Targa LPG export-related margins likely to suffer

OREANDA-NEWS. Targa Resources expects that LPG export margins will diminish in 2015 because of challenging international market conditions.

The midstream operator is up against international price pressures, ship availability shortages and high freight costs, which have thwarted strong buying interest that Targa saw in 2014.

"Expected activity in 2015 may be lower than the back half of 2014 activity, also, with lower fee margins than the back half of 2014," Targa chief executive Joe Bob Perkins said during today's first quarter earnings call.

Targa's exported volumes swelled by 300,000 bl/month beyond its nameplate capacity at the marine terminal in Galena Park, Texas, at the end of 2014.

Targa continues to eye expansion in its Mont Belvieu, Texas, fractionation portfolio. Its Train 5 expansion has a mid-2016 operations start-up planned, and permitting for Train 6 is underway. There is no timeline set for the sixth Mont Belvieu fractionator. Perkins said that a seventh unit is also expected, calling it a "when, not if" project.

One project that is still a big "if" for Targa is its potential ethane export facility.

"We believe that there will another ethane export project on the gulf coast, and believe that we have a good shot at it," Perkins said. "Discussions are active, including new inquiries, but offtake decisions for new infrastructure are developing more slowly."

Profits were nearly halved year-on-year to \$76.50mn, down from \$131.3mn during the first quarter 2014, despite robust growth across the midstream company's operations volumes.

Gross NGL production gained 40pc year-on-year to 200.1mn b/d, while exported volumes firmed to 191.7mn b/d, up 65.8pc from the first quarter of 2014.

Higher upstream, natural gas plant inlets stood at 2.58bn cf/d, up 25.7pc year-on-year. NGL sales firmed by 126,900 b/d to 510,100 b/d.

First quarter operating margins were 76pc fee-based. Targa expects fee-based operating margins to stand between 65-70pc for the remainder of this year. This year's NGL volumes are 30pc hedged, while 2016 NGL volumes are 15pc hedged.