Good day, ladies and gentlemen, and welcome to the Targa Resources Corporation to acquire Targa Resources Partners LP and Third Quarter 2015 Earnings Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce you host for today's conference, Ms. Jennifer Kneale. Ma'am, please begin.

Thank you, Liz. I'd like to welcome everyone to our joint call this morning to discuss the announcement that Targa Resources Corp has executed an agreement to acquire all of the outstanding public units of Targa Resources Partners LP, and to review our third quarter 2015 results for both, Targa Resources Corp. and Targa Resources Partners LP. Targa Resources Crop., TRC or the company and Targa Resources Partners LP, TRP, Targa Resources Partners or the partnership, together Targa, have published the press release and the presentation related to the merger announcement and our joint earnings release and updated quarterly investor presentation on the Events and Presentation section of our website at www.targaresources.com. During the initial prepared remarks of this call, we will be referencing some slides from the investor presentation regarding the merger and you may wish to have it available. I would like to remind you that any statements made during this call that might include the company's or the partnership's expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor Provision of the Securities Acts 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 SEC filings, including the partnership's Annual Report on Form 10-K for the year ended December 31, 2014 and Quarterly Reports on Form 10-Q. Joe Bob Perkins, Chief Executive Officer; and Matt Meloy, Chief Financial Officer will be our speakers today. And other members of the management team are available to assist in the Q&A session if needed. Joe Bob will first discuss the merger and as mentioned, will reference some pages from our investor slide posted to our website. He will then cover a high level review of third quarter performance and highlights, and will then turn it over to Matt to review the partnership's consolidated financial results, segment results and other financial matters. Matt will also review key financial matters related to Targa Resources Corp. Following Matt's comments, Joe Bob will provide some concluding remarks and then we will take your questions. With that, I will turn the call over to Joe Bob Perkins.

Thanks, Jen. Welcome and thanks to everyone for joining. I'm proud and excited to have the opportunity to discuss this morning's announcement that Targa Resources Corp. will be acquiring all the outstanding public common units of Targa Resources Partners LP in an all-stock per unit transaction at a ratio of 0.62 TRC common shares per common unit of Targa Resources Partners. As shown on Page 4 of the presentation that Jen mentioned, the TRP unit prices implied by the exchange ratio results in an 18% premium to its volume weighted average price during the ten trading days ended November 2, 2015. And coincidentally, results in an 18% premium over the closing price yesterday. This transaction will be immediately accretive to TRC shareholders. Following completion of this all equity transaction, all of the outstanding common units of TRP will be owned by TRC and will no longer be publicly traded. The incentive distribution rights of TRP will be eliminated. All of TRP's outstanding debt and the new Series A preferred units will remain outstanding and no additional financing is required for the transaction. This is the transformative transaction that provides immediate and long-term benefits for TRC and TRP investors and changes the opportunity profile for Targa across various commodity price environments. Over the last year, this industry and Targa have been faced with challenging commodity prices and significant uncertainty related to future commodity prices, which have driven Targa to assess all our strategic alternatives and to accelerate our thinking on the structure that positions Targa most successfully for the future. In the past, we valued the flexibility and optionality of two public entities, including the possibility that TRC might selectively provide support to TRP through foregoing IDRs, purchasing TRP units or other measures that's mutually beneficial to TRP and TRC. Now…

Thanks, Joe Bob. I'd like to add my welcome and thank you for joining our call today. As Joe Bob mentioned, adjusted EBITDA for the quarter was $306 million compared to $249 million for the same period last year. The increase was driven by the addition of TPL's operations. Overall, operating margin increased 11% for the third quarter compared to the same time period last year and I will review the drivers of this performance in the segment reviews. Net maintenance capital expenditures were $27 million in the third quarter of 2015 compared to $22 million in the third quarter of 2014, driven by the inclusion of TPL operations. Turning to the segment level, I'll summarize the third quarter performance on a year-over-year basis beginning with our downstream business. In our Logistics and Marketing division, third quarter operating margin decreased 9% compared to the third quarter of 2014, driven by lower LPG export and fractionation margins offset by partial recognition of the payment received from Noble related to our condensate splitter project and increased terminaling and storage activities. We loaded an average of 5.6 million barrels per month of LPGs for exports compared to 6.3 million barrels per month of LPGs in the third quarter of 2014, resulting in lower operating margin compared to the same time period last year. Fractionation volumes decreased by 7% versus the same time period last year as described by Joe Bob earlier and overall operating margin from fractionation was lower. In our Gathering and Processing division, our Field Gathering and Processing segment operating margin increased by 35% compared to last year, largely driven by the inclusion of TPL. Third quarter 2015 natural gas plant inlet volumes for the Field Gathering and Processing segment were 2.6 billion cubic feet per day. The overall increase in…

Thank you, Matt. I know that most of the listeners are hoping I'll be brief, but I do have a few more remarks. On October 5, we issued a press release providing you with our preliminary financial outlook for 2016 for TRP and TRC. And in the context of TRC acquiring TRP, we have provided you with a lot of additional details on our outlook for 2016 and beyond this morning. We would like to give you a little more color on the project that we also announced in the early October release as well as our asset outlook for 2016. Also in that October 15 release, we announced the execution of a joint venture agreements -- agreements plural -- with Sanchez Energy to invest approximately $125 million of growth CapEx for a 50% ownership interest in a new 200 million cubic feet per day plant in La Salle County and approximately 45 miles of high pressure gathering pipelines that will connect Sanchez Energy's existing Catarina gathering system to the plant in South Texas. The projects are supported by attractive fee based contracts, volume commitments and acreage dedications. SN has an initial 125 million cubic feet per day minimum volume commitment for the first five years and has dedicated all production from the Catarina Ranch acreage for 15 years. Our outlook for 2016 in both the press release published on October 5, and the merger announcement this morning included the following asset performance assumptions in the consensus pricing scenario. Growth CapEx of approximately $600 million, flat to low single-digit growth in 2016 Field G&P inlet volumes compared to average 2014 inlet volumes and over 5 million barrels per month of LPG export volumes predominantly under contract. As we project our 2016 estimates in the context of industry uncertainties, we believe…

Okay. And just before we open that up, I just have one last comment. At TRC when I went through the tax rates for TRC, I said we expect a zero to 5% effective cash tax rate for 2015 and 2016 that was in the standalone case or in the previous guidance. Just want to be clear pro forma for the announced buy-in transaction we would expect no taxes at TRC for the foreseeable future. And with that we can open up to questions.

Our first question comes from the line of Lee Cooperman with Omega Advisors. Your line is now open.

Thank you. Thank you. Interesting call. Your first words were basically you were proud and excited about the transaction and I noticed the stock is down 8% TRGP. What do you think people are missing, though you were quite comprehensive in your remarks, but what do you think they are missing in the market reaction? Number one. Number two, is there a breakup fee for either party associated with this transaction? Three, did the advisors that worked through this transaction with you expect this type of market reaction? And those would be my principal questions. But thank you very much for any help you could be.

Thank you. Let me start at the top I think and come back on if I don't address them all. First of all, we have a rule as we're doing these calls that no one looks at the market ticker. We're giving a call based on nine months of performance and we're making a strategic move for Targa for the long-term. So I don't know what the near term market reaction is missing, but I hope that the longer term market reaction is focused on that long-term, that stronger Targa for multiple various price environments and how we will perform better than standalone and that's what we're trying to talk through. The advisors, the Conflicts Committee, and the board were all focused on that. And I think we'll figure out what the market is missing over the next days, weeks and months. There is a breakup fee. It is a sort of normal breakup fee, call it, starts with a C, my favorite word for that, a customary breakup fee, it is less than $100 million and it will appear in the proxy. Did I miss anything? I am looking around the table, okay.

Who pays the $100 million? Who gets the $100 million? Which party?

It's reciprocal. And it's not exactly $100 million and it's slightly different. TRC has the ability to extend it over time and you'll see that in the proxy.

That's okay. Thank you.

Our next question comes from the line of Jeremy Tonet with JPMorgan. Your line is now open.

Good morning.

Good morning, Jeremy.

Good morning, Jeremy.

Congratulations on the strong quarter. I was curious when you were evaluating this transaction, the collapse here versus other strategic combinations, if you could speak to that at all, if that was something that you guys evaluated or had any appetite to do or how this stacks up versus that.

Okay. I would say that Targa throughout its history has constantly been evaluating strategic alternatives sort of at any point in time across important milestones. And since the Thanksgiving of last year was a significant commodity price drop and figuring out what that new environment might look like and with continued uncertainties that strategic assessment has accelerated. Many strategic alternatives were reviewed really starting at the very first part of the year. Of late and recent weeks and recent months, this one like everybody has written about or even talked to us about, this buy-in transaction has been on the list, when compared to those other alternatives. I really believe that sort of the approval by both boards and the Conflicts Committee indicates that they following management's recommendation believe that this alternative were superior to the others. I hope that answers you question?

That's very helpful. Thank you. Just a question on taxes, I know you said that you're not expecting to pay taxes for a long time here. But I was just wondering if you could help us think through how you're targeting coverage in the later years as far as that 1.05 coverage versus step up in taxes in the future if you're starting kind of at 0% in the near term, if you could walk us through your philosophy there, that would be helpful.

Yes, sure, Jeremy, just first on the tax piece, because of the basis step-up that will be happening inside TRC, we see zero taxes, Joe Bob said for the foreseeable future, it's – well beyond five years, we don't estimate being a taxpayer depending on what EBITDA and other assumptions you use because of the step-up inside TRC, we think we'll be in a low to zero tax position for a very long time, kind of through our five-year plus forecast horizon and then even beyond that. So, TRC is going to be in a good tax position going forward with this transaction. And then coverage, our long-term coverage target is still going to be 1.1X to 1.2X. We know the cases that we laid out had lower coverage than that. Joe Bob mentioned in his remarks we're going to working towards finding additional projects and trying to improve on that forecast that we gave to try and get our coverage back to those target levels. But right now, just with the assumptions that we put in and the forecast that the Board looked at, it kind of resulted in some declining coverage over time. We're going to try and do better than those forecasts. Those forecasts have $600 million of growth CapEx approximately by year. We have a lot of other opportunities that might be able to add some economic projects to help fill in some of that.

That's great, thanks. And then just one last one for me if could now hop back in the queue, did you preview the deal with the rating agencies, and if you did, did you have any initial responses there?

Yes, we spoke to the rating agencies. We would expect them to be coming out shortly with their view, given that the financing structure is essentially the same yesterday as it will be pro forma the transaction, we don't see a material difference happening. I think over time, the improved credit profile, because of higher retained cash flows, is going to be a net positive to the rating agencies, but it's essentially the same capital structure before the deal and after the deal.

Great, thanks, I'll hop back in the queue.

Our next question comes from the line of Brandon Blossman with Tudor, Pickering, Holt and Company. Your line is now open.

Morning, Brandon.

Good morning, Brandon.

Good morning. Joe Bob, as you talked with the board about the roll-off transaction, was this just a gradual evolution that tipped it in the balance or in favor of this way forward, this path forward or was there something kind of specific that you can point to that changed over the last, call it, six months to nine months that led you in this direction?

The strategic assessments have been going on for some time and the buy-in transaction has been on that list. It sort of gave me two choices, I would say the choice of a gradual evolution was the better of the two. Dialogue, analysis, would say that there was not a deal there until this weekend. The TRP Conflicts Committee, the TRC Board and later the TRP Board, following management's recommendation, were first analyzing it as a possibility among many and then came to agreement that they should consider it specifically for a short period of time. And I'm pleased to say across the weekend we believed that we could make it happen, and yesterday, into last evening, worked on the specific details that were contingent to both sides supporting it.

Okay, fair enough and probably a good weekend.

That weekend description should still sound like, I think your gradual evolution towards the answer.

Fair enough. And then as you think about equity needs beyond – sounds like you're good for 2015, but beyond 2015, any general color that you'd be willing to share around equity needs and path forward on that. And then specifically, any comments that you're willing to share on the preferred equity market relative to your experience in the market recently?

Sure, relative to funding needs for 2016, we've typically targeted about a 50% mix of debt, 50% equity. And in the forecast, in that consensus case, that's approximately what we assume for those leverage metrics targets for the forecast period, so we're pretty close to that 50:50 in that environment. And then of course we'll look and make a determination on a year-by-year basis. Some years will be more debt, some years will be more equity, and we'll always have to make the best judgment at the time. We issued preferred at NGLS. Issuing NGLS common was getting, in our view, was not the lowest cost of capital and the best means to issue, so we went out with the preferred equity issuance earlier this year at NGLS. We raised $125 million. So I'd say that is something that we'll continue to look at. And if it makes sense and it's a lower piece of capital than our other alternatives, it's something we will consider. So that could be a piece of the additional equity needs for 2016 as well.

Okay. Joe Bob, Matt, thank you very much.

Thank you, Brandon.

Our next question comes from the line of TJ Schultz with RBC Capital Markets. Your line is now open.

Hi, TJ.

Hi, good morning. So you've listed before, I think, $3 billion to $4 billion of additional opportunities in kind of various stages of development. So if more projects now conceivably cross your return threshold, can you put any numbers around what you may be able to extend this backlog to or are there projects that maybe had been delayed to where you now have some level of confidence on exceeding that $600 million per year growth CapEx in a better commodity environment that you've laid out?

TJ, I think the last part of the question, you started answering it, or at least from my perspective. The delay in those projects, most of them are when, not if, kind of projects, have been more driven by commodity prices and producer activity and downstream activity than delayed by our cost of capital. For the bulk of them and the ones that have visibility, that's certainly the case. So I think levels of capital investment are indicated in those example scenarios. We have more CapEx in the base-case consensus scenario than we do in the lower-price scenario. And that's kind of how I think it will play out. I'm pretty sure that we will not experience either one of those smooth commodity price curves and that activity will be a function of where we are in the price curves and where we are in the forwards.

Okay, got it. And then it sounds like you still want to get debt leverage to 3X to 4X. If you could just discuss that goal in the context of what you laid out in the different scenarios through 2018 when you might envision getting to sub 4X leverage and the emphasis that you place there versus coverage or growth in the dividends?

Yes, good question. If you look at the presentation in that consensus pricing case, we have 4.3 and it's relatively flat debt-to-EBITDA forecast. That's pretty closed to the high end of our target. We'd prefer that number to be 4.0 or lower. So, it's something we'll have to look at, whether it's – have to watch. If EBITDA could come in a little bit stronger than our forecast or we may issue a little bit more equity for our CapEx, maybe more than 50:50. But at 4.3 we're not – I'm a lot more comfortable between 3 and 4, but 4.3 doesn't give us any huge concern over here either.

Particularly relative to forecasting that we believe has some conservative elements.

Right.

Okay, great. Thanks, guys. I'll leave it there.

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

Hi, good morning guys.

Good morning.

Good morning.

Lot of my questions have been asked and answered, but I kind of have a few follow-ups and actually one operational question as well to you. From the way I look at it, it appears like your cash flow metrics are improving, so it sounds like the agency should be – view it positively and so forth. But I guess the real question I have is, less than a month ago, you came into the marketplace to do an offering, you did the preferred and so forth. What changed in that month that you decided you needed to take these steps to improve cash flow even further? I was just wondering if you can sort of give us that color, is this defensive in nature? Just trying to understand kind of the process, where you were at the beginning of October versus where you were this weekend when you made this decision?

Yes, I'm glad someone asked that question, because it can appear based on what you see publicly that that was sequenced the way you just described it, that's not the case. The strategic alternative assessment has been going on well across that October 5 announcement across the issue of the retail preferred, and management and the Board, on things that the Board – the Boards plural – and things that they had to approve, were managing the company the way we needed to manage the company if no strategic alternative levers were pulled. In fact, the retail preferred was on the strategic alternative levers for a long time, that's a good move regardless of doing this buy-in or not doing this buy-in. It's an additive tool to the overall capital structure at a cost of equity that was significantly cheaper than NGLS. So, please out there, don't interpret that something changed from the time we were doing those financings, for example, right after Labor Day when we did notes, we needed to do notes. It was good timing, nice window. For example, the retail preferred, we wanted to put that club in our golf bag and be able to use it later. And Matt said he's going to continue to use that later if it works with our other equity opportunities.

Okay. So it's fair to conclude no change in your assumptions on the base business over the last month, it's just the process evolved effectively?

I also am glad you asked the questions about whether it was defensive. The defensive nature of this is related to trying to manage, and we've been trying to manage since the first part of the year, what we look like in a lower-for-longer. This is a stronger target in lower-for-longer. And we're not planning on lower-for-longer, but we want to be ready and positioned for it. And this move positions us for those kind of price scenarios just as it positions us well for improvements in the higher-price, better recovery price scenarios.

Okay. And maybe if I can ask an operational question. When I look at your OpEx and SG&A numbers for this quarter, it's certainly better than what we were expecting and it seems like an interesting trend. Do you expect us to see continued improvements in OpEx and SG&A savings in 4Q and throughout 2016, kind of something similar to what we're seeing in the E&P space on capital efficiencies?

Two things; one, you get to see our numbers kind of rolled up together, okay. And beginning in the first part of the year, we're going to add Buffalo and we're going to add Train 5 and there's going to be additional OpEx coming with those, just by that very nature, we've got to hire some operators for them, for example. However, yes, I expect continued operating expense and capital improvements across the company. I expect. Now I'm doing forecasting. I believe that we will largely offset those increases for Buffalo and Train 5 with the cost savings that we're achieving. Because everybody is really focused on it, we've got area managers working together. Mike, was it three weeks ago, we had maybe third area manager meeting of the year. Those guys are sharing best practices across the entire footprint, very focused, and in every one of those sessions I see the energy of, here is the good ideas I've been doing. What have you been trying to do about this? Wow! I bet I could do that also. That's why I believe that there will continue to be cost saving by asset and potentially even cost savings despite bringing on more assets. G&A is not dissimilar.

Okay, great. Thank you very much and congratulations guys.

Thank you.

Our next question comes from the line of Gabe Moreen with Bank of America. Your line is now open.

Good morning everyone. Just a specific follow-up question on the credit ratings question. Is it your expectation on your part that TRGP's rating gets shifted around here at all?

Yes, I think there is a pretty good opportunity for them to either equalize or upgrade possibly TRC since we'll have the – it will all be one credit family. So I think they're going to come out with more specifics around that, and we'll have to have subsequent discussions once we get through close how they're going to look at that. But I think there is an opportunity for the TRC standalone ratings to potentially improve.

Thanks Matt. And then kind of a follow-up to the tax savings questions, I realize there is a bunch of different scenarios with one instance or for some instances when you do have this roll-off transactions, management has been willing to give an aggregate cash tax savings number expected over a period of time. Is that something you'd be willing to do or is that just too difficult given the different scenarios out there?

Yes, good question. We talked about that. I think where we're more comfortable in saying is we just don't expect to be a cash taxpayer for an extended period of time. You're right, there is a bunch of different ways to calculate that PV, how long, what scenario, how much CapEx to spend and the like, so I think we're just more comfortable saying we don't expect to be a cash taxpayer.

And that means across multiple scenarios?

Right.

Got it, thanks, Matt. And then, last one from me and Joe Bob in terms of having a lower prospective equity cost of capital, hopefully here after the roll-off, does it change your approach in terms of deploying CapEx and hurdle rates here given that you won't have the IDR structures in the burden there?

We've been pretty open on these calls that with the higher cost of capital that we were experiencing with NGLS, we had sent the signal to our organization to insist upon higher returns in the contractual negations, their asset planning projects. And I believe that they have done so. I still believe that the bulk of major projects meet our sort of thresholds in either world. But there are some other smaller ones, medium-size ones that probably don't come to us, and I am aware of projects that we would have done in the past that would not be brought to us in the recent higher cost of capital environment. So, I believe it's a positive – positive over time, but we had an earlier question that said, how much more projects are you going to do because of that. I think that that's an overly aggressive way of trying to model it. Instead, the projects we are doing will bring us higher net returns and some projects on the margin that might not have been brought forward for approval are likely to come forward.

Understood. Thanks, Joe Bob.

Our next question comes from the line of Sachin Shah with Albert Fried. Your line is now open.

Hi, good afternoon. Congratulations on the deal. I know you guys mentioned how you guys review the strategic alternatives, but just wanted to understand the premium that's being paid here. I know all units are stock, but just wanted to kind of go through that process. You mentioned that because of commodity prices being where they are and you're expecting them to – forecast them to be where they are, that might have an influence on it. So, just wanted to understand that a little bit better. And then also just, it seems pretty simple. Unit holder vote, HSR and that's pretty much it, so just want to confirm that? Thank you.

From the back side to the front side of those questions, yes the approvals are not expected to be a big deal on the regulatory front. We are there (0:59:13) on the acquisition and HSR should be quickly terminated. It's just a taxing opportunity at this point. As far as the premium management, our conversations with our Boards and the Conflicts Committee recognize that premium is a result, not an objective as we were discussing this. It's the exchange ratio that is the economic trait and that 0.62 exchange ratio was – ratios around that were evaluated by both sides. I'm not going to describe the trade-off of things and the scheme of things, but in reality, the premium, this 18% premium was a function of what day we got the deal done on, not an objective.

Okay, thank you. Congratulations, again.

Okay, thanks.

Our next question comes from the line of John Kiani with Teilinger Capital [ph]. Your line is now open.

Hi, good morning.

Hey, John, how are you?

Good morning, John.

Thanks for providing the additional outlook to 2017 and 2018, it's helpful. Can you please explain what you're assuming for the LPG export volumes in that business and also pricing as well in that 2017 and 2018 timeframe in your forecast and the consensus to lower case, at least directionally compared to what we're seeing today, please?

Yes, and I'll start with the easier answer. In the presentation, if you flip through, we have the commodity price assumptions laid out for both the consensus pricing and the strip, that's on page six and it's on page eight, so we've got the WTI, NGL and natural gas. For the LPG exports, we've given guidance for next year, for 2016. We would expect 5 million or more barrels per month for 2016. We have not given and we don't have in our assumptions an assumption for 2017 and 2018, so we aren't giving that color for 2017 and 2018, but just 2016.

Got it, okay. So, there's obviously some assumptions that you all made in both scenarios for the LPG export business in 2017 and 2018 on both price and volume, but you're just not going to disclose that at this time?

Right, we'll share 2016 with you.

Got it. Okay. And I have a second question that's unrelated please. Can you just talk through the thought process in how you got comfortable with the credit exposure when you entered into the Eagle Ford JV with Sanchez Energy, just considering the company's credit rating and with their bonds yield and the teams and whatnot? Could you talk through how you're planning to manage their credit exposure and what your thought process was in getting comfortable with that?

Sure, we took a look at Sanchez's financials, had discussions with their management, cash forecast. They've got today significant cash in their balance sheet and they are in good position to continue drilling for, in our view, an extended period of time to continue to drill. We've also, through the 50:50 ownership in the processing plant and in the assets, they're going to be incentivized and whether it's them or another party if they were – if there's any transaction, they will be incentivized to continue to flow down the assets that we own because the other party owns 50%. So, Sanchez has incentivized the flow through the gathering, through the processing. And anyone else that own those assets would be incentivized to flow down those gathering pipes and the processing plant.

I see, then, do you have any type of guarantee from them? Is it at the project level? Is it at the corporate level? How do you think about managing your credit exposure in general in the event of the outlook changing?

John, the team here, we've got a very strong financial risk management team. You should assume that we've done everything we can within contracts, et cetera, to protect ourselves. I was having discussions with our board that there was a great deal of thought and creativity that went into those agreements, but we've got CAs on what is actually in those agreements, that was mitigated to the maximum extent possible is probably the right way to put it. And we feel good about this as a standalone project. Sanchez, I understand people are saying about their – sort of where their equity is and what the credit might look like. They're a very good operator and they've had very good success in what people thought was a less productive part of the Eagle Ford and we will benefit greatly from those volume commitments and the drilling requirement that's associated with the original shale leases is public for Sanchez or whoever else to hold on to that lease. So, in the scheme of things, big picture, this is a good deal for Targa.

Got it. Thanks, Joe Bob, thanks, Matt.

All right. Thank you.

Our next question comes from the line of John Edwards with Credit Suisse. Your line is now open.

Good morning, everybody.

Hey, John.

And just to follow-up on some of the other questions. I'm just curious, in terms of making this announcement on the restructuring, how much did the leverage and relatively low distribution coverage weigh on this decision and on the decision to announce it at this time?

I think those numbers certainly were important factors in the decision which is why we took you through pages six through nine in some detail. It certainly managed – was a big part of management's recommendation because entering into this transaction creates that stronger Targa regardless of price environment. I feel really good about sort of this next future step for Targa and what it looks like. I don't feel very good about my ability to predict commodity prices. And I believe that the boards and the TRC Conflicts Committee looking at those factors or similar factors reached a similar conclusion that all of our stakeholders were better off regardless of the commodity price scenario you pick with this new transaction.

Okay. All right. So it sounds like it's been weighing on the process for some time, because you said you've been looking at this since almost a year ago and so that...

I don't know that I would describe weighing on the process. Our forecast which we forecast and re-forecast kind of all the time have done the best we can to contemplate what does Targa look like in a variety of price scenarios. These are two illustrative ones. And coverage and leverage are something we're trying to manage all the time.

Okay. All right, thanks. My other questions have been asked. Thank you.

Thanks, John.

Okay. Thanks, John.

Our next question comes from the line of Faisel Khan with Citigroup. Your line is now open.

Thanks, good afternoon. I understand you don't want to give us the NPV or PV of the tax situation that occurs from this transaction, but can you give us the deferred tax asset that's created from this transaction or the tax basis step-up, so that we can sort of calculate sort of the NPV on our own?

Okay. I don't have, we're working through obviously the accounting impact of what will go on the books, but just, simplistically, the total transaction value is about $12 billion for the total transactions and you back off the units that we already own, that won't be receiving the step up and then you can split that on a amortization schedule. So, we assume most of the step up would be getting seven-year makers and then there is some that's going to be straight-lined over a longer period of time, call it 14 years, 15 years.

Okay. Great, that's what I was looking for. And then, on your POP contracts, can you discuss a little bit about, what's going on with some of those contracts, and what I mean by that is some of your other peers have sort of talked about collecting revenues on ancillary services that they may have not been collecting revenues on before on some of those POP contracts because of the common language that exists in some of those contracts. Can you talk a little bit about, if you have those same sort of opportunities and if those are things that are sort of taking place in the current oil and NGL price environment?

I know it may be a new topic, but it's a very old thing for Targa to be managing our Gathering & Processing contracts to add these to POP and I think we've publicly described it for at least 9 years or 10 years. Constantly doing that, when you get in a different price environment there may be more opportunities to try to do that. So, it's been a constant effort for us and we sort of haven't described it as anything new or different, trying to be fee based where we can like North Dakota. Some people are now trying to switch from POP to fee based in North Dakota which means they will look more like our contracts. And as we look at POP contracts coming up where we have attractive competitive position, we're trying to improve those terms both on the terms of the POP and on the fee. We talk of a POP contract anytime it has a POP component but some ours are really hybrids. They maybe – the margin impact maybe as large on the fee side as it is on the POP side in the current contract forms and that effort continues.

And Joe just to the extent that, you've been working on this with your legacy contracts at Targa for the last several years, what about with the Atlas contracts, I mean how much more work is there to do on that area?

The TPL set of assets are now being managed as one family. In their history they had switched some from POP to fee at a time that was important for them to do so, and those efforts continue. I think there are still opportunities there for additional fees and/or improved POP just as there are additional opportunities for that as contracts come up and as new acreage dedications are achieved, and as new contracts are reached as we extend our systems.

Okay. Thanks for the time.

Okay, thank you.

Mike was telling me to remind everybody that much of our P&P portfolio is already primarily fee, essentially 100% fee. I mentioned the Badlands, much of Oklahoma, South Texas is all fee.

Okay, next question?

Our next question comes from the line of Jerren Holder with Goldman Sachs. Your line is now open.

Hi, good morning, thanks for taking the call. I just wanted to clarify maybe the price sensitivity scenario and what exactly is that based on, is that just forward curve pricing or something else, and based on the forward curve, do you still get the sort of growth and coverage metrics?

Yes, that was based on the forward curve some time ago when we pulled that, so you see gas was around $3, crude was $47 going to low and then the mid $50s. And then for the NGL we looked at the forward curve as well, but then increased prices, you will see it kind of increasing with the crude oil contango [ph]. So, I would say it was strip base but it wasn't just simply a strip on this day and we used it, we've kind of looked at it over a period of time and then made the adjustment to NGLs.

Got it, and I guess given the long-term coverage targets, kind of 1.1X, 1.2X and just in both scenarios where we are sort of moving away from that, how do you think about growing the dividend whether its 15%, 10her its%, whatever the metric is versus say getting back to that 1.1X to 1.2X sort of target sooner just given the variability in the earnings model from commodity prices and volumes.

And I would say it would – you know how we think about any years coverage really does depend on our longer term view for where coverage is going. So if we're able to add projects and we are able to add EBITDA and it's a relatively healthier environment as we are looking out, it's not necessarily a target of 1.1X to 1.2X in 12 months or 24 months out. We will look out several years. We will look at our project backlog, look at the environment, and then make an assessment for how much of that coverage we would want to distribute and then how much we would want to keep, and so that's a decision we will kind of make on a quarterly basis, but we will take all those factors given the environment, given price contango, project backlog and the like and just have to make that call as we go throughout this forecast.

Thanks. And then last one from me, the compliance – the levers compliance covenants and so – I guess there is the 5.5X at TRP, but at TRC there isn't any, can you I guess talk a little bit about that evolving as on a pro forma business?

So at TRP there is the 5.5X covenant and that remains unchanged and that's going to be the governor or that's where we will have less room under our compliance being low 4X relative to 5.5X. Once this buy in occurs, all the cash flows will be flowing out of TRP up through TRC and will be available for that credit facility at the TRC level. So pro forma for this transaction is going to be under 1X debt-to-EBITDA, so if you're okay on compliance at TRP, you're going to be okay on compliance at TRC. So that's why we didn't highlight or talk about it, it's a 4X what – it steps down over time but it's 4.75X down to 4X debt-to-EBITDA up at TRC standalone and pro forma for this will be less than 1.0X.

And I guess going forward you can just raise debt at TRC and not have to do it at the TRP level?

So we would have options and flexibility there whether we wanted to raise debt at TRP or TRC. I would say likely raising incremental notes offering given most of our notes are at or all of our notes are at TRP, that would likely be our primary funding mechanism and place that we would go. But we've issued debt at TRC before so that is an option, but we would be able to – where we should be able to do either.

Okay, great. Thank you.

Our next question comes from the line of Michael Blum with Wells Fargo. Your line is now open.

Hi, Michael.

Thank you. Hi. So I think we've covered mostly everything. Just one question remaining for me Joe Bob. I think in your prepared remarks you said that one of the benefits of the interest transaction was it would reduce your external financing needs going forward. And I guess, I'm just trying to understand what you meant by that?

On the first level Michael covering that not negative, but less than one coverage and increasing interest expense relative to that by saving the $400 million to $600 million in these two illustrative scenarios is a benefit to our external capital needs.

Okay, great. Thank you.

Thank you.

Our next question comes from the line of Chris Sighinolfi with Jefferies. Your line is now open.

Good afternoon, guys.

Hey, Chris.

I appreciate the color this morning and for you taking my question. I've just had a couple of quick follow ups, one just operational in nature. I was just curious what drove the large sequential step up in South Texas inlet volumes, didn't know it was a change in reporting convention given the joint venture? And as a related question we didn't see the same step up in total liquids production there. So I was just wondering what sort of drove that discrepancy, if you had a good explanation.

That sequential step up was not driven at all by the Sanchez arrangement. And I actually need to look back at the numbers. I don't think it was very large. There was not a NGL increase because NGLs are primarily taken kind from the current Silver Oak facilities.

Okay. I will follow-up afterwards with Jen perhaps on that. And then just two quick questions on the transaction itself, Matt I appreciate all the prior color you've offered previous questioners. I was curious with regard to the slide nine in your presentation deck. I think you had mentioned $600 million of growth capital in each of these units. I just didn't know if I looked at the price sensitivity portion of that slide presentation, if that was also true under that scenario and then if you had any color in terms of financing assumptions that you had assumed. I know you went back and forth with Jerren around opportunities but are you assuming additional leverage to finance this or something other than that?

Okay. So, to your first question is kind of what's the CapEx amount in that price sensitivity case. So the $600 million I mentioned was for the Street consensus price case, the higher price case. In the price sensitivity case, if you look on page 15, we outlined the growth CapEx assumptions and it's about $400 million in 2017 and $225 million in 2018, so there is less CapEx assumed in the price sensitivity case.

Perfect, sorry I missed that. And did you have – and had you said earlier how you were planning to finance that or is it just a wait and see?

I think what I said earlier was for the price consensus case that it was approximately 50:50 is the assumption that we use in the model. Going forward I'd say in the price sensitive case, it's slightly – it is a bit of a higher ratio. We did a little bit more equity financing for the price sensitivity case in a similar dollar amount.

Okay, perfect. And then finally and I realize this may sound a little obtuse, but is there anything that limits or precludes you from creating an MLP again in a future period?

Good question and I did ask that and no there is nothing specifically that prohibits us from doing another MLP.

Okay. Thanks a lot for the time this morning.

Okay. Thank you.

Our next question comes from the line of Andy Gupta [ph] with HITE Hedge. Your line is now open.

Hi, good afternoon. Couple of quick questions from me. One is on LPG exports. Can you help us understand how you're thinking about the competitive nature here, several projects are coming on line towards the end of this year into next year? What are you sort of seeing in terms of utilization and specifically how it might impact yourselves? You've got a very good facility down there in Houston Ship Channel, are you seeing any impact on potential margins in 2016 or beyond.

I'd say we are in – we feel like we're in a good position to continue to meet customers' needs through our facility. We took that into consideration when we came out with our expectations for 2016 of 5 million barrels a month or higher. We know there is additional capacity coming online but that was taken into account in our numbers. Yes, we said we're 4.2 million barrels per month or greater contracted for 2016. And so we feel like for 2016 we're in good position, we have a good set of assets and a good track record of being able to deliver and meet our customers need.

How about margin, with increased competition do you expect some erosion there or now compared to 2015?

We said on our last call with a similar question, sort of depends on how you're describing erosion. Long-term margins are similar to the way they've been in our short history of having VLCC shipments from our facility. The spot margins were higher in the first part of 2014 than they have been in 2015. But, beyond that we haven't given a whole lot of color. What you see is the results, the economic results of volumes continuing. They are kind of similar on that margin to the extent you can calculate them. And I think that that's not a whole lot of erosion. The big erosion was with super spiked spot opportunities back in 2014 to what our sort of current level is today.

Sure, that makes sense. And, on leverage one quick follow up. Your target of trying to get to 4x, would you consider that on a consolidated basis?

So our leverage target since we went public with the TRP in February of 2007, it was 3X to 4X debt-to-EBITDA. And so for right now what we're saying is, we're just going to leave that unchanged at the TRP level, target the 3X to 4X. As we move forward in time does that evolve to a consolidated look as we have discussions with the agencies? Possibly. But I think right now, we'll just kind of stick with our 3X to 4X leverage target at TRP.

Great, well, thanks and congrats again.

Thanks.

Okay, thank you.

Our next question comes from the line of Sunil Sibal with Seaport Global Securities. Your line is now open.

Hi, good morning guys. All of my questions have been answered, thanks for your time.

Thank you very much.

Okay, thank you.

We have a follow-up question from the line of Brandon Blossman with Tudor, Pickering, Holt & Company. Your line is now open.

Yes.

Hi, Brandon.

Matt, just real quick, on the two forecast scenarios...

Brandon, we can't hear you.

How about that? Can you hear me?

There you go.

Sorry about that. Now, on the two forecast scenarios, is there any different assumptions on volume throughput between the two cases?

Good question. We assumed essentially the same volumes. We ran the volume outlook using that price sensitivity case, using that lower strip case and came up with where we thought volumes would be for the next several years. And then we did – it's a price sensitivity. There are some other adjustments Joe Bob talked about, but it's essentially a price response to get to that higher price case.

Okay.

There is some more CapEx here, there is higher CapEx so there is project related to the EBITDA so you could say, maybe there's some volume assumption with that, but generally speaking it's more or less price sensitivity.

That's helpful, thank you.

And our next question comes from the line of Charles Marshall with Capital One. Your line is now open.

Good morning, guys. Thanks for taking my call. Two quick questions regarding the ATM program. Did you issue any equity this quarter?

In the ATM we did not issue any since our call last. I think we had a small piece before our earnings call in July, but we've been effectively out of the ATM at NGLS since our last earnings call.

Okay, I appreciate that. And then just related to the ATM again...

The retail preferred equity...

Yes, but not ATM.

Got it. And then just on a pro forma basis what happens with the ATM program, will TRGP have a similar program?

The ATM has worked well for us at NGLS. So that's something that we'll take a hard look at, does not make sense up at TRGP. We've had good success at NGLS using that. So that's certainly something we'll consider at TRGP.

Okay, thanks. And then just one last one for me. I guess, more of a follow up to previous questions. Given the lower expected cost of capital on a pro forma basis, how does your opportunity set or appetite change from potential M&A now going forward versus your opportunities that you're taking a look at in this current environment in the current structure of your two entities?

I don't think we've contemplated the opportunity set being affected by the new structure and lower cost of capital. When we think about acquisitions we're always thinking first about what is the assets and businesses that you might acquire and whether it would fit the target and whether we could add value to it. And then we look at whether the math would work. Obviously, in the higher cost of capital that we were experiencing with NGLS we had said at least on a couple of calls that smaller bolt-on's are the more likely things to occur in the near to medium term. I still think that's our primary focus. But we always look at lots of things. Just the math may not work as well. In the environment where we had only the higher cost of NGLS for all practical purposes to utilize and with a more competitive cost of capital, it may help sometime in the future.

Okay, I appreciate the color. Thanks guys.

Okay, thank you.

Operator, we don't have any other questions. Excuse me, that's what they are telling me at the table. Besides that we've gone on for an hour and a half. I think we ought to bring it to a close. We very much appreciate everyone's patience as we went through the material. I certainly enjoyed the Q&A with you all and hope that we have been able to shed light on both third quarter performance and this exciting and attractive announcement that we made today. If you have any other questions, please give us call and have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.