Thank you for joining us, and welcome to Targa Resources Corp's First Quarter 2022 Earnings Webcast and Presentation. I would now like to turn the conference over to our first speaker, Sanjay Lad, Vice President of Finance and Investor Relations. Please proceed.

Thanks, RJ. Good morning, and welcome to the first quarter 2022 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 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'll now turn the call over to Matt.

Thank you, Sanjay, and good morning. We are performing well and have started the year strong in several areas. We achieved a record high quarterly EBITDA of $626 million, with record volumes in the Permian and record transportation and fractionation volumes for NGLs. Additionally, we received investment-grade ratings from all three agencies this quarter. We completed our corporate simplification with the DevCo repurchase in January and redeemed our preferred stock earlier this week. We continue to invest in our businesses, including ongoing construction of the Legacy I, Legacy II, and Midway plants in the Permian, as well as the acquisition of additional assets in South Texas. We repurchased more common shares as part of our commitment to return capital to investors. Our leverage ratio is at 3.4x, which falls in the lower half of our long-term target range of 3x to 4x. After considering the repurchase of our DevCo interest, preferred stock redemption, South Texas acquisition, and our GCX sale, our leverage stands at 3.3x. We had a strong first quarter, with EBITDA up $55 million compared to Q4, but we didn't see much benefit from first quarter prices as our realized prices were relatively flat compared to the fourth quarter. However, since then, prices have been favorable for the rest of the year. Given the robust underlying fundamentals of our businesses, we expect that if prices average around current levels for 2022, we will exceed the top end of our previously disclosed full-year financial guidance range. Now, let's discuss our operations in more detail. In the Permian, our systems across the Midland and Delaware Basins continued to perform well, averaging over 3 billion cubic feet per day in inlet volume during the first quarter. While winter weather conditions, especially in January and February, impacted our volumes, they quickly recovered, with March and April showing a significant increase over the first quarter average. Activity remains strong across both our Midland and Delaware areas, and we anticipate benefiting from this positive momentum as we proceed through 2022. In Permian Midland, our systems are operating near capacity, and our teams are diligently working to safely bring our next 275 million cubic feet per day Legacy plant online later this year. Our Legacy II plant, another 275 million cubic feet per day plant in Permian Midland, is expected to begin operations in the second quarter of 2023. In Permian Delaware, our system volumes are also on the rise, with our new 275 million cubic feet per day Midway plant expected to start operations in the third quarter of 2023, providing us with added flexibility to transport volumes between our Midland and Delaware systems while enhancing our regional operational performance. For the full year 2022, we expect our average Permian inlet volumes to grow by 12% to 15% compared to 2021. In our Central and Badlands regions, first-quarter volumes were affected by winter weather, particularly in the Badlands, but we are seeing stronger activity levels across various regions due to higher commodity prices. In April, we completed our acquisition of assets in South Texas and are quickly integrating these assets and contracts, expecting this acquisition to be immediately accretive. We appreciate everyone who contributed to the smooth integration process. Moving to our Logistics and Transportation segment, NGL transportation volumes increased, and we transported a record 460,000 barrels per day to Mont Belvieu in the first quarter. Sequentially, throughput volumes rose by 6%, driven by higher NGL production from our Permian plants and third-party contributions. Fractionation volumes at our Mont Belvieu complex during the first quarter recovered to 703,000 per day after a fourth-quarter outage. Looking ahead, we expect NGL transportation and fractionation volumes to continue benefiting from increased supply from our growing Permian G&P position. Our LPG export services at Galena Park averaged 10.2 million barrels per month in the first quarter, with a strong outlook for our LPG export business. We are advancing a previously announced low-cost expansion project to increase our propane loading capabilities, which will add 1 million barrels per month of capacity by mid-2023. The long-term outlook for Targa remains positive, as our integrated Permian NGL business combined with our skilled employees and strong balance sheet position us to deliver safe, reliable energy both domestically and internationally. Before I turn the call over to Jen, I want to thank our employees for their ongoing focus on safety while executing our strategic priorities and providing top-tier services to our customers. Now, I will hand the call over to Jen.

Thanks, Matt. Targa's reported quarterly adjusted EBITDA for the first quarter was $626 million, increasing 10% sequentially as we benefited from the repurchase of our DevCo joint ventures and higher volumes across most of our assets, offset by the sale of our equity interest in Gulf Coast Express pipeline and lower marketing margin. Targa generated adjusted free cash flow of $373 million in the first quarter. We are significantly hedged for 2022 and continue to add hedges for 2023 and beyond, while still benefiting from higher prices across our unhedged equity volume exposure and prices above fee floors. Looking ahead, as a reminder, the integration of the recently acquired bolt-on midstream assets and associated contracts to our South Texas G&P operations will be reflected in consolidated G&P segment earnings for the second quarter. Our consolidated leverage ratio was 3.4x at the end of the first quarter, and we had about $2 billion of available liquidity. In April, we successfully completed our inaugural TRGP notes offering in the investment-grade market, issuing $750 million of 4.2% senior notes due 2033 and $750 million of 4.95% senior notes due 2052. We really appreciate the support of our new and existing fixed income investors in our initial IG offering and are pleased to have been able to access the 30-year market for the first time. Earlier this week, we completed the redemption of all of our outstanding Series A preferred stock for approximately $973 million. The redemption of the preferred completes an important strategic goal to simplify our capital structure, and we were able to do so sooner than previous expectations as a result of our strong company performance. With respect to the sale of our interest in GCX, the call right process has concluded, and we expect to receive final payment on or around May 20. As Matt mentioned, our pro forma leverage ratio is 3.3x and trending lower, which puts us in excellent financial position with a lot of flexibility. We continue to expect to spend $700 million to $800 million on attractive organic growth capital opportunities in 2022, with approximately $121 million spent through the first quarter to support continued volume growth across our systems. We are paying an attractive $1.40 annualized dividend per common share for 2022, and have been able to return additional capital to our common shareholders through opportunistic repurchases, with $50 million of shares repurchased in the first quarter. Our continued investment in growing Targa's underlying businesses, supported by an attractive macro backdrop and the strength of our balance sheet means we are in excellent position looking forward to continue to return an increasing amount of capital to our shareholders. Lastly, I'd like to echo Matt and thank our employees for their dedication and for continuing to prioritize safety. And with that, I will turn the call back over to Sanjay.

Thanks, Jen. RJ, could you please open the line for Q&A?

Your first question comes from the line of Theresa Chen with Barclays.

First, I would just like to ask about your capital allocation priorities from here, given that you've streamlined your structure and fundamentals seem to be trending well. Can you talk about common share repurchases, increasing the dividend and so on?

Theresa, this is Jen. I think from our perspective, you'll see us kind of execute going forward, sort of as we are today, increasing the common share dividend in 2022 versus 2021, and that's the dividend that we'll have for this year, and then we'll revisit next February. You're seeing us continue to invest in our business. And also, you're seeing us execute on opportunistic share repurchases. So I think that's going to be the formula for us going forward. And then, it's just going to be a matter of the opportunities in front of us to figure out where we think our capital is best spent.

Got it. And there's been so much momentum in your story in the macro tailwinds. I think all of that is pretty clear. In your mind, what do you think the key risks are from here?

Theresa, I think we feel really good about our business. We've made a lot of improvements to the balance sheet over the years, we've simplified our structure. So the risks that are out there inherent in our business are commodity prices and volumes. But even from both of those, I feel like we're better insulated and better protected to the downside today than we were a year or two ago. So I think it's the same risks that we look at. We've made a lot of progress on recontracting and putting in fee floors in our G&P business. We also have a significant amount of hedges, which reduces our commodity price exposure. And just as we continue to grow across our footprints, we have really strong diverse customers across our G&P in multiple basins and have a good diverse customer set out in the Permian. So the risks kind of remain in our business, but I think we've done a good job at trying to protect ourselves from the downside.

I think the starting point, if any risks do present themselves, is just so different for us today than it ever has been before. We've just never been stronger, Theresa. So I think we'll be able to withstand and perform exceptionally well even if those risks do present themselves going forward.

Your next question comes from the line of Jeremy Tonet with JPMorgan.

Just wanted to start off with the guidance here, if I could, the EBITDA guidance, I recognize it's early in the year. But just doing some simple math here. It seems like if you annualize first quarter, you'd be at the top end of the guide. In the first quarter, didn't seem to benefit from commodity prices, I think, as you said there. And then also, January had a freeze-off weather impact weighing on the quarter. And it doesn't seem like the guide includes the Southcross benefit. And if I overlay spot commodity prices, it's something like a $250 million add to it. So just reconcile these different things. I know the commodity price isn't baked into the guide where it is right now, but Southcross annualizing first quarter all points to above the high end. Is there any offsets over the balance of the year that we should be thinking about?

The only offset that I'd just start with, and then I'll turn it over to Matt, is just the sale of GCX was not part of our guidance. Oh, it was. I'm sorry, it was contemplated in our guidance. So yes, I think that you've got the pieces directionally correct. Current spot prices, just given the backwardation that still exists as we look out for the balance of 2022 is part of the unknown for us right now, but we are very well hedged and are continuing to add hedges. So I think we are in just an excellent position. Matt, anything else?

Yes, yes, Jeremy, I think you laid it out pretty well. I feel like Q1 was a really good quarter for us. We had increasing volumes in the Permian. But if you look in the Permian Midland, it was up a little bit, almost flat Q1 to Q4. We had some winter weather and operational issues in January and February, but we've seen volumes rebound nicely in March and April. So it sets us up for good volume growth from now through year-end. And if you look at prices, NGLs were up a little bit, but gas was actually quarter-to-quarter for us, realized, down. And as you know, Waha prices now are much, much higher than our average in Q1. So between gas and NGL, if prices hang around here, we're going to have a lot of uplift as we go throughout the year. We also had lower volumes due to some weather impacts up in the Badlands and across our central regions, too. So with a little bit warmer weather, higher prices, I think it sets up really nicely for the balance of the year.

Got it. So I didn't hear anything to walk me away from kind of $2.7 billion, $2.8 billion or more if commodity prices...

We have not been very specific. We just mentioned that we feel confident as we move through the remainder of this year. Even if prices fluctuate, we believe we are in a strong position.

It seems that we share the same viewpoint. Shifting focus to Permian logistics, our analysis indicates that processing capacity is quite constrained. The egress for natural gas is similarly tight, although there are various solutions being proposed on that front. I'm curious about your interest in participating in natural gas takeaway to align with your and your customers' production needs. Regarding Gas and Processing, you have several projects in the pipeline, but I'm interested in your overall growth expectations in the Permian for these two aspects moving forward.

Sure. We've seen pretty good growth here in the Permian, just in the aggregate and on our system over the last 12 months, and we think there's going to be continued growth as we look forward. I'm going to turn it over to Bobby, who can talk a little bit just about how we're thinking about residue takeaway opportunities.

This is Bobby. So on the residue side, we were excited to see the most recent announcements on the expansions. At the end of the day, we look like a producer relative to our exposure. So what we want to know is that the gas flows and then ultimately, we will obviously want basis as flat possible. So we've known about it for a long time, we've known about the expectations of where our expectations of where supply was going. So we're fully prepped for it on the target side even before any of the new pipes come online. But yes, we expect and hope for more pipes to get announced. And whether we participate in it or not really, you'll see us end them at times when they need us to go. And if they don't need us to go, we won't be in them, right? So I think as we think through those things, we just want to see the pipes get built, and the takeaway, egress get there in time for us to not see big basis blowouts.

Got it. That's very helpful. I'll leave it there.

Your next question comes from the line of Colton Bean with Tudor, Pickering, Holt.

So you all mentioned the weather impacts on the Badlands in Q1. And I think we've seen kind of a continuation of that severe weather here quarter-to-date. So can you just update us what you've seen as we move through April? And then are there any longer-term infrastructure damage and considerations that you have as you think about the balance of the year?

Yes, sure. I'm going to turn it over to Pat to answer that one.

Yes, you're right. I mean, obviously, there's been a couple of pretty significant weather events in April in the Badlands. And about the time you get back up from the first one, you know the second one follows up behind. And they were pretty severe. They took production across the Badlands almost to nothing across everybody's systems. Certainly, we're in the rebound mode, we're coming back up, we are not fully up. So will it impact our second quarter? Sure. April, it was impacted. We're still not fully up in May, but we're getting closer, hopefully, mid, late May, we'll appreciably be fully back up to where we were before the weather impact. But on our side, at least, we do have some things that are positive throughout the remainder of the year that will help offset some of the occurrences relative to the weather here in April.

Got it. And maybe just to clarify that. On the offsets, is that thinking for DMP in aggregate or Badlands specific?

Badlands-specific.

Okay. Great. And then, Jen, last quarter, I think you mentioned that M&A was a consideration for the first time in a while. Can you just update us on what you all are seeing in the market and if that may still be a use of cash going forward?

I think for us, you saw us execute on the Southcross acquisition, a great acquisition for us. We're excited to have those employees join the Targa team. Integration is going well, and that's an example of a transaction where we think we're able to buy at really attractive prices and then benefit from synergies, both near term and over the medium and longer term. There are more assets and companies available in the market today than there certainly have been over the last couple of years, which is understandable given the strength of commodity prices. And so for us, the bar continues to be very, very high. And that means that there are a number of unique characteristics that any transaction would have to meet in order for us to even consider looking at it. So I think you'll see us continue to be very selective about anything that we spend our time on.

Your next question comes from the line of Brian Reynolds with UBS.

Maybe, to start off a little bit on future growth projects. No CapEx change with the earnings release, but kind of looking ahead towards 2023, we started hearing from many of your peers of adding additional frac capacity. I'm just kind of curious around Targa's thought process around pursuing a new build versus securing 100% of the economics versus potentially unidling the JV frac that's in Mont Belvieu currently?

Brian, this is Scott Pryor. I just wanted to share that we believe the fractionation market is beginning to tighten. We have noticed an increase in inquiries for both short-term and long-term frac needs. Some of these inquiries seem to be from clients looking to get ahead of market tightening by securing fractionation services for future dates. We have obtained a permit for Train 9 and are continuously assessing the right time to formally begin construction. We plan to be proactive in meeting our needs. We have clear visibility into our producers behind our gas processing plant, which allows us to stay ahead of our requirements.

Great. Appreciate that color. And then maybe, just as a quick follow-up on guidance and specifically, the Permian inlet volumes. So far this year, we've seen a major customer in the Delaware increase their production guidance expectations for the year. And the Midland seems to be a little bit flattish for the last two quarters. And ultimately, wondering if this is related to, one, is there any change to any change in cadence to that Permian outlook? Or maybe, said differently, does the guidance effectively imply just a really strong back half of the year as it relates to just volumes flowing through your system downstream?

We continue to see strong activity across our entire Permian footprint. In the Permian Midland, we've observed that our growth typically occurs during the summer months when temperatures rise, indicating some seasonality. January and February were affected by cold weather and certain operational challenges, but we're already seeing an uptick in March and April. We anticipate growth in both Permian Midland and Delaware. However, some of our larger producers are maintaining their previous guidance regarding volume growth. Higher prices don't automatically lead to increased production, though there is a mixed response. Some larger customers are indicating an intention to raise their growth rates, which could influence 2022, but may be more pertinent to 2023 and beyond. Our smaller private E&P customers continue to drill, and we remain optimistic about our growth in the Permian moving forward.

Your next question comes from the line of Keith Stanley with Wolfe Research.

First question, just with Gulf Coast Express, the sale proceeds coming in. Should we assume you use that to repay any short-term borrowings you might have done to take out the prefs? Or should we think of GCX cash as available for allocation with free cash flow over the rest of the year?

The expectation would be that when we receive those proceeds, we'll use it to reduce borrowings under our revolver right now, Keith.

Okay. Got it. And second question, can you just give an update on where you're at for 2023 hedging, particularly for Permian gas basis, just percent of equity volumes or however you want to frame it?

Yes, sure. So we're significantly hedged on the gas side. And when we do hedge, most of our volumes are Permian related, so we do hedge Waha basis. So we try and cover as best we can kind of the basis risk associated with our hedges. And where we have gas in Oklahoma, we'll hedge at those physical points as well. We were significantly hedged kind of earlier in the year, and we've added as we've seen strength in gas prices and NGLs. We've continued to layer on additional hedges not only for this year but for the next several years. So I'd say with prices hanging around here, we'll continue with our programmatic approach to continue to add more hedges.

And Keith, our 10-Q will be published later today so you'll be able to see in there the volumes that are now hedged across both gas, NGLs and condensate.

Your next question comes from the line of Spiro Dounis with Credit Suisse.

I wanted to discuss the quarter-over-quarter changes shown on Slide 7. Two key points stood out to me. First, regarding operating expenses, I was surprised to see costs decrease for G&P in terms of labor and chemicals, considering the current inflationary climate. I'm curious if this decrease is sustainable and if it is part of a larger cost control strategy. Secondly, about the G&P margin, Matt mentioned that commodity prices only picked up towards the end of the quarter, and I was surprised that this was a negative factor. I'm interested to know if there was a shift in mix during the quarter or any hedging issues that we should be aware of.

Spiro, this is Jen. I'll take the first part of the question. So some of what we did in our G&P business was in the fourth quarter. We actually went ahead and bought a fairly significant amount of chemicals ahead of time. So our chemical costs for the first quarter went down as a result of that. I'd expect our Q2 through, really, Q4 OpEx to step up as we move through time here, as we are seeing higher costs as a result of inflation and just difficulty getting certain things. So Q1, I think a little bit of an anomaly. And then also, on the compensation side, we had a higher bonus that we ended up paying for the fourth quarter. And so that was reflected in the fourth quarter, and then we tend to accrue at a lower number as we begin a new year, and so that's what we're doing in the first quarter. So that's part of what you're seeing as well that I think is, again, creating a little bit of an anomaly in Q1 relative to Q4.

Yes. And then, on the mix shift. When you look at first quarter versus fourth quarter, really, the big increase in commodity price was relative to crude oil prices. We don't have that much exposure directly to crude oil prices. We have some, but not that much. It's really on the gas side and the NGL side and gas was down and NGLs were up almost offsetting. So a lot of the run that we saw was in March, so we had some benefit kind of late in the quarter, but it's really kind of through April and then into kind of where we are now. So not a mix shift. It's just kind of the way all three of those different commodity prices move relative to Q4.

Got it. Okay. That's really helpful. Second one, just going back to some comments from last quarter around energy transition. I think you all had mentioned evaluating a few renewable or carbon capture opportunities. Just curious if there's been any update on that front?

I'd say we are continuing to work on a potential carbon capture solution. So I'd say that is ongoing. It's going to take a while for us to develop that. I think we're in a good position to develop that. And so we are working with others trying to put something together there to see if we can capture CO2 out in the Permian and move it down hole; there are discussions at other parts in and around our business as well. I think it's just going to continue to make progress, but I think it's going to be a while before we can move anything over the finish line too.

Your next question comes from the line of Michael Blum with Wells Fargo.

I wanted to ask about LPG export markets. I know you're more heavily weighted to South America, but wondering if you're seeing any drop in demand in China given the COVID-related lockdowns there. And then I guess, just more broadly, any impact to volumes from some of the global supply constraints and some of the shipping bottlenecks we've been reading about?

Michael, this is Scott. Initially, when we started our export business, we focused significantly on South America. However, similar to others in the market, we have diversified more towards the Far East due to the growing demand there. Countries like China are investing in PDH and chemical plants. Looking at our performance on a quarter-by-quarter basis, we remain consistent despite occasional weather and logistical challenges in the shipping market, which we did experience in the first quarter of this year. Overall, the market remains solid and is expected to grow over time. We are optimistic about our expansion, which, although small, complements our business and allows for incremental capacity while enhancing reliability for our longstanding customers. We have a strong customer base that values the reliability we offer, and as LPG production increases in the U.S., we will seek additional ways to optimize our operations and deliver our products internationally.

Great. I appreciate it. Other question I wanted to ask was just about ethane rejection and what you're seeing across your system right now, and then, how you see that trending for the balance of the year? And is there any upside to volumes related to that?

Yes, Michael, we are in recovery across our systems, and we have been for some time. So I don't really see a big change for us there. Our exposure to ethane is really more on the price side than the volume side. So as ethane moves up, we have some hedge, but we do have some length on that. So we benefit from higher prices on ethane, but I wouldn't expect to see with ethane prices moving up, much of a volume impact, really.

Your next question comes from the line of Sunil Sibal with Seaport Global Securities.

Thanks for all the clarity on the call. I just had one follow-up from previous discussion on OpEx. So it seems like OpEx, over the last couple of quarters, has kind of swung around a bit. I was wondering, is there a good way to think about your OpEx in fixed versus variable buckets, especially when you think about exposure to commodity chemicals and all that?

I don't think that there's an easy framework that I can give you, Sunil, related to that. I think that as we think about OpEx Q2 going forward, it's likely to begin to look more like the fourth quarter than the first quarter. So that's probably the best visibility that I can give you right now. But we're also seeing prices increase real time. So it's a little bit tough to predict as well. I think our operations teams and engineering teams are doing an excellent job of trying to stay in front of inflation and rising costs as much as they possibly can and are doing an excellent job working with our suppliers, but it's just a little bit difficult to predict right now. But I think the best visibility I can give you is that second quarter and go forward will look more like the fourth quarter than the first quarter.

Okay. Got it. And then on the NGL marketing side, I think you mentioned in the press release also that there was less optimization opportunities. Obviously, some of that is seasonal, too. But I was curious, is there a good way to think about that part of your business? And what are the drivers of this optimization revenues for you?

Yes, sure. I'd say it's really probably more in the comparison. If you look at last quarter, we had some contango trades that were still unwinding when we had contango that we put on some dated trade. So there's really just less of that in the first quarter relative to previous periods. So I think that is the primary driver of that.

Your next question comes from the line of Harry Mateer with Barclays.

First question, it seems like you guys made it up to investment grade just some time for the rates market to get turnarounds ahead a bit, but I'm curious whether you see more opportunities to optimize the capital structure and your interest expense in the second half now you've done your inaugural IG deal?

Harry, this is Jen. I think we'll have continued opportunities just moving forward. We do have some higher coupon notes. So depending on the callability and call prices of those notes, we'll be continuing to try to figure out how to best manage our liquidity and our notes positions going forward. I do think there is continued opportunities to benefit from savings, but the cadence of that is largely going to be dependent on the prices that we can call in those notes and then where can we issue notes in the market going forward. So we'll just have to see how that plays out. But I think we're in an excellent position anyway.

Okay. And then, earlier on the call, you answered that the call on the GCX proceeds is going to be towards paying down the revolver. Just would love to get a sense for how you structurally like to plan out liquidity, whether it's a cash balance you'd like to have? Or what are some guardrails we can think about it on a quarter-to-quarter basis that you'd like to keep in terms of available liquidity?

I think a lot of the cash that you see on our balance sheet quarter-to-quarter really has more to do with the JVs and the terms of the JVs and when cash is distributed out of those joint ventures than anything else. So we're generally trying to manage our liquidity position as optimally as we can. And so that means utilizing the available tools that we have, whether that be our revolver or accounts receivable facility or just maintaining cash on the balance sheet. So there isn't a hard and fast rule that we're following that I can give you. It's really just us trying to manage as best as possible to minimize interest expense and maximize the liquidity that we have at all times.

Your next question comes from the line of John Mackay with Goldman Sachs.

I wanted to revisit some of the comments about capital returns. Have you observed that some of your competitors who experienced distribution or dividend cuts in the past are now working to restore their previous levels, and they have begun that process? I'm curious if you are considering something similar or if you could provide a bit more detail on your approach to this and whether it might align with a payout strategy similar to that of the S&P 500.

Yes, that's a good question, John. As we review our dividend payout, as Jen mentioned, we'll provide an update for you in the early part of next year. It's not our goal to return to our previous levels. We are monitoring market indicators, including the S&P 400 and S&P 500 regarding yield, which can fluctuate with the share price. We will assess percent return based on free cash flow and other cash flow metrics. We believe we are well-positioned to increase our dividend given our free cash flow. We'll evaluate it similarly to how we did last year. We'll consider where we want to be, look at what our peers are paying, and also consider a broader peer group like the S&P 400 and S&P 500. Both factors will guide our decision for 2023 and help us strategize over the long term for increasing payouts.

That's great. Appreciate that, Matt. Definitely in the buyback camp over here, for what it's worth. Maybe just one more from my side. Some of the weather issues kind of masked some of the basin trends. So just wondering if you could give us an update on kind of what you're seeing in terms of green shoots or not in some of your other basins kind of outside of the Permian?

Sure. Pat, do you want to give a bit of an update there?

Sure. We have seen increased activity level across all our basins. We've seen not a huge uptick, but a pretty steady, nice uptick in our Oklahoma regions, more so on the southeast side of the state versus Western Oklahoma. Certainly, we've seen people that haven't drilled in 2, 3 years employing rigs and drilling wells. We've seen a lot of recompletions. So I'd say, we're stemming the tide there relative to past steady declines over the last 3, 4 years. We're seeing enough activity to offset decline and, frankly, in some areas to actually grow. In the Barnett, we're seeing activity that we haven't seen in the past. And frankly, that's a little more lumpy. So you'll see that showing up in our volumes as we go throughout the year, but we have some positive tailwinds there. South Texas is such a competitive environment, it kind of gets lost in the sauce. But certainly, with our new acquisition, there's different opportunities relative to sour gas capture, etc. So we see opportunity in our South Texas region. And the Badlands is steady, is the best way to put it. The activity level is steady. Certainly, we've had weather events, but we haven't seen a huge uptick, but we've seen good, steady activity levels.

Your next question comes from the line of Indraneel Mitra with Bank of America.

I wanted to follow up on the ethane recovery, specifically how it relates to Grand Prix. In 2023, the basin should probably move to full ethane recovery. And I'm wondering how your third-party shippers will fare on this, whether your incentive rates will go up or your volumes, how do you see the outlook for Grand Prix with ethane recovery for the basin just trending up?

Neel, this is Scott. As Matt mentioned earlier, when we examine our pipeline as we enter our fractionation facility in Mont Belvieu, both of the plants operating on our systems have a few third-party plants that will assess ethane recovery based on their location and the terms of their contracts. Overall, we don’t see much fluctuation in both our pipeline and the third-party pipelines connected to our system. Therefore, I would say it's not a significant factor. Matt indicated that earlier. When we consider the current pricing, most plants should be recovering, and that’s what we're observing in our system. Given the price advantage on the petrochemical side, I believe that trend will persist for some time. However, there will occasionally be some variability, but generally, we anticipate some recovery in our fractionation footprint.

Okay. And then second question, I know you market a lot of your producer volumes, residue gas volumes at the tailgate and you've been planning for a while for the gas egress issue. But can you kind of just walk me through how you plan for that when you have such massive growth on your systems, 10-plus percent every year. How far in advance you do that? And whether you see any potential issues running into 2023, even though you've started to plan for it early?

This is Bobby. It's crucial for us to have our own transportation out of the basin, but we also collaborate with partners in the basin that possess their own transportation. As we consider our exposure at Waha and prepare to sell gas there, we target buyers who we know have the means to transport gas out of the basin. These are significant counterparties that those on this call would recognize. Our strategy involves assessing when pipelines will become operational and anticipating any capacity challenges in the basin, ensuring we plan well in advance of these developments. We avoid being overly precise within short timeframes and focus on timelines that extend beyond the scheduled openings of these expansions. We have been consistently applying this approach and believe we have adequately addressed our needs, even incorporating some additional safeguards over time. We can plan far into the future because there is demand for our gas as long as we choose to sell it, and we aim to align our sales with potential future issues.

Just one question for me. Grand Prix volumes have grown pretty strongly over the last few quarters. Just hoping to get your latest thoughts on how that pipeline could be expanded in the medium term? And how early you think an expansion on the Permian segment would be required, just assuming that the potential residue constraint gets addressed?

Yes, we are very pleased with the consistent increase in volumes on our transportation side of the business each quarter. In the first quarter, we averaged 460,000 barrels a day into our Mont Belvieu complex. We have maintained good transparency with our customers and producers connected to our plant and the gas processing plants in the Permian. We plan to continue adding pumps along the pipeline sector, and we are currently experiencing strong operating leverage. It's important to note that part of the 460,000 barrels is coming from North Texas and Oklahoma through our operations in that region. We will assess the need for additional pipes and expansions, and we will proactively make advancements to stay ahead of the requirements of our producers.

And there are no further questions at this time. I would now like to turn the call back over to Sanjay.

Thanks to everyone that was on the call this morning, and we appreciate your interest in Targa Resources. The Investor Relations team will be available for any follow-up questions you may have. Thanks, and have a great day.

Ladies and gentlemen, this concludes today's conference call. We thank you all for participating. You may now disconnect.