Brian Reynolds : Great. Thanks. And maybe as a follow-up to Spiro’s question on just Permian and the growth. Previously, you kind of gave more of a firm number around 10%. And then the illustrative guide, you kind of talk high single digits. Maybe just talk about that’s kind of your base expectation at this point. And then kind of as a follow-up, has any of the M&A — any updated view on some acquisitions in the Midland impacting your thought process there? And then just on the operational hiccups, are we past that? And as it relates to H2S gas quality issues, how does your system able to manage that sour gas and potentially grow at a higher clip than the rest of the basin? Thanks.
Matt Meloy : Okay. I’ll start and then Pat can probably touch on a little bit of this, too. I think when you look at our Permian growth for the year, we really feel good about where we’re starting the year. December was our highest month, and it really just sets us up for really good production growth just where we exited 2023 going into ’24. So even with relatively modest growth from here, we’re going to see a really strong year-over-year. And that’s why we’ve said consensus is about 9%. We’ve typically beat that. But even if we get anywhere around high single digits or a little bit better, I think it sets us up very well, not only for ’24 ‘but 25. And then I’ll let Pat speak a little bit to kind of the M&A landscape from our E&P customers.
Pat McDonie : Yeah. There’s been a lot of M&A activity over the last three to four years. So it’s not something we’re unfamiliar with. And frankly, we don’t see a material difference with these new announcements as we’ve seen in the past. Frankly, we’ve seen pretty consistent growth across the combined companies relative to our position with the individual companies. The new ones that are coming out, we have meaningful positions with all the parties. We have long-term contracts with all the parties. We have great relationships with all those producers. If you look at what’s been publicly announced by those parties, you wouldn’t expect a significant impact to what their expected growth levels are going to be. Frankly, at least on one of the major — the bigger mergers, there’s — you could allow that there’s going to be an expectation of incremental growth on our assets on the Midland side of the basin.
So there is a lot of activity, a lot going on, but we’ve benefited from it because we’ve got great assets, we’re reliable. We’ve got good contracts, and we’ve got good relationships.
Matt Meloy : Yeah. And just to add to that, too, the other part of your question was around gas quality and trading. A lot of the — we are spending a lot of capital, and we spent last year and this year 4 additional treating facilities primarily in the Delaware Basin. We’re putting in some additional treaters to handle both CO2 and H2S, and we’re drilling multiple wells to handle that as gas injection wells and pipelines and connectivity to handle that. So I think that really positions us nicely as the Delaware continues to grow and gas quality becomes another issue that the producer are going to have to deal with, we’ll be in a really good position to handle that. And most of that capital will be in or the large — the lion’s share of it will be in kind of by the end of this year.
Jen Kneale : And then I think the very last question in your question was around whether volumes had rebounded as a result of the impact of winter storm. And I’m really proud — I think we’re all really proud of the efforts of our operations teams to get volumes back online. So we’re close to back to levels that we were seeing before we experienced the extreme weather.
Brian Reynolds : Great. Thanks. Appreciate all the color this morning. Thanks.
Sanjay Lad: Okay, thank you.
Operator: Thank you. Our next question comes from the line of Tristan Richardson with Scotiabank. Your line is now open.
Tristan Richardson : Hi, good morning. Jen, pardon, my voice this morning, but really appreciate the CapEx sensitivity you guys laid out and really curious about the flexibility you have in that ’25 outlook. Certainly, you talked about that high single digit embedded in that assumption. But can you talk about timing that spend in the event producers deviate from that assumption, whether that is deferring Train 11 timing your plan towards the end of ’25? And then also maybe just about does Greenwood II and Bull Moose coming on towards the second half of ’24? Is that adequate capacity to support that sort of high single-digit inlet for ’25 in the illustrative?
Matt Meloy : Yeah. So as we think about ’24 and then going into ’25, we’re ordering some long lead time, have some spending for Train 11, which will both be in ’24 and ’25. And then we also mentioned there’s additional plants, call it, two plants, maybe one in the Delaware, one in the Midland, of additional ordering long lead time and in kind of our base assumption that we’re going to need to start spending capital on this going to have ’24 and ’25 budget. So that’s kind of what we have in our budget right now. Sure, if there’s even more production growth in the Permian, could that move that plant timing up a little bit? It could move it up a little bit. If it’s perhaps on the lower end of the growth ranges, could we push those out?
Yeah, we could push that out a little bit. Really, the big sensitivities to our CapEx does — it really tends to be more on the downstream side. Are we going to need — when is the next fractionator? What about — Daytona’s coming on, should give us some good runway from an NGL perspective. But when will you need more transportation and then export? Those are the larger projects that can be a bit lumpier. So I think ’25, a lot of that up and down really could just be around our G&P business and some of the plant timing and related field capital.
Tristan Richardson : Super helpful. Appreciate it, Matt. And then just a quick follow-up. Talking about the 90% fee-based now. I mean, I think a substantial move from ’23. Clearly, this is a multiyear priority for you guys and has been a game of inches. Are you seeing a big change in ’24 really a function of mix? And where — which of your producers are growing? Or did you see some substantial kind of recuts or recontracting occur throughout ’23?
Matt Meloy : Yeah. We’ve been making steady progress on getting more fee-based components, primarily fee floors but also just fee-based G&P business, over the last several years. Our commercial team really did a fantastic job in 2023. And I would say there was a step-change in just the number of contracts that we were able to get redone. So no, it was a step-change late in ’23, which significantly changed our overall downside risk profile and is done. So now we’re estimating 90%. You see that on our commodity price sensitivity. We still have some length. So there is some downside if prices moved down. But relative to our overall size of 30% downside, $60 million, $70 million, that’s not much sensitivity. That is fundamentally different than where we were really 12-24 and certainly 36 months ago.
Tristan Richardson : Yeah, appreciate. Thanks very much, Matt.
Matt Meloy : Okay, thank you.
Operator: Our next question comes from the line of Theresa Chen with Barclays. Your line is now open.
Theresa Chen : Good morning. I have a question following up on Tristan’s question related to the fee floors within your G&P segment. Just thinking about the 90% at this point, as you have put in additional fee floors within your POP contracts overtime, is the mix of fee-based versus POP with the floor within that 90% changing, i.e. is the incremental fee-based contract really putting in fee floors for POP? Or have you exchanged some previous legacy fee-based contracts for POP with the floors as you renegotiate? And just really trying to understand the rationale behind why your customers would allow you to put in fee floors overtime.
Jen Kneale : This is Jen. It’s actually a mixture of what you talked about but for different reasons. You’ve seen the percent of our G&P business that is fee-based increase largely as a result of acquisition. When we bought Lucid, primarily underpinning the Lucid contracts that we acquired were largely fee-based contracts. And so we saw a big step change in the increase of fees generated from our G&P business associated with that acquisition. But what our commercial team has been really successful at doing, and I would also like to take my hats off to all of them because it’s been just a huge effort that I think has very meaningful implications for our company, is they have gone in and worked with producers to really demonstrate that in order to incentivize Targa to be willing to spend capital.
And this goes back to 2020. This is an effort that we have been building on — building momentum on over the last many, many years. But going back to those conversations, in order for Targa to be willing to continue to invest capital, what you’ve seen us consistently do over the last many years. We need to make sure that we will get an adequate rate of return in a downside commodity price environment. It’s simply just the math. And our producers have been very supportive of that construct. So we’ve gone into existing POP contracts, and we’ve been able to restructure those to put the fee floors in place that, again, have incentivized us to continue to spend capital even as commodity prices are lower while not giving up the upside to the extent commodity prices rise.
And so it’s really been a mix of we’ve acquired a lot of fee-based assets on the G&P side, and then we’ve gone in and we’ve either restructured existing contracts or as new contracts have been put in place by our commercial team, they’ve been put in place with that fee floor structure while also generating returns across our integrated system. And the commercial teams have really just done a very good job supporting our producers with what our producers need but under a construct that also works for us to continue to capital.
Theresa Chen : That’s helpful. Thank you. And then when we think about the long-term illustrative CapEx, so going from 1.4 back to the 1.7 on a multiyear basis and thinking through the next lumpy projects in the downstream segment. In addition to additional fractionation and export capacity, the eventual looping of the 30-inch segment of Grand Prix, can you talk about at this juncture with the growth that you have had you and Daytona coming online by year-end and filling up thereafter, what the cadence of build and spend would be for that 30-inch loop? And how do we get from 1.4 to 1.7 or beyond in the years to come?
Matt Meloy : Yeah. Sure. Good question. So I would say the primary delta from the 1.4 to 1.7 is downstream spending, having multiple fractionation facilities and that’s really more this year. But really the delta between 1.4 and 1.7 is primarily downstream. One of the larger projects that we don’t have any meaningful spending on next year is transportation, another NGL pipe. We have Daytona coming on this year. That’s going to provide us some good runway. So then how much runway that provides really depends on what the overall growth rate in the Permian and our capture of those NGL barrels to move on to Daytona. So that is something we’re thinking about. These pipes take a couple of years to get billed, probably even a little bit longer than that.
