Earnings Call Transcript - TRGP Q4 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Targa Resources Fourth Quarter 2025 Earnings Presentation. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Tristan Richardson, Vice President of Investor Relations and fundamentals. Please go ahead.

Tristan Richardson, Vice President of Investor Relations

Thanks, Liz. Good morning, and welcome to the Fourth Quarter 2025 Earnings Call for Targa Resources Corp. The fourth quarter earnings release, along with the fourth quarter earnings supplement presentation for Targa Resources that accompany our call are available on our website at targaresources.com in the Investors section. An updated investor presentation has also been posted to our website. Statements made during this call that might include Targa's 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; Jen Kneale, President; Will Byers, 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; Bobby Muraro, Chief Commercial Officer; and Ben Branstetter, Senior Vice President, Downstream Commercial. I'll now turn the call over to Matt.

Matt Meloy, Chief Executive Officer

Thanks, Tristan, and good morning. Before we discuss our results, given this is Scott's last earnings call before his retirement in a couple of weeks, we wanted to thank Scott for his 35 years of service to Targa and our predecessor companies. Scott will leave a lasting legacy at Targa. And while we are going to miss him, we are excited about this next phase for Scott, Marcy, and the rest of his family. On behalf of the whole Targa team, thank you, Scott. You leave the team in great hands with then taking over for you. And Ben, we're really excited to have you on the executive team.

Scott Pryor, President, Logistics and Transportation

Matt, thank you for your comments about my retirement. It's been an extreme pleasure to work alongside the Targa management team for the past many years. I look forward to watching our continued success while in retirement, knowing that our employees and this management team will continue to focus on safety, customer service, and reliability and do so with a high level of integrity. Thank you to my friends and colleagues in our offices and field operations. I've been a part of a great team here at Targa, and it's been my pleasure to stand on your shoulders. Thank you.

Matt Meloy, Chief Executive Officer

Thank you, Scott. And now turning to our results. 2025 was another exceptional year for Targa with record volumes across our integrated footprint, which drove record financial performance. Permian volumes grew 11% for the year, an increase of more than 600 million cubic feet per day. NGL transport volumes increased by almost 170,000 barrels per day. Frac volumes increased more than 120,000 barrels per day, and we also had record LPG export volumes. Our operational performance translated into a record $4.96 billion of adjusted EBITDA, more than $800 million higher year-over-year. We are almost 2 months into 2026, and our momentum continues as we estimate another year of low double-digit Permian volume growth. Our expectations for 2026 are consistent with our previous commentary and our outlook for '27 and beyond has only improved. We had strong commercial success in the Permian in 2024 and 2025, adding several billion cubic feet per day of gas volumes over and above our existing volume growth from long-term acreage dedications. Our best-in-class footprint generates significant growth opportunities as we continue to expand our system and bolt-on growth projects. This commercial success further adds to our long-term growth rate and gives us confidence in our capital program. Our returns on investment over the last several years have been best-in-class, and we're investing in the same types of projects that generated those attractive rates of return. So with this outlook for strong volume growth, we are announcing 2 new projects today, our next Delaware processing plant, Yeti II, and our 13th fractionator in Mont Belvieu. We are also ordering long lead items for 2 additional plants in the Permian planned for early 2028. That is 8 plants over the next 2 years, giving us line of sight to an incremental 2.2 billion cubic feet per day of additional processing capacity and gross NGL production of approximately 320,000 barrels per day. For perspective, this incremental plant infrastructure alone would amount to the fifth largest processor in the basin. This type of volume growth and commercial success we're experiencing is driving more plant and field capital in the Delaware than in previous years. These projects represent more of the same from Targa, attractive investments across our integrated system. As we have talked about throughout 2025, we are in an elevated growth capital environment as we invest in G&P and Downstream infrastructure. Our larger Downstream projects, including Speedway and our LPG export expansion, are set to come online in the second half of 2027. Following the completion of these projects, we expect to have lower downstream capital spending for years to come, while our EBITDA is expected to be meaningfully higher, which results in a strong free cash flow profile. In a high single-digit to low double-digit Targa Permian volume growth environment or about 3 plants per year, we would expect multiyear growth capital spending to average around $2.5 billion annually post-Speedway. This compares to approximately $1.7 billion in the illustrative case we shared in 2024. Our updated illustrative case is higher because we assume around 3 plants per year versus 2 plants previously. We also assume proportional G&P field capital and Downstream spending, including fracs, residue projects, and some carbon capture investment. We would note our post-Speedway multiyear growth capital assumes minimal NGL transport and LPG export capital for years. And based on our current visibility, we expect Targa reaching run rate adjusted EBITDA of over $6 billion following the completion of Speedway. This combination puts us in a position to continue to invest in growth while generating significant free cash flow for years to come. This continues to align with our focus at Targa: grow adjusted EBITDA, grow our common dividend per share, reduce our common shares outstanding, all with an investment-grade balance sheet and once Speedway is complete, also generate significant and growing free cash flow. Before I turn the call over to Jen, I want to thank our employees for their ongoing commitment to safety, reliability, and delivering best-in-class service to our customers. Your efforts were essential to another record year for Targa in 2025, and we have already seen you rise to the challenges of managing successfully through the cold winter weather in January. With that, I'll turn the call over to Jen.

Jennifer Kneale, President

Thanks, Matt. Good morning, everyone. In the fourth quarter, our Permian volumes averaged a record 6.65 billion cubic feet per day, up 10% from last year as strong producer activity continued across our systems. We indicated on our November earnings call that we had seen some producer shut-ins from sharply negative Waha pricing in the fourth quarter, but those volumes came back on our system, so we ended up with slightly higher fourth quarter volumes. In January, the impacts of winter storm Fern reduced volumes across our operations. But thanks to the hard work of our employees, our assets proved resilient, remaining online and ready to receive volumes once temperatures improved. Our volume outlook is a result of the continued strong activity we are seeing from our customers across our G&P footprint. And as Matt mentioned, we had strong commercial success in 2025, adding approximately 350,000 dedicated acres. Also, we completed the acquisition of Stakeholder and 2 bolt-on producer transactions, adding approximately 2 million acres in areas of mutual interest and nearly 500,000 dedicated acres, adding to our long-term growth rate. In 2026, we look forward to placing our next 3 processing plants in service, including Falcon 2 in the Permian Delaware and East Pembrook and East Driver in the Permian Midland. We continue to expect our new plants will be much needed at startup. Our Falcon 2 plant is expected to come online ahead of schedule and is currently in startup, and our remaining announced plants underway for 2026 and 2027 remain on track. Also, we announced a new plant in the Delaware to accommodate the activity that we are seeing from our customers. Our Yeti II plant is scheduled to be in service in the fourth quarter of 2027. And as Matt mentioned, we are ordering long lead items associated with our next 2 Permian plants for early 2028. Additionally, we continue to add connectivity and redundancy to our Permian residue capabilities with our announced in-basin natural gas projects, including the Bull Run extension, Buffalo Run, and Forza, which all remain on track, subject to the receipt of the necessary regulatory approvals. As demonstrated over the last number of years, we have taken a deliberate approach towards enhancing flow assurance for our customers and have a portfolio of gas takeaway to access multiple premium markets. The Blackcomb and Traverse pipelines, where we have a 17.5% equity interest are currently under construction, and Blackcomb is expected to be in service in the fourth quarter of 2026 and to traverse in 2027. While we do see the Permian natural gas egress environment improving as we exit 2026, we expect natural gas prices at Waha to remain volatile throughout much of the year. Importantly, the prospects for sustained higher Waha prices with improved egress are a long-term positive for Targa and our Permian producers. Turning to our Logistics and Transportation segment, NGL transportation volumes in the fourth quarter averaged a record 1.05 million barrels per day, and our NGL transportation system continues to run full. Fractionation volumes averaged a record 1.14 million barrels per day, and our LPG export volumes averaged 13.5 million barrels per month. Our Delaware Express project, frac trains 11 and 12, Speedway, and our LPG export expansion all remain on track and will be much needed at startup. Train 13, which we announced today, will support continued NGL supply growth from our Permian systems as we look to 2028 and beyond. We are well-positioned operationally for the near, medium, and long term and believe that our leading customer service-driven wellhead-to-water strategy puts us in an excellent position to continue to execute for our shareholders. Our strategy is unchanged as we execute the same core projects with strong returns along our integrated value chain in the same core areas where we have been building Targa for years. I will now turn the call over to Will to discuss our fourth quarter results, outlook, and capital allocation. Will?

William Byers, Chief Financial Officer

Thanks, Jen. Targa's reported quarterly adjusted EBITDA for the fourth quarter was $1.34 billion, a 5% increase over the third quarter. The sequential increase was attributable to higher system volumes and greater optimization opportunities in our marketing business. Full year 2025 adjusted EBITDA was a record $4.96 billion, a 20% increase over 2024, supported by record financial and operational performance across the company. We also benefited from stronger marketing with approximately $150 million of higher-than-expected optimization opportunities across 2025. We invested approximately $3.3 billion in growth capital projects in 2025 as we executed on our Permian and downstream expansions. Net maintenance capital was $226 million. We continue to return meaningful capital to our shareholders, opportunistically repurchasing $642 million of common shares at a weighted average price of $170.45 during 2025. Over the past few months, we have been focusing on completing and integrating our recent bolt-on transactions, and our long-term capital allocation strategy is unchanged. We continue to expect opportunistic repurchases to remain part of our all-of-the-above framework in 2026 and beyond. At year-end, our net consolidated leverage ratio was approximately 3.5x, well within our long-term target range of 3 to 4x. Our available liquidity as of January 31, 2026, which includes funding the stakeholder acquisition and redeeming the 6.875% notes due January 2029, was approximately $1.9 billion. Turning to 2026, we estimate full year adjusted EBITDA to be between $5.4 billion and $5.6 billion, an 11% increase over 2025 based on the midpoint of our range. We expect approximately $4.5 billion of growth capital spending in 2026, supporting our major projects and continued volume growth. Our cash flows are greater than 90% fee-based, and we have hedged the majority of our non-fee margin for the next 3 years. The increasing fee-based margin and fee floors in our G&P business continue to provide cash flow stability and preserve the upside when commodity prices increase. To highlight the fee-based nature of our business, a 30% move higher or lower in commodity prices based on recent strip pricing would represent less than a 2% change relative to the midpoint of our 2026 adjusted EBITDA guidance. We expect to end 2026 with our leverage ratio comfortably within our long-term target range, even with our recent acquisitions and a strong growth environment driving higher growth capital spending, highlighting the continued flexibility and strength of our balance sheet. Additionally, as a result of the return of bonus depreciation and based on our current assumptions, we do not expect Targa to pay meaningful cash taxes for the next 5 years. We are in excellent financial shape with a strong and flexible balance sheet, and we are well positioned to continue to create value for our shareholders. And with that, I will turn the call back to Tristan.

Tristan Richardson, Vice President of Investor Relations

Thanks, Will. Operator, please open the line for Q&A.

Operator, Operator

Our first question will come from Jeremy Tonet with JPMorgan.

Jeremy Tonet, Analyst

Just wanted to kind of start off with the outlook ahead for 2026. You've seen steady growth there, double digits, whereas others in the industry, we've seen some retrenchment in forward expectations. I'm just wondering if you could walk us through a bit more what's driving Targa's resiliency and the growth outlook in '26 and versus others? And I guess, what do you see post '26 that gives you confidence in future above-average growth?

Matt Meloy, Chief Executive Officer

Thank you, Jeremy. I'll begin, and if Jen or Pat would like to add, they can. Our outlook is driven by our extensive presence in both the Delaware and Midland basins, our solid relationships with producers, and the ongoing drilling activities of our existing customers. We've achieved significant commercial success in 2024 and 2025, which is enhancing our already impressive growth rate on dedicated acreage. It’s essentially a mix of our current customers continuing to drill and expanding our footprint. This trend is also reflected in our recent acquisitions and the large projects we discussed for 2024, which are contributing to our volume growth. We anticipate that 2026 will be very strong, targeting low double-digit growth, consistent with what we projected last year for 2026. Our commercial success and the activity seen in our producer forecasts make us optimistic about 2027 and beyond based on current insights.

Jeremy Tonet, Analyst

It's encouraging to hear that. This relates to my next question about the $2.5 billion in capital expenditures, which seems to be mid-cycle and higher than previously planned, along with an additional plant compared to your earlier projects. Could you explain the factors driving this change? Are you anticipating even stronger growth than what you expected previously, which is the impression I'm getting?

Jennifer Kneale, President

Jen mentioned that the purpose of the slide was to consolidate information we've been discussing with investors regarding Targa's next transformation, particularly as our EBITDA exceeds $6 billion annually once Speedway is operational. Looking ahead, we anticipate significant free cash flow generation across various growth scenarios, estimating a range from high single-digit to low double-digit growth. This expected growth is supported by contracts we've secured over the past few years. We also highlighted the commercial success we've had, crediting our commercial team, supported by operations, for identifying growth opportunities within our extensive footprint. In terms of capital spending in the years following Speedway and our LPG export project, we are starting from a larger base due to our growth over the last two years. We're projecting an investment equating to about 2.5 to 3 plants, which will also necessitate additional spending for field and compression needs. Furthermore, we have seen a rise in spending for residue and are considering aspects like carbon capture. Overall, these factors indicate a strong potential for free cash flow as we complete the Speedway and LPG export expansion projects, which are our two most significant undertakings at the moment.

Operator, Operator

Our next question comes from Theresa Chen with Barclays.

Theresa Chen, Analyst

I'd like to unpack that 2027 plus inlet growth assumption that high single-digit to low double-digit rate. How much of this growth is a result of growing with your producers for their plans? Are there key commodity price assumptions here that underlie this range? Is it contingent upon additional commercial wins or further tuck-in M&A? Any color here would be great.

Matt Meloy, Chief Executive Officer

Yes, sure. As we look at our multiyear forecast, we'll receive individual forecasts from our producers, including both larger independents and major companies, who typically provide several years of projections. Over the past 90 to 180 days, we've noticed consistent upward revisions from multiple producers. This trend is particularly evident in the Delaware region compared to Midland, where there is more activity and a diverse array of customers. The outlook for Delaware is becoming increasingly positive. We also announced a new plant in Delaware today, along with additional infrastructure for two long lead plants, both likely located in Delaware. This represents significant infrastructure development in that area, which boosts our confidence for 2027, 2028, and beyond in our long-term growth outlook. I believe that 2027 will show stronger performance than we previously anticipated last year. While we’re not commenting on growth for 2026 or 2025, the longer-term projections indicate a stronger growth rate than we had expected at this time last year.

Theresa Chen, Analyst

Understood. And just looking at the results to date, so much of the momentum recently has been a result of commercial success executed a while ago and now coming to fruition. And is a loaded term given the competitive environment in which you operate. On a go-forward basis, how should we think about the durability of your commercial success and your ability to replicate it over time?

Matt Meloy, Chief Executive Officer

Well, I mean, I'd say what's great is even if we don't have a significant amount more commercial success, we're going to have really strong growth for years to come. If you just look at the millions of acres, we have dedicated. So what we've done is we've just added to our existing really robust growth profile from our existing customers, and we have a really good commercial team. And so if we can find accretive either bolt-on acquisitions or step-out projects, we'll continue to add to that. But I would say we don't need it to fill the plants up that we've announced, and we don't need it to continue to grow in the Permian. I think further commercial success would just be additive to the growth rate that we're looking on now.

Jennifer Kneale, President

I'd just add, Theresa. We reached final investment decisions on the projects that we move forward with based on the contracts that we have in hand. There is an assumption of future growth from contracts to be identified in the future or anything else. It's based on what is already executed and how we best position ourselves to service those already executed contracts as we move forward through time.

Operator, Operator

Our next question comes from John Mackay with Goldman Sachs.

John Mackay, Analyst

I’d like to delve a bit deeper into this topic. It seems you are continuing to capture market share in the basin. Theresa touched on this, but I'd like to follow up. Are you still experiencing the same margins you've historically seen? Or, more generally, could you discuss the margin per M trajectory you have been observing?

Jennifer Kneale, President

John, this is Jen. Yes, you should expect that we will continue to perform consistently in line with our track record regarding our returns. We have excellent producers already secured with long-term contracts, and I believe we're doing a great job executing at a high level for them. It all begins with our operations team, our engineering team, and the supply chain, ensuring we have all the necessary assets to build so we can support our producers effectively. Our advantages, such as having the largest sour system in the Delaware and the most extensive footprint across the entire Permian, position us well, as Matt mentioned, to undertake economic step-outs from a capital standpoint while continuing to generate returns that align with our proven track record. This isn't about us accepting lower returns to keep executing; rather, it's about collaborating effectively with our producers to maintain our strong performance and ensure their volumes flow. We're very proud of how effectively our team is continuing to execute from the wellhead down to the water.

John Mackay, Analyst

That's absolutely clear. Maybe just a follow-up is you guys are talking about a lot of gas here. Maybe to share your kind of medium- and longer-term view on Waha at this point?

Bobby Muraro, Chief Commercial Officer

This is Bobby. Yes, I think we are excited. There's been a lot of public commentary about the pipes that are coming online later this year. We'll be excited to see those pipes come online as well as others further out the calendar in '28. I think it's going to be what it's been in the last 10 years, which is going to be a bumpy ride as assets come online, we'll be in good shape on differentials, and then we'll fill those pipes up and new ones will come online. So when you think about the medium and longer term, I think we see in our view, more pipes coming after the ones that have already been announced. But it will be kind of the same oscillating mechanic where we felt the pipes' basis gets rough, and then new pipes come online and fix it and more people will have to underwrite more pipes going forward after the ones that have already been announced.

John Mackay, Analyst

Sorry, just to make sure we're hearing you right. I guess your view right now is the current set of pipes coming should be mostly filled kind of as they come online?

Bobby Muraro, Chief Commercial Officer

I don't think that's right. I think they will fill up over time. I think they'll fill up probably, I'll say, faster than people expect at the end of the day with the results we're seeing in the Permian from our customers. But it is a ramp over time. At the end of the day, the day you turn on a 2 or 2.5 Bcf pipe, there is an all of a sudden 2 Bcf or 2.5 Bcf of new residue that day. So they do take a little bit of time to ramp up. Maybe you see a little bit more this time with shut-ins that we've heard about the Permian on other systems. But at the end of the day, they will take time to ramp up, but it's the same thing every time. It's the same story, just a different year.

Operator, Operator

Our next question comes from Keith Stanley with Wolfe Research.

Keith Stanley, Analyst

First, I just wanted to clarify, I think you said $150 million of upside from marketing last year. What are you assuming on marketing for this year relative to 2025? And what potential opportunities do you think there could be to capture this year?

Jennifer Kneale, President

Keith, this is Jen. That's right. In our scripted comments, Will said that for 2025, we had about an extra $150 million of marketing benefits. I'd say that consistent with what Bobby just answered, we believe that this is going to be a little bit of a bumpy ride as we move through 2026 around Waha pricing, particularly to the extent we have planned and/or unplanned maintenance from pipes that are taking Permian gas volumes out of the basin to the extent that, that occurs, that will create additional marketing opportunities for us. We're largely focused on making sure that our producer volumes move. We're in an excellent position to do that. And so as you think about our 2026 guidance, I think consistent with our past practice, we're very conservative about how we forecast marketing gains. We've got, call it, 1.5 months here of the year where we have really good visibility. And then we've got the balance of the year where I think there could be some incremental opportunities, but we haven't factored that in a material way.

Keith Stanley, Analyst

Got it. And second one, kind of following up on some of the earlier ones, but just taking the Delaware by itself, for example, you're building 4 plants now. You just said the long lead items for the next 2 plants here also in the Delaware, so that's 6 plants in the Delaware. How much of the growth outlook there would you attribute to the Delaware just booming versus Targa is taking market share or getting a disproportional amount of the market, given a competitive advantage?

Matt Meloy, Chief Executive Officer

Yes. I mean, it's hard for us to really know how much is market share gains. I don't know what's happening on other systems as we look out several years. I'd say what we've seen from several of our producers where we've had some underlying acreage dedications come back to us with revisions to the upside. In one producer, it might be 50 million a day, it could be 40 million a day, it could be 150 million a day. We've had several of those over the last 6 months, which is just adding to our outlook. I would suspect others are having that on other systems as well. So it's a little hard for us to know how much is just total growth from the Delaware versus share gains. We kind of learned a little bit about that in hindsight. I'd say we're pretty aware of all the opportunities out there. We don't win everything. I think we win our fair share, and we have really strong and active producers and just a lot of acreage already dedicated to us, and there's just a lot more activity on.

Jennifer Kneale, President

I would like to add that the acreage we have dedicated to us has demonstrated resilience as rig counts have decreased in the Delaware. We have maintained strong consistency over the past couple of years, and we expect this trend to continue. Part of this can be attributed to gaining market share as rig numbers have fallen in other areas, but it is not solely due to an increase in our existing acreage. Instead, it reflects our consistent performance and improved results from the ongoing activity on our land.

Operator, Operator

Our next question comes from Manav Gupta with UBS.

Manav Gupta, Analyst

I wanted to ask you something which is more of an upstream question, but two of your biggest customers are very actively talking about it. They're basically saying, look, our Permian recoveries are improving as we put more science into it, whether it's AI, whether it's lightweight proppants, whether it's surfactants. And so they're basically saying the Permian rates of returns are improving because our wells are performing better as more science is going into that. I'm just trying to understand based on what you're seeing out there, are you also seeing that as more of these newer technologies are going into Permian, the well recovery is improving, which is obviously very positive for Targa?

Jennifer Kneale, President

Manav, I would just say that I think it's a combination of factors. It's, I think, really exciting for all of us to hear about the technological developments that our producer customers are making and their excitement about the implications for their improved efficiencies going forward and improved rates of return because of the success that they're having. I think that's part of what we're seeing. I think we're also seeing just the benefits of improving GORs in certain areas of operation, frankly just more gas coming out of wells than was forecasted as well being a factor too. So for us, I think it's a combination of factors. The technological developments and the impact on individual wells, I think we really have to look to our producer customers and what they are saying for the real commentary around that. But I think there's a variety of factors that are contributing to us seeing more gas coming out of wells than were previously forecasted.

Robert Muraro, Chief Commercial Officer

Yes. This is Bobby. Both those acquisitions were from producers that we have really strong relationships with and have for a long period of time and discussing their plans going forward and how they're going to work at it seemed to make more sense for us to own those assets and build out the systems. And we're excited about it because it also gives us some assets in areas where we can go leverage and grab more acreage as we move through time. At the end of the day, it was kind of a testament to relationships we have with producers and working with them on a day-to-day basis to make sure they've got what they need to drill their wells and bring gas to us.

Operator, Operator

Our next question comes from Michael Blum with Wells Fargo.

Michael Blum, Analyst

Maybe just to stay on the conversation around growth and what's going on out in the Permian with your producers. I was wondering if you could talk a little bit more about Slide 16, which references deeper zone development and maybe what your producers are seeing there and how that may be contributing to your robust outlook?

Matt Meloy, Chief Executive Officer

Yes. What we've seen is, I'd say, some early activity from some of our producers in that zone. So most of our growth is from traditional formation, traditional zones, but we are starting to see more activity from a number of our producers in the deeper zones. So what we wanted to highlight is, as you look out over the longer term, this, as the Barnett, Woodford gets developed, it could add to our longer-term growth rate. There's some piece of that; there's a little bit that's in '26. And as you move out, there's some more potential as you go forward. But we kind of view that as more of an upside over the next several years that could get developed. And we're seeing more producers get active, and we've seen early well results be pretty positive there.

Michael Blum, Analyst

Okay. I understand. Given the recent volatility at Waha and the marketing profits reported for 2025, can you remind us how much open pipeline capacity you have to take advantage of wider spreads? Additionally, in your opening remarks, you mentioned benefiting from improving Waha prices. Can you clarify how much direct exposure you have to Waha prices at this time, considering you hedge most of it? I would like to understand both aspects of this situation.

Matt Meloy, Chief Executive Officer

Yes, Michael. So we have, I'd say, significant transport positions to multiple locations. And as Jen kind of talked about this earlier, it is for flow assurance for our customers to make sure we can get it out. Our primary concern is making sure our customers can produce the gas and we can move that gas to market. So that's kind of where we start. Now, a lot of that does create a basis position for us. And so we have the opportunity when there is some price spread to capture some of the differential on those transport positions. We do hedge a lot of that and try and reduce that risk over multiple years. We haven't outlined an exact amount of what that position is because it's frankly always changing, too. We're always hedging it. We're always trying to just make sure we have transportation to multiple markets; it's a fluid number. But that is what you see from us is when you see weak prices and even some volume downside from shut-ins, we do have an offset in the transportation position. For us, longer term, I think we benefit more by having plenty of takeaway higher Waha prices because a lot of our contracts are fee-based, but also fee floors. And so when Waha moves higher and we have NGL prices around where they are, you could see us benefit from some upside from higher Waha prices. And I would say I think we have more length there. So it's just kind of that in-between area where we're not really benefiting from marketing, and we have low prices. That's really how we guide and factor in our multiyear forecast is in not being above the floors and not having a lot of marketing. So to the extent it moves up or moves down, I'd say we have some upside really in either direction.

Operator, Operator

Our next question comes from Jean Ann Salisbury with Bank of America.

Jean Ann Salisbury, Analyst

One kind of bear case, I guess, what I've heard is that you've seen ethane recovery go up pretty materially as Waha price has been distressed over the last year or 2. Do you see any risk that once the Permian gas pipelines come on, Waha price is a little better that, that could be a headwind, at least a noticeable headwind, I suppose, to ethane recovery and therefore, volume growth?

Matt Meloy, Chief Executive Officer

No. I mean, Permian is generally recovering. There has been a significant dislocation. What we observe is that when economics change, there is a rejection in other areas, whether in the Mid-Continent or Rockies or elsewhere. But overall, Permian has primarily been recovering, even during times of price dislocation. We have been recovering, we expect to continue recovering, and that expectation is reflected in our forecast.

Operator, Operator

Our next question comes from AJ O'Donnell with TPH.

Andrew John O'Donnell, Analyst

I was hoping I could just give a little bit more detail on the bridge on the new CapEx budget a step up of $1.2 billion. Apologies if I missed this during the prepared. But curious if you could provide some detail on how much is being driven by the new plants and frac 13 versus additional field capital compression for the legacy system and your recent acquisitions?

Jennifer Kneale, President

Sure, AJ. This is Jen. The items you mentioned are straightforward to address. We have the Eddy 2 plant in Delaware and frac Train 3, with costs aligned with our previous estimates for new plants and fracs. We also announced that we are ordering long lead items for our next two plants in the Permian Delaware, which we've factored into our guidance. Historically, we announce these long lead items as we finalize locations and make key decisions before proceeding with final investment. Therefore, you can expect some spending around that as well. Additionally, we've planned significant expenditures for field gathering lines and compression to support our existing core contracts and the incremental spending related to the commercial achievements mentioned by Matt. We've included useful information in our slides regarding our commercial success. It’s also important to note that we've noticed longer lead times for items such as pipe, compression, and power generation assets. Consequently, we need to accelerate our spending to prepare for the expected growth in '27, '28, and beyond, ensuring that we maintain our ability to provide excellent service to our producers.

Andrew John O'Donnell, Analyst

Great. And then maybe if I could just sneak one more in. Just the overall basin thinking about some of the higher GORs that you outlined in your deck. And just kind of wondering from that context, if we see overall Permian oil production flat in 2026, can you give us your latest updates on how you think overall rich gas production could trend in an environment like that, maybe exit to exit?

Matt Meloy, Chief Executive Officer

Yes. I mean we've outlined in our investor presentation; we kind of talk about if crude is growing x, that means gas is going to grow y, and then we've outperformed that. And so if you look at the latest forecast that we use, we're not necessarily saying it's right, but there's a 4% spread would suggest if crude is growing x, gas is going to grow 4% higher than crude. If you look at recently, it's maybe even a little bit higher than that. So maybe it's even potentially more than that. And then we've typically, over the last several years, have outperformed the basin. So that would point to our growth rate being even higher than that. So I think even in an environment where we have flat to modest crude growth, gas should grow higher from higher GORs, and some of the zones that they're targeting just are more gassy and from our continued strong performance in the basin. So I think it points to a really pretty strong growth outlook for us even in a slow to modest growth for crude.

Operator, Operator

Our next question comes from Ameet Thakkar with BMO Capital Markets.

Ameet Thakkar, Analyst

Just one quick one for us. It looks like you guys had a nice sequential increase in fourth quarter export volumes, but it's I think about 3% or 4% lower than it was a year ago. So as we think about the initial export capacity coming online in '27. Is your confidence of growing kind of export volumes ended with that any kind of based on the success you've had in kind of your commercial commitments you've been able to procure already? Or is it somewhat kind of based on your forward view of kind of where the kind of the SB balance in national market?

Benjamin Branstetter, Senior Vice President, Downstream Commercial

This is Ben. We had a very nice fourth quarter on the exports, but we were impacted a little bit by fog there. And honestly, we're shaping up for a really nice first quarter as well. But as I think about how we view the export business, that's really part of our integrated value chain. And so as you see us announcing 8 plants coming across the Permian, those are integrated molecules that are flowing through our pipe, our frac, and our export. And so we're really excited to have that export project coming online. We remain generally very well contracted across the dock. And honestly, we're having as many conversations that we've ever had about long-term supply kind of globally coming out of the Gulf Coast.

Operator, Operator

Our next question comes from Brandon Bingham with Scotiabank.

Brandon Bingham, Analyst

Just wanted to touch on the EBITDA guidance for this year. Just especially where you came in on full year '25 and just the recent strong performance track record here. Just wondering what it would take to see you come in at the higher end and what you kind of see as some of the various puts and takes there, and specifically thinking about the commentary around continuous volatility in Waha and what that might do for the year?

Jennifer Kneale, President

Brandon, this is Jen. The range is determined by several cases we analyze. To reach the higher end, the two main factors would be stronger volume growth than our current forecasts and wells coming online faster or producing more than we anticipate. Additionally, we haven't factored in significant marketing gains across NGL, gas, and exports. If we can increase our volumes in any of these areas beyond our forecasts, that would also help us achieve the higher end of the range.

Brandon Bingham, Analyst

Okay. Makes sense. And then just quickly wanted to go back. You mentioned in prepared remarks a comment about kind of commodity price sensitivity. Just kind of wondering if you could maybe break that out between oil, NGLs, and gas, especially you have a dollar budgeted for 2026 for Waha prices. But I think calendar '27 is trading nearly 3x that. So just trying to think through over the near term as these pipes come online? And just the commentary around Waha, what maybe some upside could look like as far as that's concerned and how the sensitivity might change between the 3 commodities?

Jennifer Kneale, President

I would just say that we are really well hedged as it relates to our equity volumes. So when you think about our direct price exposure, we're really well hedged. So the move higher in prices, we'd be a big beneficiary there if prices moved above our fee floor levels. We haven't described where our fee floors are, but we've been essentially below fee floors for the vast, vast majority of months over the last 2 years. So that would result in EBITDA being higher. I'd say that we've had a point of view that I think has worked well for us over the last couple of years that we were going to have a lot of tightness in Waha pricing, and that's why you saw us hedge as much as we've hedged. So I would say that when you think about the streams, we probably have more exposure directly on our equity volumes to changes in natural gas liquids prices. But when you think about marketing opportunities in 2024 and 2025, we talked about the fact that because we do have a lot of transport to ensure our molecules flow, we have benefited from what we would call outsized marketing gains on the gas side the last couple of years. To the extent we see contango in the NGL markets, there, we've got good opportunity to utilize our storage in Bellevue to potentially be a beneficiary of that. We haven't really had that in some time, but we're sitting there with a really attractive position of assets if we do get those opportunities to be a beneficiary.

Operator, Operator

Our next question comes from Jason Gabelman with TD Cowen.

Jason Gabelman, Analyst

I wanted to ask about the Downstream growth. You don't really talk about much additional capital into the Downstream part of the business after 2027. But it does look like, I guess, you'll be a bit short on Y-grade pipeline capacity. So how do you plan on managing those molecules as new fracs come online later this decade? And then any thoughts on additional fracs that you would need to build beyond the one announced today?

Matt Meloy, Chief Executive Officer

Yes. Jason, I think as we look at our Downstream infrastructure, what we kind of talk about is as we get into the back half of '27 is having operating leverage and excess capacity on our NGL transportation once Speedway comes online. And then with building trains 11, 12, and 13, it should put us in a nice balanced position of having some excess capacity, but not too much on the frac side. So I think we'll be pretty well balanced on the frac side, and we'll have some capacity on the transport side when Speedway comes up. And as we're expanding our export facility, that should create some nice operating leverage for us as well as there's significant available capacity with LAP 4 when it comes up. So then as we're growing and these volumes are ramping, it will provide some period of time before we'll need another expansion on the export dock. So I think with our downstream side, the reason we're pointing to a little bit lower capital expenditure post-'27 is we're going to have some operating leverage kind of through the footprint on the Downstream side.

Scott Pryor, President, Logistics and Transportation

But the last case that we put out there talks about additional potential fracs in those numbers as well as other downstream complement assets just not the bigger transport or frac.

William Byers, Chief Financial Officer

I'd just add for the bridge for us just remember, we have multiple medium-term flexible offloads in place right now as you see Grand Prix running full, and that ramps into when Speedway comes on in the third quarter of '27, a baseload of volumes to drive just very good project returns.

Operator, Operator

Our next question comes from Sunil Sibal with Seaport Global.

Sunil Sibal, Analyst

So I wanted to start off on the LNG segment. It seems like operating costs have been trending pretty low there. I was kind of curious if there is any kind of one-time factors which have helped you in 2025? Or is that more of a secular trend in terms of operating cost control?

Jennifer Kneale, President

I think that their costs are really consistent with volumes moving through the system and when we bring new assets online. Any of the lumpiness that you see is really around when we've got turnarounds, and I think we do a really good job of disclosing that. So as you look quarter-to-quarter, that is what might be creating some of the variability that you're talking about, Sunil.

Sunil Sibal, Analyst

Total project cost is $1.6 billion. I'd say we had a pretty good amount of spending on it in 2025. Spending in 2026 is more, and then we'll just be finishing it up in 2027. So we haven't broken out the cost publicly by year. But I'd say spending this year is more than it was last year. And then, call it, the balance of that will probably look more like 2026 than 2025 and 2027 as we finish up that project.

Matt Meloy, Chief Executive Officer

I'm sorry, I didn't quite understand that. Could you please repeat it?

Sunil Sibal, Analyst

Yes. I was curious with all the acreage dedications that you are growing. Is there a way for us to think about the total inventory of volumes that you have or that you are building because of the virtue of the acreage dedications versus the current volumes that you are moving on your sales terms?

Jennifer Kneale, President

Sunil, this is Jen. I think that part of why we described the incremental acreage dedications and with the bolt-on transactions, the very large area of mutual interest that is now dedicated to us is just really highlighting the fact that there is decades of drilling inventory on acreage that is already dedicated to Targa. So it goes a little bit back to some of Matt's earlier comments in Q&A that we are just sitting in a really strong position. We don't need to continue to execute commercially, but I know we've got the best commercial guys that are continuing to work day in and day out for their producers and for new producers. So we would expect to continue to add to that. But even if we didn't, we've got decades of really attractive inventory on our system, and that's necessitating the infrastructure that we are putting in place today. And that's really what is continuing to support this view that Targa has an exceptional strong medium- and long-term outlook.

Operator, Operator

That concludes today's question-and-answer session. I'd like to turn the call back to Tristan Richardson for closing remarks.

Tristan Richardson, Vice President of Investor Relations

Thanks, Liz. Thanks, everyone, for joining the call this morning. We appreciate your interest in Targa Resources.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.