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Targa Resources Corp (NYSE:TRGP)
Q2 2019 Earnings Call
Aug 8, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen and welcome to Targa Resources Corporation Second Quarter 2019 Earnings webcast and presentation. [Operator Instructions] Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to your host Sanjay Lad, Director of in that of Investor Relations. Sir, please go ahead.

Sanjay Lad -- Director, Investor Relations

Thank you, Tom. Good morning and welcome to the Second Quarter 2019 Earnings Call for Targa Resources Corp. The second quarter earnings release for Targa Resources Corp, Targa, TRC or the Company along with the second quarter earnings supplement presentation are available on the Investors section of our website at targaresources.com. In addition, an updated investor presentation has also been posted to our website.

Any statements made during this call that might include the Company's expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Act of 1933 and 1934. Please note that actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our recent SEC filings, including the Company's Annual Report on 10-K for the year ended December 31, 2018 and subsequently filed reports with the SEC.

Our speakers for the call today will be Joe Bob Perkins, Chief Executive Officer, Matt Meloy President and Jen Kneale Chief Financial Officer. We will also have the following senior management team members available for the Q&A session. Pat McDonie President Gathering and Processing, Scott Pryor President Logistics and Marketing and Bobby Muraro, Chief Commercial Officer. Joe Bob will begin today's call with a few strategic highlights, followed by Matt who will provide an update on business outlook, and then Jen will discuss second quarter results before we take your questions.

Before I turn the call over to Joe Bob, I'd like to bring your attention to an update to our Company website. We recently introduced a new page to our Company website presenting our initial sustainability disclosures. We highlight our framework of policies practices and systems in the areas of safety, environmental, social, and governance complemented by our focus toward continuous improvement in these areas. We plan to continue to progress our disclosures in these areas, as we move forward. And with that, I'll now turn the call over to Joe Bob.

Joe Bob Perkins -- Chief Executive Officer

Thanks, Sanjay. Good morning, everyone. Before we get into our prepared remarks this morning. I want to take a moment to mention our recently announced planned executive succession and management transition. As described in the press release, effective March 1, 2020, Matt will become the Chief Executive Officer, and will be elected to the Board of Directors. At the same time, I will become Executive Chairman of the Board and will remain as a member of the management team, and Jim Whalen our current Executive Chairman, will retire from the management team and will continue to serve on the Board of Directors.

These changes early next year will continue the succession and transition in leadership long contemplated in developed under Targa's ongoing management succession plan, of course developed with and approved by Targa's Board of Directors. Matt is ready for and largely already performing his next role and I look forward to continuing to work with him, the executive team, and Targa's Board of Directors as Executive Chairman. On behalf of the entire Targa team, I want to take this opportunity to thank Jim Whalen for his dedicated service and invaluable contributions on the management team, and as a member of our Board across Targa's history. It is a privilege to work alongside Jim, although it's hard for me to imagine Jim not being a part of the management team, we expect to continue to benefit from his wisdom as a readily accessible and highly interested Board member.

So kicking off to prepared remarks. It continues to be a special time at Targa with multiple important growth projects recently online, and we look forward to increasing cash flow contributions from these highly strategic assets now online. Especially important is our Grand Prix NGL pipeline, which just started flowing NGLs, all the way to Mont Belvieu. We announced that we were building Grand Prix more than 2 years ago, and it's the largest and clearly most strategic single project in Targa's history. Now having the pipeline in service is the realization of our integrated vision and a lot of hard work by many Targa people.

Thank you to everyone who has been involved in this key project for Targa. It really underpins our excitement about the near-term and longer [Technical Difficulty] for our company. With our premier assets and customer reputation in both our gathering and processing business, and our downstream NGL, business with the Grand Prix pipeline further integrating those businesses and with talented leadership and employees Targa is exceedingly well-positioned for the future.

With that, I'll now turn it over to Matt.

Matthew J. Meloy -- President

Thanks, Joe Bob, and good morning. It is certainly an exciting time at Targa as we begin to benefit from the cash flows associated with our significant investment cycle. These projects are coming online in a good time when the outlook for our commercial activity and production and many of our operating regions remains robust. Since the end of the first quarter, we have had the busiest and most productive period in Targa's history in terms of bringing on an aggregate growth value of about 3 billion of projects online, including Grand Prix pipeline, fractionation Train 6, Hopson plant, Little Missouri 4 plant, and the Pembrook plant.

Grand Prix has commenced full operations and have consistently flowed between 150,000 and 170,000 barrels per day, first filling the pipeline and now flowing into Mont Belvieu. We expect these volumes to increase to approximately 200,000 barrels per day in September, then further increase throughout the rest of the year as short-term third party transport arrangements continue to roll off and as additional G&P facilities come online. Overall Grand Prix came online with about two months of delay versus our initial announcement timing provided over two years ago and about 10% over budget.

Most of the delay and cost overrun was related to this year's construction of the 30-inch line in East Texas that flows into Mont Belvieu. This delay and related cost overrun was largely caused by longer permitting timing as well as weather related construction delays, primarily for much heavier than normal rainfall at critical times. Even with the increased overall cost for Grand Prix, are estimated returns are significantly higher than when we announced the project as we have continued to add significant long-term acreage contracts and TNF contracts, further strengthening the volume outlook for Grand Prix going forward.

Moving to our Gathering and Processing business, and beginning in the Badlands we recently commenced operations of our new 200 million cubic feet per day Little Missouri 4 plant, providing much needed relief given our system has been operating at capacity. The plant is expected to quickly ramp through the balance of this year as incremental NGL takeaway capacity, when the basin comes online. The final cost associated with LM4 was roughly 30 million higher than originally estimated as a result of the shift in project timing. But again, given the strong outlook for volumes, we estimate our returns are at least as good as when we announced the project.

Moving to the Permian, we are seeing volumes from the Midland Basin even above our expectations so far this year. We commenced operations of our new 250 million cubic feet per day Hopson plant in late April and the facility is already operating at capacity. Our next 250 million cubic feet per day Pembrook plant it's starting up and is expected to be highly utilized. Given the volume growth that we are seeing across the Midland Basin, we are moving forward with our next new 250 million cubic feet per day plant, named Gateway, and anticipate that will be online in the fourth quarter of 2020.

Capital associated with the Gateway plant was previously included in our initial 2019 net growth capex guidance. And as we go forward, we expect our integrated NGL business will generate higher returns than we have experienced in the past as the NGLs from new plants will largely be transported down Grand Prix and to our Mont Belvieu fractionation complex. In the Delaware, we remain on track to complete our 250 million cubic feet per day. Falcon plant in the fourth quarter of 2019, and the 50 million cubic feet per day Peregrine Plant is expected to be complete in the second quarter of 2020. While our Permian residue gas exposure is substantially hedged in 2019, weak Waha natural gas pricing during the second quarter weighed on our realized natural gas prices for those volumes unhedged. Fortunately we are seeing the residue gas landscape in the Permian Basin improve with the Gulf Coast Express Pipeline, on track to begin full operations by the end of the third quarter.

Turning to our downstream business, our fractionation facilities at Mont Belvieu continue to remain highly utilized or in the second quarter. Our new Train 6 fractionator, which commenced operations in May quickly ramped to capacity. Construction continues on Train 7 and 8, which are expected to be online late first quarter in late third quarter of 2020, respectively. We expect both frac trains to be highly utilized at start up based on our expectation of rapidly growing NGL volumes from Grand Prix and contracted third parties. In our LPG export business, we are on track to complete the rebuild of Dock 2 at the end of the third quarter of this year. Our next phase of export expansion at our Galena Park facility remains on track as well, and will increase our effective capacity to approximately 11 to 15 million barrels per month in the third quarter of 2020.

We remain focused in executing on our strategic priorities to increase longer-term shareholder value. I want to recognize our talented and dedicated employees across the company who continue to safely operate our infrastructure facilities every day. With the completion of Grand Prix, combined with the completion of a number of gathering and processing and downstream expansion projects, year-to-date the trajectory of our capex spend will substantially moderate and we expect 2020 net growth capex to be meaningfully lower in 2019.

Additionally, we continue to thoroughly evaluate and highly scrutinize all future new capital projects to align capital spend with available cash flow going forward.

With that I will now turn the call over to Jen to discuss Targa's results for the second quarter.

Jennifer R. Kneale -- Chief Financial Officer

Thanks, Matt. Good morning, everyone. Targa's reported quarterly adjusted EBITDA for the second quarter was $307 million, which was about $7 million lower than the first quarter of 2019, as a result of the sale of the 45% interest in the Badlands, which closed April 3rd. Overall strong fundamentals for Targa's gathering and processing and downstream businesses led by higher sequential volumes in the Permian region higher fractionation volumes and LPG export volumes would have resulted in higher sequential adjusted EBITDA. If not for the Badlands sale in the G&P segment operating margin contribution from higher sequential inlet volumes led by our Permian Midland and Permian Delaware regions was offset by the impact of lower NGL and natural gas prices. NGL prices troughed historic lows during the second quarter. Net of realized hedge gains second quarter gross margin was only about $3 million higher than the first quarter as a result of those prices.

In our Logistics and Marketing segment operating margin sequentially increased due to higher volumes from the start-up of Train 6, higher marketing opportunities, which contributed roughly $10 million in the second quarter and which I would characterize as more one-time in nature, and higher LPG export volumes, in addition to pipeline transportation margin from the start up of portions of the Grand Prix. Our G&P and downstream operating expenses increased in the second quarter over the first quarter, from additional assets and system expansions, primarily in the Permian, where labor costs have been increasing and also from a reclass of certain G&A expenses to operating expense. Our G&A decreased in the second quarter versus the first quarter.

Looking forward, we are very focused on managing our operating and G&A expenses and expect to begin to see our per-unit operating expenses decrease over time as utilization of recently completed projects increases and we benefit from a new AGI well at our Wildcat facility Permian, Delaware, which should reduce chemical costs that have been increasing to treat sour gas. While there have been obvious pluses and minuses year-to-date, our full-year adjusted EBITDA guidance range of $1.3 billion to $1.4 billion remains unchanged. Some of the larger headwinds that we have faced so far this year include lower NGL and Waha prices, the shift in Grand Prix completion to August, the shift in the Little Missouri 4 plant completion in the Bakken to August, lower South Texas inlet volumes and higher operating expenses, particularly in G&P. On the positive side, some of the pluses have been higher frac volumes and marketing opportunities, and higher Permian inlet volumes.

I would also like to point out that our non-controlling interest cut back is increasing and expected to continue to increase given the ramp up in Train 6 and Grand Prix, which is a deduction for partnership ownership interest to align with Targa's reported adjusted EBITDA. Turning to hedging, our percent of proceeds equity commodity positions are well hedged as we continue to execute additional hedges to increased cash flow stability, particularly for the back half of 2019. Our updated hedge disclosures can be found in our investor presentation.

On a debt compliance basis TRP's leverage ratio at the end of the second quarter was approximately 4.4 times versus a compliance covenant of 5 times. We continue to expect our compliance leverage to peak in the 3rd quarter and then begin to come down rapidly. In early June, we executed an amendment to our TRP credit facility utilized greater benefits by EBITDA contribution from our projects in progress, but not yet in service, which successfully increased our flexibility and also resulted in lower compliance leverage, which reduces our borrowing costs as it puts TRP in a lower pricing tier.

Our consolidated reported debt to EBITDA ratio was approximately 5.3 times. Our 2019 net growth capex estimate for announced projects is now expected to be approximately $2.4 billion, which represents a 4% increase compared to our initial estimates. We have spent about $1.4 billion of net growth capex through the first half of this year. As Matt described earlier, project costs associated with both Grand Prix and LM4 were higher than initially estimated, additionally over the last 12 months, we have seen labor costs move higher and now forecast that the new 250 million cubic feet per day Permian plant cost approximately $160 million.

We continue to remain highly focused on our capital spend, and we are working diligently across the organization to manage capex for 2019 and all future new capital projects. Our full year 2019 maintenance capex forecast remains unchanged at approximately $130 million. No common equity has been issued year-to-date, and based on current market conditions our expectation is we may not need to issue any equity into the foreseeable future as we benefit from increasing cash flow and lower leverage from our projects now in service. Looking forward, the second half of this year, we expect adjusted EBITDA and dividend coverage to be highest during the 4th quarter as we benefit from a full quarter contribution from a number of recently completed growth projects, providing Targa with significant momentum toward improving metrics as we exit 2019.

The trajectory of our capital spending relative to our cash flow is improving and we are spending a lot of time employing an enhanced top-down focused approach to control future capex, prioritize future investments around our core strategy, which is to maximize participation across Targa's integrated value chain. We are at a key inflection point, moving past the second quarter. Spending peaked as a result of our strategic growth capex program. And the final permanent earn-out payment and with our EBITDA at its lowest point of the year as a result of the Badlands partial interest sale.

Now moving through the third quarter, where we benefit from some partial quarter contributions from key assets lower growth capital spending and then move into the fourth quarter when we will demonstrate rapidly increasing EBITDA and dividend coverage with lower growth capital spending and improving leverage metrics.

With that, I would like to turn it back to Matt for a few closing comments.

Matthew J. Meloy -- President

Thanks, Jen. We have accomplished a lot and we still have a lot of work ahead of us. So I want to thank all the Targa employees who have been working very hard to complete the important strategic projects that have recently come online, and thank you to all of the operations and support organization employees that have prepared for, and are now handling, the new facilities and volumes. This is an exciting time at Targa, great projects coming online, and a strong outlook ahead.

So with that, operator, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Spiro Dounis from Credit Suisse. Your line is open.

Spiro Dounis -- Credit Suisse -- Analyst

Hey, good morning everyone. Maybe just starting with capex. Hey Matt, starting with capex, very encouraging comments around that, and it sounds like we've essentially hit the peak here. I know sometimes some of your peers, maybe talk to shadow backlogs and you guys have held pretty firm that that 1.8 billion of capex across 2020, 2021, which does assume things go down from here. Just anything sizable in the backlog that you're working on now that could increase that spend in 2020? And as we are closer to 2020, any sense you can give us in terms of what percentage that $1.8 billion could hit?

Matthew J. Meloy -- President

Yeah. We are obviously working very hard to keep 2019 capex -- we actually worked very hard to keep it at 2.3 but with the cost overruns, it moved to 2.4. As we look out the kind of capital that we've been describing is adding additional fractionation trains, which we've announced, Train 7 and Train 8. That's obviously going to be capital that's going to be spent spent next year, adding additional processing plants, adding the Gateway plant. We've got the Falcon plant out the Delaware, the Peregrine Plant. I'd say as we look out kind of over the near term, what we see in terms of capital spending is more normal capital spending associated with our core integrated strategy which is gathering and processing largely going to be in the Permian Basin, and then additional fractionation in export. Those projects are for the most part already announced and included in what we're planning for 2020.

Spiro Dounis -- Credit Suisse -- Analyst

Great, that's helpful. And then just a follow-up on Grand Prix and thinking about the ramp-up there. How should we think about filling that pipeline up from here? I guess more specifically, what processing plants are going to be connected into that? And do you benefit from NGL coming off of some of the third-party pipelines on the Grand Prix?

Matthew J. Meloy -- President

Yeah, exactly. We're going to benefit from really both of those, both of those items going forward. One, we'll have shorter-term transportation agreements that we had to enter into to move NGLs while Grand Prix was being built. So those are going to continue to roll off. So we'll be able to continue to just move volumes off other pipes onto Grand Prix, but we're also going to benefit from new, our new gathering and processing plants being put in place, as most of those NGL's are going to be pointed toward Grand Prix, and then into our fractionation and export. So we will be benefiting on that -- really from the full value chain as new processing plants get put online.

Spiro Dounis -- Credit Suisse -- Analyst

Great. I appreciate all that color. Thanks everyone.

Matthew J. Meloy -- President

All right, thank you.

Operator

Our next question comes from the line of Shneur Gershuni from UBS. Your line is open.

Shneur Gershuni -- UBS -- Analyst

Hi, good morning everyone. Maybe to start off, first of all, I just want to do offer my congratulations to both Joe Bob and Matt on your new roles.

Matthew J. Meloy -- President

Thank you. I appreciate it.

Shneur Gershuni -- UBS -- Analyst

Just in terms of a couple of quick questions, maybe to follow-up on Spiro's question here, just when starting with capex, when you talk about a meaningful reduction in capex for 2020, are we talking in the neighborhood of greater than 50%? Because the numbers are kind of split over two years, is it more 2020 versus 2019? And then you also talked about some cost overruns, but also last call you talked about moving some of the in-service dates of some of your facilities to capture some labor cost benefits. Is it too early to see some of those benefits? Just wondering if you can talk about those trends?

Jennifer R. Kneale -- Chief Financial Officer

Sure, this is Jen. I think that from our perspective, it's premature to rollout 2020 direct sort of capex guidance as we did in February 4, 2019. What we provided last November was meant to be really instructive. It was a point-in-time forecast that really I think directionally demonstrates that at that point in time what we felt like our capex budget would be reduced to over 2020 and 2021. We're very much focused on reducing capex on a go-forward basis. Certainly expect 2020 to be substantially -- absolutely substantially lower than 2019. But we do think just that there is a lot changing. Think about everything that's changed as we move through this year, that it is a little premature for us to come out with a direct sort of hard-and-fast number that will certainly be holding ourselves to in 2020 .

Shneur Gershuni -- UBS -- Analyst

And the cost trends in terms of starting projects later, you talked about capturing benefits on that?

Jennifer R. Kneale -- Chief Financial Officer

I think you've seen that we shifted some frac -- some frac timing. So the timing of Train 8, which we shifted on our last earnings call. You see with the announcement of the Gateway plant that really on the Midland Basin side volumes have exceeded our expectations, and so while we expected that we will be moving forward with that plant this year, maybe a little bit sooner than expected with the announcement today. And so I think that when we look out across our portfolio of future sort of capital projects. To Matt's point it feels like it's going to be very much across the core value chain, I think it will be hopefully easy for you to forecast when we will be adding plants and fracs, just as a result of the volume growth that you're seeing across -- across target because of the integrated value chain. That means that as we bring on new plants those volumes will have to go to new fracs. And so I think it would be easy for you to forecast the associated spending and timing of when we'll need new facilities.

Matthew J. Meloy -- President

I think, Jen, you've also described ongoing discipline that the team is using. Yes, pushing the frac trains out a little bit which saves some labor costs, and yes we announced Gateway that is right about on time, not pushing it out because the volumes are causing it. That's the disciplined framework that the management team is using.

Shneur Gershuni -- UBS -- Analyst

That makes sense. And I appreciate that follow up there, Joe Bob. Just with the new assets coming online, a lot of them are fee-based in nature. Can you give us a sense of where your commodity exposure sort of ends up as a result, like from the to-and-from type of scenario. And are there any opportunities to further reduce exposure, either by some selling some assets or restructuring some contracts?

Jennifer R. Kneale -- Chief Financial Officer

I think this year we forecast about 75% of our operating margin to be fee-based, Shneur. And when we think about the assets that have been placed in service, such as Grand Prix, additional frac trains , the plants, out in the Delaware, certainly, we are moving to a more fee-based model and that I think will become very obvious in our results really beginning in the fourth quarter and then going forward. I think that we are continuing to look across our portfolio of assets to figure out where there are opportunities to move less away from commodity price exposed contracts, and more to fee-based contracts, and we'll be continuing to do that. But that's really a practice that we've had within Targa going on for years now, and so that will continue.

I think that when you think about the complexion of our assets and contracts in the Midland Basin where we've got largely a lot of our POP exposure, we are trying to make those contracts more fee-based or at least have more fee-based elements there, and I expect that will continue. But that's a slow process. And so I would expect that our fee-based margin will increase going forward in 2020 over '19, '21 over 2020 etc., but it won't be at sort of a monumental one-time shift that gets us to largely entirely fee-based.

Shneur Gershuni -- UBS -- Analyst

That makes sense. Final question, the export arm for LPG has been extremely wide. Obviously you have a new facility coming online. Have you been able to use the wide nature of the spread right now to get into some more longer-term contracts, to more permanently capture some of that spread?

Matthew J. Meloy -- President

Yeah, I'll turn it over to Scott to handle that.

D. Scott Pryor -- President of Logistics & Marketing

Yeah, basically we've seen through the first quarter and second quarter, there was some tightness in the export market. Some of that was related to some challenges at the Houston Ship Channel, was facing due to some fires and some issues that they had. So, we were playing a little bit of catch-up during the second quarter, but now that we have kind of cleared that opportunity. We are excited to see the revampment of our Dock 2 which will come online during the third quarter of this year. And then of course our refrigeration unit that comes online in this -- in the third quarter of next year.

So, though we've had limited opportunities to match up the larger arm that was present at times, we do think that given the opportunities with the expansion projects that we've got under way -- the de-bottleneck projects that we have gone under over the last several quarters, to include assets added at our Belvieu facility to de-bottleneck butane as well as our pipeline down to Galena Park. These will provide further opportunities for us to participate when those opportunities or present. We're very comfortable where we are on our term contract basis, and look forward to when that presents itself in the future.

Shneur Gershuni -- UBS -- Analyst

Perfect, thank you very much guys. Really appreciate the color today.

Matthew J. Meloy -- President

Okay, thank you.

Operator

Our next question comes from the line of Colton Bean from Tudor, Pickering, Holt . Your line is open.

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

Good morning. So not to belabor the discussion on the capital program, but I think in that 2020 and 2021 forecast there was an assumption around three potential Permian plants. So with gateway being slated for Q4 '20, does that imply that there would be two plants in '21 or should we think that maybe there is one of those plants to move in 2022?

Matthew J. Meloy -- President

Yeah, so we're still working through timing both the Midland Basin and on the Permian side. We've already got two announced that have yet to come on out on the Delaware side of things, so there's potentially another plant in that time frame out in the Delaware potentially. I'd say there could be easily potentially another plant on the Midland side. So I think that's still a reasonable estimate, having come online in that time frame, but as Jen talked about, we're still really working through going over producer volumes of the past, moving that into our forecast and trying to stage the plants at the correct timing.

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

Got it. That's helpful and then just with Gulf Coast Express starting up in about a month and a half, can you clarify for us what sort of uplift that has on your commodity margins? So understanding that you have the equity interest, but when you look at your POP nat gas exposure, what does that do for you as you enter Q4 ?

Matthew J. Meloy -- President

Yeah, I mean really for us having GCX, online, we're going to benefit, much like the producers are going to benefit, which is higher Waha prices out in the Permian. So we are -- you saw our realizations relatively low, producers had the same affect here recently, prices are still low. So we are greatly looking forward to GCX coming online, and we'll see higher Waha prices which will benefit us on the equity side of our volumes.

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

And would effectively 100% of your equity volumes be covered by GCX, or should we still assume that there is a little bit of [indecipherable] there?

Matthew J. Meloy -- President

Yeah, so it will be a mix, it's not necessarily going to be all transported down GCX, but our equity volumes will benefit even if they're not moving down GCX, just from the uplift in Waha prices from GCX.

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

Got it. Appreciate the time.

Matthew J. Meloy -- President

Thank you. Thank you.

Operator

Our next question comes from the line of Keith Stanley from Wolfe Research. Your line is open.

Keith Stanley -- Wolfe Research, LLC -- Analyst

Hi, good morning.

Matthew J. Meloy -- President

Hey, good morning.

Keith Stanley -- Wolfe Research, LLC -- Analyst

I wanted to clarify first, just with the -- with the good second quarter here, that you feel good on the EBITDA guidance for the year, even using current commodity assumptions over the balance of the year.

Jennifer R. Kneale -- Chief Financial Officer

We reaffirmed our guidance for the year and we've got -- the first half of the year is completed, and now as we move through the third quarter with Grand Prix coming online, we didn't think that it made sense for us to change our guidance. We're not expecting to change our annual guidance on a quarterly basis anyway. So I think we detailed some of the headwinds that we have faced as we move through the year, and we've got some of the tailwinds as well and now with Grand Prix online feel very, very good about a fourth quarter contribution of Grand Prix to our EBITDA, increasing cash flow from other assets as utilization increases, so really are just reaffirming what is out there.

Keith Stanley -- Wolfe Research, LLC -- Analyst

Okay, and one follow-up on LPG export. So will you have 10 million barrels per month of capacity in the fourth quarter? And are there any bottlenecks to sort of filling that and ramping that higher pretty quickly in the fourth quarter on exports? And I just want to clarify, it sounds like you have a little bit more exposure to the ARBs once these expansions come online. Just in the earlier question. I wanted to make sure I heard that right. Thank you.

Matthew J. Meloy -- President

Well, what I would say is, again, we were highly utilized during the second quarter. We moved about 7 million barrels per month during the second quarter, somewhere around 231,000 barrels a day. Our focus continues to be to complement our export business as it relates to our overall platform our G&P business that feeds into Grand Prix, that feeds into into our storage through our fractionation business, and then all the way down to our dock for Galena -- to Galena Park for exports. As I said earlier, the projects that we, that we took under way to de-bottleneck the facility. A lot of those projects were geared more toward butane, our ability to export butane at higher volumes.

So dependent upon what the mixture is of propanes and butanes will kind of dictate whether or not we're hitting the 9 million or 10 million barrels of export volumes during the fourth quarter. Once we enhance that even more with the refrigeration unit in the third quarter of next year that provides us even further opportunity. So we were highly utilized. Most of that was related to term business. So I would not say that we're exposed to what the ARB is because we've got fee-based related contracts that are going to flow in and through our business and so the volumes have to move offshore, when you think about incremental volumes of production of propane and butane.

Keith Stanley -- Wolfe Research, LLC -- Analyst

Thank you.

Operator

Our next question comes from the line of Tristan Richardson from SunTrust. Your line is open.

Tristan Richardson -- SunTrust Banks, Inc. -- Analyst

Hey, good morning guys. Now that you've got substantially more visibility on Grand Prix and and Train 6 and GCX tracking to schedule, can you talk about just sort of the plans to update the multi-year outlook with that enhanced visibility now?

Jennifer R. Kneale -- Chief Financial Officer

I think that from our perspective we have left the long-term outlook slide in our materials, largely because we find it instructive, particularly with those who are less familiar with Targa. When we have an opportunity to talk about our growth capital program that's been on -- under way that now many of those assets are on online around, it's a easy slide to point to. I don't think that we see it as necessary for us to continue to update a multi-year outlook. I mean, if you think about all the pluses and minuses that I have even gone through today around what's happened in 2019, that's just a difficult endeavor to undertake and putting out a multi-term outlook every quarter.

And so I think Tristan right now, we're thinking that we will put out typical 2020 guidance around our normal time frame, which would be in February, which is when we have the optimal amount of information from producers to really, I think, effectively predict not only EBITDA but capital for 2020. And that's really I think the tactic that we will most likely take.

Tristan Richardson -- SunTrust Banks, Inc. -- Analyst

Very helpful, thank you. And then just on the capital deployment, you guys have been very vocal, very clear with us that your assumption for substantially lower capex next year, and when we think about governors of that, I mean, is that a stronger governor than sort of your return hurdle metrics and criteria? I mean, in other words, if something came along that was very strategic and very compelling, is it that substantially lower sort of comment that drives your decision-making, or is it more sort of how complementary a project might be?

Matthew J. Meloy -- President

Yeah, so good, good question. I mean it is, it is difficult, as we're going through and allocating capital and trying to allocate the capital to the highest return projects. I think as Jen said, we are looking at a top-down and saying we're trying to move toward that free cash flow. So we don't need to issue any more equity and go toward free cash flow. So that is our starting point and then we look at what's the best use and how do we balance the capital between investing in gathering and processing projects and other projects and downstream.

Our focus has been and really will continue to be what is along the core value chain, where we can earn margin on the gathering and processing side on transportation, fractionation, and export. So those are the lenses that we're using as we think about growth capital into 2020, but we're starting with what financial metrics are we going to try and hit in 2020. What are the reasonable targets that we can hit to move toward that free cash flow as soon as possible?

Jennifer R. Kneale -- Chief Financial Officer

And I think that the Williams project that we announced earlier this year really highlights how we're thinking about the world of capital. So that's a project that's incredibly strategic for us in terms of additional volumes on Grand Prix to our fractionation, but we approached it, as did Williams. And what we both viewed as the most capital-efficient way possible to get a very attractive deal done for both sides. But again in a capital-efficient manner.

Unidentified Participant

Makes sense. Thank you guys very much.

Jennifer R. Kneale -- Chief Financial Officer

Okay, thank you .

Operator

Our next question comes from the line of Jeremy [indecipherable] from JP Morgan. Your line is open.

Unidentified Participant

Good morning, guys, thanks for taking my question. This is Rahul on for Jeremy. With one half 2019 in the books, like could you update us on your second half outlook, what you're seeing as initial expectations and provide us your latest thoughts on what you're seeing in terms of producer activity and what it could mean for the exit rate?

Matthew J. Meloy -- President

Yeah, sure. I think as we said in the prepared comments, and I'll just kind of reiterate maybe expand a little bit on those. We saw really good volumes on the G&P side across our Permian business. So we saw good growth in the Midland side really good growth sequentially on the Delaware side. So I think as we look into the back half of the year, we'd expect that strength to continue as we're bringing on Pembrook we'll be bringing on additional facilities here as we start up on that plant will have Falcon coming on. So I think our outlook for the back half of the year. On the Permian side is continued strong growth, even exceeding our previous guidance, potentially there.

So I think we see really good growth on that side and that's going to bode well for us on the Grand Prix volumes. As most of those volumes are headed toward Grand Prix into our fractionation and export.

Unidentified Participant

Got you, that's helpful color. And just going back to Grand Prix for a second, considering all the gives and takes on the pipe as it ramps, under the short-term contractual loss, like are you guys are in a position to hit the 250,000 barrels per day by mid 2020 target you guys stated before?

Matthew J. Meloy -- President

Yeah, so our previous guidance there was 250,000 barrels at some point in 2020. We aren't officially changing that, although sitting here, giving you a guidance that we're going to be 200,000 or so in September I'd say we feel really good about hitting that. And I feel good about hitting that kind of earlier in the year versus maybe the previous guidance we gave was later in the year, right? So as we're moving forward in time, feeling better about those volumes, our volume expectation is going to continue to increase on Grand Prix volumes.

Unidentified Participant

Sounds good. That helps. And then like just a housekeeping question. On the NCI I think which ticked up notably, you guys did talk about in the prepared remarks at frac sites and Grand Prix ramps it could step up. Is there any good indication of how we should look at it in the back half of the year?

Jennifer R. Kneale -- Chief Financial Officer

I'd suggest that you follow up with Sanjay. Obviously the other ownerships are disclosed related to Blackstone owning a 25% interest in Grand Prix as well as the DevCos that are in place, but we can walk you through all the steps associated with where that ought to increase just in terms of making sure that you're modeling our partnerships accurately, and how that impacts the NCI cut back.

Unidentified Participant

Sounds good. Thanks for taking my questions guys.

Matthew J. Meloy -- President

Okay. Thank you.

Operator

Our next question comes from the line of the Danilo Juvane from BMO Capital Markets. Your line is open.

Danilo Juvane -- BMO Capital Markets -- Analyst

Good morning and thank you some producers in the Permian, are talking about capital discipline and so forth that pertains to lower volume outlook going forward, but that's of course for crude. Is it fair to say that because of the higher GORs you still see pretty solid growth even into 2020? And understanding that you don't give any guidance for 2020, but do you still see a sort of solid volumetric outlook out of the Permian?

Matthew J. Meloy -- President

Yeah, I'm going to turn it over to Pat to add, I would say we expect continued growth in the Permian in 2020 the outlook, there is still very good. Pat, anything you want to add?

Patrick McDonie -- President-Gathering and Processing

Yeah, I would echo that. I mean when we look at our core customers, their balance sheet their available capital to put to the drill bit,we feel really, really good about their continued activity level. Matter of fact, we have line of sight on what they're doing in the next 6, 12 and 18 months. So it would be a huge surprise and a huge commodity price dropped to alter that drilling schedule. We feel really, really good about our core producers and what our volumes are going to look like.

Danilo Juvane -- BMO Capital Markets -- Analyst

Thank you for that. And I guess as a follow-up, do you see GCX, sort of immediately help us to mitigate any flaring issues that you've seen out of the Permian ?

Matthew J. Meloy -- President

Well, there's flaring issues for a number of reasons. A lot of the flaring issue tend to be even more local and could be related to the quality of gas, whether it's H2S and others. So GCX may provide some relief to that. I wouldn't expect it to leave it all of it, because things are flagged for different reasons. I think with us, everyone who is producing gas out there is going to be a welcome addition to the capacity, because as you know Waha prices are hovering around around zero. So we need that capacity online and we're going to benefit, producers are going to benefit.

Danilo Juvane -- BMO Capital Markets -- Analyst

Thank you. Last question from me and that pertains to the update in the press release on the Outrigger earn out. Obviously there is DevCo payments to be made, 2023 and beyond and so forth, but with respect to the Bakken sale, are there any payments that you guys would have to make as well at the end of that deal? Or is it simply confined to the higher cadence of distribution in the early years that ultimately converged down to that 45%, as we discussed previously?

Jennifer R. Kneale -- Chief Financial Officer

It will be the latter, Danilo. So there are no obligations for us to make any payments at any point in time beyond the minimum quarterly distribution and then what Blackstone will be entitled to as a result of the 45% interest.

Danilo Juvane -- BMO Capital Markets -- Analyst

Okay, thanks for that update, Jen.

Jennifer R. Kneale -- Chief Financial Officer

Thank you.

Operator

And our next question comes from the line of Chris Tillett from Barclays. Your line is open .

Chris Tillett -- Barclays -- Analyst

Hi guys, good morning. I guess just first for me, I appreciate all the color so far on Grand Prix. It looks like based on what you're expecting today, maybe the volumes out of your own processing plants that will be feeding into the pipe are on track for maybe even better than what we expected when you first announced the project, but you also have a number of third parties on that pipe as well. Can you maybe just give us an update on how those volumes are trending relative to maybe your original expectations, and whether or not there are any behind MBCs?

Matthew J. Meloy -- President

Sure. So it's a mix. So we have multiple third party -- I'd say third party dedications, multiple third party MBCs on that pipe. Depending on the producer, we have seen, I would say volumes coming on. Not as fast as early indications. When we were contracting that pipe, which is not unusual when you're getting forecast from customers. But overall, the outlook and some of the cases catches up or even exceeds as you move forward in time. But again, it's a diverse customer base, we have many customers and it's a mix. So our volumes are going, I'd say even above expectations. And then -- for -- in aggregate, we've added more contracts than we estimated. So even if those contracts are slightly under the volume forecast they gave us, there is still more third-party than we originally anticipated when we announced Grand Prix.

Chris Tillett -- Barclays -- Analyst

Okay, I appreciate that. Thank you. And then next from me, I guess now that you have the full NGL pipeline you have more of an integrated value chain than you did, even just a year or 2 ago. I guess we kind of thought of it is the lack of the pipeline was the hole in the value chain in that part of your business. So should we think about the way that you operate commercially going forward, will that be any different? And I guess maybe what I mean by that is, should we look for you guys to take more advantage of some marketing opportunities to contain in the NGL price, anything like that?

Matthew J. Meloy -- President

I'd say we think it makes us more competitive. So when we're talking to the larger producers, we're able to offer the integrated suite of not only gathering and processing, but be able to handle the liquids, all the way to the dock and even through exports. So I think it makes us more competitive. Having the pipeline there. Yeah, anything Pat, you want to add to that. ?

Patrick McDonie -- President-Gathering and Processing

Yeah, I think once we announced Grand Prix. And we were sitting down with some of the larger production opportunity capture opportunities in Delaware Basin, the fact that we were going to have Grand Prix going forward that we would have that fully integrated platform significantly added to our success and blending some of those big dedications in those capturing some of those larger opportunities and quite frankly, that continues to be that way going forward. We're known as a very viable G&P unit. We keep people's oil coming out of the ground and now the NGO interruptions, etc., that we were afforded the having to rely on third parties. We now have the ability to get around that.

So it's just another kind of added piece that our reliability and how we perform and provide service for our customers is enhance that much further. So we feel really good about that and we are using it and we will continue to use it.

Chris Tillett -- Barclays -- Analyst

Okay, thank you. That's all from me.

Matthew J. Meloy -- President

Okay, thank you.

Operator

And that concludes our question-and-answer session. I would like to turn it back to Sanjay Lad for any further comments.

Sanjay Lad -- Director, Investor Relations

Thank you to everyone that was on the call this morning and we appreciate your interest in Targa Resources. As a reminder I will be available for any follow-up questions you may have. Thanks and have a great day.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Sanjay Lad -- Director, Investor Relations

Joe Bob Perkins -- Chief Executive Officer

Matthew J. Meloy -- President

Jennifer R. Kneale -- Chief Financial Officer

D. Scott Pryor -- President of Logistics & Marketing

Patrick McDonie -- President-Gathering and Processing

Spiro Dounis -- Credit Suisse -- Analyst

Shneur Gershuni -- UBS -- Analyst

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

Keith Stanley -- Wolfe Research, LLC -- Analyst

Tristan Richardson -- SunTrust Banks, Inc. -- Analyst

Unidentified Participant

Danilo Juvane -- BMO Capital Markets -- Analyst

Chris Tillett -- Barclays -- Analyst

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