Ladies and gentlemen, thank you for standing by, and welcome to Targa Resources Corporation Third Quarter 2021 Earnings Conference Call. At this time, all attendees are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's call is being recorded. Thank you. Now I would like to welcome Mr. Sanjay Lad, Vice President, Finance and Investor Relations. Sir, please go ahead.

Thanks, Ruel. Good morning, and welcome to the third quarter 2021 earnings call for Targa Resources Corp. The third quarter earnings release, along with the third 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 investor 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 will now turn the call over to Matt.

Thanks, Sanjay, and good morning to everyone. This is a very exciting time at Targa, as highlighted by our earnings release this morning. Operationally, we continue to perform well and now expect to exceed all our volume guidance expectations for the year. Financially, our balance sheet is as strong as it's ever been, with our leverage in the midpoint of our target range and expectations for it to continue to trend lower. Strategically, several of our key areas of focus over the last several years are driving the strength of our results and are positioning us looking forward: fully integrating our NGL business from wellhead to water, moving to a G&P contract structure that allows us to protect downside while continuing to participate in strong commodity prices, and managing capital spending to focus on projects that leverage our integrated NGL platform and drive higher returns. The culmination of the successful execution of the Targa strategy gives me confidence to say that we are now where we want to be from a strategic and financial standpoint. Over the years, we invested outsized capital relative to the size of our company to fully integrate our business and create a best-in-class midstream footprint for our customers. These capital investments stretched our balance sheet more than we would have liked, but we believe those decisions have positioned us to generate significant long-term shareholder value, and we are now in a position where we are seeing the benefits of those previous strategic investments. We are also now in a position to unwind some of the structured financings that we utilized to finance our growth, and we will be able to do so while maintaining our leverage comfortably in our target range. Our EBITDA, free cash flow and balance sheet are as strong as they have ever been. And we now expect to exceed the top end of our adjusted EBITDA guidance for 2021 and see continued growth thereafter underpinned by attractive organic growth opportunities that are integrated high-return projects. All of this puts us in position to return additional capital to our shareholders. We plan to recommend to our board a $1.40 per common share annual dividend, or $0.35 per quarter, effective for the fourth quarter of this year and payable in February 2022. This equates to approximately 30% of our 2021 free cash flow and provides a yield competitive to members in the S&P 400 and S&P 500. We would expect to be able to increase the dividend, a modest amount, going forward on an annual basis. This level of common dividend returns additional capital to shareholders while providing us significant financial flexibility across cycles. For 2022, our current expectation is to direct free cash flow after dividends toward the repurchase of our DevCo joint venture interest. While continuing to closely manage our balance sheet, we believe we will have the flexibility to redeem preferred stock and opportunistically repurchase common shares under the $500 million share repurchase program. Before I move to discuss our operational performance, I want to acknowledge the continued outstanding efforts of our Targa employees. Throughout the pandemic, hurricanes, storms and other issues, our employees have performed exceptionally well and we are so proud of their efforts. Let us now turn to our operational performance and business outlook. Starting in the Permian, third quarter system inlet volumes increased 7% sequentially, and we now expect our average 2021 Permian inlet to exceed the top end of our previously disclosed 5% to 10% growth range over 2020. In Permian Midland, our new 200 million cubic feet per day Heim Plant, which began full operations in early September, is currently running near full, and our next 250 million cubic feet per day Legacy Plant remains on track to begin operations during the fourth quarter of 2022. With robust activity levels expected to continue into next year and beyond, we are evaluating the timing of our next Midland plant after Legacy and are now ordering long lead items. In Permian Delaware, completions and activity levels continue to ramp and we currently have adequate processing capacity to accommodate our anticipated near- to medium-term growth. The stronger outlook across our Permian Basin footprint will continue to drive incremental volumes through our NGL downstream business. In our Central region, we are seeing an uptick in activity levels given the higher commodity price environment and remain optimistic around higher production, offsetting legacy decline on many of our systems. Shifting to our Logistics and Transportation segment, Grand Prix volumes continue to increase and we transported a record 417,000 barrels per day to Mont Belvieu during the third quarter. Throughput volumes on Grand Prix sequentially increased 6% driven by increasing NGL production from Targa's Permian plants, including our new Heim Plant and third-parties. We also achieved record fractionation volumes at our Mont Belvieu complex averaging about 662,000 barrels per day during the third quarter, representing a 3% sequential increase. Our LPG Export Services business, third quarter volumes averaged 9 million barrels per month. Lower sequential volumes were attributable to general maintenance we chose to complete at our Galena Park export facility during the quarter, and an overall weaker global LPG market. The last couple of years have presented a number of challenges and we think that we have demonstrated the ability for Targa to perform exceptionally well across volatile markets with record 2020 adjusted EBITDA and expectation for a record 2021 adjusted EBITDA and current expectations for record 2022 adjusted EBITDA. So I will finish with another thank you to all of our employees. And with that, I will now turn the call over to Jen.

Thanks, Matt. I would also like to give a big thank you to all of our employees. Targa's reported quarterly adjusted EBITDA for the third quarter was $506 million, increasing 10% sequentially as we benefited from higher commodity prices including upside from fee floor volumes and higher volumes across our integrated Permian gathering, processing and logistics and transportation systems. Year-to-date 2021 Targa has generated adjusted free cash flow of $893 million, which has allowed us to reduce our leverage significantly across the year. We are highly hedged for 2021 and continue to add hedges for 2022 and beyond, while still benefiting from higher prices across our unhedged equity volume exposure and prices above fee floors. For 2022, we have now hedged about 85% of natural gas, 75% of NGLs and 75% of condensate. We are continuing to hedge into price strength and have added 2022 hedges at higher weighted average hedge prices. For 2023, we are around 50% hedged across all commodities. You can find our usual hedge disclosures in our quarterly earnings supplement presentation. As Matt mentioned, we now expect to be above the top end of our full year estimated 2021 adjusted EBITDA range of $1.9 billion to $2 billion. Increasing activity levels across our Permian systems and additional visibility to 2022, we now estimate our 2021 net growth CapEx to be toward the high end of our $350 million to $450 million range as we are ordering long lead items for our next Midland Basin plant. As we think about 2022 growth capital, our expectation is that it will be higher than 2021 with continued spending largely around additional plant, well-connect and compression capital on the G&P side plus additional pump station capital for Grand Prix. Our full year net maintenance CapEx estimate remains unchanged at approximately $120 million. Our balance sheet is strong with a consolidated leverage ratio of about 3.5 times and we have significant liquidity with no near-term debt maturities. We now expect to end 2021 with consolidated leverage around 3.25 times and pro forma for our $925 million DevCo repurchase in January 2022, we expect to comfortably be within our target range of 2 to 4 times. Our outperformance year-to-date and balance sheet flexibility position us to begin returning incremental capital to our shareholders. In 2021, we focused on reducing leverage. In 2022, with the strength of our balance sheet, our focus shifts to simplifying our capital structure and returning more capital to shareholders. Complemented by our plans to recommend a meaningful increase to our common dividend in early 2022, we will continue to remain opportunistic around common and preferred share repurchases, and we'll continue to invest in attractive high-returning growth opportunities that leverage our integrated system. Our recommendation to increase the common dividend to $1.40 per share annualized was the culmination of a lot of comparable company and industry analysis as well as scenario analysis. We believe that at $1.40, Targa offers an attractive common dividend per share that will provide for a stable return of cash flow to our shareholders across cycles. Our initial increase of the common dividend will be effective for the fourth quarter of 2021 and we expect to maintain that dividend level through the fourth quarter of 2022. Beyond 2022, we expect to provide modest increases to our annual common dividend per share and currently expect to articulate the next change to our dividend concurrent with providing our annual guidance in February 2023. We have worked very hard to improve our balance sheet and we remain focused on preserving our strong balance sheet and maintaining consolidated leverage of 3 to 4 times over the longer term. We are continuing our dialogue with the rating agencies with a focus toward achieving investment-grade rating, which is a priority for Targa. This week, Moody's upgraded us to Ba1. So we are now one notch from investment-grade at all three agencies. Shifting to sustainability and ESG: we recently published our third annual sustainability report, and we continue to advance Targa's sustainability disclosures with the report providing a review of our performance against various environmental, social and governance topics that are important to our industry. Also, as announced a couple of days ago, we entered into agreements to source renewable electricity from Concho Valley Solar to provide power to our G&P infrastructure in the Permian Basin. We continue to review and pursue other economic opportunities to advance our sustainability objectives that complement our core competencies and infrastructure footprint. In closing, we are so very proud of our Targa team. Our employees have continued to perform exceptionally well for our customers and have done so with a continued focus on safety, and we are very thankful for their efforts. And with that, I will turn the call back over to Sanjay.

Thanks, Jen. For the Q&A session, we kindly ask that you limit to one question and one follow-up and reenter the line-up if you have additional questions. Ruel, would you please open the lines for Q&A?

I'm sorry. We will now begin the question-and-answer session. Your first question is from the line of Jeremy Tonet from J.P. Morgan. Your line is now open.

Hi, good morning.

Hey, good morning, Jeremy.

Good morning, Jeremy.

Great to see the rating agencies starting to pay attention to the improving metrics here. But I want to focus more on the 2022 outlook here, and just wondering if you could provide us more color on what you're seeing as far as producer activity in your footprint is concerned. This year we've seen kind of a bifurcation of private versus publics with the privates being more aggressive. Do you see similar trends like that continuing into 2022 or is there anything different there? And I think you've talked about adding a processing plant every 18 months or so. Is that still kind of the current expectation?

Yes. Hey, Jeremy. I'd say it really is probably more of the same from us for our larger E&Ps and larger publics and integrated. They are really sticking more or less with what they have told us. They have some ranges in their forecast they give us, but more or less are kind of sticking to the plans that they have. And we are still seeing a lot of the uptick in activity from the smaller and private guys really across our systems. I don't see a big change happening there. And then in terms of adding processing plants, last call we talked about adding the Legacy Plant, we just had the Heim Plant come online, and we're ordering long lead items now for the next plant in the Permian Midland. So as we're really working through our capital budgeting and planning for 2022, we're ordering long lead items so we can be ready. We're not sure exactly when we think we'll need the next plant after Legacy, so we're still kind of in that evaluation phase, but we want to be ready for our customers when it comes in. So stay tuned. When we think that next plant will come in, we would likely announce more specifics around timing on the next earnings call.

Got it. That's helpful. Thanks. And maybe just touching on capital allocation, great to see the dividend show up a little bit early and ahead of what we were looking for. But just wondering if you could walk us through maybe the priorities of the waterfall here. It seems like you're able to do multiple things at once, but just kind of curious if that's how you think about it or how you prioritize? And just when it comes to buybacks, is it just going to be solely opportunistic or could there be some programmatic side to it?

Sure. I'll start and then I'll hand it over to Jen to provide some more details there. As we look through the strength of this year, we saw our volumes and just overall business performance going very well with some commodity price tailwinds. As we kind of looked through — even our outlook continuing to be very strong — I think we found ourselves in a position in the midpoint of our leverage range where we said, we're here, we don't necessarily need to wait till next quarter to be more specific around returning capital to shareholders. And so that really is kind of signaling a bit of a shift from debt repayment, which is what we've been focused on, to now wanting to return capital to shareholders. So the first step in that was moving the dividend to a more reasonable level. We looked at our S&P 400 and 500. We looked at our peers across the space and felt that that was an appropriate amount which allowed us to grow while providing financial flexibility. And that financial flexibility does give us the opportunity to continue to return capital to shareholders through simplifying, repurchasing the preferred and opportunistic share repurchases. So we felt like that was kind of a good start along the way. Jen, any other color just how you think about opportunistic?

I'd say, Jeremy, clearly the near-term priority is now we're in an excellent position to take out the DevCos in January and leverage will move a little bit higher when we do that, but then we expect leverage to come down thereafter as we benefit from increasing EBITDA, not only in the company's assets but from the rest of the business. And that's what's really going to drive a lot of the flexibility that we see us having in 2022 that will allow us to return capital to our shareholders in a variety of ways. The simplification is still an important part of this for us though, and that starts with the DevCo and then also taking out the preferred. And that's what we'll largely be focused on in 2022. But again, I think we now have the flexibility to think about a go-forward where we've got increasing EBITDA, which allows us to return more capital through both increasing dividends and potentially decreasing share count. And that's what we'll be focused on as we go forward through time, assuming a continued strong balance sheet.

Got it. That's helpful. Thank you.

Thanks, Jeremy.

Your next question is from the line of Shneur Gershuni from UBS. Your line is now open.

Good morning, everyone. From my perspective, not a lot of big picture questions. I think you guys have really answered the questions on return of capital, dividend increases today, timing of simplification. Congratulations on that, very much appreciated. Maybe just some smaller type questions. First of all, just with respect to the ramp in the Permian and so forth, appreciate the color that you gave, privates versus publics. Wondering if you can talk about it more geographically. Any sense on how the ramp is going to work in the Delaware? Are you seeing any increased activity there or some shifts and so forth? Just kind of wondering if anything has changed in terms of producer conversations or activity around that.

Yeah, sure. So Pat McDonie, our President of G&P, will elaborate there.

I think it's pretty consistent across both the Midland side of the basin and the Delaware side of the basin. We're seeing the steady growth from the large publics, as Matt alluded to, and we're seeing more activity levels in both the Delaware and the Midland side of the basin from the smaller guys. And certainly, when you look at rig count adds, etc., it kind of indicates that there's probably a little more lag in the Delaware than there is in the Midland side of the basin. But certainly, in our conversations with those parties we contracted with, they're definitely ramping up in some form or fashion. Not crazy ramp up, but good, thoughtful investment of capital. So that's what we're seeing right now.

Great. Thank you for that. And then as a follow-up question, obviously, there's a lot going on from an inflation perspective right now. Many of your peers have talked about the fact that they have PPI or CPI style inflators in the vast majority of their contracts, whether it's G&P, whether it's long-haul pipes and so forth. Kind of curious if you can update us on where you stand in that respect. Do your contracts in the Permian in general have those types of inflators as well?

Shneur, this is Jen. I think similar to a lot of our peers, we have escalators across our contracts both in G&P and also in Logistics and Transportation. So we would expect going forward that we're a beneficiary of inflation. And so that's part of what would be a potential tailwind for us next year and then the go-forward after that.

Thanks for the time today.

Thank you.

Okay, thanks.

Your next question is from the line of Christine Cho from Barclays. Your line is now open.

This is Mark on for Christine. I was just wondering if you could give us an update on your discussions with the rating agencies. Obviously, with the continued strong results, it seems like you're well on your way to investment-grade. But just curious how you're thinking about the path forward? And then as a second part to that, it would seem like you're trending below your long-term leverage target for next year. So could that open up capacity for share repurchases or how should we think about that?

Mark, this is Jen. I think that we are in an excellent dialogue with the rating agencies. I think from our perspective, we already have strong investment-grade metrics. And so we have spent a lot of time with the agencies to make sure that they understand what our short, medium and long-term strategies are and really get comfortable with the direction that we're headed in. And I think with the recent upgrades from S&P and now Moody's, they're recognizing the progress that we've continued to make. And then Fitch with their initial rating, I think spent a lot of time with us to understand where we are and what the vision was going forward. So I think we're in a good position with all three. What has been articulated to us is that the DevCo repurchase in their minds is an important step for us in our simplification. So we'll do that in January of 2022. Leverage will move a little bit higher just as a result of where leverage is now and where we expect it to be at year end and then we'd expect it to come down thereafter. So I think we're really well positioned. And our hope is that it will be a 2022 event that we become investment-grade. And then obviously, we don't control the timing of that, but we’ll continue to be in dialogue with the agencies to figure out what the appropriate timing is for us. And then related to the second part of your question, can you just remind me what that was?

Just that you're trending below your long-term leverage target for next year. So does that open up any capacity for share repurchases or how should we just think about that?

I think, hopefully, what you’ve heard from us this morning is that we’re really excited about where we’re positioned today and the flexibility that that affords us going forward. We focused on reducing leverage this year. And you’ve heard already that in our minds there is a shift in 2022 where we’re able to return more capital to our shareholders. And to the extent we are able to continue to manage leverage where it is and where we expect it to go, I think that increases our flexibility to do a lot of different things that will improve the return of capital to our shareholders and increase the value of Targa as we move through time.

Great. Appreciate that. And then looks like your implied G&P fees came in pretty strong again this quarter. How should we think about that going forward into 2022? It looks like you are above the fee floor levels at this point. And should we think there is a cap to how much upside the volumes on these contracts can participate in?

Yes. So you are correct in that our fee floors were put in place to protect the downside. And right now, our average NGL is around $1.06 and gas prices are much higher than they were last year. So we are above the fee floors on our POP contract. So the way those generally work is they’re still POP contracts, percentage-of-proceeds, they just have a fee floor in them. So as prices continue to move up, it will look like a regular POP contract.

Great. Thanks for the time.

Okay. Thank you.

Thanks, Mark.

Your next question is from the line of Colton Bean from Tudor Pickering. Your line is now open.

Great. So I’ll stick with the leverage theme there. So Jen, you mentioned exiting 2021 near the low end; it seems likely that you’ll be able to fund the DevCo buy with free cash. So even if there is a little bit of a tick higher in the early parts of the year as you move through the balance of 2022 and certainly to 2023, it seems likely that you’ll be below that 3x to 4x range. So just conceptually, can you update us how you think about the appropriate level of debt on the business? Should we expect an updated leverage target over time? Really just interested in kind of broader thoughts there.

Our long-term target is 3x to 4x, Colton, and that’s not something that I would expect that we’ll be updating. We’re very comfortable within the 3x to 4x range. That doesn’t mean that we couldn’t have quarters where we’re lower or even higher than that. I think we’re very comfortable existing anywhere around that zip code. To the extent we’re in the lower end or even below, that gives us more flexibility. So we’ll just be continuing to manage our balance sheet as we go through time. But again, very comfortable within the 3x to 4x range and that’s really over the long-term where we expect to manage the business.

Got it. And then just on the Series A, any thoughts as to the cadence we should expect over the course of 2022 there?

The base plan that we have right now is that we’ll ratably take it out beginning really in the second quarter after it steps down to 105, and that will continue until, call it, the end of 2023 when it will be fully redeemed at that point in time. But to the extent that we want to take some out sooner, we obviously have that flexibility. So that’s a lever that we’ll be able to pull as we move through 2022 just depending on the performance of the business and the outlook for the business.

Great. I appreciate the time.

Thank you.

Okay. Thank you.

Your next question is from the line of John Mackay from Goldman Sachs. Your line is now open.

Hey, good morning. Congrats from me as well on the dividend and the capital allocation investment. Wanted to touch on the 2022 CapEx comment, signaled a little higher year-over-year. Just curious if you could kind of talk about how much of that is from increasing activity? You mentioned the Midland plants and Grand Prix pumps, but is there any of that also coming from any inflation on the sourcing side? Thanks.

Yes. No, really I think as we look for 2022 CapEx, it’s really more related to our increase in activity out in the Permian. We expect to exceed our guidance on volumes for this year, ordering long lead items; it looks like we’re going to have more plant capital as you get into 2022, and then also, it’s just more volumes, more gathering compression pipelines and the like. So I’d say it’s more related to that. We are seeing some higher costs for steel and other things. The team has done a really good job for whether it’s Legacy or even this next plant we’re getting into in Q4 to try to manage that as best we can. There will be some pressures on that, but I’d say it’s primarily related to more activity than just inflation.

All right. That’s helpful. Thank you. And then maybe just following-up on your comments around the export downtime this quarter. Just curious if, one, you could kind of frame-up how much of the lower margin, lower volumes quarter-over-quarter was the downtime versus shifts in the overall macro? And then maybe you can kind of just give us a snapshot maybe on where exports sit right now? Thanks.

Sure. Scott Pryor can handle that one.

Hey, John. Yes, as it relates to the third quarter, first of all, we performed on our term-related contracts as it relates to that working with all of our term customers. But we opted to do the maintenance at our facility during the quarter. And really doing that against the backdrop of the fact that there was a softer market globally and the result of really less arbitrage opportunity. So we forewent, if you will, the opportunity to sell some additional spot cargos across our dock. That teases up very well as we move into the fourth quarter domestically. Prices have kind of stabilized here. We’ve seen increases in the arbitrage and the opportunities across the market to the Far East and other areas. So I think it puts us in good position obviously to perform very well in the fourth quarter, not only for our term-related contracts, but taking advantage of the opportunity to move additional spot cargos across the dock. So I think we’re in good position there.

I appreciate that. Thank you.

Okay. Thanks, John.

Your next question is from the line of Spiro Dounis from Credit Suisse. Your line is now open.

Hey, good morning, everyone. This is Doug on for Spiro. Maybe just to start on one on margins: a few peers talked this quarter about frac T&F becoming more competitive in the Permian. Just wondering if you’re seeing similar pressure on margins? And if so, kind of what it takes to scale back toward midstream?

Yes, sure. Right now, I would agree with that assessment that the T&F market is very competitive. There is excess capacity. And so new deals that are coming, it’s very competitive, and there’s a lot of competition to get the marginal barrel there. I’d say the good thing for Targa is we are underpinned by either long-term contracts if it’s a T&F agreement. We have long-terms — a lot of them are 10-plus years — our longer-term T&F contracts. And then in our Gathering and Processing business, we have long-term contracts on the G&P side. So most of the volumes that are coming and most of the volumes that are underpinning our growth are already contracted for multiple years to come. So I’d say, while we are in that same market, we’re still very well positioned for the next several years because of our contract structure.

Okay. Got it. That’s helpful. Thank you. And then maybe just to follow-up on the dividend, realized the next decision is a little ways away, but this quarter you kind of referenced that 30% of free cash flow around the dividend increase. As we look towards what the next increase could look like, is that a good reference point to think about? Are there other metrics you’re looking at in terms of determining how big of an increase you could see next time?

Doug, this is Jen. When we think about 2022, there is still a little bit for us to continue to work through related to the corporate simplification, right? So primary use of free cash flow in 2022 will be the DevCo repurchase. As we think about beyond that, I think we’ll wait to articulate more about our plans. We tried to give a reference point that said that setting the dividend at $1.40 for the fourth quarter we were looking at how much of 2021 free cash flow that represented and are very comfortable with the dividend that approximates to, call it, 30% of this year’s free cash flow. But as we move through time, that could change. And so I’d say that that’s something that we will continue to evaluate. We have said that we think that we will be in position to return more capital to shareholders as we move through time. And so how much free cash flow that means we are comfortable paying out on any given year will be dependent on our performance for that year and then our expectations for the go-forward as well.

All right, great. That is all from me. Thank you.

Thank you.

Okay, thanks.

Your next question is from the line of Michael Blum from Wells Fargo. Your line is now open.

Thanks. Good morning, everyone. I think I know the answer to this, but just wanted to confirm the transaction that was just announced for the Pioneer acreage. I assume that includes acreage tied to your assets and I assume the contracts will just move and there will be no real change from your perspective. Just wanted to confirm that.

Yeah, that is correct. The Continental acquisition of Pioneer acreage, a lot of it is dedicated to us and it will just move over with the existing dedication.

Great. Perfect, thanks. And then I know it’s early, but I wanted to kind of get your read on the EPA’s proposal to regulate methane emissions. Do you see this as a potential cost for your business or is it potentially a positive upside, for example, producers are no longer permitted to flare any natural gas? Just want to get your thoughts there. Thanks.

Sure. Yes, with the proposed additional regulations from the EPA, I’d say, as we look through those, we’re in overall agreement with what they’re trying to do, and that’s trying to keep methane in the facilities, which makes sense. We’re already operating with best practices in a lot of these areas. So the recommendations they are putting forth we’re already doing in a lot of the areas, and we’ve been retrofitting and making changes for years doing this. So this may perhaps speed along some work that we’re already doing. We’re already looking and trying to find leaks along our pipelines and facilities. As outlined in our ESG report, we’re hiring third-parties to fly and go above and beyond in flying our facilities looking for leaks and fixing them. So overall, these are things we’ve already done. It puts some more parameters in place, which we’ll have to follow. But I don’t see that as being an issue for us; these are things we were already doing. And then an opportunity: as we provide really good service to our customers and can have good metrics there, I think there is some potential opportunity as we become a leader in this and continue to perform very well. That could be beneficial for some of the larger E&Ps who are focused on our overall performance there.

Thank you.

Okay. Thanks, Mike.

Your next question is from the line of Keith Stanley from Wolfe Research. Your line is now open.

Thanks. Good morning. So appreciating there’s rounding involved in your disclosures, but I was looking at the year-end leverage expectation of 3.25 versus 3.50 last time. If I kind of look at debt outstanding, that implies a pretty big increase in EBITDA for the year, it would be like $2.1 billion for 2021. Is that a possibility based on the math or am I overthinking that and it’s just rounding involved?

I mean, clearly, we’re not giving specific numbers on exactly what our expectation is right now for full year adjusted EBITDA. I think we do have a pretty good outlook for the fourth quarter. And now that we’re a month into the fourth quarter, feel good about it. But ultimately, we’ll have to see how the next couple of months shake out and how we finish up the year. But yes, prices are strong, fundamentals are strong. We do expect increasing volumes really across the business this quarter so to the extent that those materialize, I think it should end up being a pretty good quarter for Targa and that will drive a very nice 2021 overall adjusted EBITDA year for the company.

Great, thanks. And second question. The Midland plants just in Q3, I mean, they look like they are already running above nameplate even with Heim. Should we assume you’re somewhat limited on Midland growth until Legacy starts up or can you still kind of flex those facilities higher and meet demand?

Yes. We have the ability to get some incremental capacity out of the plants above nameplate. When you think about the size of our Midland system and the number of plants that we have — and let's just say we’ve got at least 10% capability above nameplate — it’s a pretty substantial amount of incremental capacity that allows us to go ahead and continue to handle all of our producers’ volumes while we’re building that next plant and putting that incremental capacity in place. Does that answer your question?

So 10% above nameplate you think you can get to if needed?

I think that’s very comfortable, I’ll put it that way, and some of our facilities have capabilities beyond that 10%.

Okay, great. That does answer it. Thank you.

Okay. Thank you.

Your next question is from the line of Chase Mulvehill from Bank of America. Your line is now open.

Hey, thanks, everyone. Thanks for squeezing me in here. I guess, one quick follow-up to Keith’s question. If you were to run out of capacity in Midland before Legacy comes on, and I know you said you could squeeze more out above nameplate, is it possible for you to move any kind of wet gas over to the Delaware and process the gas there?

Yes. We do have some capability of moving gas from the Midland site to the Delaware site. And frankly, we're looking at ways to improve our capability of doing so. So we're looking to grow that. And certainly, we have the ability to offload to peers in the marketplace that have incremental available capacity. So we feel pretty good about our ability to handle the growth in volumes before our next plant comes up just based on the fleet of plants that we currently have. But we certainly have some other flexibility.

Okay, great. Unrelated follow-up. I know we’ve kind of talked about this a lot on the call so far about capital allocation, but it sounds like excess free cash is going to go to the DevCo buy-in and retiring some of the preferreds, and at some point, you’re going to look at buybacks. So can I ask a question on buybacks? Like, how are you approaching buybacks? Is it kind of more of a planned and measured program each quarter or will it be more opportunistic and price sensitive?

We’ve characterized it as opportunistic, Chase. So it’s really going to depend on what’s happening in a given quarter and what’s our outlook for the year, what’s our outlook beyond that. And so we’ll look at that decision under a number of different frameworks. But I think hopefully what you’re hearing from us is that with the balance sheet flexibility we now feel that we have, it certainly can be part of how we’re going to return capital to shareholders. But we’re not going to provide clarity under the frameworks under which we will or will not participate in the market.

Okay. And noticeably absent was any mention of a special or potential special dividend. Is that off the table?

I think from our perspective, everything always has to be on the table. We’ve clearly articulated that as we think about our priorities for 2021. It was managing our leverage lower. And then for 2022, it’s really continuing corporate simplification with the DevCo and the preferred, while also being able to return more capital to shareholders, which I think initially we’re talking about in terms of paying a higher base common dividend and then also potentially being able to engage in some opportunistic repurchases. But everything is always on the table, and that’s what we work through with our Board each and every quarter to make decisions. From our perspective, that’s not something that makes sense for us today, but that doesn’t mean that that couldn’t change in the future.

Okay, perfect. I’ll turn it back over. Thanks, Jen.

Thank you.

Your next question is from Sunil Sibal of Seaport Global Securities. Your line is now open.

Yes, hi. Good morning, everybody, and thanks for all the color. So my first question is related to M&A. So obviously, we continue to see fair bit of M&A in the upstream space and some has also started in the midstream side not too far away from your footprint. So my question was, now that you’ve kind of got the company to where you want it to be over the longer term, how do you look at M&A in the midstream space going forward?

Yeah, sure. Good morning. I think for us, it’s really going to be more of the same. I think we’re going to continue to have a high hurdle for us. We have a really good organic growth projects outlook to continue to grow that. So we’re not in a position of need where we feel like we have to go get something to complete our integrated story or that we are really falling short in any area. So we’ll continue to look at assets. We have looked over the last several years. If there is something that’s complementary to our existing assets and it fits well on the G&P side and it has liquid synergies, so it’s a good G&P business with some liquids, we will look at that as we’ve continued to look at it, but we also want to make sure if we do anything there, we’re staying within our 3x to 4x target leverage. So it’s kind of got to be just right for us. So we haven’t really found anything that fit that, but we’ll continue to look. But it continues to be a high bar because we have — we think we’re going to be able to grow our EBITDA just through organic growth.

Got it. Thanks for that. And my second question related to the ESG initiatives. So obviously, you’ve signed up for solar power through PPAs. I was just curious, should we kind of think about that as the line you intend to take as you look at your ESG initiatives or there could be more kind of meaningful participation there?

So we have talked quite a bit about the opportunities in terms of investments and how we’re thinking about purchasing power. I’m excited to be able to announce supporting that power project. Robert Muraro has been working with the team to try to evaluate other opportunities whether it would be additional renewables or carbon capture. Bobby, you want to talk a little bit about some opportunities?

Yes. I think the way we think about it as we look at all these projects that either fit our capital profile or third-party capital profile. So to the extent we can go to low-carbon projects that supply power to our assets or carbon capture or something else that we’re willing to fund on our balance sheet or someone else is willing to fund on their balance sheet, we will look to do those projects. I think this is the first example of one where there was someone that was willing to build a solar project that fit within the parameters we want to do from a low-carbon standpoint and their return parameters. It probably didn’t hit our return parameters, which is why you won’t see us put money in projects like that. But to the extent we start to fund ones that do, that will be part of the evaluation going forward. I wouldn’t set a standard to what we would or wouldn’t do, but that’s kind of how the analysis goes internally.

Got it. Thanks for all the color, and congratulations on the good update.

Thanks, Sunil.

Okay. Thank you.

Thanks, Sunil.

There are no further questions. Presenters, please continue.

Well, thanks everyone that was on the call this morning, and we appreciate your interest in Targa Resources. Thank you, and have a great day.

And with that, this concludes today’s conference call. Thank you for attending. You may now disconnect.