What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 200 added, 109 removed, 387 unchanged (44% of the section changed)

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Permian Midland Processing Expansion

In August 2021, we announced the construction of a new 275 MMcf/d cryogenic natural gas processing plant in Permian Midland (the “Legacy plant”).

The Legacy plant is expected to begin operations in the fourth quarter of 2022.

In August 2021, in response to increasing production and to meet the infrastructure needs of producers, we announced the construction of a new 275 MMcf/d cryogenic natural gas processing plant in Permian Midland (the “Legacy plant”).

The Legacy plant is expected to begin operations late in the third quarter of 2022.

In February 2022, in response to increasing production and to meet the infrastructure needs of producers, we announced the construction of a new 275 MMcf/d cryogenic natural gas processing plant in Permian Midland (the “Legacy II plant”).

The Legacy II plant is expected to begin operations in the second quarter of 2023.

In August 2022, in response to increasing production and to meet the infrastructure needs of producers, we announced the construction of a new 275 MMcf/d cryogenic natural gas processing plant in Permian Midland (the “Greenwood plant”).

The Greenwood plant is expected to begin operations late in the fourth quarter of 2023.

Permian Delaware Processing Expansion

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In conjunction with the commencement of operations of the Midway plant, we expect to idle the Sand Hills plant.

Fractionation Expansion

In August 2022, we announced plans to construct a new 120 MBbl/d fractionation train in Mont Belvieu, Texas (“Train 9”).

Train 9 is expected to begin operations in the second quarter of 2024.

Capital Investments and Divestitures

In January 2022, we closed on the purchase of all of Stonepeak Infrastructure Partners’ (“Stonepeak”) interests in our development company joint ventures (“DevCo JVs”) for $926.3 million (the “DevCo JV Repurchase”).

Following the DevCo JV Repurchase, we own a 75% interest in Grand Prix Pipeline LLC, a 100% interest in our Train 6 fractionator in Mont Belvieu, Texas and owned a 25% equity interest in Gulf Coast Express Pipeline (“GCX”), prior to the GCX Sale (as defined below) in February 2022.

Following the DevCo JV Repurchase, we own a 75% interest in Grand Prix Pipeline LLC, a 100% interest in the Train 6 fractionator in Mont Belvieu, Texas and owned a 25% equity interest in Gulf Coast Express Pipeline (“GCX”), prior to the GCX Sale (as defined below) in February 2022.

The change in our ownership interests was accounted for as an equity transaction representing the acquisition of noncontrolling interests.

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In addition, the DevCo JV Repurchase resulted in an $857.9 million reduction of Noncontrolling interests on our Consolidated Balance Sheets.

In February 2022, we announced that we executed agreements to sell Targa GCX Pipeline LLC, which held our 25 percent equity interest in GCX, for approximately $857 million (the “GCX Sale”).

We expect to receive the full proceeds from the sale in the second quarter of 2022 as the customary call right period has now expired.

In April 2022, we closed on the bolt-on acquisition of Southcross Energy Operating LLC and its subsidiaries in South Texas for a purchase price of approximately $200 million.

We acquired a portfolio of complementary midstream infrastructure assets and associated contracts that have been integrated into our SouthTX Gathering and Processing operations, including the remaining interests in the two operated joint ventures in South Texas that we previously held as investments in unconsolidated affiliates and which we will prospectively consolidate.

In April 2022, we closed on the bolt-on acquisition of Southcross Energy Operating LLC and its subsidiaries (“Southcross”) for a purchase price of $201.9 million (the “Southcross Acquisition”), subject to customary closing adjustments.

We expect to make a final closing adjustment payment of approximately $4 million in the third quarter of 2022.

See Note 4 - Joint Ventures, Acquisitions and Divestitures and Note 6 - Investments in Unconsolidated Affiliates to our Consolidated Financial Statements .

In May 2022, we completed the sale of Targa GCX Pipeline LLC to a third party for $857.0 million (the “GCX Sale”).

As a result of the GCX Sale, we recognized a gain of $435.9 million in Gain (loss) from sale of equity method investment in our Consolidated Statements of Operations during the three and six months ended June 30, 2022.

On July 29, 2022, we closed on the acquisition of Lucid Energy Delaware, LLC (“Lucid”) from Riverstone Holdings LLC and Goldman Sachs Asset Management for approximately $3.55 billion in cash (the “Lucid Acquisition”), subject to customary closing adjustments.

Lucid provides natural gas gathering, treating, and processing services in the Delaware Basin, and owns and operates 1,050 miles of natural gas pipelines and approximately 1.4 billion cubic feet per day (“Bcf/d”) of cryogenic natural gas processing capacity in service or under construction located primarily in Eddy and Lea counties of New Mexico.

Lucid’s Delaware Basin assets are integrated into our Permian Delaware operations.

Common Share Repurchases and Preferred Stock Redemption

In the first quarter of 2022, we repurchased 737,799 shares of our common stock at a weighted average price of $67.37 for a total net cost of $49.7 million.

There was $318.8 million remaining under our $500 million common share repurchase program as of March 31, 2022.

During the second quarter of 2022, we repurchased 1,121,925 shares of our common stock at a weighted average price of $66.07 for a total net cost of $74.1 million.

From July 1 through July 29, 2022, we repurchased 512,336 shares of our common stock at a weighted average price of $58.57 for a total net cost of $30.0 million.

There was $214.7 million remaining under our $500 million common share repurchase program as of July 29, 2022.

In May 2022, we redeemed in full all of our issued and outstanding shares of Series A Preferred at a redemption price of $1,050.00 per share, plus $8.87 per share, which is the amount of accrued and unpaid dividends from April 1, 2022 up to, but not including, the redemption date of May 3, 2022.

The difference between the consideration paid of $973.4 million (including unpaid dividends of $8.2 million) and the net carrying value of the shares redeemed was $223.7 million, which will be recorded as deemed dividends in our Consolidated Statements of Operations in the second quarter of 2022.

Following the redemption, we have no Series A Preferred outstanding and all rights of the holders of shares of Series A Preferred were terminated.

See Note 9 - Preferred Stock to our Consolidated Financial Statements.

The difference between the consideration paid of $973.4 million (including unpaid dividends of $8.2 million) and the net carrying value of the shares redeemed was $223.7 million, of which $215.5 million was recorded as deemed dividends in our Consolidated Statements of Operations in the second quarter of 2022.

Following the redemption, we have no Series A

Preferred outstanding and all rights of the holders of shares of Series A Preferred were terminated.

See Note 9 - Preferred Stock to our C onsolidated F inancial S tatements.

Financing Activities

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The TRGP Revolver provides for a revolving credit facility in an initial aggregate principal amount up to $2.75 billion (with an option to increase such maximum aggregate principal amount by up to $500.0 million in the future, subject to the terms of the TRGP Revolver), including a swing line sub-facility of up to $100.0 million.

The TRGP Revolver matures in February 2027.

The TRGP Revolver matures on February 17, 2027.

In connection with our entry into the TRGP Revolver, we terminated our previous TRGP senior secured revolving credit facility (the “Previous TRGP Revolver”) and the Partnership’s senior secured revolving credit facility (the “Partnership Revolver”).

In February 2022, TRGP and the Partnership received a corporate investment grade credit rating from Standard & Poor’s Financial Services LLC (“S&P”) and Fitch Ratings Inc.

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As a result, in accordance with the TRGP Revolver, the collateral under the TRGP Revolver was released from the liens securing our obligations thereunder.

As a result of the termination of the Previous TRGP Revolver and the Partnership Revolver, we recorded a loss due to debt extinguishment of $0.8 million.

In February 2022, we and certain of our subsidiaries entered into a parent guarantee whereby each party to the agreement unconditionally guarantees, jointly and severally, the payment of all of the obligations of the Partnership and Targa Resources Partners Finance Corporation (together with the Partnership, the “Partnership Issuers”) under the respective indentures governing the Partnership Issuers’ senior unsecured notes.

As of March 31, 2022, $6.0 billion of the Partnership Issuers’ senior unsecured notes was outstanding.

As of June 30, 2022, $5.0 billion of the Partnership Issuers’ senior unsecured notes was outstanding.

In March 2022, the Partnership redeemed all of the outstanding 5.375% Senior Notes due 2027 (the “5.375% Notes”) with available liquidity under the TRGP Revolver.

As a result of the redemption of the 5.375% Notes, we recorded a loss due to debt extinguishment of $15.0 million comprised of $12.6 million of premiums paid and a write-off of $2.4 million of debt issuance costs.

In April 2022, we, along with certain of our subsidiaries as guarantors thereto, completed an underwritten public offering of (i) $750.0 million aggregate principal amount of our 4.200% Senior Notes due 2033 (the “4.200% Notes”) and (ii) $750.0 million aggregate principal amount of our 4.950% Senior Notes due 2052 (the “4.950% Notes”), resulting in net proceeds of approximately $1.5 billion.

A portion of the net proceeds from the issuance were used to fund the March Tender Offer and the subsequent redemption payment of the Partnership’s 5.875% Notes, with the remainder used for repayment of borrowings under the TRGP Revolver.

As a result of the March Tender Offer and the subsequent redemption of the 5.875% Notes, we will record a loss due to debt extinguishment of $33.5 million in the second quarter of 2022.

In April 2022, the Partnership amended the Securitization Facility to, among other things, extend the facility termination date to April 19, 2023 and replace the LIBOR-based interest rate option with SOFR-based interest rate options, including term SOFR and daily simple SOFR.

In April 2022, we completed an underwritten public offering of (i) $750.0 million aggregate principal amount of our 4.200% Senior Notes due 2033 (the “4.200% Notes”) and (ii) $750.0 million aggregate principal amount of our 4.950% Senior Notes due 2052 (the “4.950% Notes”), resulting in net proceeds of approximately $1.5 billion.

A portion of the net proceeds from the issuance was used to fund the concurrent cash tender offer (the “March Tender Offer”) and the subsequent redemption payment of the Partnership’s 5.875% Senior Notes due 2026 (the “5.875% Notes”), with the remainder of the net proceeds used for repayment of the outstanding borrowings under the TRGP Revolver.

As a result of the March Tender Offer and the subsequent redemption of the 5.875% Notes, we recorded a loss due to debt extinguishment of $33.8 million comprised of $29.3 million of premiums paid and a write-off of $4.5 million of debt issuance costs.

In April 2022, the Partnership amended the $400.0 million accounts receivable securitization facility (“Securitization Facility”) to, among other things, extend the facility termination date to April 19, 2023 and replace the LIBOR-based interest rate option with SOFR-based interest rate options, including term SOFR and daily simple SOFR.

In July 2022, we completed an underwritten public offering of (i) $750.0 million in aggregate principal amount of our 5.200% Senior Notes due 2027 (the “5.200% Notes”) and (ii) $500.0 million in aggregate principal amount of our 6.250% Senior Notes due 2052 (the “6.250% Notes”), resulting in net proceeds of approximately $1.2 billion.

We used the net proceeds from the issuance to fund a portion of the Lucid Acquisition.

In July 2022, we entered into the Term Loan Agreement with Mizuho Bank, Ltd.

as the Administrative Agent and a lender, and other lenders party thereto (the “Term Loan Facility”).

The Term Loan Facility provides for a three-year, $1.5 billion unsecured term loan facility.

The Term Loan Facility matures in July 2025.

We used the proceeds to fund a portion of the Lucid Acquisition.

In July 2022, we established an unsecured commercial paper note program (the “Commercial Paper Program”).

Under the terms of the Commercial Paper Program, we may issue, from time to time, unsecured commercial paper notes with varying maturities of less than one year.

Amounts available under the Commercial Paper Program may be issued, repaid and re-issued from time to time, with the maximum aggregate face or principal amount outstanding at any one time not to exceed $2.75 billion.

The Commercial Paper Program is guaranteed by each subsidiary that guarantees the TRGP Revolver.

We had no amounts outstanding under the Commercial Paper Program as of July 29, 2022.

For additional information about our debt-related transactions, see Note 7 - Debt Obligations to our Consolidated Financial Statements.

COVID-19 Pandemic

The global spread of COVID-19 during 2020 and 2021 caused significant commodity market volatility.

Although significant progress has been made towards the development, distribution and administration of various COVID-19 vaccines, there continues to be significant uncertainty about the disruptions and other effects related to COVID-19.

As a result, we are unable to determine the extent that these events could materially impact our future financial position, operations and/or cash flows.

Impact of Winter Weather

In February 2021, the Central region of the United States experienced unprecedented cold temperatures during a major winter storm that disrupted production operations, midstream infrastructure and many other services.

This extreme weather caused wide fluctuations in commodity prices, short-term disruptions to our operations across Texas, New Mexico, Oklahoma and Louisiana, including reduced throughput volumes coming into our systems, and adversely affected the operations and financial condition of some of our counterparties.

Though certain of our facilities experienced temporary outages, all facilities have since returned to full operation without sustaining any long-term impacts or significant adverse financial impacts related to the weather event, and throughput volumes have returned to pre-storm levels.

The full financial impact of the winter storm still remains uncertain as it is subject to recently proposed regulatory changes and potential customer and counterparty risk.

Corporation Tax Matters

In January 2022, the IRS notified us that it will examine Targa’s net operating loss (“NOL”) carryback previously claimed under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

In January 2022, the Internal Revenue Service (“IRS”) notified us that it will examine Targa’s net operating loss (“NOL”) carryback previously claimed under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

The CARES Act was signed into law on March 27, 2020 and provided corporate taxpayers an expanded five-year NOL carryback period for losses generated in tax years 2018 through 2020.

We received a cash refund of approximately $44 million related to the CARES Act provisions in 2020.

We are in the process of responding to information requests from the IRS and do not anticipate material changes in prior year taxable income.

We have responded to information requests from the IRS and do not anticipate material changes in prior year taxable income.

On October 6, 2021 and April 7, 2022, we received notice from the IRS that it intends to audit three direct and indirectly wholly-owned subsidiaries of the Company (Targa Resources Partners LP, Targa Downstream LLC and Targa Midstream Services LLC) treated as partnerships for federal tax purposes for the 2019 and 2020 tax years.

We are responding to the information requests from the IRS on these audits.

The Company is not aware of any potential audit findings that would give rise to adjustments to taxable income and does not anticipate material changes related to these audits.

FERC Regulatory Matters

On January 20, 2022, FERC issued an order on rehearing of its December 17, 2020 Order Establishing Index Level in which the Commission reduced the oil pricing index factor for oil pipelines to use for the current five-year period.

As a result, the ceiling levels computed for July 1, 2021 to June 30, 2022, and the resulting rates currently in effect for certain of Targa’s liquids pipelines were recomputed to account for the reduced index factor.

As a result, the ceiling levels computed for July 1, 2021 to June 30, 2022, and the resulting rates for certain of Targa’s liquids pipelines were recomputed to account for the reduced index factor.

Recent Accounting Pronouncements

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This is achieved by connecting new wells and adding new volumes in existing areas of production, as well as by capturing crude oil and natural gas supplies currently gathered by third parties.

Similarly, our profitability is impacted by our ability to add new sources of mixed NGL supply, connected by third-party transportation and Grand Prix, to our Downstream Business fractionation facilities and at times to our export facilities.

export facilities.

We fractionate NGLs generated by our gathering and processing plants, as well as by contracting for mixed NGL supply from third-party facilities.

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Labor, contract services, repair and maintenance and ad valorem taxes comprise the most significant portion of our operating expenses.

These expenses remain relatively stable and

independent of the volumes through our systems, but may increase with system expansions and will fluctuate depending on the scope of the activities performed during a specific period.

These expenses remain relatively stable and independent of the volumes through our systems, but may increase with system expansions and will fluctuate depending on the scope of the activities performed during a specific period.

Capital Expenditures

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Logistics and Transportation adjusted operating margin consists primarily of:

service fees (including the pass-through of energy costs included in fee rates);

service fees (including the pass-through of energy costs included in certain fee rates);

system product gains and losses;

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The following tables reconcile the non-GAAP financial measures used by management to the most directly comparable GAAP measures for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In millions)

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(Gain) loss from financing activities (1)

(Gain) loss from sale of equity method investment

Equity (earnings) loss

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The following table and discussion is a summary of our consolidated results of operations:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In millions)

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Gain (loss) from financing activities

Gain (loss) from sale of equity method investment

Income tax (expense) benefit

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Dividends on Series A Preferred Stock

Deemed dividends on Series A Preferred Stock

Net income (loss) attributable to common shareholders

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Due to a low denominator, the noted percentage change is disproportionately high and as a result, considered not meaningful or material.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The increase in commodity sales reflects higher NGL, natural gas and condensate prices ($1,385.7 million) and higher natural gas volumes ($20.3 million), partially offset by lower NGL volumes ($20.2 million) and the unfavorable impact of hedges ($188.0 million).

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The increase in commodity sales reflects higher NGL, natural gas and condensate prices ($2,506.1 million) and higher NGL and natural gas volumes ($98.0 million), partially offset by the unfavorable impact of hedges ($66.5 million).

The increase in fees from midstream services is primarily due to higher gas gathering and processing fees, and transportation and fractionation fees.

The increase in product purchases and fuel reflects higher NGL, natural gas and condensate prices and higher NGL and natural gas volumes.

The increase in operating expenses was due to higher labor and maintenance costs primarily due to increased activity, system expansions and inflation.

See “—Results of Operations—By Reportable Segment” for additional information on a segment basis.

The increase in depreciation and amortization expense is primarily due to the impact of system expansions on our asset base and the shortening of the depreciable lives of certain assets that have been, or will be, idled.

The increase in general and administrative expense is primarily due to higher compensation and benefits, insurance costs and professional fees.

The decrease in interest expense, net is primarily due to higher non-cash interest income related to a decrease in the mandatorily redeemable preferred interest liability.

The decrease in equity earnings is primarily due to the GCX Sale and lower earnings from our investment in Little Missouri 4 LLC, partially offset by lower losses from our investments in T2 Eagle Ford Gathering Company L.L.C., Gulf Coast Fractionators and T2 LaSalle Gathering Company L.L.C.

See Note 4 – Joint Ventures, Acquisitions and Divestitures to our Consolidated Financial Statements for further discussion.

During 2022, the Partnership redeemed the 5.875% Notes, resulting in a net loss from financing activities.

During 2021, the Partnership redeemed the 4.250% Senior Notes due 2023 (the “4.250% Notes”), resulting in a net loss from financing activities.

See Note 7 – Debt Obligations for further discussion.

During 2022, we completed the GCX Sale resulting in a gain from sale of an equity method investment.

See Note 4 – Joint Ventures, Acquisitions and Divestitures for further discussion.

The increase in income tax expense is primarily due to an increase in pre-tax book income, partially offset by a larger release of the valuation allowance in 2022 compared to 2021.

During 2022, we redeemed in full all of our issued and outstanding shares of Series A Preferred.

The difference between the consideration paid of $973.4 million (including unpaid dividends of $8.2 million) and the net carrying value of the shares redeemed was $223.7 million, of which $215.5 million was recorded as deemed dividends.

Dividends on Series A Preferred decreased as a result of the redemption.

See Note 9 – Preferred Stock for further discussion.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The increase in commodity sales reflects higher NGL, natural gas and condensate prices ($3,890.3 million) and higher NGL and natural gas volumes ($100.0 million), partially offset by the unfavorable impact of hedges ($254.5 million).

The increase in fees from midstream services is primarily due to higher gas gathering and processing fees, transportation and fractionation fees and export volumes.

The increase in product purchases and fuel reflects higher NGL, natural gas and condensate prices and higher natural gas volumes, partially offset by lower NGL volumes.

The increase in operating expenses was due to higher labor and maintenance costs primarily due to increased activity and system expansions, partially offset by lower taxes and the reduction in expense from a major winter storm that affected regions across Texas, New Mexico, Oklahoma and Louisiana during the first quarter of 2021.

The increase in product purchases and fuel reflects higher NGL, natural gas and condensate prices and higher NGL and natural gas volumes.

The increase in operating expenses was due to higher labor and maintenance costs primarily due to increased activity, system expansions and inflation, partially offset by lower taxes and the impact of a major winter storm that affected regions across Texas, New Mexico, Oklahoma and Louisiana during the first quarter of 2021.

See “—Results of Operations—By Reportable Segment” for additional information on a segment basis.

The decrease in depreciation and amortization expense is primarily due to a lower depreciable base associated with assets that were impaired during the fourth quarter of 2021.

The increase in general and administrative expense is primarily due to higher insurance costs and professional fees.

The decrease in interest expense, net is primarily due lower net borrowings and an increase in capitalized interest resulting from higher growth capital investments.

The decrease in equity earnings is primarily due to lower earnings from our investments in GCX DevCo JV and the Badlands, partially offset by lower losses from our investments in Gulf Coast Fractionators, T2 Eagle Ford Gathering Company L.L.C.

and T2 LaSalle Gathering Company L.L.C.

Lower equity earnings from our investments in GCX DevCo JV were due to the DevCo JV Repurchase in 2022.

See Note 4 – Investments in Joint Ventures, Divestitures and Acquisitions to our Consolidated Financial Statements for further discussion.

During 2022, we terminated the Previous TRGP Revolver and the Partnership Revolver, and the Partnership redeemed the 5.375% Notes, resulting in a net loss from financing activities.

During 2021, the Partnership redeemed its 5.125% Senior Notes due 2025, the Targa Pipeline Partners LP (“TPL”) 4.750% Senior Notes due 2021 and the TPL 5.875% Senior Notes due 2023, resulting in a net loss from financing activities.

The increase in depreciation and amortization expense is primarily due to system expansions on our asset base and the shortening of the depreciable lives of certain assets that have been, or will be, idled, partially offset by a lower depreciable base associated with assets that were impaired during the fourth quarter of 2021.

The increase in general and administrative expense is primarily due to higher compensation and benefits, insurance costs and professional fees.

The decrease in interest expense, net is primarily due to higher non-cash interest income related to a decrease in the mandatorily redeemable preferred interest liability, lower interest rates on debt and higher capitalized interest.

See Note 4 – Joint Ventures, Acquisitions and Divestitures to our Consolidated Financial Statements for further discussion.

During 2022, we terminated the Previous TRGP Revolver and the Partnership Revolver.

In addition, the Partnership redeemed the 5.375% Notes and 5.875% Notes.

These transactions resulted in a net loss from financing activities.

During 2021, the Partnership redeemed its 5.125% Senior Notes due 2025 and the 4.250% Notes.

In addition, Targa Pipeline Partners LP redeemed its 4.750% Senior Notes due 2021 and the 5.875% Senior Notes due 2023.

These transactions resulted in a net loss from financing activities.

See Note 7 – Debt Obligations for further discussion.

The increase in income tax expense is primarily due to a smaller release of the valuation allowance in 2022 compared to 2021, partially offset by a decrease in pre-tax book income.

During the first quarter of 2022, we closed on the purchase of all of Stonepeak’s interests in our DevCo JVs for $926.3 million.

The change in our ownership interests was accounted for as an equity transaction representing the acquisition of noncontrolling interests resulting in a $53.1 million premium on repurchase of noncontrolling interests, net of tax.

See Note 4 – Joint Ventures, Divestitures and Acquisitions to our Consolidated Financial Statements for further discussion .

During 2022, we completed the GCX Sale resulting in a gain from sale of an equity method investment.

See Note 4 – Joint Ventures, Acquisitions and Divestitures for further discussion.

The increase in income tax expense is primarily due to an increase in pre-tax book income, partially offset by a larger release of the valuation allowance in 2022 compared to 2021.

During 2022, we redeemed in full all of our issued and outstanding shares of Series A Preferred.

The difference between the consideration paid of $973.4 million (including unpaid dividends of $8.2 million) and the net carrying value of the shares redeemed was $223.7 million, of which $215.5 million was recorded as deemed dividends.

Dividends on Series A Preferred decreased as a result of the redemption.

See Note 9 – Preferred Stock for further discussion.

Results of Operations—By Reportable Segment

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Three Months Ended:

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

Six Months Ended:

June 30, 2022

June 30, 2021

Gathering and Processing Segment

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In millions, except operating statistics and price amounts)

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Plant natural gas inlet volumes and gross NGL production volumes include producer take-in-kind volumes, while natural gas sales and NGL sales exclude producer take-in-kind volumes.

Permian Midland includes operations in WestTX, of which we own 72.8%, and other plants that are owned 100% by us.

Permian Midland includes operations in WestTX, of which we own 72.8% undivided interest, and other plants that are owned 100% by us.

Operating results for the WestTX undivided interest assets are presented on a pro-rata net basis in our reported financials.

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The following table presents the realized commodity hedge gain ( loss ) attributable to our equity volumes that are included in the adjusted operating margin of the Gathering and Processing segment:

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021

(In millions, except volumetric data and price amounts)

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The price spread is the differential between the contracted derivative instrument pricing and the price of the corresponding settled commodity transaction.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The increase in adjusted operating margin was due to higher realized commodity prices, natural gas inlet volumes and fees predominantly in the Permian.

The increase in natural gas inlet volumes in the Permian was attributable to higher production, higher producer activity and the addition of the Heim plant during the third quarter of 2021.

Prior year natural gas inlet volumes were impacted by the short-term operational disruption associated with a major winter storm that affected regions across Texas, New Mexico, Oklahoma and Louisiana, that reduced our Permian and Central region volumes during the first quarter of 2021.

In the Badlands, the decrease in volumes was attributable to lower production and the impact of winter weather, while lower volumes in the Coastal region were due to lower production and continued low producer activity.

Operating expenses were higher due to increased activity levels in the Permian and the addition of the Heim plant in the third quarter of 2021, which resulted in increased labor costs, materials and chemicals.

Six Months Ended June 30, 2022

Six Months Ended June 30, 2021

(In millions, except volumetric data and price amounts)

Natural gas (BBtu)

Crude oil (MBbl)

The price spread is the differential between the contracted derivative instrument pricing and the price of the corresponding settled commodity transaction.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The increase in adjusted operating margin was due to higher realized commodity prices, natural gas inlet volumes and fees resulting in increased margin predominantly in the Permian.

The increase in natural gas inlet volumes in the Permian was attributable to increased producer activity and the addition of a new 200 MMcf/d cryogenic natural gas processing plant in Permian Midland (the “Heim Plant”) during the third quarter of 2021.

Natural gas inlet volumes in the Central region increased due to the acquisition of certain assets in South Texas during the second quarter of 2022 and increased producer activity.

The decrease in volumes in the Badlands was attributable to the impacts of winter weather, while lower volumes in the Coastal region were due to continued low producer activity.

The increase in operating expenses was due to higher activity levels in the Permian, the addition of the Heim Plant in the third quarter of 2021, the acquisition of certain assets in South Texas in the second quarter of 2022 and inflation impacts, which resulted in increased labor costs, materials and chemicals.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The increase in adjusted operating margin was due to higher realized commodity prices, natural gas inlet volumes and fees resulting in increased margin predominantly in the Permian.

The increase in natural gas inlet volumes in the Permian was attributable to increased producer activity and the addition of the Heim Plant during the third quarter of 2021.

Natural gas inlet volumes in the Central region increased due to the acquisition of certain assets in South Texas during the second quarter of 2022 and increased producer activity.

The decrease in volumes in the Badlands was attributable to the impacts of winter weather, while lower volumes in the Coastal region were due to continued low producer activity.

Logistics and Transportation Segment

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In millions, except operating statistics)

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Export volumes represent the quantity of NGL products delivered to third-party customers at our Galena Park Marine Terminal that are destined for international markets.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The increase in adjusted operating margin was primarily due to higher pipeline transportation and fractionation volumes and higher LPG export volumes, partially offset by lower marketing margin.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The increase in adjusted operating margin was due to higher pipeline transportation and fractionation volumes, partially offset by lower marketing margin and lower LPG export margin.

Pipeline transportation and fractionation volumes benefited from higher supply volumes primarily from our Permian Gathering and Processing systems.

Prior year Downstream system volumes were impacted by the short-term operational disruption and impacts associated with a major winter storm that affected regions across Texas, New Mexico, Oklahoma and Louisiana, that reduced our Permian and Central region volumes during the first quarter of 2021.

Higher optimization margin attributable to the winter storm resulted in higher marketing margin in the first quarter of 2021.

Operating expenses were slightly higher due to higher repairs and maintenance.

Three Months Ended March 31,

Marketing margin decreased due to fewer optimization opportunities.

LPG export margin decreased primarily due to higher fuel and power costs, partially offset by higher fees.

The increase in operating expenses was due to higher repairs and maintenance.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The increase in adjusted operating margin was due to higher pipeline transportation and fractionation volumes and higher LPG export margin, partially offset by lower marketing margin.

Pipeline transportation and fractionation volumes benefited from higher supply volumes primarily from our Permian Gathering and Processing systems.

LPG export margin increased due to higher volumes and fees, partially offset by higher fuel and power costs.

Higher optimization margin attributable to the winter storm resulted in higher marketing margin in 2021.

The increase in operating expenses was primarily due to higher repairs and maintenance, partially offset by lower taxes.

Three Months Ended June 30,

Six Months Ended June 30,

(In millions)

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Our Liquidity and Capital Resources

As of March 31, 2022, inclusive of our consolidated joint venture accounts, we had $135.9 million of Cash and cash equivalents on our Consolidated Balance Sheets.

As of June 30, 2022, inclusive of our consolidated joint venture accounts, we had $154.0 million of Cash and cash equivalents on our Consolidated Balance Sheets.

We believe our cash positions, our cash flows from operating activities, our free cash flow after dividends and remaining borrowing capacity on our credit facilities (discussed below in “Short-term Liquidity”) are adequate to allow us to manage our day-to-day cash requirements and anticipated obligations as discussed further below.

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The actual amount we declare as dividends depends on our consolidated financial condition, results of operations, cash flow, the level of our capital expenditures, future business prospects, compliance with our debt covenants and any other matters that our board of directors deems relevant.

On a consolidated basis, our main sources of liquidity and capital resources are internally generated cash flows from operations, borrowings under the TRGP Revolver and the Partnership’s Securitization Facility and access to debt and equity capital markets.

On a consolidated basis, our main sources of liquidity and capital resources are internally generated cash flows from operations, borrowings under the TRGP Revolver and the Securitization Facility and access to debt and equity capital markets.

We supplement these sources of liquidity with joint venture arrangements and proceeds from asset sales.

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Short-term Liquidity

Our short-term liquidity on a consolidated basis as of May 3, 2022, was:

Our short-term liquidity on a consolidated basis as of July 29, 2022, was:

Consolidated Total

(In millions)

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A portion of our capital resources are allocated to letters of credit to satisfy certain counterparty credit requirements.

As of June 30, 2022, we had $44.8 million letters of credit outstanding under the TRGP Revolver.

They reflect certain counterparties’ views of our financial condition and ability to satisfy our performance obligations, as well as commodity prices and other factors.

In July 2022, we established the Commercial Paper Program.

Under the terms of the Commercial Paper Program, we may issue, from time to time, unsecured commercial paper notes with varying maturities of less than one year.

The Commercial Paper Program is guaranteed by each subsidiary that guarantees the TRGP Revolver.

We had no amounts outstanding under the Commercial Paper Program as of July 29, 2022.

Working Capital

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(i) our cash position;

(ii) liquids inventory levels and valuation, which we closely manage;

(ii) liquids inventory levels, which we closely manage, and valuation;

(iii) changes in payables and accruals related to major growth capital projects;

(iv) changes in the fair value of the current portion of derivative contracts;

(v) monthly swings in borrowings under the Partnership’s Securitization Facility;

(v) monthly swings in borrowings under the Securitization Facility;

and (vi) major structural changes in our asset base or business operations, such as certain organic growth capital projects and acquisitions or divestitures.

Working capital as of March 31, 2022 decreased $481.2 million compared to December 31, 2021.

The decrease was primarily due to higher product purchases and fuel payables as a result of higher commodity prices, an increase in the current liability position of our derivative contracts and higher net borrowing on the Securitization Facility, partially offset by higher receivables resulting from higher commodity prices.

Based on our anticipated levels of operations and absent any disruptive events, we believe that our internally generated cash flow, borrowings available under the TRGP Revolver and the Partnership’s Securitization Facility and proceeds from debt and equity offerings, as well as joint ventures and/or asset sales, should provide sufficient resources to finance our operations, capital expenditures, long-term debt obligations, collateral requirements and quarterly cash dividends for at least the next twelve months.

Working capital as of June 30, 2022 decreased $460.6 million compared to December 31, 2021.

The decrease was primarily due to higher product purchases and fuel payables as a result of higher commodity prices, higher net borrowing on the Securitization Facility and an increase in the current liability position of our derivative contracts, partially offset by higher receivables resulting from higher commodity prices.

Based on our anticipated levels of operations and absent any disruptive events, we believe that our internally generated cash flow, borrowings available under the TRGP Revolver, Securitization Facility, Term Loan Facility and Commercial Paper Program, and proceeds from debt and equity offerings, as well as joint ventures and/or asset sales, should provide sufficient resources to finance our operations, capital expenditures, long-term debt obligations, collateral requirements and quarterly cash dividends for at least the next twelve months.

Long-term Financing

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In February 2022, we and certain of our subsidiaries entered into a parent guarantee whereby each party to the agreement unconditionally guarantees, jointly and severally, the payment of all of the obligations of the Partnership Issuers under the respective indentures governing the Partnership Issuers’ senior unsecured notes.

As of March 31, 2022, $6.0 billion of the Partnership Issuers’ senior unsecured notes was outstanding.

As of June 30, 2022, $5.0 billion of the Partnership Issuers’ senior unsecured notes was outstanding.

In March 2022, the Partnership redeemed all of the outstanding 5.375% Notes with available liquidity under the TRGP Revolver.

In April 2022, we, along with certain of our subsidiaries as guarantors thereto, completed an underwritten public offering of $750.0 million aggregate principal amount of our 4.200% Notes and $750.0 million aggregate principal amount of our 4.950% Notes, resulting in net proceeds of approximately $1.5 billion.

A portion of the net proceeds from the issuance were used to fund the concurrent March Tender Offer and the subsequent redemption payment of the Partnership’s 5.875% Notes, with the remainder used for repayment of borrowings under the TRGP Revolver.

As a result of the March Tender Offer and the subsequent redemption of the 5.875% Notes, we will record a loss due to debt extinguishment of $33.5 million during the second quarter of 2022.

In April 2022, we completed an underwritten public offering of $750.0 million aggregate principal amount of our 4.200% Notes and $750.0 million aggregate principal amount of our 4.950% Notes, resulting in net proceeds of approximately $1.5 billion.

A portion of the net proceeds from the issuance was used to fund the concurrent March Tender Offer and the subsequent redemption payment of the Partnership’s 5.875% Notes, with the remainder of the net proceeds used for repayment of the outstanding borrowings under the TRGP Revolver.

In July 2022, we completed an underwritten public offering of (i) $750.0 million in aggregate principal amount of our 5.200% Notes and (ii) $500.0 million in aggregate principal amount of our 6.250% Notes, resulting in net proceeds of approximately $1.2 billion.

We used the net proceeds from the issuance to fund a portion of the Lucid Acquisition.

In July 2022, we entered into the Term Loan Facility with Mizuho Bank, Ltd.

as the Administrative Agent and a lender, and other lenders party thereto.

The Term Loan Facility provides for a three-year, $1.5 billion unsecured term loan facility.

The Term Loan Facility matures in July 2025.

We used the proceeds to fund a portion of the Lucid Acquisition.

In the future, we or the Partnership may redeem, purchase or exchange certain of our and the Partnership’s outstanding debt through redemption calls, cash purchases and/or exchanges for other debt, in open market purchases, privately negotiated transactions or otherwise.

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In May 2022 , we redeemed in full all of our issued and outstanding shares of Series A Preferred at a redemption price of $1,050.00 per share, plus $8.87 per share, which is the amount of accrued and unpaid dividends from April 1, 2022 up to, but not including, the redemption date of May 3, 2022.

The difference between the consideration paid of $973.4 million (including unpaid dividends of $8.2 million) and the net carrying value of the shares redeemed was $223.7 million, of which $215.5 million was recorded as deemed dividends in our Consolidated Statements of Operations in the second quarter of 2022.

Following the redemption, we have no Series A Preferred outstanding and all rights of the holders of shares of Series A Preferred were terminated.

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Compliance with Debt Covenants

As of March 31, 2022, both we and the Partnership were in compliance with the covenants contained in our various debt agreements.

As of June 30, 2022, both we and the Partnership were in compliance with the covenants contained in our various debt agreements.

Cash Flows from Operating Activities

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

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Cash Flows from Investing Activities

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

The increase in net cash used in investing activities was primarily due to higher outlays for property, plant and equipment resulting from construction activities of the Legacy, Legacy II and Midway plants.

The change in net cash provided by (used in) investing activities was primarily due to proceeds from the GCX Sale, partially offset by higher outlays for property, plant and equipment resulting from construction activities of the Legacy, Legacy II, Midway and Greenwood plants and outlays for the Southcross Acquisition.

Cash Flows from Financing Activities

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

Source of Financing Activities, net

Repurchase of noncontrolling interests

Debt, including financing costs

Repurchase of Series A Preferred Stock

Repurchase of noncontrolling interests

Dividends and distributions

Contributions from (distributions to) noncontrolling interests

Repurchase of shares

Net cash provided by (used in) financing activities

The decrease in net cash used in financing activities was primarily due to higher borrowings of debt and lower distributions to noncontrolling interests, partially offset by the repurchase of the non-controlling interests in the DevCo JVs, and higher dividends and distributions paid in 2022.

The higher dividends and distributions were due to the increase of our common dividends from $0.10 to $0.35 in January 2022.

The increase in net cash used in financing activities was primarily due to the redemption of the Series A Preferred Stock and repurchases of non-controlling interests in the DevCo JVs and common stock during 2022.

Additionally, higher dividends and distributions were paid in 2022 due to the increase in our common stock dividends from $0.10 to $0.35 per common share in January 2022.

These were partially offset by net borrowings of debt in 2022, as compared to net repayments of debt in 2021.

Summarized Combined Financial Information for Guarantee of Securities of Subsidiaries

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Summarized Combined Balance Sheet Information

March 31, 2022

June 30, 2022

December 31, 2021

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Summarized Combined Statement of Operations Information

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

December 31, 2021

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Operating income (loss)

Net income (loss)

Dividends on Series A Preferred

Common Stock Dividends

The following table details the dividends on common stock declared and/or paid by us for the three months ended March 31, 2022:

The following table details the dividends on common stock declared and/or paid by us for the six months ended June 30, 2022:

Three Months Ended

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(In millions, except per share amounts)

June 30, 2022

August 15, 2022

March 31, 2022

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Preferred Dividends

Our Series A Preferred has a liquidation value of $1,000 per share and bears a cumulative 9.5% fixed dividend payable quarterly 45 days after the end of each fiscal quarter.

Cash dividends of $21.8 million were paid to holders of the Series A Preferred during the three months ended March 31, 2022.

As of March 31, 2022, cash dividends accrued for our Series A Preferred were $21.8 million, which were paid on May 2, 2022.

Prior to the redemption of our Series A Preferred in May 2022, our Series A Preferred had a liquidation value of $1,000 per share and bore a cumulative 9.5% fixed dividend payable quarterly 45 days after the end of each fiscal quarter.

During the three and six months ended June 30, 2022, we paid $30.0 million and $51.8 million of dividends to preferred shareholders.

Series A Preferred Redemption

The difference between the consideration paid of $973.4 million (including unpaid dividends of $8.2 million) and the net carrying value of the shares redeemed was $223.7 million, of which $215.5 million was recorded as deemed dividends in our Consolidated Statements of Operations in the second quarter of 2022.

Following the redemption, we have no Series A Preferred outstanding and all rights of the holders of shares of Series A Preferred were terminated.

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Capital Expenditures

The following table details cash outlays for capital projects for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table details cash outlays for capital projects for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

(In millions)

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Cash outlays for capital projects

Growth capital expenditures, net of contributions from noncontrolling interests and including net contributions to investments in unconsolidated affiliates, were $121.4 million and $61.0 million for the three months ended March 31, 2022 and 2021.

Maintenance capital expenditures, net of contributions from noncontrolling interests, were $37.7 million and $19.0 million for the three months ended March 31, 2022 and 2021.

The increase in total growth capital expenditures was primarily due to system expansions in the Permian in response to increasing activity levels.

Growth capital expenditures, net of contributions from noncontrolling interests and including net contributions to investments in unconsolidated affiliates, were $320.7 million and $144.4 million for the six months ended June 30, 2022 and 2021.

Maintenance capital expenditures, net of contributions from noncontrolling interests, were $77.4 million and $43.2 million for the six months ended June 30, 2022 and 2021.

The increase in total growth capital expenditures was primarily due to system expansions in the Permian in response to forecasted production growth and increasing activity levels.

The increase in total maintenance capital expenditures was primarily due to our growing infrastructure footprint.

We currently estimate that in 2022 we will invest between $700 to $800 million in net growth capital expenditures for announced projects.

With the August 2022 announcements of construction of the Greenwood plant in Permian Midland and Train 9 fractionator in Mont Belvieu, we currently estimate that in 2022 we will invest between $1.0 to $1.1 billion in net growth capital expenditures for announced projects.

Future growth capital expenditures may vary based on investment opportunities.

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Off-Balance Sheet Arrangements

As of March 31, 2022, there were $67.6 million in surety bonds outstanding related to various performance obligations.

As of June 30, 2022, there were $70.2 million in surety bonds outstanding related to various performance obligations.

These are in place to support various performance obligations as required by (i) statutes within the regulatory jurisdictions where we operate and (ii) counterparty support.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis