The last couple of years have brought about loads of changes to the oil and gas space, and one of the companies playing a very interesting angle on those changes is Targa Resources Corp. . Today, it is one of the largest exporters of natural gas liquids, and it is looking to expand that business even further with the export of other oil- and gas-based products in the future. On its most recent conference call, Targa's management discussed some of the achievements in this export business and how it plans to grow its business through both the parent company and its limited partnership, Targa Resources Partners . Here are five quotes from management that highlight what it is thinking today.
1. Our Atlas acquisition really helps one corporate entity
Last year's acquisition of Atlas Pipeline Partners was a bit of a transformative buy as it gave the company a natural gas and natural gas liquids system that could deliver from the first mile of pipeline all the way to end markets with its export facilities. From an operational standpoint, it makes the company a better operator, but from a financial standpoint, it's pretty clear that the parent company is receiving the better part of the deal:
Because of the structure of the deal to acquire Atlas, the parent entity of Targa is able to see a much larger share of dividend growth because it is entitled to both distributions from its ownership of units as well as incentive distribution rights that rise as per-unit distributions increase.
2. Can't predict which way the wind blows
Several analysts on the conference call had plenty of questions about guidance for the rest of the year as well as Targa's outlook for oil and gas production in the U.S. in the near future. However, Perkins wanted to remind analysts that management isn't made up of soothsayers and they are making best estimates possible to accommodate the changing times:
Without the invention of a time machine, it's hard to see Targa being able to do anything else other than talk to its customers and figure the best plan from there.
3. Oil-ish exports are a fast-growing business
It wasn't that long ago that the United States was a major importer of natural gas liquids such as propane. Oh, how times have changed. As this country becomes a major exporter of these products, Targa is positioning itself to get a big piece of the pie. Last quarter was a confirmation of this as Perkins explained the number of exports Targa is currently running:
On top of its current exports of LPG, it is also in negotiations with some oil and gas producers to invest in facilities that would export condensate, which is the closest thing we have ever come to crude oil exports in a long time. If this comes to pass, it could be a big win for the company long term.
4. Margins are becoming more stable
Perhaps one critique of Targa's business model is that it is more exposed to commodity prices than many other pipeline and midstream companies because of the types of contracts it has. Historically, 60%-65% of gross operating margins came from fee-based contracts. However, it is looking to change that. According to CFO Matthew Meloy, the most recent quarter saw a larger swing toward fee-based services and contracts.
It may not be the 80%-90% fee-based operating margins that many of its peers get in the pipeline and processing space, but it is certainly a step in the right direction toward generating more stable operational profits on a quarter-to-quarter basis.
5. We're still putting money into growth
Even though the company completed its acquisition of Atlas just a few months ago, it hasn't stopped the company from making major investments in its pipeline network. According to Meloy, the company is still on track to spend a sizable amount on organic growth projects:
Perkins went on to explain that a lot of the investments the company plans to make will serve to interconnect its existing system and the Atlas pipeline system. By making them a more fluid network of pipelines, it will give its customers more options on where to move product.
What a Fool believes
There are still a lot of questions up in the air when it comes to what the changes in the global oil markets will mean to the American market over the next couple of years. So instead of trying to make predictive actions, Targa's management is looking at ways of taking as much of the unpredictability out of the equation by ensuring that more of its profits are secured by long-term, fee-based contracts and by investing in areas where there is a lot of potential for growth in both up and down oil markets. Based on where we are today, an investor can't ask a company's management to do much more.
The next billion-dollar iSecret
The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .
The article 5 Things Targa Resources' Management Wants You to Know originally appeared on Fool.com.
Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.comor on Twitter @TylerCroweFool.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
