Why Targa Resources Is a Target

According to a report Thursday by BloombergTarga Resources (NYSE: TRGP  ) and its MLP, Targa Resources Partners (NYSE: NGLS  ) , were being targeted for a takeover. While Targa Resources issued a press release saying the takeover talks have ceased without a deal, it's no surprise to see that the company was targeted in the first place. Further, while Enterprise Products Partners (NYSE: EPD  ) wasn't the rumored buyer, it's Targa Resources Partners' similarities to Enterprise Products Partners that made it an ideal takeover target in the first place.

Strong platform
As the following slide points out Targa Resources Partners owns a very diverse portfolio of midstream assets.

Source: Targa Resources Partners Investor Presentation (Link opens a PDF

As that map shows the company has field gathering and processing assets in both the Bakken Shale region as well as in the Permian Basin. Both of these areas are important oil rich growth areas that are currently in need of infrastructure assets. Because of that Targa Resources Partners' assets are in high demand and it has steady growth prospects.

Further, the company owns gathering and processing assets along the Gulf Coast as well as logistic assets in the Gulf. It also has a leading position in the Mont Belvieu NGL hub as it owns the second largest fractionation position in Mont Belvieu trailing only Enterprise Products Partners. Given that the Gulf Coast is home to America's petrochemical industry, these assets are also well positioned.

One often overlooked asset
In addition to its strong footprints in leading shale basins and a leading position in Mont Belvieu, Targa Resources Partners has one asset that's often overlooked. The company owns one of the two commercially operating NGL export facilities on the Gulf Coast that's linked to Mont Belvieu. The other NGL export facility just happens to be operated by Enterprise Products Partners.

As the following slide notes Targa Resources Partners' Galena Park Marine Import/Export Terminal is very strategically well positioned in the Gulf Coast.

Source: Targa Resources Partners

Because of this Targa Resources Partners is in the midst of expanding its Galena Park Marine Terminal to take advantage of its strategic position to increase its capacity to export propane and other NGLs out of the facility. The facility can currently export about 4 million barrels per month, but once its second expansion phase is complete in the third quarter the company will be able to export 6 million barrels per month.

While that's a far cry from Enterprise Products Partners' plan to grow its export capacity from 7.5 million barrels per month to 16 million by the end of next year, its a vitally important asset to Targa Resources Partners. In fact, by already having an operational export facility Targa Resources Partners is well ahead of other planned facilities as its peers reposition for energy exports making the company a valuable target for a company looking to access the export market.

Investor takeaway
Clearly Targa Resources Partners has the asset base that would make it a prime takeover target. In acquiring Targa Resources a rival to Enterprise Products Partners would gain access to the second largest fractionation capacity in Mont Belvieu as well as the only other NGL export facility connected to that NGL hub. While Targa Resources Partners' recently rumored deal is said to have fallen apart, its strong asset base is likely to bring another suitor very soon. In fact an ideal candidate, in my opinion, is Enterprise Products Partners as it could really consolidate its position at Mont Belvieu as well as in energy exports while at the same time adding Bakken Shale assets to its portfolio. With Targa Resources' now back on the market, it might be time for Enterprise Products Partners to take a look.  

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  • Report this Comment On June 22, 2014, at 4:33 PM, ferdiefor wrote:

    I would say Targa like so many other MLPs are totally ignored by wall street. Targa has great dcf coverage and that translates into a great deal fewer debt and equity offerings.

    Kinder is the most popular kid in the MLP class because they need to raise more debt and equity and that means more fees for the wall street money machine.

    The good thing about that is investors like me who were able to accumulate NGLS and TRGP at much lower prices while everyone was paying up for what in retrospect has turned out to be horribly low five year total returns in Kinder.

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Matt DiLallo

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries:

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