Thanks, Whitney. Good morning and welcome to the Third Quarter 2023 Earnings Call for Targa Resources Corp. 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 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 who will be available for the Q&A session, 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. We are very proud of the efforts of our employees across the third quarter. While battling an extended stretch of hot weather, we continued to operate at a high level, demonstrated by record NGL pipeline transportation volumes, 6% higher sequential adjusted EBITDA and completion of our expansion at our LPG export facility in Galena Park, increasing our propane loading capacity by an incremental one million barrels per month. We also continue to return an increasing amount of capital to our shareholders in the quarter with $132 million of common share repurchases. Since the end of the third quarter, positive momentum continues across our organization highlighted by the commencement of operations of our new Greenwood plant in Permian Midland ahead of schedule and on budget. The expected rebound in our Permian volumes with current reported inlet about 150 million cubic feet per day higher than our third quarter average, publishing our annual sustainability report, demonstrating our continued progress across ESG pillars as an operator of critical natural gas and NGL infrastructure, receiving a two-notch upgrade in our ESG rating from MSCI to AA and the announcement today that we expect to recommend to our board an increase to the 2024 annual common dividend to $3 per share, a 50% increase over the 2023 dividend level. The strength of our operational and financial outlook has resulted in consistent questions from investors and potential investors around how Targa will return additional capital to shareholders going forward, which is why we wanted to provide some clarity today around our expectations for our 2024 common dividend and our current thoughts around our return of capital framework. We believe that we offer a unique value proposition for investors given the strength of our outlook for annual increases in adjusted EBITDA reflective of an excellent integrated asset footprint that will continue to provide high-return organic investment opportunities, increasing fee-based margin and cash flow stability from our continued progress around fee floor contracts in our G&P business, a strong credit and ESG ratings profile, demonstrating our commitment to a stable balance sheet and sustainable operations, continued opportunistic share repurchases further reducing our share count, a competitive common dividend with an expectation of meaningful, best-in-class annual growth looking forward. Our return of capital strategy is informed by a lot of internal and external information including leverage and balance sheet flexibility, along with our positioning relative to our midstream peers S&P Energy and broader S&P 500. Across our base scenarios we are modeling the ability to return 40% to 50% of adjusted cash flow from operations to equity holders. This is not a target or a bright line as we place a high priority on flexibility, but it is a framework that we believe can be helpful in thinking through our return of capital proposition going forward. Let's now discuss our operations in more detail. Starting in the Permian, high activity levels continue across our dedicated acreage despite lower-than-expected third quarter volumes largely driven by the extended periods of heat across New Mexico and Texas. We also had about 200 million cubic feet per day of lower-margin high-pressure volumes move off our system in the Delaware Basin. Our Permian Midland volumes increased 2% sequentially and were offset by reduced Permian Delaware volumes resulting in flat Permian inlet volumes. Through the first three quarters of this year average reported inlet volumes across our system have increased over 300 million cubic feet per day in comparison to average fourth quarter 2022. Our Permian volumes are currently operating at about 150 million cubic feet per day higher than our third quarter average, as the growth we expected to see a bit earlier in the year is now materializing in the fourth quarter. In Permian Midland our new 275 million a day Greenwood plant commenced operations in October and is quickly ramping up, a big thank you to our engineering and operations team for bringing Greenwood online safely ahead of schedule and on budget despite challenging operating conditions this past summer. Our next plant in Midland, Greenwood II remains on track to begin operations in the fourth quarter of 2024 and is expected to be much needed when it comes online. In Permian Delaware activity and volumes across our footprint are also running strong. Our Wildcat II and Roadrunner II plants remain on track to begin operations in the first and second quarters of 2024 respectively and both plants are expected to be much needed at start-up. In our Central region and the Badlands our combined Natural Gas volumes increased 2% sequentially and our systems are performing well. Shifting to our Logistics and Transportation segment, Targa's NGL pipeline transportation volumes were a record 660,000 barrels per day and fractionation volumes remained strong averaging 793,000 barrels per day during the third quarter. Our Grand Prix NGL pipeline deliveries into Mont Belvieu increased 6% sequentially as we benefited from higher third-party supply volumes. Our fractionation complex in Mont Belvieu continues to operate near capacity. The restart of GCF will provide much-needed capacity when it is fully restarted late in the first quarter of 2024 and we continue to expect our Train nine fractionator to be highly utilized when it commences operations during the second quarter of 2024. Our Train 10 fractionator is also expected to be much needed given the anticipated growth in our G&P business and corresponding plant additions and remains on track for the first quarter of 2025. In our LPG export business at Galena Park, our loadings increased 15% sequentially due to improved market conditions. We loaded an average of 10.7 million barrels per month of LPGs during the third quarter even though our loading capability was reduced for part of the quarter, due to a previously disclosed required 10-year inspection. Our low-cost expansion project to increase our propane loading capabilities by an incremental one million barrels per month of capacity was completed at the end of the third quarter and we expect our loadings to ramp during the fourth quarter providing strong momentum for 2024. We are excited about the long-term outlook at Targa and remain focused on continuing to execute on our strategic priorities. Before I turn the call over to Jen to discuss our third quarter results in more detail, I would like to extend a thank you to the Targa team for their continued focus on safety and execution while continuing to provide best-in-class service and reliability to our customers.

Thanks Matt. Good morning everyone. Targa's reported quarterly adjusted EBITDA for the third quarter was $840 million, a 6% increase over the second quarter. Sequential increase was attributable to higher system volumes across our integrated NGL businesses, higher commodity prices partially offset by higher operating and G&A expenses. With three quarters of the year completed, we are tracking towards the lower end of our 2023 adjusted EBITDA range of $3.5 billion to $3.7 billion, but believe that our performance through a lower commodity price environment and a tough operating environment relative to our guidance assumptions is reflective of the significant progress that we have made adding fee floors to our G&P business, our successful hedging program and the resiliency of our operations. For a good part of this year, we have benefited from margin associated with fee floor contracts as natural gas and NGL prices were below fee floor levels. We believe that 2023 provides an example of the financial durability of our business in a lower commodity price environment and the benefits of the fee floor structure where we retain upside if commodity prices move higher. We are well hedged across all commodities for the balance of the year and continue to add hedges for 2024 and beyond. Through three quarters we have spent approximately $1.6 million on growth capital projects and our current estimates for balance of year spending lead us towards the higher end of our $2 billion to $2.2 billion range. Our net maintenance capital spending is tracking a little bit higher than initial expectations and our current estimate for 2023 is approximately $200 million. At the end of the third quarter, we had $1.8 billion of available liquidity and our pro forma net leverage ratio is approximately 3.7 times, well within our long-term leverage ratio target range of three to four times. Shifting to capital allocation. Our priorities remain the same, which are to maintain a strong investment grade balance sheet to continue to invest in high-returning integrated projects and to return an increasing amount of capital to our shareholders across cycles. Our major projects in progress are core to our business. For new Permian gas processing plants, Train 9 and Train 10 fractionators and our Daytona NGL pipeline, and while we continue to project 2024 growth capital spend to approximate spending levels similar to 2023, spending in 2025 is expected to be meaningfully lower as we will have completed the lumpier expansions in our downstream business. As Matt described underpinned by the strength of our business outlook for 2024 and beyond, we plan to recommend to our Board a 50% increase to the 2024 annual common dividend to $3 per share, and we expect to be able to grow the annual common dividend meaningfully thereafter. We also expect to remain in a position to continue to execute opportunistically under our common share repurchase program. During the third quarter, we repurchased $132 million of common shares at a weighted average price of $83.38 and have repurchased $333 million year-to-date through September. We had about $811 million remaining under our $1 billion share repurchase program at the end of the third quarter. We remain excited about the long-term outlook at Targa. Our talented team continues to execute on our strategic priorities and safely operate our assets to deliver the energy that enhances our everyday lives. 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 lineup if you have additional questions. Brittney, would you please open the line for Q&A?

Thank you. We will now begin the question-and-answer session. Our first question comes from Theresa Chen with Barclays. Your line is now open.

Good morning. Thank you for taking my questions. It's great to see a very strong dividend increase in your new capital return framework, really a capital accountability framework if anything. Can you talk about your view of dividend growth within all this, how did you arrive at the 50% increase over 2023? Is there a yield you would like to achieve? And how you generally plan to balance dividend growth with share repurchases within that new 50% cash from ops framework while maintaining a healthy balance sheet?

Good morning, Theresa, this is Jen. As we said in our scripted remarks, the most consistent question that we've gotten from investors and especially potential investors is related to how we intend to return capital to our investors. And we believe that we've got a really strong story there when we think about where we are today and where we are going forward. Clearly this morning, you can see that we've got significant conviction in the underlying strength of our business as evidenced by our continued activity under our share repurchase program. Our return on capital strategy begins with numerous multiyear scenarios, and hopefully it's becoming more evident that increasing G&P fees and fee floors are really positioning us to be able to invest in the business to support the activities of our upstream producers despite a lower Waha and NGL environment which are meaningful to us while also increasing our cash flow stability and resiliency across lower commodity price environments. So as we look out across multiple years, we've got the flexibility to return an increasing amount of our adjusted cash flow from operations to shareholders. And that's where we're saying that we think we're in position over multi years to return call it 40% to 50% of CFFO. It's not a bright line as we certainly continue to balance and really prioritize balance sheet strength and flexibility. But I do think it's part of how we're thinking about the world and it's important for us to provide a little bit more transparency around how Targa and our Board of Directors look at the dividend. Beyond that we start to look at our peers, broader S&P Energy and S&P 500, and how they're returning capital and then Targa's relative positioning across all of that. And all of that is really at the end of the day informing a return of capital strategy that we believe can maximize shareholder value. We've been very transparent since we instituted the program in October of 2020 that we want to have an opportunistic share repurchase program. And hopefully we are demonstrating a track record of activity when given that opportunity. As we look forward and move through time. We'll have to see what the opportunities present themselves in the market and that will ultimately balance the approach to dividends and repurchases. But I think this is an important indication that clearly we are in a position to return more capital to shareholders. And can do that through a stable and meaningfully growing dividend and then also can continue to supplement that with opportunistic repurchases. It continues to be that all of the above approach, but I think you're really seeing us execute on.

Thank you. And on the topic of the continued volume growth, just with the recent announcements of upstream consolidation in the Permian, especially the news related to your Midland JV partner and anchor shipper. What do you think this all means for Targa in terms of volume growth trajectory and the duration of the resource underlying your acreage?

Yes, sure. Hi Theresa, this is Matt. With the announcements we've seen recently, they are consistent with the previous announcements, we have really good relationships with the parties involved in those transactions. So whether you're talking about Exxon or Chevron or others, we have good relationships and really growing relationships with them. We handle a lot of their volumes today. And as we think about it at least in the short term, we have contracts in place with all those parties mentioned. And so those contracts are typically long-term contracts. So we'll just have to see how it plays out over time. We think the outlook for growth in the Permian Basin continues to be very strong. When you look at some of those parties mentioned they have pretty robust growth outlook. So I think over the longer term, I think we're optimistic on what it ultimately means for our underlying business. But we'll just have to kind of see how that plays out. I think it's going to play out over time.

Thank you.

Okay. Thank you.

Thank you so much. One moment for our next question please. All right. Our next question comes from the line of Michael Blum with Wells Fargo. Your line is now open.

Thank you. Good morning, everyone. I wanted to just ask about your views now on the trajectory of Permian volume growth. I just wanted to understand that the third quarter, would you say these were just really temporary operational issues? Are you seeing any real material change in producer activity which would drive a change in the slope of future growth?

Yes, Michael, that's a great question. We're experiencing strong growth in the Permian, starting with Midland and then moving to Delaware. The Midland volumes are aligning with the guidance we provided at the start of the year. We are continuing to see solid growth, particularly as we approach the fourth quarter. Regarding the Delaware, we did experience a reduction of 200 million a day between Q2 and Q3 based on average assessments. We anticipated this roll-off, so it was accounted for in our guidance. However, it highlights that we had underlying growth in the third quarter, though it wasn't sufficient to make up for the 200 million that dropped off. Activity in the Delaware is robust, and we are adding significant compression, although it is arriving later than we initially expected this year. We have 200 million a day set to come online by year-end, which is just arriving a bit late, but the volumes are present. We are still catching up to manage all the volumes, but we are very optimistic that Permian volumes will keep growing in both the Midland and Delaware regions, not just for Q4 but also looking ahead to 2024, 2025, and beyond.

Great. No, that's perfect. And then that actually just ties into my second question which is as I'm sure you're aware you and many others have announced NGL pipeline takeaway expansions. And so it's clearly getting pretty competitive. So, just wondering how should we think about your contracted position in that market? You obviously had the 200 roll off this quarter. Is there any other major roll-offs to flag in the future? And just in general how are you thinking about your contracted position.

And specifically to the Grand Prix pipeline, Michael?

Yes.

Okay. This is Scott. I wanted to clarify a few things. In the third quarter, we experienced some improvements in volume, primarily from third-party sources. Our upstream volumes were mostly steady during the quarter, but we are still seeing overall volume growth. Looking ahead to 2024, particularly in the fourth quarter and into the year, we anticipate that this growth will continue, driven by our upstream developments and additional third-party volumes as contracts come into effect. With the Daytona pipeline starting operations in the fourth quarter of next year, we are confident about the timing in relation to our expected volume growth. We have seen several recent announcements in the market regarding this. The operational advantages of having Daytona available for our West leg, along with our pipeline's ability to connect to Mont Belvieu, give us significant potential. This potential will enable us to assess our volume growth and explore opportunities to utilize other pipelines as our volumes increase. Therefore, we have ample time to evaluate these options moving forward.

Great. Thank you.

Thanks Michael.

Thank you so much. Our next question comes from the line of Brian Reynolds with UBS. Your line is now open.

Hey Brian.

We can't hear anything. I don't know if anyone else can.

Hello Mr. Reynolds?

Brittney would you go ahead and to the next person in the Q&A please?

Yes, we will. Our next question comes from the line of Spiro Dounis with Citi. Your line is now open.

Thanks operator. Good morning guys. Maybe just going back to maybe coming back to NGL pipeline volumes quickly. You guys hit record levels this quarter third-party volumes are coming on to the system. But still a lot of time before Daytona comes online. So, just to between now and Daytona any chance you guys could be offloading volumes? Do you feel like you're pretty secure on that front?

Spiro, this is Scott again. We feel comfortable. I would say that from time to time where we've seen maintenance on the pipeline or managing the start-up of our pump stations along Grand Prix on the West side as well as on the south side. We have from time to time taking the availability of industry capacity where necessary to offload. But with the start-up of pump stations those getting fully energized that gives us a long runway going into 2024. We'll certainly evaluate what that looks like, but we feel comfortable that with the timing of the ramp-up of the volumes how we can facilitate offloads where it may be necessary that we'll look forward to Daytona coming online in the fourth quarter of next year.

To add to that, out of the 660 barrels per day that we moved, most came from the Permian, but there is still a significant portion from the North, particularly from the North Texas and Oklahoma area. We can potentially increase to around 650, maybe low 600s in terms of barrels per day from the West leg once all the pump stations are operational. So, we still have some flexibility leading up to when Daytona starts.

Thanks, Matt. That information is helpful. Turning to the ARB, it seems to be a strong point once again with it being open. Could you provide an update on how things are looking for you now? You're passing inspection, and the new capacity is operational. I assume everything is progressing well.

Yes. Our volumes in the third quarter certainly benefited from increased demand and improved spot opportunities. We were very pleased, with the quarter-to-quarter volume improvement that we saw despite obviously, having to work around the planned outage for required inspections and the completion of our export expansion project. Now, with that expansion project online, we are already seeing benefits of that and we'd expect to see that end in through the fourth quarter. So our volumes in the fourth quarter, we would expect them to be equal to or better than what we saw in the third quarter as the ARB opportunities have improved. First and foremost, we're going to make sure that we're performing for our term contracts and taking advantage of spot opportunities that we can squeeze into our lineup relative to the schedule as we optimize around the facility. We are still learning quite frankly, what the full capabilities will be of this expansion and we will continue to look for ways to optimize in and around that moving forward through the fourth quarter and into 2024.

Helpful color. I’ll leave it there. Thanks, team.

Okay. Thank you.

Thank you so much. Please standby for our next question. Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.

Hi Matt, are any of the constraint issues you observed in Q3 expected to have a lasting impact? Or do you see this as a one-time event and anticipate a strong recovery in Q4? I want to confirm that this was a unique situation and that there are no ongoing issues that might arise in future quarters.

And I guess, are you referring to the volumes in the G&P side on the Delaware or?

Yes, that's, right. Just G&P volumes and what you referred to in the quarter.

It's I think part of it goes back to when we made the acquisition last year of Lucid, there was a lot of growth on the system. And we were immediately offloading a lot of volumes onto Targa. And frankly, it was just kind of behind out in the field laying pipelines and getting compression and it's about a year wait time to get more compression. So we were frankly just a little bit more behind than we wanted to be and those volumes are coming in a little bit later in the year. I don't want to make it sound like come 30 days everything is fixed. We're adding a lot of compression, but we're going to be adding a lot of compression next year too. So we are trying to handle and resolve the pressure issues that we're seeing out in the Delaware, out in the field. We're going to be adding a lot of compression not only in this quarter, but next quarter and throughout next year. So part of that was exacerbated because of the heat and operational issues and upsets that we had. So we're really trying to address and kind of get ahead of where the producers are going. So Pat, anything you want to add to that?

Well, I think we showed the level of confidence in what we think our volume is going to be. We've got two plants under construction, in the process of clearing a third plant site. And we're not building because we don't think the volume growth is there certainly through the producer discussions that we have and what we're seeing getting done and as Matt alluded to, we're behind getting compression in place, et cetera. Some of the producers lag a few weeks, there's equipment delays, et cetera. So I would look at the third quarter's anomaly. Certainly, when you walk into a winter you don't know what weather expectations and what impact that has on production. But I think the key answer there is the underlying business is solid. The activity levels are high and we have a lot of confidence as indicated by what we're investing in the Delaware for future volume growth.

That's helpful. I just want to clarify the capital return framework. So 40% to 50% of operating cash flow will go to equity holders, which could include buybacks and dividends. It seems that this framework effectively allows the company to achieve its growth objectives while maintaining a leverage target of three to four times overall. I'm asking because it feels like a significant change. You have this 50% dividend increase, and the 40% to 50% guidance also suggests a notable increase in buybacks. I just want to ensure I'm understanding that correctly.

Keith, this is Jen. I think what we're trying to do is just provide some visibility into some of the target specific metrics that we look at. If you look at our LTM return of capital as a percent of cash flow from operations here over the last 12 months, you'll see that we're lower than peers lower than the S&P 500 lower than the S&P Energy average. And so part of this is indicating we've had really strong total return performance and believe that we will have strong total return performance going forward, which is really based on the value proposition that we think we provide, significant EBITDA growth continued ability to return and high return organic growth capital projects. And because of that and having a strong balance sheet the ability to also return more capital to shareholders. So one of the big questions we get is, well, how much more and what does that look like and how are you thinking about it? And that's why we're really trying to articulate that this isn't a bright line and this isn't a we must. It's really just instructive as we look out over our multiyear forecast across a number of different scenarios. That's one of the important elements or quantitative metrics that we are looking at. And I think as we think about a multiyear framework so 2024, 2025, 2026, 2027, 2028 five-year planning horizon we look across those multiple years and believe that it's reasonable to say that we will have the business that could support returning that much capital to shareholders and ultimately we've made one decision that we've announced today which says this is our expectation that we'll recommend dividend to our Board for approval effective the first quarter of 2024, and then we'll continue to evaluate. But it is one of the important metrics that I think we are looking at to inform how we believe we can return capital over multiple years.

Got it. Thank you.

Thank you.

Thank you.

Thank you so much. Please standby for our next question. Our next question comes from the line of Tristan Richardson with Scotiabank. Your line is now open.

Hey, good morning guys. I may have missed it in the prepared remarks, but can you talk about any updates you're seeing broadly in the market on the gas solutions side maybe how that market has evolved since you first planted a flag with your potential solution? And then maybe any updates on commercial development of your specific project?

Hi, this is Bobby. I want to emphasize that our focus on APEX and the residue solutions for the Permian Basin remains unchanged. Our main goal is to ensure that solutions for the Basin are developed. We have mentioned the need for a solution around 2026, which is why we are advocating for APEX. The motivation for this initiative comes from a group of investment-grade counterparties, shippers, and markets that have influenced its design. There have been some positive developments, with multiple options starting to emerge for alternative solutions. Ultimately, Targa is committed to ensuring that gas is extracted from the Basin. Whether that involves APEX or another pipeline, we are dedicated to facilitating the construction of whichever project is required for the 2026 timeline. If APEX proceeds, it will be because it meets the criteria for us and the involved counterparties. Should APEX not move forward, we are prepared to support another solution in 2026 to ensure that the Basin can effectively supply gas to our facilities and move NGLs through our integrated system.

Appreciate that context, Bobby. And then I know we've just now gotten the export expansion online. But as we think about Daytona and third-party volumes coming into the frac, do you see the export market starting to tighten up? And then does your capacity today really allow for headroom assuming a reasonable utilization of Daytona once we've been ramping on that asset late in 2024 and into 2025.

Hi, Tristan. This is Scott. Yes, I would say that today the market feels tight. We were very pleased with the timing of our most recent export expansion coming online because we are seeing benefits. And again as I stated earlier we will continue to look for ways to optimize around that capacity and better ways to facilitate movements across the dog. So we're very pleased with that being online. With that said, as we look to as we look at further expansions at our facility, we continuously explore opportunities in the form of small projects or debottlenecking projects at our Galena Park facility that will provide meaningful capacity improvements while being capital efficient. We are very fortunate to have an existing facility today that we have a lot of runway to add projects to that are very capital efficient that will provide us capabilities moving forward. So we'll continue to watch the volume growth in and through our system and we'll time those various projects accordingly. But again, we're very fortunate to already have an existing facility that we can kind of bolt on to very effectively.

Appreciate it, Scott. Thank you, guys and congrats on the capital allocation plan.

Okay. Thank you.

Thank you.

All right. Thank you so much. Please standby for our next question please. Our next question comes from the line of Neel Mitra with Bank of America. Your line is now open.

Hey. Good morning. Thanks for taking my question. Matt, I think you alluded to 200 million cubic feet rolling off in the New Mexico, Delaware. I know there's another probably smaller contract roll off in 2024. Can you speak to the dynamics in that area just because it's so competitive are competitors kind of undercutting you on price to try to win some acreage dedications? Or is kind of the Red Hills complex just so big that some producers want to diversify away and have a few players versus a very big concentrated player in the area?

Yes, sure. Good question. Let me just clarify. I think I did say roll off. It's really contracted volumes that we have coming to us that it was really contracted for it to move. And we're not losing to third-party midstream. That's not where that went. So Bobby do you want to?

Yes, this is Bobby. For clarity, a producer-owned plant has started operations, which has resulted in a daily increase of 200 million to that plant. When this plant becomes operational, we incur more debt, and this has been part of our planning from the beginning. The contracts remain unchanged; they haven't expired or rolled off since the producer plant, which does not take in third-party gas, has come online.

The reason we are emphasizing the 200 million is that we experienced a decline of 75 million from one quarter to the next. However, there was an underlying growth of 125 million this quarter, which illustrates the strength and growth in that business. It was simply a contractual matter, as Bobby mentioned, that it shifted off the system.

And frankly we're backfilling high-pressure low-margin gas with low-pressure higher-margin gas which is kind of what our bread and butter, right?

Yes. Perfect. And then maybe just a follow-up on potential Apex opportunities. Could you maybe bookend the spend you would look at just in terms of 2025 being a lower CapEx year than 2024. And kind of the maximum you would be willing to undertake in that investment for Apex if needed would you be the operator, would you take a small equity interest? How would you go about looking about that to keep the capital down?

Sure, I'll begin and then if others want to add, they can. I believe the next pipeline from the Permian will likely be a joint venture involving multiple midstream companies and producers. This means there could be partial ownership, allowing us the option to join the venture and have an ownership interest, or simply move volumes without owning part of it if a pipeline gets constructed. At the very least, we might not invest any capital into the next pipeline, but we want to keep our options open for ownership opportunities, as that has proven valuable for Targa. For example, our investment in GCX, where we own 25%, allowed us to eventually monetize that stake. We're looking to seize similar opportunities that enable us to invest in projects, and discussions will vary based on which pipeline is pursued, whether it’s Apex or another led by a different entity. As Bobby mentioned, our main goal is to get a pipeline built where we have ownership. If we go the route of project financing, it would result in minimal upfront capital. We have various options available to us. As for our capital expenditures, as Jen previously noted, we expect 2024 to be fairly similar to this year but anticipate a decrease in spending for 2025. Overall, our capital expenditures should trend downward after 2024, and we will aim to optimize our spending within that context.

Okay. Perfect. Thanks for the answer.

Okay. Thank you.

Thank you so much. Please standby for our next question. Our next question comes from the line of Jeremy Tonet with JPMorgan Securities LLC. Your line is now open.

Hi. Good morning.

Hey, good morning, Jeremy.

Given that you are not providing guidance for 2024 and have discussed various moving parts, including some volume trends and the LPG outlook, I am curious if there are any other significant factors we should consider as we formulate our thoughts for 2024. Additionally, how do you see Targa's EBITDA growth trending organically from your current position? Will Targa largely follow the general growth trends in the Permian, or are there other elements we should keep in mind?

As we look ahead to 2024, we are optimistic about achieving strong EBITDA growth not just in 2024 but also in 2025 and beyond. The timing is essential, as you mentioned regarding the shaping of these trends. Our focus starts with the Permian Gathering and Processing business. The volumes moving through both the Delaware and Midland regions will boost NGL transport, fractionation, and exports. The overall outlook for the Permian appears strong for 2024, 2025, and potentially five to ten years into the future, particularly on the gas side. In the short term, the outlook is positive, and it remains strong in the long term as well. Additionally, we have significant fractionation capacity coming online in 2024, including GCF at the end of the quarter, and Train 9 and Train 10. This represents an above-average increase in fractionation compared to typical volume growth. With the recent completion of export expansion, we are well-positioned for exports in 2024. However, the primary driver will be the growth in Permian gathering and processing.

Got it. That makes sense. You mentioned upstream consolidation earlier in the call, and I'd like to shift the focus to midstream. We've observed an increase in consolidation within the industry. From Targa's perspective, do you feel confident about the current state of the business? How do you view Targa's role in industry consolidation moving forward?

I believe our internal business prospects look very positive. We have a strong case for continuing to operate in our core business. Our Gathering and Processing operations in the Permian, which hold the largest G&P footprint in the Permian Basin, will provide us with multiple years of growth. We are in a fortunate position to focus on Targa. We plan to invest in G&P, transportation, as evidenced by our Daytona project, and in fractionation, where we are bringing online three new fractionators. We will also continue to invest in export capabilities. When it comes to considering bolt-ons or acquisitions, that is further down our list of capital priorities. Our primary focus is on executing the organic growth projects we currently have and increasing the distributions to our shareholders, aiming for a 40% to 50% increase over time. While this won't happen in any single year, we believe we can achieve all these objectives: distributing 40% to 50%, lowering our leverage, and investing in our business. Right now, our attention is on Targa and executing our planned initiatives.

Got it. Makes sense. That’s helpful. I’ll leave it there.

Okay. Thank you.

All right. Thank you so much. One moment for our next question please. Our next question comes from the line of Sunil Sibal with Seaport Global. Your line is now open.

Yeah. Hi. Good morning, everybody, and thanks for taking my question. So my first question related to some of the operational issues et cetera in the third quarter that you talked about. In addition to I think the weather and compression some of the operators have also talked about higher CO2 concentration in the gas streams. I believe that's an issue Targa is pretty familiar with. So I was curious, how do you handle that going forward? And also, does it kind of accelerate your CO2 sequestration solution?

This is Pat. CO2 wasn't really a major contributor to operational issues for us in the third quarter. We have a lot of capabilities and are adding capabilities to handle CO2 and frankly H2S sour gas. We do see CO2 production growing in the Delaware Basin specifically. There are a lot of producers that do things at the wellhead that are capital inefficient and expensive for them to do. So as we move forward, we are putting infrastructure in place that allows us to handle high CO2 volumes, sequestering CO2, dealing with sour gas H2S and other components, but as far as the operational issues I mean, you hit it. It's weather, a little late on compression, residue gas pipeline issues which is more felt in the Delaware because we don't quite have the system fungibility in the Delaware that we do in Midland. We're building that infrastructure, as you can see from our capital spend. We've gotten a lot of benefit from integrating our Northern Delaware or Lucid system with our other two Delaware systems. But over time, when we have issues on specific plant sites and/or compressor sites, we'll have that fungibility where we can move gas around and keep production flowing. It's a little more exacerbated right now. And as we move forward that will get better. So that's kind of where we're at right now and it looks better forward.

This is Bobby. On the CO2 sequestration front, we have been advancing several projects. Public filings regarding MRP plans that are already set and the wells we have permitted are available. This progress will continue. These businesses do not rely on an increasing amount of CO2 in the stream. However, if CO2 concentrations rise over time, it would benefit the CO2 business. We anticipate starting to receive 45Q incentives this coming year. As the composition in the CO2 stream improves over time, we already have the necessary assets, wells, and injection capabilities in place, which will enhance the 45Q credits and the profitability of this business.

Okay. Thanks for that. And then on the capital allocation front, thanks for providing that clarity. I was just curious now that you put some guardrails around that does that impact also your targeted returns on investments? I know previously we talked about 5x to 7x kind of multiples. Does that range change in any way with the guardrails that you're putting around?

I think that we have a lot of organic growth capital investment opportunities at higher returns as we look out across our footprint. That's part of why the fee floor structure has been so important allowing us to continue to invest to support our producers' activities even in lower and across lower commodity price environments. So as we look forward, I wouldn't say that anything that we've described today around return of capital is changing how we think about investments or investment opportunities. We've described it as a multiyear approach, where we believe we can distribute call it 40% to 50% of cash flow from operations. But ultimately, we'll be assessing everything across the business including balance sheet, stability, organic growth opportunities, everything that is involved in a Targa forecast and then sensitivities of those forecasts to ultimately drive the return of capital decisions each year. But that's one of the ways that we're certainly thinking about it.

Got it. Thanks for the time.

Thank you.

Thank you so much. Please standby for our next question. Our next question comes from the line of Neal Dingmann with Truist Securities.

This is Jake Nivasch on for Neal. Thanks for the question. I just had one quick one here. Just strategically, I know given how all these fee-based contracts have been ramping up for you guys over the past several years. Just at a high level, I'm just curious do you feel now that you're in a good state as a percent of your contracts being fee-based? Or should we expect a little bit more of a ramp going forward? Have you – if you can quantify that that would be great. But really just thinking strategically, where are we at with that kind of transition here. Thank you.

Yes, so this is Matt. And then Jen, if you want to add on. Yes, we've made a lot of progress at adding or really having fee-based growth in both our G&P business and our downstream business but also putting in fee-based floors and components into our G&P business as contracts come up. Yes, as you look at really through this year, where we've had fee floors and those hybrid contracts we are kind of at or below the floors. So as you think about just kind of earnings power going forward, most of those are at or below. And so as we get some tailwind, if we get some tailwinds from commodity prices that would just be upside. But on those fee floor contracts there's not a lot of downside from here. So we think we're in a good spot.

And I'd just add that our commercial team has done a great job of putting ourselves in a position to continue to invest for producers by getting those fee floors in place. But ultimately, if commodity prices are higher and our percentage of fee margin is going down from our gathering and processing business because commodity prices are higher. I think that will be a huge win for us and our shareholders and that's one of the reasons that we really like the fee floor structure. Ultimately, where we'd like to get to is having fee floors in really all of our gathering and processing contracts or have them be fee-based because that combined with our fee-based downstream business just provides us with a lot more cash flow stability across commodity price environments. So ultimately, that's sort of the direction that we're heading in. And our teams have done a great job of pushing us towards that.

Got it. Thank you. If I could just squeeze one more in and I know we've touched on this a few times but I just want to clarify something. So the compression issues that you guys have seen it sounds like things have improved – but does that mean – because things have been delayed and I know you guys mentioned, you have a good amount coming in 2024 as well. Does that mean the delays pushed back the initial 2024 orders? Or should we just expect I guess more of an acceleration or just a little bit more in 2024 given these delays here. Just trying to get clarification here.

Yes, I mean for the most part those have been ordered. Part of it was delivery delays. So I don't know that the CapEx shifts – necessarily shift all that much. We're just really constantly kind of buying compressors and adding to inventory. So there's some flex there but it just does take some time there. And then one thing to note too, as we're kind of waiting on those compression delays, we're still coordinated for the most part with our producers such that we can capture the initial production from there. So we're working with them to make sure we're there for the IP and that we're getting that production. So it's not really lost, it's just kind of deferred and pushed into other periods.

Yeah. That's makes sense. Okay. That's it for me. Thank you, guys.

Take care.

Thank you.

Thank you very much. Our final question comes from Brian Reynolds at UBS. Please go ahead.

Good morning, Brian. We can't hear you.

Hello. Can you hear me?

Yeah. There you go, Brian.

Yeah. There you are. We can hear you.

Thank you. I apologize for the earlier issue this morning. Regarding the Permian, it appears that Targa is not yet nearing full integration of GMP assets into the NGL long haul. I understand that all the Midland volumes are transported downstream via the Targa integrated system. Can you discuss the Delaware volumes that are not being moved downstream by Targa? Is it approximately 50%? Also, how should we anticipate these volumes transitioning to Targa's long-haul system in 2024 or 2025 to reach the full 100% integration?

Sure. I would say that a significant portion of our Gathering and Processing business is directing liquids into our downstream operations. While reaching 100% is not really a target for us, there will always be some volumes flowing through third-party pipelines. Most volumes on the Midland side are transported effectively, but it's not a complete 100%. In the Delaware, we have a majority of volumes, although some legacy agreements and recent acquisitions mean that this will take time to fully integrate. As we expand, a large part of our growth will be linked to our targets, and I expect this trend to continue. I see the number of volumes moving upward as we progress. Overall, I believe we are in a strong position to capture the majority of volumes across the Permian and channel those into our downstream assets.

Great. Thanks. And as a follow-up I know you talked about CapEx a little bit but kind of curious if you could help sensitize us a little bit if we think about G&P capital three processing plants and perhaps the need for frac 11, as we look ahead of 2025 how would that look to 2024? Is it 1.5, 1.7 or something like that? And then, ultimately ethane exports is very intriguing part of the business and NGL value chain at this point seems to be getting more competitive based on announced projects. Is there an opportunity for Targa to participate as we look to the middle to end of the decade? Thanks.

I think for capital expenditures, we expect 2024 to be at similar levels as before, which I would describe as higher than the usual run rate due to the variability in our downstream projects. Therefore, we are optimistic about potentially seeing a decrease in 2025, followed by a more normalized rate after that. Regarding ethane exports, there are several expansions and companies involved in this area, which we have discussed previously. We have the capacity for it, but our main focus right now is on enhancing our connectivity to the domestic petrochemical market and providing flexibility to other customers who require ethane. While it's on our radar, it is not a top priority at the moment.

Yeah, I would just add that we are continuously improving our deliverability from our system to the domestic petrochemical operators in and around Mont Belvieu and the surrounding area. This will be a primary focus as we anticipate volume growth continuing over the next several years. With the increase in ethane consumption from those petrochemical plants, we believe we'll capture a significant portion of that due to our own upstream growth and assets.

Great. Thanks. Appreciate all the color and have a excellent morning.

Okay. Thank you.

Thanks Brian.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.