Targa Resources Weighs Whether Building Apex Pipeline is Best Move

Targa Resources is faced with an unusual dilemma for a U.S. midstream company: a permit to build a pipeline that it's now not quite sure it needs.

While permitting in other parts of the Lower 48 is perpetually hamstrung by court challenges and a variety of opposition, in March the Texas Railroad Commission granted Targa a permit to build the 563-mile Apex pipeline. The proposed gas pipeline would stretch southeast across Texas from Midland to Jefferson counties. The line, with a projected completion in 2026, would support projects in the Sabine River area.

While Targa has continued to push for development of the pipeline, Bobby Muraro, Targa CCO, said during the company’s third-quarter earnings call that “multiple options” for accomplishing the same aims have since come to light and are under consideration.

“… At the end of the day, Targa has one priority and that's to make sure that the gas gets out of the basin,” Muraro said.

As gas production in the Permian Basin hits record levels, Targa executives said they would consider the best option when it comes to proceeding with the Apex.

So far, Targa has continued to push for development of the pipeline, Muraro said.

“If Apex goes it will be because it’s in a framework that works for us and works for the counterparties that are out there,” Muraro said. “But if Apex doesn’t go, we stand ready to make sure another solution goes in 2026, and that the (Permian) Basin has that takeaway such that gas can continue to flow in our plants and NGLs down our integrated system.”

The Apex is designed to have a 42-inch diameter, with an estimated capacity of about 2 Bcf/d and cost of around $2 billion to $2.5 billion, according to an analysis by East Daley Analytics.

In the Permian, other major gas pipeline projects are expected to come online during the next couple of years. Kinder Morgan’s Permian Highway expansion is expected to begin operations by the end of the year. WhiteWater’s Matterhorn Express is slated for completion in third-quarter 2024. And Energy Transfer’s Warrior is estimated to be completed by 2025.

Targa CEO Matt Meloy said the next Permian pipeline project for the company is likely to be a joint venture (JV) between multiple midstream companies or producers, allowing Targa to keep costs down.

“… If we participate in something, we could have an ownership interest in the JV or we could move volumes on it, and frankly not have an ownership interest if it gets a pipe done,” Meloy said. “I think we’d like to have our options open where we could have an ownership interest. We’ve seen that that creates value for Targa.”

Company leaders said they expect to see more gas shipped through the company’s system, regardless.

In the third quarter, the company reported record NGL pipeline volumes, moving a total of 660,000 bbl/d compared to 499,000 bbl/d over the same period last year.

“Most of that is from the Permian, but there's still a significant amount of that … coming in from the north … from the North Texas, Oklahoma segment,” Meloy said.

In the Permian, the Greenwood Gas Plant with a 275 Mcf/d capacity plant began operating in Midland County. The Greenwood II plant, also in Midland, is scheduled to begin operating early next year. Both facilities will ship the natural gas extracted in the Permian Basin to Targa’s fractionation complex in Mont Belvieu, Texas. The company also completed 1 MMbbl/month LPG export expansion at Galena Park.

Targa executives said they did not expect to see an upstream production drop off in the Permian following massive consolidation last month, including announced deals by Exxon Mobil to buy Pioneer Natural Resources and Chevron’s purchase of Hess Corp. For the time being, executives expected volumes on their network to remain unaffected.

“As we think about it at least in the short-term, we have contracts in place with all those parties mentioned,” Meloy said. “Those contracts are typically long-term contracts.

“We'll just have to see how it plays out over time. We think the outlook for growth in the Permian Basin continues to be very strong. When you look at some of those parties mentioned, they have a pretty robust growth outlook.”

Earnings up

For the quarter, Targa reported a net income of $220 million, compared to $193.1 million generated in third-quarter 2022. The company reported 2023 third quarter EBITDA of $840 million, 6% higher than the previous quarter.

Targa bought back 132 million common shares in the third quarter.

“We'll have to see what the opportunities present themselves in the market, and that will ultimately balance the approach to dividends and repurchases,” said Jen Kneale, Targa CFO. “But I think this is an important indication that clearly we are in a position to return more capital to shareholders.”