Good day and thank you for standing by. And welcome to Targa Resources First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After this presentation, there will be a question-and-answer session. Operator instructions. I would like to hand the conference over to your speaker today, Sanjay Lad, Vice President of Finance and Investor Relations. Please go ahead, sir.

Thanks, Carmen. Good morning and welcome to the first quarter 2021 earnings call for Targa Resources Corp. The first quarter earnings release along with the first quarter earnings supplement presentation for Targa Resources that accompany our call are available on our website at targaresources.com in the Investors section. In addition, an updated presentation has also been posted to our website. Statements made during this call that might include Targa Resources' expectations or predictions should be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our latest SEC filings. Our speakers for the call today will be Matt Meloy, Chief Executive Officer; and Jen Kneale, Chief Financial Officer. Additionally, the following senior management team members will be available for Q&A, Pat McDonie, President, Gathering and Processing; Scott Pryor, President, Logistics and Transportation; and Bobby Muraro, Chief Commercial Officer. And with that, I'll now turn the call over to Matt.

Thanks, Sanjay, and good morning. During the quarter, our overall business continued to perform very well, led by our position in the Permian Basin and our integrated NGL business and positive aggregate benefits from the winter storm. We continued to execute on our key strategic priorities, including prioritizing free cash flow towards debt reduction as we reduced our debt balance by $383 million quarter-over-quarter. The severe weather from the February winter storm impacted us across our operations during the first quarter. Over a 10-day period around the storm, we experienced, on average, a 50% reduction across our gathering and processing and downstream system volumes. Our overall system volumes quickly rebounded and returned to around pre-storm levels later in the first quarter. Those operational impacts were offset by storm-related benefits elsewhere in our business, which resulted in an aggregate margin benefit of about $30 million for the quarter. Let's now turn to our operational performance and business outlook. Starting in the Permian, we remain on track and expect our average total 2021 Permian inlet volumes to increase between 5% and 10% over last year. We are seeing increasing activity levels across both our Midland and Delaware footprints with our current Permian inlet gas volumes ahead of pre-storm levels averaging about 2.7 billion cubic feet per day. With our Permian Midland system running close to capacity, our new 200 million cubic feet per day Heim Plant will be much needed and remains on track to begin operations early in the fourth quarter. We continue to evaluate the timing of our next Midland plant, which we estimate would cost about $150 million and could be needed as early as the second half of 2022. We currently have adequate processing capacity in Permian Delaware to accommodate our anticipated near- to medium-term growth. Moving on to the Badlands. Our gas and crude volumes during the first quarter each sequentially decreased 6% largely due to the winter conditions in North Dakota. We are seeing completions increase across our system and are having increasing producer dialogue around a ramp in activity levels. Turning to our Central Region, which continues to largely be in decline, gas inlet volumes in the first quarter were further impacted by the effects of the winter storm. We are currently seeing a modest uptick in completions and activity levels, which could mitigate some of the decline. Across our Gathering and Processing business, our margins are also benefiting from the inherent tailwinds associated with higher commodity prices and the upside participation embedded in our fee floor arrangements as a result of our recontracting efforts. Shifting to our Logistics and Transportation segment, our Grand Prix pipeline continues to perform very well. Current Grand Prix deliveries into Mont Belvieu are approximately 380,000 barrels per day, and we expect volumes to continue to ramp from here. We continue to estimate full year 2021 average deliveries into Mont Belvieu to increase over 25% from 2020 average throughput. Our fractionation volumes in Mont Belvieu rebounded from the winter storm, and we are once again seeing higher volumes of around 630,000 barrels per day. In addition to the winter storm impact, lower sequential frac volumes were also attributable to some minor repairs. And recall that fourth quarter 2020 frac volumes benefited from working down inventory as a result of scheduled maintenance performed in the second half of 2020. In our LPG export services business at Galena Park, first quarter volumes averaged 8.5 million barrels per month and were down 23% sequentially. Fourth quarter 2020 volumes benefited from the very strong export fundamentals, which enabled us to capture some shorter term volumes during the prior quarter. The impact from the winter storm, combined with periods of fog along the Houston ship channel during the first quarter, also contributed to the sequential volume decline. The outlook for full year 2021 and beyond remains strong, and we expect our LPG export volumes to be higher during the second quarter over first quarter levels. Taking into consideration our first quarter results, strong business performance and continued focus around cost management, coupled with a stronger estimated commodity price outlook for the balance of 2021, we are increasing our full year estimated 2021 adjusted EBITDA to be between $1.8 billion to $1.9 billion. 2021 adjusted EBITDA is now estimated to be 13% higher than 2020 based on the midpoint of our new guidance range. With our higher full year adjusted EBITDA and free cash flow estimate, we expect to end 2021 with reported leverage around 4 times. As we look forward, our integrated NGL business is poised to continue to benefit from an overall recovery, and we have the ability to capture growth volumes from the Permian without having to spend much incremental CapEx on Grand Prix, fractionation or LPG export facilities. This puts Targa in a position to generate strong returns going forward and increasing free cash flow after dividends available to reduce debt and further strengthen our financial position. With that, I will now turn the call over to Jen.

Thanks, Matt. Good morning, everyone. Targa's reported quarterly adjusted EBITDA for the first quarter was $516 million, increasing 18% over the fourth quarter. The aggregate net benefit from the winter storm, lower operating and G&A expenses and higher commodity prices drove the sequential increase in adjusted EBITDA. Commodity prices meaningfully increased quarter-over-quarter. And while we are significantly hedged, our Gathering and Processing segment gross margin directly benefits from higher prices across our unhedged equity exposure and to the extent prices are above our fee floors. During the first quarter, Targa generated free cash flow of $336 million, which, as Matt mentioned, was utilized to reduce our aggregate debt balance significantly. And our consolidated reported debt-to-EBITDA ratio was approximately 4.3 times at the end of the first quarter, which was a reduction from 4.7 times at year-end 2020. We did make a reporting change that you may have noticed, beginning in the first quarter of 2021, we now include certain fuel and power costs, previously included in operating expenses, in product purchases and fuel to better reflect the direct relationship of these costs to our revenue-generating activities and align with our evaluation of the performance of the business. Prior periods have been updated to reflect this change. We remain significantly hedged for 2021 and continue to add hedges for this year and beyond. Relative to when we last reported in February, we added incremental hedges across most commodities as we benefited from higher prices, particularly in the prompt year. You can find our usual hedge disclosures in our quarterly earnings supplement presentation. As Matt mentioned, we are increasing our full year 2021 adjusted EBITDA estimate to be between $1.8 billion to $1.9 billion. Our updated financial estimates assume full year 2021 WTI crude oil prices to average $60 per barrel, NGL prices to average $0.60 per gallon and Henry Hub and Waha natural gas prices to average $2.75 and $2.65 per MMbtu. Given the strength of first quarter adjusted EBITDA and the seasonality of some of our businesses, we expect second quarter adjusted EBITDA to be lower than ramping through the back half of the year, providing significant momentum heading into 2022 as we expect to end 2021 with reported leverage of around four times. Also, we would expect aggregate OpEx and G&A to be higher in the second quarter as some costs shifted from the first quarter related to the winter storm. In Q2, aggregate OpEx and G&A is estimated to more closely approximate the fourth quarter. We continue to be very proud of the organization's efforts on reducing costs, and this will continue to be an area of focus across the company. Our 2021 CapEx estimates remain unchanged with net growth CapEx to be between $350 million and $450 million and net maintenance CapEx of approximately $130 million. There is no change to our near-term capital allocation strategy. To continue to improve our leverage ratios and simplify our corporate structure, we are making significant progress on advancing towards our long-term consolidated leverage ratio target of three to four times as we continue to focus on improving our corporate ratings and becoming investment grade. There is no change to our assumption that we will repurchase the DevCo interest in the first quarter of 2022, which would generate additional EBITDA in 2022 and beyond and be about leverage neutral. Shifting to Targa's focus around sustainability and ESG, we continue to advance our efforts and internal initiatives in this area. We recently announced the formation of a Sustainability Committee at the Board level, which will report to the Board on a quarterly basis. Targa has also joined the ONE Future Coalition, and we plan to publish our next sustainability report in the fall. Finally, I would like to echo Matt's comments. Targa continues to benefit from the strength of our integrated business, and we remain exceptionally well positioned for the long term. On behalf of management, we would all like to say thank you to all of our Targa team for continuing to prioritize safety and providing best-in-class service to our customers. And with that, I will turn the call back over to Sanjay.

Thanks, Jen. We kindly ask that you limit to one question and one follow-up and please re-enter the Q&A line up if you have additional questions. Carmen, would you please open the lines for Q&A?

Thank you. And our first question will be Jeremy Tonet with JPMorgan. Please go ahead.

Hi, good morning. I think you touched on this a bit during the prepared remarks, but I just wanted to kind of dive in a bit more when it comes to capital allocation philosophy, a few different things that can happen here, be it lowering leverage outright, the press that can be kind of brought in simplifying to bring in the opco. I just wanted to see kind of how you think about these different priorities at this point. And also, I guess if activity levels are starting to tick up, do you see pressure on CapEx moving up to kind of facilitate that? Or do you think it's really these other measures I mentioned first are top priority?

Sure. Yes. Thanks, Jeremy. I'll touch on capital allocation and let Jen kind of fill in some additional comments there. Our overall capital allocation priority is on leverage reduction. You saw us do that in the first quarter. That's going to be our priority to try and make progress towards getting ratings increases, towards investment-grade and getting into our target, three to four times. So that is going to be our overriding priority there. And then on your second point in terms of CapEx pressure, with increasing volumes, we are optimistic that Permian volumes are going to continue to grow year-over-year. We do have capacity out in the Permian Delaware. So we really think in terms of CapEx pressure where you're going to see it is on that Permian Midland side. And I mentioned in my remarks, we're evaluating right now the timing of when we may need to add another plant out there. With volume currently running around 2.7 Bcf a day, we're kind of hitting our capacity. So we're going to need the Heim Plant to come on. We do have some ability to stretch beyond nameplate and provide us some cushion for that next plant. But we're evaluating right now that next plant. And that's for the tune of about $150 million, which would be spread out over the build cycle. So it's manageable. We can still continue to generate free cash flow, deleverage and make progress with all of our goals even in an environment if we see some more strength on volumes. And then, Jen, you want to add anything more on the capital allocation?

I'd just say, Jeremy, that being ahead of schedule essentially gives us more flexibility. And so from our perspective, that flexibility doesn't change the base plan that we articulated in our scripted remarks and that Matt just reiterated, which is really reducing leverage, improving our ratios and then simplifying both taking out the DevCo and redeeming the TRC preferred. So those will continue to be our areas of focus, which is very consistent with how we've been talking about our capital allocation strategy over the last many quarters.

That's helpful. Thank you for that. And then maybe kind of shifting gears, you've seen changes recently out of D.C. with the 45Qs kind of more credit happening there, supporting initiatives such as carbon capture. And it seems like where processing plants stand on the cost curve for carbon capture, the 45Qs could possibly make that economic given the purity of the CO2 stream there. Just wondering if you had any thoughts on that side, if that's something you could see Targa doing at some point in the future. Or any other thoughts on energy transition efforts like that you might want to share?

Yes. Sure. Yes. In terms of broader energy transition, we think NGLs, crude and gas are going to be here for decades to come, and we're really well positioned within that environment. That said, we will continue to look at other opportunities. We mentioned on our previous calls, we'll evaluate are there some renewable projects that we could either support or help underwrite with commitments to off take some electricity, whether it be solar or wind. We're continuing to evaluate those projects. And then on the carbon capture front, we are taking a look at that. So we have folks internally that are looking at can we aggregate CO2 and either sell the CO2 or sequester it and just put it down hole. So we are evaluating that. I would say that does fit what seems like more of our core competency, gathering CO2, putting it in a pipe and then moving it. So we are looking at that. I'd say we're in the early stages of that. And whether the 45Q credits are enough or not, I'd say right now, it's still too early. We're in the scoping and seeing if something could work out there. But we are evaluating that as that one seems that may have more potential. But for any additional capital that we would spend, whether it's carbon capture or anything else, it would have to generate strong returns relative to our other organic growth opportunities and so there may be some projects that we help support, and we can find other sources of capital if it's not meeting our threshold.

That’s quite encouraging to hear. Thank you.

Okay. Thank you, Jeremy.

Our next question comes from Shneur Gershuni with UBS. Your question please?

Hi. Good morning, everyone. Maybe start off, I kind of wanted to talk about your guidance a little bit here. Jen, I definitely appreciate the color around timing for Q2 as to why your guidance is not even higher, and don't take this as I'm complaining, guidance increase is good. Last quarter, you had mentioned that the high end of the range was achievable without any changes in volume expectations. Is that still the case? And within the context of the guidance question, we're just wondering if you can talk about the performance of the fee floors as well. And are there any elements of conservatism within your guide?

Shneur, this is Jen. I don't recall saying that we could meet the high end of our guidance range without changing any of our volume expectations. But I think that the guidance range that we put out today is one that is higher for a variety of factors. We've actualized the first quarter. We did benefit from the storm to the tune of $30 million, which is certainly additive. And then as we look forward over the rest of the year, I think just a continued expectation of strong operating performance. Matt gave some color on where our volumes sort of sit today. And again, I think we just feel better about the base performance of our business as a result of where volumes are and really, the fact that it feels like maybe there's light at the end of the tunnel around COVID. So that's providing I think a little bit of a tailwind as well just in terms of more macro stability and how that relates to Targa. Clearly, to the extent that we continue to benefit from higher commodity prices that will be additive to what we published today. To the extent that we have higher commodity prices that result in more activity levels, then that could obviously increase our expectations for volumes for this year. So there are a lot of factors at play. But I think that it feels like we've got a lot of momentum right now, and that momentum is creating a lot of flexibility, and that's what we're really excited about. And importantly, it's really the base business that's creating a lot of that momentum along with disciplined management of costs related to our base business activities, which, again, the organization has done a really good job of doing. We haven't provided a lot of color around exactly where sort of the fee floors are set and what the upside at different commodity prices means related to our fee floors. But what we have done is consistent with what we published in February, the commodity price sensitivity that we have for our business that we published also in our earnings supplement and broader presentation today, that encompasses our expectations for additional margin from not only just direct commodity price appreciation on unhedged volumes, but also if prices move higher, what that would mean for our fee floors. And then there are a variety of other factors that are also included in there. So I do think that that's a pretty good sensitivity related to performance of aggregate Targa business in higher commodity price environments.

Perfect. Really appreciate all the color there. Maybe following up on the momentum seen here just sort of thinking about the simplification process as it unfolds, you talked about in your prepared remarks that you have not changed the expectation around the DevCo. Does that mean despite the momentum the timeline hasn't changed? Or you're just not updating the timeline? And maybe as we think about the whole simplification process, your leverage and liquidity are certainly there for the DevCo at this stage right now. Should we be thinking about perhaps as the next simplification step? Or is rightsizing the dividend something on the radar screen? Just any color with respect to your thoughts there would be great.

We've talked a little bit about the EBITDA expectations from the DevCo buy-in. And so there, you've got Train six and GCX, which are relatively stable cash flows. Those essentially have been full since they came online. So really, the upside asset that's within the DevCos is Grand Prix. And so from our perspective, certainly, Grand Prix is continuing to perform phenomenally well, but it's not changing that base case assumption that we'll take out the DevCos in a single tranche in Q1 of 2022, which is an assumption that I think has been well received. It's easy I think for investors and potential investors to understand, and it is consistent with what our base plan is, and that plan hasn't changed. Clearly, the second part of what we characterize as our corporate simplification prioritization is redeeming the TRC preferred, and that steps down to 105% at the end of the first quarter of 2022. And I think if you look at where our balance sheet is expected to be at that point in time, we have a lot of flexibility. And our continued outperformance would just enhance that flexibility. And so I think you're absolutely right that that is definitely a priority. And that is, again, very consistent with what we've laid out over the last many quarters, which is our simplification isn't really complete until the TRC pref is also redeemed.

All right. Perfect. And then I guess the upside to the dividend would be further down the road.

Yes. I think once we kind of achieve our target leverage ratio, hit the simplification that Jen talked about, then the best way to return capital, look at our free cash flow and whether it's more organic growth or dividend or share repurchase, that will be evaluated with the Board and then decided about what the right appropriate way to distribute that is.

Perfect. Thank you very much, everyone. Really appreciate the color. And have a safe day.

Okay. Thank you.

Thanks, Shneur.

Thank you. Our next question comes from Michael Blum with Wells Fargo. Please go ahead.

Thanks. Good morning, everyone. I had a question on the guidance. As you know, I'm sure propane inventories are somewhat depleted. And do you think we could see domestic demand drive prices higher in the back half of the year as you head towards winter potentially narrow the ARB, which could impact exports. Just curious how you're thinking about that scenario as the year plays out and what exactly is factored into guidance.

Yes. Sure, Michael. Yes. We have seen really strong NGL prices across the board. And you're right. On propane, inventories are low, and we've seen strong pricing there. That could have some impacts for the shorter-term kind of uncontracted volumes as we go through the remainder of the year. We have significant contracts in place. We feel good about our base business for the remainder of the year on the export side. But if there is some strength in pricing there, we do have upside exposure through our G&P business. So we have some offsets there. So overall, higher NGL prices, generally speaking, are going to benefit Targa. There may be some offset to some shorter-term opportunities in export. But I think, overall, higher propane prices, other NGL prices, is likely going to be a positive for us.

Great. And then I wonder if you can just talk a little bit about Pioneer's sort of tuck-in acquisition of DoublePoint. At least my understanding is that acreage is already dedicated to you, but just curious if there's any ancillary benefits or incremental upside there from that transaction as it relates to your volumes.

Yes. Sure. I'm going to—we don't like to talk about specific customers and contracts that we have in play. So I'm going to answer that more generally, Michael. I think as some of our larger customers in general are growing, whether it's in the Delaware or Permian Midland side, as they grow, we have good relationships with those larger customers. I think in the short term, it's not going to have any material impact, really positive or negative for us. But over the longer term as the larger guys, the relationships we have with our customers continue to increase, over the longer term, it is a good thing for us. So the consolidation on the upstream side longer-term is a—we view it as a net positive for us.

Okay. Thank you.

Our next question is from Colton Bean with Tudor, Pickering, Holt Company. Please go ahead.

Morning. So just looking at the business mix there on page nine of the presentation, looks like marketing may have been north of $100 million for Q1. So can you just walk us through the marketing results last quarter and then how that reconciles to $30 million of net benefit from weather?

Colton, this is Jen. We generally are a little bit opaque about the benefits that we get within the marketing business just because there tends to be a lot of moving pieces each quarter and we tend to have marketing benefits each quarter. So I'm not going to really get into the specifics here. But you'll recall in 2020 that we benefited from being able to enter into trades when there was a lot of contango in various commodity markets. And so you're seeing some of that be realized as we really moved through time, going back to earlier in 2020. And in particular, we did benefit in the first quarter from that. And then there were also some storm-related benefits, which, again, we're not going to get into the specifics of, but those were also factored into the outperformance for the marketing business.

Got it. So some of that—it sounds like a decent portion was already in the works in 2020, it wasn't necessarily related to February?

Correct.

Okay. And then maybe just to ask Shneur's question a little bit more pointed. I think on the updated EBITDA guide at the midpoint, it looks like it implies just under $450 million for the remaining three quarters. So if we back out that $30 million from Q1, it's still a little bit lower. So just—is that primarily the OpEx impact that you referenced, Jen, or anything else to point to?

That's primarily the delta that I think you're looking for, is we do expect that we'll see higher aggregate OpEx and G&A in the second quarter. And then we'll be continuing to try to manage those costs as we move forward through the year, but a little bit dependent on volumes and also just dependent on higher costs. And there are some elements that we need to purchase for our operations where we are seeing some increases in costs. But our guys are doing a really, really good job of managing costs lower everywhere across our businesses. So we'll continue to look for outperformance in that realm as we move through the rest of the year.

And there is some seasonality in our NGL business on the wholesale refinery services side, which generally has a better Q4 and Q1 as there's more sales in the winter. So there is some, all things equal, softness in the second quarter relative to the first quarter because of that. But Jen's right, I'd say it's largely probably more on the OpEx side, but then partially due to some seasonality as well.

Understood. Appreciate the detail.

Okay. Thank you.

Thank you. Our next question is from Christine Cho with Barclays. Please go ahead.

Thank you. I actually have a follow-up to the propane question. Given that inventories are depleted and earlier in the quarter, we saw propane prices at Conway trading at a nice premium, and I suspect that we can see that later again this year, can you remind us if you're able to benefit from higher Conway prices? Would that just be from any supply that you physically have hitting that hub from your Mid-Con operations? Or is there any other way to physically bring up volumes from Mont Belvieu benefit from your pipeline that you now have?

Christine, this is Scott. First off, just to reiterate some of the things that Matt was saying, certainly from an inventory perspective, which is leading to what Michael's question was, inventories across the industry stand at about 41 million barrels with the most recent inventory stats. We didn't have much of a build from the last stats, again, just a week on week. That puts us below where we were this time last year. But certainly, that has helped increase the prices, which is—I think it will take some time before we see some of the pricing across the globe to reflect some of that activity. But increased prices, obviously, is going to help sustain some increased growth on the production side of things. As it relates to Conway, on the margin, we have opportunities to bring products down from Conway, recognizing that we've got the pipe in place, but it is predominantly a Y-grade pipeline, but there are some opportunities on the margin to bring it down. So I think relatively speaking, though, we're going to continue to see increased production from the Permian, and that's going to help us translate into larger volumes of Y-grade coming into our systems. And I think it will help shore up inventories over time. But again, depending upon what we see from an export perspective and just touching base on that for just a little bit, certainly, our volumes were down from the first quarter relative to the fourth quarter. But as Matt alluded to in our comments, we certainly see that our second quarter export volumes will be up over our first quarter volumes.

Okay. And then just going on to CapEx for the new Midland plant, is that going to be new build? Or are you moving around one of your other plants? And can you remind us the lead time on that? So if you want it potentially in second half of next year, when would you have to start spending money?

Sure. Yes. We're evaluating and kind of have evaluated and are continuing to evaluate the best plan to put in for the next plant. Right now, the reason I said the $150 million that I think we're leaning towards putting in a new build there, just for timing and just other factors that makes the most sense. So we think it's likely going to be a new build. That $150 million reflects new build. And then depending on infrastructure, one of the long lead time items is getting electricity out of these plants. These are typically electric plants. But I'd say think of it as kind of 12 to 18 months or so, depending on how much—how far you have to go and the like. So that gives us confidence that we'd be able to do something in the back half of '22.

And when would you—so like how much could that impact CapEx this year?

Yes. Really depending on when we greenlight and, say, we're seeing enough strength in volumes, it could have some impact to CapEx this year. We didn't change our CapEx guidance. We had really strong performance on our growth CapEx in Q1. So I think it remains to be seen whether we need to update our CapEx or not depending on the timing of that plant because we do have a range in there.

Got it. Thank you.

Thank you.

Our next question comes from John Mackay with Goldman Sachs. Your question please?

Thanks for the time. I wanted to circle back on CapEx. We've seen a pretty big increase in steel prices over the last couple of months. I imagine you're largely covered for 2021. But just curious if you could talk about maybe the impact on 2022 CapEx. And just more generally, how we should think about input costs potentially going up.

Yes. And we have seen some input costs increase. So you're right, steel and just a number of other commodities have increased significantly. That will have some upward pressure on costs. But I'd say what we're seeing now is more than an offset on the labor side with—it's not in the heated environment we were in 24 months ago. So being able to negotiate rates on the labor and contracting side is offsetting that. So that's why the $150 million we said for the plant—I think for our last plant new build, we indicated it was around $165 million. So all in, it is a net benefit with this lower level of activity.

That's helpful. Thanks. Maybe just a follow-up, M&A across the market is picking up again slightly, at least on the asset side. Can you just kind of talk a little bit about what you're seeing, how you're thinking about maybe corporate M&A more generally? And then also, if there's any updates on the non-core sales side? Thanks.

Sure. For us, as we look out, there are a number of smaller acquisitions that are out there and available. We still look at it here. It's a really high hurdle for us to go and acquire something. We have good opportunities on the organic side. And our focus, as we talked about earlier, is on reducing our leverage and simplifying. So that's really going to be our focus now. We have a really good footprint on the G&P side that's feeding our downstream business. So we're not in a position where we have a need to go and do something to utilize our downstream assets. We have a really good footprint. So I think we're going to be patient there and continue to evaluate those opportunities and look at them relative to our organic growth opportunities and our leverage targets and goals. That said—I mean we always look at things. So there may be something that's bolt-on relatively small that could work for us. I'd just say it's still a relatively high hurdle for us as we are focused on reducing our leverage.

Related to non-core asset sales, there's no update. We don't have any processes underway right now. But as always, we're looking across the portfolio to see if there's anything that makes sense for us to divest.

All right. That's great. Thank you very much.

Okay. Thank you.

Our next question comes from Tristan Richardson with Truist Securities. Please go ahead.

Hey. Good morning, guys. Appreciate all the comments, covered a lot of ground this morning. I just wanted to follow up on one earlier question on the updated financial guidance. Jen, you talked about it extensively. It seems to capture your new commodity assumptions as well as impacts from the storm and OpEx adjustments. But thinking about the volume side, as we continue to see price response on the part of producers, does that offer incremental opportunity this year versus your volume guide that we should think of as pretty consistent with where it was even at the beginning of this year?

Yes. I would say we are seeing some increase in activity from some of the smaller producers we have on our system. So if we are here in the 60s, I think the longer that we're here, the more kind of response you're going to see from those folks. Yes. I still think from our larger customers on the supply side don't see a lot of change in what they're telling us in terms of their volume expectations for this year. If we hang around here for the duration of this year, I could see potentially in late 2021, but probably really into 2022, maybe there's additional ramp in activity from some of our larger customers. But in the aggregate, I'd say that there is some potential upside to this year. But to really get the larger guys moving, it's more about what's their free cash flow targets, their debt reduction plans and the like. So—and I'd also point out, we are holding to our volume guidance. We saw a significant—we significantly underperformed in the first quarter because of the winter storm. So there's some kind of implied strength in the remaining part of this year because the first quarter was way under our expectations, but we still feel good about our overall volume range.

That's helpful. Thanks, Matt. And then I guess just thinking, Jen, you noted no update on the non-core side, obviously, containing one of the portfolio. I guess we've seen some healthy markers on gas assets in the market. So I guess to the extent you have the capacity you need locked up for the foreseeable time frame, just curious on how strategic or how core you view your equity stake on the long-haul gas side.

Tristan, we've been fairly open that our minority stake in Gulf Coast Express is certainly something that we could consider selling if it made sense to the right counterparty at the right value. That is one of the assets that is in the DevCo. So that clearly complicates any process that we might want to undertake in the relative short term. But that's definitely something that we will continue to evaluate, particularly as we think about taking out the DevCos and then owning that full interest again in Gulf Coast Express. That's certainly one of the assets that we've previously identified as an asset that we could potentially divest.

Helpful. Thank you guys, very much.

Okay. Thank you.

Thank you.

Our next question comes from Keith Stanley with Wolfe Research. Please go ahead.

Hi, thanks. Most of my questions have been answered. I just wanted to clarify on the preferred stock when the takeout steps down to 105%, was it Q1 2022 or '23?

No. It steps down from 110% to 105% really at the end of Q1 of 2022.

Okay. So when you think about timing, do you think you'd have financial capacity however you're going to take that out with, I assume, debt and cash to do that pretty early in 2022? Or would you need to wait a little since you're kind of absorbing the DevCo at the same time? I'm just trying to get a sense of when the big simplification items could be complete.

Frankly, it's something that we are continuing to assess, Keith. So continued outperformance this year will give us more flexibility, more capacity to potentially redeem parts or more of the TRC preferred earlier. I think our ability to effectively take out the DevCo and the TRC pref is largely dependent on where our leverage is and what our pathing looks like with the rating agencies. I think that's a big component that we'll be continuing to assess really as we move through the rest of this year and into next year. So would we have the liquidity to do it and the ability to do it concurrent or around the same time in 2022? I think yes. But what are the implications of that with the rating agencies related to our leverage ratios, etc., is something that we'll be continuing to assess again as we move through the rest of this year and into next year.

Got it. Thank you.

Okay. Thank you.

Yes, thank you.

Our next question is from James Carreker with U.S. Capital Advisors. Please go ahead.

Thanks for the question. Just wanted to circle back and try to maybe unpack Q1 results a little bit more. If I look sequentially, EBITDA was up $80 million versus Q4. You talked about the $30 million storm impact, but G&P volumes were down, frac volumes down, export volumes down. So are there some other buckets that could help explain exactly where the remainder of that delta is coming from?

James, this is Jen. I think if you look sequentially, we certainly benefited from lower costs, and we've talked about that a lot this morning. We also benefited from the $30 million of what we characterize as an aggregate net benefit. So that takes into account all of the negatives associated with lower volumes, and we were still able to generate an additional $30 million of margin beyond all of the negatives associated with volumes. I talked a little bit earlier in one of the questions about additional marketing opportunities and essentially additional realized margin from marketing. So that's a small part of the sequential benefit quarter-over-quarter as well. And so I think those are really the large component pieces. Sanjay, am I missing anything?

Just the non-controlling interest production being lower quarter-over-quarter as a result of some of the joint venture assets.

That's right. To Sanjay's point, the non-controlling interest cutback was lower in the first quarter than it was in the fourth quarter. And that's because our joint ventures were largely impacted on the negative side from some of the volume variances quarter-over-quarter as a result of the winter storm. And a lot of the aggregate net benefits that we've talked about was really more at sort of the corporate level.

And so I guess some of these, I guess, non-storm-related marketing margins, was there something that led to those opportunities being available that's not related to the weather?

We generally have marketing benefits that we're able to realize each quarter. And it's really dependent on market dynamics, etc., for what we benefit and where we benefit across our businesses when you look at a quarter-by-quarter basis. So as I mentioned, in the first quarter, we did benefit from some realized gains associated with contango trades that we entered into when there was steep contango in various commodity markets back in 2020, and some of that was realized in the first quarter. Some of that was also realized in the fourth quarter, but there was more sequential benefit in the first quarter than the fourth quarter.

Okay. Thank you for the comment.

Thanks, James.

Yes, thanks.

Our next question is from Sunil Sibal with Seaport Global. Please go ahead.

Yes, hi. Good morning. And thanks for all the color on the call. I just wanted to explore the capital allocation part a little bit. So it seems like getting back—getting to investment grade is a higher priority. I was curious the way credit markets price your debt seems like already give you a fair bit of credit of the asset diversity and the quality of the asset. So are there any significant benefits beyond the financial benefits of transitioning to investment grade in terms of strategic benefits or any operational or contractual benefits that you expect to realize?

We have been a very strong, high-yield credit, Sunil, and I think have definitely benefited from that. But as we look forward, the benefits to becoming investment-grade and being a strong investment-grade credit are more than just financial. Our ability to issue longer-term debt, for instance, is a positive. The fact that generally, the market for investment-grade debt stays open versus we have had to successfully sort of reopen the high-yield market more than once through Targa's history. So those are also financial benefits. But I think just in terms of working with counterparties, being investment-grade is a benefit as well. It changes that dialogue a little bit, makes it a little bit easier. And so I think that we see a lot of both intangible and tangible benefits. And that's why this has always been a priority of ours. We've always just articulated that we expected the business to sort of get to investment-grade naturally over time as our growth capital spending came down, as our leverage ratios improved, as we benefited from increasing EBITDA, higher fee-based margins, more fee floors. So a lot of our efforts over the last couple of years have really been to set up this path to investment grade, and we certainly think it's one that we're on today and one that we think is important to us over the long term. We've all lived through a difficult last many years. And I think being investment-grade has shown its benefits to those credits that have been strong investment grades through a lot of volatility.

Okay. Got it. Thanks for that. And then on your Permian contracts, I think a couple of quarters back, you had indicated that about 60% of the contracts are now fee-based floors and the remaining are POP. Is that still kind of the right way to think about it? Or has there been more changes in that mix? Thanks.

I'd say we continue to make progress on adding fee floors and fee-based components to our Permian contract. I think last time we gave the update, it was about 55%. I think we're continuing to make progress and move that higher. So a lot of those arrangements are fee floor. So they are still percentage of proceeds. They just have a minimum. And so earlier—last year, we were kind of underneath that fee floor now for a lot of those contracts we are moving above. So they're still POP, but they just have a minimum associated with them. And so I'd say we're at kind of 65% plus now, and we'll continue to make progress as we move forward.

Got it. Thanks for the color.

Okay. Thank you.

And I will pass the call back to Sanjay Lad for any final remarks.

Great. Well, we thank everyone for participating in this morning's call and appreciate your interest in Targa Resources. The IR team will be available for any follow-up questions you may have. Thank you and have a great day.

And this concludes today's conference call. Thank you for your participation and you may now disconnect.