Targa latest US Permian Basin operator to plot new gas processing capacity


Company adds fifth gas processing project in Permian

Midstream investment boom amid strong production

Midstream operators in the Permian Basin are racing to add natural gas processing capacity to accommodate booming production in the Texas shale patch, with Targa Resources the latest company to announce plans for a new facility.

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Targa plans to add a new 275 MMcf/d gas processing plant in the Midland Basin portion of the Permian by the fourth quarter of 2023, in addition to the four plants it is already constructing in the region to service rising associated gas production, the company said on an earnings call Aug. 4. The company is considering adding even more gas processing capacity in West Texas beyond the additional 1.3 Bcf/d it plans to bring on by the end of next year.

“We feel very optimistic we’re going to be able to have those [new plants] highly utilized when they come on and then go up very, very quickly,” Targa CEO Matthew Meloy said on the call. “We’ll be quickly looking in the Delaware for when we’re going to need another plant out there.”

The addition of a fifth processing plant project shows Targa going full throttle on boosting its gathering and processing portfolio in the Permian, with an eye on cementing itself as the largest gas processor in the shale patch. Targa on July 29 completed a $3.55 billion deal to acquire gathering and processing assets held by Lucid Energy Delaware, which included over 1.4 Bcf/d in processing capacity located mostly on the New Mexico side of the Permian. Properties acquired in the Lucid deal and the new plants under construction would give Targa 6.4 Bcf/d in capacity in the region, the company said Aug. 4.

Targa processed a record-high 3.1 Bcf/d in the Permian in the second quarter of 2022, up from 2.7 Bcf/d in the same period in 2021, the company reported Aug. 4.

Midstream competitors including Energy Transfer, Enterprise Products Partners and DCP Midstream have in recent days announced their own plans to buy or build gas processing plants in the Permian, with companies putting down money to match rising production. Permian dry gas production has averaged 14.3 Bcf/ year to date, up from 13.6 Bcf/d across 2021 and 11.5 Bcf/d in 2019, before a COVID-19-induced production downturn, Platts Analytics data shows.

August is on track to be the Permian’s strongest month ever, with month-to-date production averaging 15.2 Bcf/d, a figure that would represent a monthly record high if sustained.

production growth

Gas producers with significant assets in the region corroborated this strong production on Aug 4 earnings calls and suggested that market fundamentals point to sustained strength in the Permian moving forward.

SM Energy, which has 82,000 acres in the Midland Basin, produced 346.3 MMcf/d in the second quarter, up 19% from the same period a year ago. Permian producer Laredo Petroleum more than doubled realized sales from natural gas in the second quarter compared to a year ago amid strong demand for gas from US power markets and LNG export customers.

And APA Corp. announced a $555 million deal to gobble up new acreage in the Delaware and halted its drilling operations in the Austin Chalk portion of the Gulf Coast Basin, judging that its capital is “better spent in the Permian,” APA Executive Vice President David Pursell said on the call.

The recent increases in Permian production have pressured regional spot gas spreads. Waha Hub spot gas’s discount to cash Henry Hub has blown out to more than $1/MMBtu in the three most recent trading sessions, after averaging around 56 cents in July, data from S&P Global Commodity Insights shows. These strong price signals are giving midstream companies like Targa confidence to consider opportunities to build out pipelines for gas and NGL transmission.

“It is our goal as we add gas processing plants in the Permian — whether with the Delaware acquisition that we recently did or new plants on the Midland side — to make sure that those volumes run along our transportation legs on the current Grand Prix pipeline or future expansions that we may do,” Targa President of Logistics & Transportation Scott Pryor said Aug. 4.

Targa Resources reported net income of $687.6 million in the second quarter, more than quadrupling the $155.4 million net result recorded in the same period a year ago.

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