Monday March 04, 2013
by Elliott Gue, editor Energy & Income Advisor
Targa Resources Partners (NGLS) faced a number of headwinds in 2012: a challenging year for ethane and propane prices; Hurricane Isaac, which cost the firm $8 million in EBITDA; and $6 million worth of acquisition-related expenses.
Nevertheless, the MLP in 2012 generated record distributable cash flow of $354 million and increased its quarterly payout by 12.7 percent.
More important, the partnership posted a comfortable distribution coverage ratio of 1.14, though this metric deteriorated in the back half of the year.
This impressive resilience in a challenging business environment is a testament to Targa Resources Partners’ balanced asset base.
Although the gathering and processing division’s operating margin plummeted by 25 percent because of weak commodity prices, the complementary assets in the MLP’s logistics and marketing arm posted a record operating
margin of $304.3 million – up 29 percent from year ago levels.
With the price of natural gas liquids (NGL) bottoming out and an impressive slate of expansion projects on the horizon, the MLP should deliver distribution growth of 10 percent to 12 percent in 2013.
We remain particularly bullish on the near-term prospects for Targa Resources Partners’ logistics and marketing division, which boasts the second-largest installed fractionation capacity at the hub in Mont Belvieu, Texas, and one of the nation’s two propane export facilities.
Looking to 2014, we expect the MLP recently acquired midstream assets in the Bakken Shale to drive distribution growth. Beyond the next two years, the coming expansion of the domestic petrochemical complex should furnish the partnership with ample opportunity for expansion.
With an integrated suite of midstream solutions to gather, process and export NGLs, Targa Resources Partners boasts a balanced portfolio that provides upside exposure to any improvement in NGL prices and ample downside protection when commodity prices tumble.
The MLP has $1.7 billion worth of growth projects slated to come onstream over the next two years, providing ample support for its growing distribution.
Offering a current return of 6.5 percent, units of Targa Resources Partners would yield about 7.2 percent if the firm meets the low end of its guidance for distribution growth.
Targa Resources Partners LP rates a buy up to $44 per unit in the Medium Risk sleeve of our Focus List. Investors should add to their position aggressively if the unit price dips to less than $40.
Learn more about this financial newsletter at Elliott Gue's Energy & Income Advisor.