current structure of your two entities?

I don't think we've contemplated the opportunity set being affected by the new structure and lower cost of capital.

When we think about acquisitions, we're always thinking first about what is the assets and businesses that you might acquire and whether it would fit with Targa and whether we can add value to it, and then we look at whether the math would work. Obviously, in the higher cost of capital that we were experiencing with NGLS, we were -- we have said at least on a couple of calls that smaller bolt-ons are the more likely things to occur in the near to medium term. I still think that's our primary focus, but we always look at lots of things. Just the math may not work as well.

In the environment where we had only the higher cost of NGLS for all practical purposes to utilize and with a more competitive cost of capital, it may help sometime in the future.

Okay, appreciate the color. Thanks, guys.

Okay, Operator, we don't have any other questions -- excuse me, that's what they're telling me at the table. Besides that, we have gone on for an hour and a half and I think we ought to bring it to a close.

We very much appreciate everyone's patience as we went through the material. Certainly enjoyed the Q&A with you all and hope that we have been able to shed light on both third-quarter performance and this exciting and attractive announcement that we made today.

If you have any other questions, please give us a call, and have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.