HOUSTON, Aug. 11, 2008 (PRIME NEWSWIRE) -- Targa Resources, Inc. ("Targa" or the "Company") today announced its financial results for the three months ended June 30, 2008. For the three months ended June 30, 2008 the Company reported income from operations of $102.2 million and net income of $46.2 million.
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
-------- -------- -------- --------
(In millions, except operating and
price data)
Revenues $2,263.2 $1,610.8 $4,465.6 $3,059.8
Product purchases 2,023.1 1,438.3 4,024.5 2,708.6
Operating expenses 71.2 62.4 134.8 120.3
Depreciation and amortization
expense 38.8 36.4 76.9 73.2
General and administrative
expense 27.9 23.7 52.0 42.4
Gain on sales of assets -- (0.3) (4.4) (0.1)
-------- -------- -------- --------
Income from operations 102.2 50.3 181.8 115.4
Interest expense, net (23.7) (34.0) (49.2) (78.0)
Gain on insurance claims 18.6 -- 18.6 --
Equity in earnings of
unconsolidated investments 7.2 3.1 10.7 5.7
Minority interest / non-
controlling interest (30.2) (9.9) (57.5) (16.9)
Income tax (expense) benefit (27.9) 4.0 (39.8) (3.2)
-------- -------- -------- --------
Net income $ 46.2 $ 13.5 $ 64.6 $ 23.0
======== ======== ======== ========
Financial data:
Operating margin $ 168.9 $ 110.1 $ 306.3 $ 230.9
Adjusted EBITDA 137.6 76.3 229.3 167.1
Operating data:
Gathering throughput MMcf/d 2,072.3 1,999.0 2,128.5 1,987.9
Plant natural gas inlet,
MMcf/d 2,020.7 1,954.5 2,081.9 1,946.2
Gross NGL production, MBbl/d 104.8 106.0 104.3 105.1
Natural gas sales, BBtu/d 526.6 533.9 529.8 520.8
NGL sales, MBbl/d 285.9 296.4 301.7 298.6
Condensate sales, MBbl/d 3.7 4.1 3.7 3.7
Average realized prices:
Natural Gas, $/MMBtu
Average realized sales price 10.25 6.93 9.01 6.76
Impact of hedging (0.14) 0.12 (0.01) 0.11
-------- -------- -------- --------
Average realized price 10.11 7.05 9.00 6.87
======== ======== ======== ========
NGL, $/gal
Average realized sales price 1.57 1.08 1.52 1.02
Impact of hedging (0.03) -- (0.02) --
-------- -------- -------- --------
Average realized price 1.54 1.08 1.50 1.02
======== ======== ======== ========
Condensate, $/Bbl
Average realized sales price 119.20 61.65 107.38 58.77
Impact of hedging (5.05) 0.83 (3.49) 1.32
-------- -------- -------- --------
Average realized price 114.15 62.48 103.89 60.09
======== ======== ======== ========
Review of Second Quarter Results
Revenues were $2.3 billion for the three month period ended June 30, 2008, 41% higher than revenues of $1.6 billion for the three month period ended June 30, 2007. Income from operations for the second quarter of 2008 was 103% higher at $102.2 million for the second quarter of 2008 as compared to $50.3 million for the same period in 2007. Similarly, net income for the three months ended June 30, 2008 increased 242% from $13.5 million in the second quarter of 2007 to $46.2 million for the second quarter of 2008. The primary drivers for these improvements were:
i) increases in average realized natural gas, NGL and condensate
prices of 43%, 43%, and 83%, respectively, as compared to the
second quarter of 2007;
ii) increase in other revenue includes $21.6 million of business
interruption proceeds in the second quarter 2008 compared to
$7.4 million in 2007;
iii) a gain of $18.6 million on property damage insurance claims; and
iv) decrease of 30% in interest expense which are offset by
v) decreases of 1% and 4%, respectively, in natural gas and NGL
sales volumes;
vi) increase of 14% in operating expense; and
vii) increase of 205% in non-controlling and minority interest.
Second quarter 2008 gathering throughput of 2.1 Bcf/d and plant natural gas inlet of 2.0 Bcf/d were 4% and 3% higher, respectively, than for the second quarter of 2007. Additionally, natural gas sales of 526.6 BBtu/d for the three months ended June 30, 2008 were down 1% from the comparable period in 2007. Gross NGL production of 104.8 MBbl/d in the three month period ended June 30, 2008 was 1% lower compared to the same 2007 period. For the three months ended June 30, 2008, NGL sales of 285.9 MBbl/d were 4% lower than for the three months ended June 30, 2007. Finally, condensate sales of 3.7 MBbl/d were 10% lower than 4.1 MBbl/d in the 2007 period.
Review of Six Months Results
Revenues were $4.5 billion for the six-month period ended June 30, 2008, 46% higher than revenues of $3.1 billion for the six-month period ended June 30, 2007. Income from operations for six months ended June 30, 2008 was 58% higher at $181.8 million as compared to $115.4 million for the same period in 2007. Similarly, net income for the six months ended June 30, 2008 increased 181% from $23.0 million in the second quarter of 2007 to $64.6 million for the first six months of 2008. The primary drivers for these improvements were:
i) increases in average realized natural gas, NGL and condensate
prices of 31%, 47%, and 73%, respectively, as compared to same
period of 2007;
ii) increases of 2% and 1%, respectively, in natural gas and NGL
sales volumes;
iii) increase in other revenue includes $21.6 million of business
interruption proceeds in the first half 2008 compared to $7.8
million in 2007;
iv) a gain of $18.6 million on property damage insurance claims
during the second quarter 2008; and
v) decrease of 37% in interest expense which are offset by
vi) increase of 12% in operating expense; and
vii) increase of 240% in non-controlling and minority interest.
For the six month ended June 30, 2008 gathering throughput of 2.1 Bcf/d and plant natural gas inlet of 2.1 Bcf/d were both 7% higher than for the six month ended June 30, 2007. Additionally, natural gas sales of 529.8 BBtu/d for the six months ended June 30, 2008 were up 2% from the comparable period in 2007. Gross NGL production of 104.3 MBbl/d in the six-month period ended June 30, 2008 was 1% lower compared to the same 2007 period. For the six months ended June 30, 2008, NGL sales of 301.7 MBbl/d were 1% higher than for the six months ended June 30, 2007. Finally, condensate sales of 3.7 MBbl/d six month ended June 30, 2008 were flat compared to the same period in 2007.
Review of Segment Performance
The following discussion of segment performance includes inter-segment revenues. The Company views segment operating margin as an important performance measure of the core profitability of its operations. This measure is a key component of internal financial reporting and is reviewed for consistency and trend analysis. The generally accepted accounting principles ("GAAP") measure most directly comparable to segment operating margin is net income. Operating margin is a non-GAAP financial measure that is defined later in this release.
Natural Gas Gathering and Processing Segment
Our Natural Gas Gathering and Processing segment, which includes Targa Resources Partners LP ("Targa Resources Partners" or the "Partnership"), consists of the gathering of natural gas produced from oil and gas wells and processing this raw natural gas into merchantable natural gas by extracting natural gas liquids and removing impurities.
The following table provides summary data regarding results of operations in this segment for the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
-------- -------- --------- ---------
(In millions, except operating
and price data)
Operating statistics:
Gathering throughput,
MMcf/d 2,072.3 1,999.0 2,128.5 1,987.9
Plant natural gas inlet,
MMcf/d 2,020.7 1,954.5 2,081.9 1,946.2
Gross NGL production,
MBbl/d 104.8 106.0 104.3 105.1
Natural gas sales, BBtu/d 546.2 552.7 548.2 537.1
NGL sales, MBbl/d 91.5 91.0 90.5 90.1
Condensate sales, MBbl/d 5.0 5.4 5.0 5.1
Price Statistics:
Natural gas, $/MMBtu
Average realized sales
price 10.27 6.95 9.03 6.75
Impact of hedging (0.13) 0.11 (0.01) 0.13
-------- -------- --------- ---------
Average realized price 10.14 7.06 9.02 6.88
======== ======== ========= =========
NGLs, $/gal
Average realized sales
price 1.50 1.00 1.41 0.91
Impact of hedging (0.08) (0.01) (0.07) --
-------- -------- --------- ---------
Average realized price 1.42 0.99 1.34 0.91
======== ======== ========= =========
Condensate, $/Bbl
Average realized sales
price 109.99 59.17 98.72 55.52
Impact of hedging (3.75) 0.62 (2.58) 0.96
-------- -------- --------- ---------
Average realized price 106.24 59.79 96.14 56.48
======== ======== ========= =========
Revenues $1,059.5 $ 730.3 $ 1,932.7 $ 1,353.1
Product purchases (908.2) (604.7) (1,638.6) (1,107.3)
Operating expenses (34.7) (28.6) (64.9) (57.6)
-------- -------- --------- ---------
Operating margin $ 116.6 $ 97.0 $ 229.2 $ 188.2
======== ======== ========= =========
Equity in earnings of
VESCO $ 6.4 $ 2.3 $ 8.7 $ 3.5
======== ======== ========= =========
Review of Second Quarter Results
Second quarter 2008 revenues of $1,059.5 million were $329.2 million, or 45%, higher than the second quarter of 2007. This increase was primarily due to:
* an increase in realized commodity prices that increased revenues
by $328.6 million, consisting of increases in natural gas, NGL
and condensate revenues of $153.1 million, $154.2 million and
$21.3 million, respectively;
* a net decrease attributable to volumes of $4.6 million,
consisting of decreases in natural gas and condensate volumes of
$4.2 million and $2.0 million, respectively with an offsetting
increase in NGL volumes of $1.6 million; and
* an increase in other revenues of $5.2 million including an
increase of $1.8 of business interruption insurance proceeds in
2008 compared to 2007.
Operating margin for this segment was $116.6 million for the three months ended June 30, 2008, 20% higher than the $97.0 million for the second quarter of 2007.
The segment's average realized natural gas price increased $3.08 per MMbtu, or 44%, to $10.14 per MMBtu for the three months ended June 30, 2008 compared to $7.06 per MMBtu for the three months ended June 30, 2007. The segment's average realized price for NGLs increased $0.43 per gallon, or 43%, to $1.42 per gallon for the second three months of 2008 compared to $0.99 per gallon for the second quarter of 2007. The segment's average realized price for condensate increased $46.45 per barrel, or 78%, to $106.24 per barrel for the three months ended June 30, 2008 compared to $59.79 per barrel for the three months ended June 30, 2007.
Natural gas sales volume decreased 6.5 BBtu/d, or 1%, to 546.2 BBtu/d for the three months ended June 30, 2008 compared to 552.7 BBtu/d for the three months ended June 30, 2007. The net decrease is primarily due to decreased demand by our industrial customers.
NGL sales volumes increased 0.5 MBbl/d, or less than 1%, to 91.5 MBbl/d for the three months ended June 30, 2008 compared to 91.0 MBbl/d for the three months ended June 30, 2007. We experienced lower gross NGL production from leaner liquids content for some of the production delivered to our gas plants.
Condensate sales volumes decreased 0.4 MBbl/d, or 7%, to 5.0 MBbl/d for the three months ended June 30, 2008 compared to 5.4 MBbl/d for the three months ended June 30, 2007.
Product purchases increased $303.5 million to $908.2, or 50%, for the three months ended June 30, 2008 compared to $604.7 million for the three months ended June 30, 2007. The increase was due primarily to higher commodity prices, including higher spot price purchases for industrial sales.
Operating expenses increased $6.1 million, or 21%, to $34.7 million for the three months ended June 30, 2008 compared to $28.6 million for the three months ended June 30, 2007. The increase was primarily due to increased compensation-related expense, increased maintenance expense, and higher costs for chemicals, lube oils and electricity.
Review of Six Months Results
For the six month ended June 30, 2008 revenues of $1,932.7 million were $579.6 million, or 43%, higher than the six month ended June 30, 2007. This increase was primarily due to:
* an increase in realized commodity prices that increased revenues
by $548.3 million, consisting of increases in natural gas, NGL
and condensate revenues of $213.4 million, $298.9 million and
$36.0 million, respectively;
* a net increase attributable to volumes of $23.3 million,
consisting of increases in natural gas and NGL volumes of $17.5
million and $6.3 million, respectively with an offsetting
decrease in condensate volumes of $0.5 million; and
* an increase in other revenues of $8.0 million including an
increase of $1.7 of business interruption insurance proceeds in
2008 compared to 2007.
Operating margin for this segment was $229.2 million for the six months ended June 30, 2008, 22% higher than the $188.2 million for the six month ended June 30, 2007.
The segment's average realized natural gas price increased $2.14 per MMbtu, or 31%, to $9.02 per MMBtu for the six months ended June 30, 2008 compared to $6.88 per MMBtu for the six months ended June 30, 2007. The segment's average realized price for NGLs increased $0.43 per gallon, or 47%, to $1.34 per gallon for the six month ended June 30, 2008 compared to $0.91 per gallon for the firs six months of 2007. The segment's average realized price for condensate increased $39.66 per barrel, or 70%, to $96.14 per barrel for the six months ended June 30, 2008 compared to $56.48 per barrel for the six months ended June 30, 2007.
Natural gas sales volume increased 11.1 BBtu/d, or 2%, to 548.2 BBtu/d for the six months ended June 30, 2008 compared to 537.1 BBtu/d for the six months ended June 30, 2007. The increase is primarily due to increased demand by our industrial customers and reduced take-in-kind producer volumes.
NGL sales volumes increased 0.4 MBbl/d, or less than 1%, to 90.5 MBbl/d for the six months ended June 30, 2008 compared to 90.1 MBbl/d for the six months ended June 30, 2007. We experienced lower gross NGL production from leaner liquids content for some of the production delivered to our gas plants.
Condensate sales volumes decreased 0.1 MBbl/d, or 2%, to 5.0 MBbl/d for the six months ended June 30, 2008 compared to 5.1 MBbl/d for the six months ended June 30, 2007
Product purchases increased $531.3 million to $1,638.6, or 48%, for the six months ended June 30, 2008 compared to $1,107.3 million for the six months ended June 30, 2007. The increase was due primarily to higher commodity prices, including higher spot price purchases for industrial sales.
Operating expenses increased $7.3 million, or 13%, to $64.9 million for the six months ended June 30, 2008 compared to $57.6 million for the six months ended June 30, 2007. The increase was primarily due to increased compensation-related expense, increased maintenance expense, and higher costs for chemicals, lube oils and electricity.
Logistics Assets Segment
Our Logistics Assets segment is involved with gathering and storing mixed NGLs and fractionating, storing, treating and transporting finished NGLs. These assets are generally connected to and supplied, in part, by our Natural Gas Gathering and Processing segment and are predominantly located in Mont Belvieu, and Galena Park, Texas and West Louisiana.
The following table provides summary data regarding results of operations of this segment for the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
------ ------ ------ ------
(In millions, except operating data)
Fractionation volumes, MBbl/d 235.2 226.3 225.6 194.7
Treating volumes, MBbl/d 21.4 2.6 18.2 1.3
Revenues from services $ 64.6 $ 49.4 $115.3 $ 91.8
Other revenues 1.1 0.6 1.5 0.9
------ ------ ------ ------
Total Revenue 65.7 50.0 116.8 92.7
Operating expenses (54.1) (45.1) (98.4) (76.4)
------ ------ ------ ------
Operating margin $ 11.6 $ 4.9 $ 18.4 $ 16.3
====== ====== ====== ======
Equity in earnings of GCF $ 0.8 $ 0.9 $ 1.9 $ 2.1
====== ====== ====== ======
Review of Second Quarter Results
Segment revenues from services increased $15.2 million, or 31%, to $64.6 million for the three months ended June 30, 2008 compared to $49.4 million for the three months ended June 30, 2007. Revenues were increased by higher fractionation volumes, higher fractionation rates and treating revenue from our low-sulfur natural gasoline unit which commenced commercial operations in June 2007, and higher overall commercial transportation revenue relating to additional trucking activity. Our fractionation facilities operated at 81% of design capacity for the three months ended June 30, 2008 and 78% during the same period in 2007.
Operating expenses increased $9.0 million, or 20%, to $54.1 million for the three months ended June 30, 2008 compared to $45.1 million for the three months ended June 30, 2007. This increase is primarily due to increased fuel expense due to higher fuel prices and higher fractionation volumes, a full quarter of operating costs for our low-sulfur natural gasoline unit in the second quarter 2008 compared to one month in the second quarter 2007, and higher commercial transportation expense relating to additional trucking activity.
Review of Six Months Results
Segment revenues from services increased $23.5 million, or 26%, to $115.3 million for the six months ended June 30, 2008 compared to $91.8 million for the six months ended June 30, 2007. Revenues were increased by higher fractionation volumes, higher fractionation rates and volumes, higher treating revenue from our low-sulfur natural gasoline unit which commenced commercial operations in June 2007, and higher overall commercial transportation revenue relating to additional trucking activity. Our fractionation facilities operated at 78% of design capacity for the six months ended June 30, 2008 and 67% during the same period in 2007.
Operating expenses increased $22.0 million, or 29%, to $98.4 million for the six months ended June 30, 2008 compared to $76.4 million for the six months ended June 30, 2007. This increase is primarily due to increased fuel expense due to higher fuel prices and higher fractionation volumes, six months of operating costs for our low-sulfur natural gasoline unit in the first half of 2008 compared to one month in the second quarter 2007, and third party fractionation expenses due to first quarter 2008 scheduled maintenance at our Cedar Bayou Fractionator.
NGL Distribution and Marketing Services Segment
Our NGL Distribution and Marketing segment markets our own natural gas liquids production and also purchased natural gas liquids products in selected United States markets. The following table provides summary data regarding results of operations of this segment for the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
--------- --------- --------- ---------
(In millions, except operating data)
NGL sales, MBbl/d 252.3 257.4 257.3 254.9
NGL realized price,
$/gal 1.55 1.06 1.48 0.99
NGL sales revenues $ 1,491.6 $ 1,045.2 $ 2,910.4 $ 1,926.5
Other revenues 9.3 4.4 10.1 5.5
--------- --------- --------- ---------
Total Revenue 1,500.9 1,049.6 2,920.5 1,932.0
Product purchases (1,468.5) (1,043.0) (2,879.3) (1,913.0)
Operating expenses (0.5) (0.6) (1.0) (1.3)
--------- --------- --------- ---------
Operating margin $ 31.9 $ 6.0 $ 40.2 $ 17.7
========= ========= ========= =========
Review of Second Quarter Results
NGL sales volumes decreased 5.1 MBbl/d, or 2%, to 252.3 MBbl/d for the three months ended June 30, 2008 compared to 257.4 MBbl/d for the three months ended June 30, 2007. The decrease in sales volumes was attributable to lower demand from a key petrochemical customer due to schedule maintenance activity.
Average realized price for NGLs increased $0.49 per gallon, or 46%, to $1.55 per gallon for the three months ended June 30, 2008 compared to $1.06 per gallon for the three months ended June 30, 2007, as a result of higher commodity prices offset partially by a change in product mix sold.
Sales revenues increased $446.4 million, or 43%, to $1,491.6 million for the three months ended June 30, 2008 compared to $1,045.2 million for the three months ended June 30, 2007. The net increase results primarily from a $467.0 million increase due to higher commodity prices and a $20.6 million decrease as a result of lower sales volumes.
Product purchases increased $425.5 million, or 41%, to $1,468.5 million for the three months ended June 30, 2008 compared to $1,043.0 million for the three months ended June 30, 2007. The net increase results primarily from a $446.1 million increase due to higher commodity prices and a $20.6 million decrease as a result of lower purchased volumes.
Operating margin increased by $25.9 million, or 432%, to $31.9 million for the three months ended June 30, 2008 compared to $6.0 million for the three months ended June 30, 2007. The increase in operating margin was due to increasing average sales prices during the quarter and a reduction of inventory at lower average costs in 2008 as compared to 2007 and an increase of $4.9 million in business interruption insurance proceeds in 2008 as compared to 2007.
Review of Six Months Results
NGL sales volumes increased 2.4 MBbl/d, or 1%, to 257.3. MBbl/d for the six months ended June 30, 2008 compared to 254.9 MBbl/d for the six months ended June 30, 2007. Sales volumes were impacted by lower demand from a key petrochemical customer due to schedule maintenance activity in the second quarter 2008.
Average realized price for NGLs increased $0.49 per gallon, or 49%, to $1.48 per gallon for the six months ended June 30, 2008 compared to $0.99 per gallon for the six months ended June 30, 2007, as a result of higher commodity prices offset partially by a change in product mix sold.
Sales revenues increased $983.9 million, or 51%, to $2,910.4 million for the six months ended June 30, 2008 compared to $1,926.5 million for the six months ended June 30, 2007. The increase results primarily from a $955.0 million increase due to higher commodity prices and a $28.9 million increase as a result of higher sales volumes.
Product purchases increased $966.3 million, or 51%, to $2,879.3 million for the six months ended June 30, 2008 compared to $1,913.0 million for the six months ended June 30, 2007. The increase results primarily from a $937.6 million increase due to higher commodity prices and a $28.7 million increase as a result of higher purchased volumes.
Operating margin increased by $22.5 million, or 127%, to $40.2 million for the six months ended June 30, 2008 compared to $17.7 million for the six months ended June 30, 2007. The increase in operating margin was due to increasing average sales prices during the six months ended June 30, 2008 and a reduction of inventory at lower average costs in six months ended June 30, 2008 as compared to the same period for 2007 and an increase of $4.7 million in business interruption insurance proceeds in six months ended June 30, 2008 as compared to the same period for 2007.
Wholesale Marketing Segment
Wholesale Marketing segment includes our refinery services business and wholesale propane marketing operations. In our refinery services business, we provide LPG (liquefied petroleum gas) balancing services, purchasing natural gas liquids products from refinery customers and selling natural gas liquids products to various customers. Our wholesale propane marketing operations include the sale of propane and related logistics services to multi-state retailers, independent retailers and other end-users. Wholesale Marketing operates principally in the United States and has a small marketing presence in Canada.
The following table provides summary data regarding results of operations of this segment for the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
------- ------- ------- -------
(In millions, except operating data)
NGL sales, MBbl/d 46.5 47.4 66.7 63.8
NGL realized price, $/gal 1.75 1.19 1.68 1.15
NGL sales revenues $ 311.4 $ 215.9 $ 854.7 $ 557.8
Other revenues 5.9 0.9 6.0 1.1
------- ------- ------- -------
Total Revenue 317.3 216.8 860.7 558.9
Product purchases (308.5) (214.6) (842.2) (550.2)
Operating expenses -- -- -- --
------- ------- ------- -------
Operating margin $ 8.8 $ 2.2 $ 18.5 $ 8.7
======= ======= ======= =======
Review of Second Quarter Results
NGL sales decreased by 0.9 MBbl/d, or 2%, to 46.5 MBbl/d for the three months ended June 30, 2008 compared to 47.4 MBbl/d for the three months ended June 30, 2007. The decrease in sales volumes is primarily attributable to a contract expiration and disruption of supply from a refinery.
The increase in average realized prices is primarily attributable to overall higher market prices for the three months ended June 30, 2008 combined with a higher value mix of products sold.
Revenues increased $100.5 million, or 46%, to $317.3 million for the three months ended June 30, 2008 compared to $216.8 million for the three months ended June 30, 2007. The net revenue increase was due to higher realized commodity prices impact of $99.3 million and higher other revenue of $5.0 million due primarily to business interruption insurance proceeds, which were partially offset by a decrease of $3.8 million due to lower sales volumes.
Operating margin increased by $6.6 million, or 300%, to $8.8 million for the three months ended June 30, 2008 compared to $2.2 million for the three months ended June 30, 2007. The increase is primarily due to higher market prices realized on slightly lower sales volumes and business interruption insurance proceeds.
Review of Six Months Results
NGL sales increased by 2.9 MBbl/d, or 5%, to 66.7 MBbl/d for the six months ended June 30, 2008 compared to 63.8 MBbl/d for the six months ended June 30, 2007. The increase in sales volumes is primarily due to increased sales volumes offset by a contract expiration and disruption of supply from a refinery.
The increase in average realized prices is primarily attributable to overall higher market prices for the three months ended June 30, 2008.
Revenues increased $301.8 million, or 54%, to $860.7 million for the six months ended June 30, 2008 compared to $558.9 million for the six months ended June 30, 2007. The increase in revenue consists of $268.5 million due to higher realized commodity prices, $28.4 million from higher sales volumes and higher other revenue of $4.9 million due primarily to business interruption insurance proceeds.
Operating margin increased by $9.8 million, or 113%, to $18.5 million for the six months ended June 30, 2008 compared to $8.7 million for the six months ended June 30, 2007. The increase is primarily due to higher market prices realized and business interruption insurance proceeds.
Targa Resources Partners LP
Targa currently own approximately 26.5% of Targa Resources Partners LP (the "Partnership"), including our 2% general partner interest. Targa Resources GP LLC, the general partner of the Partnership, is wholly owned by us. We continue to consolidate the Partnership's assets, liabilities and results of operations due to our control of the Partnership through our general partner interest.
On June 18, 2008, the Partnership completed a private placement of $250 million in aggregate principal amount of 8.25% senior unsecured notes ("Partnership Notes") due 2016 at an offering price equal to 100% of par. Proceeds from the Partnership Notes were used to repay borrowings under the Partnership's senior secured credit facility.
Concurrent with the closing of the private placement of the Partnership Notes, the Partnership increased the commitments under its senior secured credit facility by $100 million, bringing the total commitments under the Partnership's senior secured credit facility to $850 million. The Partnership may still request additional commitments of up to $150 million under the senior secured credit facility, which would increase the total commitments under its senior secured credit facility to $1 billion.
On July 23, 2008, Targa Resources announced a cash distribution of $0.5125 per common and subordinated unit, or $2.05 per unit on an annualized basis, for the second quarter of 2008. This cash distribution will be paid August 14, 2008 on all outstanding common and subordinated units to holders of record as of the close of business on August 4, 2008.
Venice Energy Services Company
On July 31, 2008, Targa acquired a combined approximate 54% ownership interest in Venice Energy Services Company, L.L.C. (VESCO) from Chevron Corporation's subsidiaries, Chevron U.S.A. Inc. and Venice Gathering Company. This acquisition increases Targa's ownership to approximately 77%.
Located near Venice, Louisiana in Plaquemines Parish, VESCO consists of two cryogenic trains with a total processing capacity of 750 MMcf/d and a FERC regulated pipeline (the "Venice Gathering System") that gathers gas from the outer continental shelf of the Gulf of Mexico.
Capitalization
Targa's senior secured credit facility consists of: (i) a $1.25 billion term loan maturing 2012 of which $528.4 million remains outstanding ("Term Loan"), (ii) a $300 million synthetic letter of credit facility maturing 2012 ("Synthetic LC Facility") and (iii) a $250 million revolving credit facility maturing 2011 ("Revolver"). In addition, $250 million of our 8.5% senior unsecured notes due 2013 (the "Notes") are outstanding.
Total funded debt at June 30, 2008 was $1,353 million, of which, $575 million is debt of the Partnership which is non-recourse to Targa but is consolidated. Excluding the debt of the Partnership, Targa's total funded debt on June 30, 2008 was $778 million consisting of $250 million for the Notes and $528 million outstanding under the Term Loan.
At June 30, 2008, Targa's total liquidity, excluding the Partnership, was approximately $584 million, which included full availability of the Revolver and $334 million of cash. Excluding the Partnership, Targa also has approximately $38 million available for the issuance of letters of credit under the Synthetic LC Facility.
Hurricane Update
Certain of our Louisiana and Texas facilities sustained damage during the 2005 hurricane season from two gulf coast hurricanes-Katrina and Rita. Repairs have been completed at all of our plant facilities other than VESCO which we expect will be completed in the third quarter of 2008.
Our property damages insurance recoveries were $40.1 million and business interruption insurance recoveries were $ 21.6 million for the three months ended June 30, 2008. We recognized a gain of $18.6 million on property damage insurance claims because cumulative receipts have exceeded the amount of the $ 81.1 million insurance receivable recorded as part of the DMS acquisition purchase price allocation.
About Targa
Targa is a leading provider of midstream natural gas and natural gas liquid, or NGL, services in the United States, through an integrated platform of midstream assets. Our gathering and processing assets are located primarily in the Permian Basin in West Texas and Southeast New Mexico, the Louisiana Gulf Coast primarily accessing the offshore region of Louisiana, and, through Targa Resources Partners LP, our publicly traded master limited partnership, the Fort Worth Basin in North Texas, the Permian Basin in West Texas and the onshore region of the Louisiana Gulf Coast. Additionally, our natural gas liquids logistics and marketing assets are located primarily at Mont Belvieu and Galena Park near Houston, Texas and in Lake Charles, Louisiana with terminals and transportation assets across the United States.
Targa will host a conference call to discuss second quarter 2008 results at 2:00 p.m. Eastern Time (1:00 p.m. Central Time) on Monday, August 11, 2008.
The conference call can be accessed via Webcast through the Investors section of the Company's website at http://www.targaresources.com or by dialing 800-257-7063. The pass code is 11116779. Please dial in ten minutes prior to the scheduled start time. A replay will be available approximately two hours following completion of the Webcast through the Investors section of the Company's website and will remain available until August 25, 2008.
Targa's principal executive offices are located at 1000 Louisiana, Suite 4300, Houston, Texas 77002 and its telephone number is 713-584-1000.
For more information, visit www.targaresources.com
Non-GAAP Financial Measures
This press release and accompanying schedules include non-GAAP financial measures of Adjusted EBITDA and operating margin. The press release provides reconciliations of these non-GAAP financial measures to their most directly comparable financial measure calculated and presented in accordance with GAAP. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income or any other GAAP measure of liquidity or financial performance.
Operating Margin -- With respect to our Natural Gas Gathering and Processing division, we define operating margin as total operating revenues, which consist of natural gas and NGL sales plus service fee revenues, less product purchases, which consist primarily of producer payments and other natural gas purchases less operating expense. Natural gas and NGL sales revenue includes settlement gains and losses on commodity hedges. Our Natural Gas Gathering and Processing segment operating margin is impacted by volumes and commodity prices as well as by our contract mix and hedging program, which are described in more detail in the Company's reports and other filings with the Securities and Exchange Commission.
With respect to our NGL Logistics and Marketing division, we define operating margin as total revenue, which consists primarily of service fee revenues and NGL sales, less cost of sales, which consists primarily of NGL purchases and changes in inventory valuation. Within this division, our management analyzes segment operating margin for each of the three segments per unit of NGL handled or sold as an indicator of operational and commercial performance.
The GAAP measure most directly comparable to operating margin is net income. Our non-GAAP financial measure of operating margin should not be considered as an alternative to GAAP net income. Operating margin is not a presentation made in accordance with GAAP and has important limitations as an analytical tool. You should not consider operating margin in isolation or as a substitute for analysis of our results as reported under GAAP. Because operating margin excludes some, but not all, items that affect net income and is defined differently by different companies in our industry, our definition of operating margin may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. We compensate for the limitations of operating margin as an analytical tool by reviewing the comparable GAAP measures and understanding how the differences between the measures could affect our decision-making processes.
Adjusted EBITDA -- We define Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization and non-cash income or loss related to derivative instruments. Adjusted EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements such as investors, commercial banks and others, to assess (i) the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; (ii) our operating performance and return on capital as compared to other companies in the midstream energy sector, without regard to financing or capital structure; and (iii) the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.
The economic substance behind management's use of Adjusted EBITDA is to measure the ability of our assets to general cash sufficient to pay interest costs, support our indebtedness, and make distributions to our investors. The GAAP measure most directly comparable to Adjusted EBITDA is net income (loss). Our non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to GAAP net income. Adjusted EBITDA is not a presentation made in accordance with GAAP and has important limitations as an analytical tool. You should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA excludes some, but not all, items that affect net income and is defined differently by different companies in our industry, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measure, understanding the differences between the measures and incorporating these insights into management's decision-making processes.
Our segment operating margin is as follows for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
------ ------ ------ ------
(In millions)
Natural Gas Gathering and
Processing $116.6 $ 97.0 $229.2 $188.2
Logistics Assets 11.6 4.9 18.4 16.3
NGL Distribution and Marketing
Services 31.9 6.0 40.2 17.7
Wholesale Marketing 8.8 2.2 18.5 8.7
------ ------ ------ ------
$168.9 $110.1 $306.3 $230.9
====== ====== ====== ======
A reconciliation of our measurement of non-GAAP Adjusted EBITDA and operating margin to GAAP net income follows:
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
------ ------ ------ ------
(In millions)
Reconciliation of Adjusted EBITDA
to net cash provided by operating
activities:
Net cash provided by operating
activities $109.9 $ 13.3 $331.9 $134.3
Interest expense, net
(excluding amortization) 21.6 32.2 45.1 69.0
Current income tax expense 0.3 0.7 1.2 0.7
Changes in operating working
capital which used (provided)
cash:
Accounts receivable and other
assets 108.9 57.7 (100.8) 15.6
Inventory 27.5 18.5 (35.6) (34.7)
Accounts payable and other
liabilities (150.1) (45.9) (28.9) (17.3)
Other, net 19.5 (0.2) 16.4 (0.5)
------ ------ ------ ------
Adjusted EBITDA $137.6 $ 76.3 $229.3 $167.1
====== ====== ====== ======
Reconciliation of Adjusted EBITDA
to net income:
Net income $ 46.2 $ 13.5 $ 64.6 $ 23.0
Add:
Interest expense, net 23.7 34.0 49.2 78.0
Income tax expense (benefit) 27.9 (4.0) 39.8 3.2
Depreciation and amortization 38.8 36.4 76.9 73.2
Non-cash loss (gain) related to
derivative instruments 1.0 (3.6) (1.2) (10.3)
------ ------ ------ ------
Adjusted EBITDA $137.6 $ 76.3 $229.3 $167.1
====== ====== ====== ======
Reconciliation of Operating Margin
to net income:
Net income $ 46.2 $ 13.5 $ 64.6 $ 23.0
Add:
Depreciation and amortization
expense 38.8 36.4 76.9 73.2
Income tax expense (benefit) 27.9 (4.0) 39.8 3.2
Other, net 4.4 6.5 23.8 11.1
Interest expense, net 23.7 34.0 49.2 78.0
General and administrative 27.9 23.7 52.0 42.4
------ ------ ------ ------
Operating Margin $168.9 $110.1 $306.3 $230.9
====== ====== ====== ======
Forward-Looking Statements
Certain statements in this release are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties, factors and risks, many of which are outside Targa's control, which could cause results to differ materially from those expected by management of the Company. Such risks and uncertainties include, but are not limited to, weather, political, economic and market conditions, including declines in the production of natural gas or in the price and market demand for natural gas and natural gas liquids, the timing and success of business development efforts, the credit risk of customers and other uncertainties. These and other applicable uncertainties, factors and risks are described more fully in the Company's reports and other filings with the Securities and Exchange Commission. Targa undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
TARGA RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, Dec. 31,
2008 2007
---------- ----------
(Unaudited)
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 366,232 $ 177,949
Trade receivables, net of allowances of
$6,213 and $1,115 754,924 836,044
Inventory 107,555 143,185
Deferred income taxes 77,756 25,071
Assets from risk management activities 1,926 9,487
Other current assets 14,516 70,640
---------- ----------
Total current assets 1,322,909 1,262,376
---------- ----------
Property, plant and equipment, at cost 2,828,626 2,764,230
Accumulated depreciation (410,875) (334,160)
---------- ----------
Property, plant and equipment, net 2,417,751 2,430,070
Unconsolidated investments 53,778 48,005
Long-term assets from risk management
activities 3,864 4,279
Investment in debt obligations of Targa
Resources Investments Inc. 14,622 --
Other assets 54,616 45,235
---------- ----------
Total assets $3,867,540 $3,789,965
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 409,389 $ 470,860
Accrued liabilities 469,425 379,245
Current maturities of debt 12,500 12,500
Liabilities from risk management
activities 204,321 75,568
---------- ----------
Total current liabilities 1,095,635 938,173
---------- ----------
Long-term debt, less current maturities 1,340,925 1,398,475
Long-term liabilities from risk
management activities 249,035 81,019
Deferred income taxes 58,358 29,501
Other long-term obligations 38,850 35,267
Minority interest 108,338 100,826
Non-controlling interest in Targa
Resources Partners LP 581,404 714,300
Commitments and contingencies
Stockholder's equity:
Common stock ($0.001 par value, 1,000 shares
authorized, issued, and outstanding at June
30, 2008 and December 31, 2007, collateral
for Targa Resources Investments Inc. debt) -- --
Additional paid-in capital 420,269 473,784
Retained earnings 139,350 74,736
Accumulated other comprehensive loss (164,624) (56,116)
---------- ----------
Total stockholder's equity 394,995 492,404
---------- ----------
Total liabilities and stockholder's
equity $3,867,540 $3,789,965
========== ==========
TARGA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
---------- ---------- ---------- ----------
(Unaudited)
(In thousands)
Revenues $2,263,226 $1,610,768 $4,465,619 $3,059,780
---------- ---------- ---------- ----------
Costs and expenses:
Product purchases 2,023,089 1,438,307 4,024,530 2,708,586
Operating expenses 71,229 62,388 134,807 120,311
Depreciation and
amortization
expense 38,750 36,434 76,942 73,166
General and
administrative
expense 27,924 23,699 52,017 42,390
Gain on sale of
assets (2) (311) (4,445) (131)
---------- ---------- ---------- ----------
2,160,990 1,560,517 4,283,851 2,944,322
---------- ---------- ---------- ----------
Income from operations 102,236 50,251 181,768 115,458
Other income
(expense):
Interest expense,
net (23,660) (34,021) (49,245) (78,003)
Gain on insurance
claims 18,566 -- 18,566 --
Equity in earnings
of unconsolidated
investments 7,196 3,163 10,655 5,647
Minority interest (11,610) (7,207) (21,757) (12,818)
Non-controlling
interest in Targa
Resources
Partners LP (18,626) (2,679) (35,597) (4,048)
---------- ---------- ---------- ----------
Income before income
taxes 74,102 9,507 104,390 26,236
Income tax (expense)
benefit
Current (275) (693) (1,237) (693)
Deferred (27,629) 4,686 (38,539) (2,503)
---------- ---------- ---------- ----------
(27,904) 3,993 (39,776) (3,196)
---------- ---------- ---------- ----------
Net income $ 46,198 $ 13,500 $ 64,614 $ 23,040
========== ========== ========== ==========
TARGA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2008 2007
--------- ---------
(Unaudited)
(In thousands)
Cash flows from operating activities
Net income $ 64,614 $ 23,040
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization in interest expense 4,091 9,011
Amortization in general and administrative
expense 883 1,127
Other depreciation and amortization expense 76,942 73,166
Accretion of asset retirement obligations 629 494
Deferred income tax expense 38,539 2,503
Equity in earnings of unconsolidated
investments (10,655) (5,647)
Distributions from unconsolidated investments 775 2,325
Minority interest 21,757 12,818
Minority interest distributions (14,245) (11,285)
Non-controlling interest in Targa Resources
Partners LP 35,597 4,048
Distributions to non-controlling interest
in Targa Resources Partners LP (28,235) (3,263)
Risk management activities (1,176) (10,325)
Gain on sale of assets (4,445) (131)
Gain on property damage insurance settlement (18,566) --
Changes in operating assets and liabilities:
Accounts receivable and other assets 100,841 (15,595)
Inventory 35,630 34,699
Accounts payable and other liabilities 28,919 17,327
--------- ---------
Net cash provided by operating activities 331,895 134,312
--------- ---------
Cash flows from investing activities
Purchases of property, plant and equipment (53,811) (68,405)
Proceeds from property insurance 48,294 12,454
Investment in debt securities of Targa
Investments Inc (16,400) --
Investment in unconsolidated affiliate -- (4,647)
Other (3,803) 1,987
--------- ---------
Net cash used in investing activities (25,720) (58,611)
--------- ---------
Cash flows from financing activities
Senior secured credit facility:
Repayments (6,250) (706,250)
Senior secured credit facility of Targa
Resources Partners LP:
Borrowings -- 342,500
Repayments (301,300) (48,000)
Proceeds from issuance of senior unsecured
notes of Targa Resources Partners LP 250,000 --
Contribution from non-controlling interest
in Targa Resources Partners LP -- 377,593
Distribution to parent (53,752) (63)
Costs incurred in connection with
financing arrangements (6,590) (4,145)
--------- ---------
Net cash used in financing activities (117,892) (38,365)
--------- ---------
Net increase in cash and cash equivalents 188,283 37,336
Cash and cash equivalents, beginning of
period 177,949 142,739
--------- ---------
Cash and cash equivalents, end of
period $ 366,232 $ 180,075
========= =========