Targa Resources Management Discusses Q1 2011 Results - Earnings Call Transcript

May. 7.11 | About: Targa Resources (NGLS)

Targa Resources Partners LP (NYSE:NGLS)

Q1 2011 Earnings Call

May 6, 2011 11:30 am ET

Executives

Joe Brass – Director of Finance

Joe Bob Perkins – President

Matt Meloy – CFO and Treasurer

Mike Heim – EVP and COO

Analysts

James Wang – Raymond James

John Tysseland – Citigroup

Helen Ryoo – Barclays Capital

Michael Blum – Wells Fargo

T.J. Schultz – RBC Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to the Targa Resources first quarter 2011 earnings conference call. 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, this conference call is being recorded.

I would now like to turn the call over to your host, Joe Brass [ph], Director of Finance. Please go ahead.

Joe Brass

Thank you, operator. I would like to welcome everyone to our first quarter 2011 investor call for Targa Resources Corp. and Targa Resources Partners LP. It will continue to be our practice to combine the calls and we will work to make the combined calls efficient and effective for all stakeholders.

Before we get started, I would like to mention that Targa Resources Corp., TRC or the Company and Targa Resources Partners LP, Targa Resources Partners or the partnership have published joint earnings release on its available website, which is www.TargaResources.com.

Speaking on the call today will be Joe Bob Perkins, President, and Matt Meloy, Chief Financial Officer and Treasurer. Joe Bob and Matt are going to be comparing first-quarter 2011 results to prior-period results, as well as providing additional color on our results, business performance and other matters of interest.

Before we begin, 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 the 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, 2010 and the quarterly results – quarterly reports on Form 10-Q, as well as the company’s registration statement on Form S-1 as amended.

One quick reminder. With the closing of multiple acquisitions from TRC over the previous years and in accordance with accounting treatment for entities under common control, the results of operations of the partnership include the historical results of these businesses for all periods reported. With that, I will turn it over to Joe Bob Perkins.

Joe Bob Perkins

Thanks, Joe. Welcome and thanks to everyone for participating in our first-quarter 2011 conference call. Besides Matt and myself, there are several other members of management who will be available to assist in the Q&A session.

For today’s agenda, I will start off with a high-level review of performance, key accomplishments and business highlights for the quarter. We will then turn it over to Matt to review the partnership’s segment results, consolidated financial results and other financial matters for the partnership. Matt will also review key financial matters related to Targa Resources Corp. Following Matt’s comments, I will provide an update on some of our ongoing activities and of course, we will take your questions at the end.

The partnership had a very strong first quarter of 2011 with higher operating margins in both our Natural Gas Gathering and Processing division and our Logistics and Marketing division. We reported a seasonally strong first-quarter adjusted EBITDA of $107.4 million, which helped drive a healthy distribution coverage ratio of 1.3 times. Based on our first quarter distribution declared of $0.5575 or $2.23 on an annualized basis, 1.3 times is very healthy for the first quarter.

The announced partnership distribution of $2.23 on an annual rate represents an 8% increase compared to the rate paid in the first quarter of 2010. We are very proud of that 8% year-over-year performance.

At the business level, drilling and production activity remained strong for our field gathering and processing segment, significantly increasing year-over-year inlet volumes at SAOU in North Texas, despite the colder than normal winter weather. It was a very tough winter especially for our employees at the field gathering and processing locations, and they did a terrific job to keep things running as well as possible in what were pretty miserable weather conditions.

An impressive first-quarter performance by our Coastal Gathering and Processing segment was led by increased VESCO plant inlet volumes and our straddle plants in Lou continue to benefit from a favorable pricing environment. For our Logistics and Marketing division, we benefited from higher fractionation and wholesale propane margins, stronger realized NGL prices and from recent new LPG export activity.

On the subject of the LPG export activity, spot Galena Park LPG exports have increased, and we recently entered into a multi-year deal to export LPG out of our Galena Park Marine Terminal. We are also working on several other term contracts. These fee-based LPG exports benefit both our Logistics Assets and our Marketing and Distribution segments.

Also during the quarter, we closed our first refined petroleum products and crude oil storage and terminaling acquisition, purchasing a facility located in Channelview, Texas. We creatively called that facility the Targa Channelview Terminal and we expect to invest incremental growth capital at the facility to expand its capabilities.

We are currently working to develop, negotiate and close additional refined products and crude storage and terminaling acquisitions that complement our existing business. I am also pleased to report that our 78,000 barrel per day Cedar Bayou fractionator expansion is currently running at design rates, completed on schedule and under budget. This expansion will increase our fee-based income in the segment.

At the TRC level, TRC declared a first quarter cash dividend which was a 6% increase over the annualized rate paid with respect to the pro-rata fourth-quarter of 2010. And TRC’s standalone first quarter dividend coverage was approximately 1.15 times. That wraps up my initial comments and I will hand it over to Matt.

Matt Meloy

Thanks, Joe Bob. I would like to add my welcome and thank you for joining our call today. As Joe mentioned, under common control accounting treatment, the partnership’s reported results of operations now include all Targa assets for all periods presented. Let’s start with a review of the consolidated results.

For the first quarter of 2011 the partnership reported net income of $37.8 million or $0.37 per diluted limited partner unit, compared to $42.6 million or $0.14 per limited partner unit for the first quarter of 2010. These quarterly results reflect a non-cash hedge charge of $0.2 million in 2011 and a non-cash hedge gain of $17.2 million in the first quarter of 2010.

Please also note that under common control accounting net income reported for the first quarter of 2010 includes $15.6 million in non-cash affiliate interest expense related to drop-down businesses for periods prior to the acquisition of those businesses by the partnership. As mentioned earlier, adjusted EBITDA for the quarter was $107.4 million compared to $97.5 million last year

The increase was primarily the result of higher operating margins in both Gathering and Processing and Logistics and Marketing divisions, partially offset by lower cash hedge settlements and higher general and administrative expenses.

Gross margin increased 15% for the first quarter compared to last year. Again, strong performance across both divisions drove our gross margin higher and I will review the drivers of the strong performance in our segment review.

Operating expenses increased 6% compared to last year, primarily due to increased compensation and benefits, fuel and utilities. The increase in depreciation and amortization expense for the quarter compared to last year is primarily attributable to new assets, which have been placed in service since the first quarter of 2010, partially offset by the impact of assets that have become fully depreciated.

First-quarter general and administrative expenses increased, compared to last year, primarily due to higher compensation costs. While total interest expense dropped as compared to last year due to affiliate interest expense, third-party interest expense increased significantly as compared to last year, as the partnership increased its borrowings to fund multiple drop-down transactions from TRC and to fund growth capital expenditures.

Gross maintenance capital expenditures were $12.8 million in the first quarter of 2011 compared to $6.9 million in 2010. Adjusting for the non-controlling interest portion of maintenance capital expenditures and certain reimbursements from TRC to the partnership, net capital expenditures were $8.2 million in the first quarter of 2011 as compared to $6.2 million in 2010.

Turning to the segment level, I will first summarize the first quarter’s performance on a year-over-year basis. And then I will summarize the performance on a sequential basis. Let’s start in our Gathering and Processing segments.

Overall, first-quarter 2011 plant and natural gas inlet for the Field Gathering and Processing segment was 573 million cubic feet per day, approximately flat to the same period in 2010. North Texas and SAOU natural gas inlet increased by approximately 6% and 17% compared to last year.

The increase at North Texas was driven primarily by Barnett Shale activity in the oilier Wise and Southern Montague County portions of the shale. The increase at SAOU was driven primarily by increased Wolfberry drilling activity. These year-over-year gains come despite colder than normal winter weather experienced in both areas for the first quarter of 2011, significantly worse than 2010.

Offsetting these notable inlet gains was a decrease in Versado natural gas inlet volumes caused by the cold weather along with operational outages, combined with production declines. Field Gathering and Processing gross margin decreased slightly by approximately 2% compared to last year, driven by decreased volumes and lower natural gas prices, somewhat offset by increased NGL and condensate prices. Natural gas prices were 26% lower, while NGL and condensate prices were 11% and 20% higher, respectively.

Turning now to the Coastal Gathering and Processing segment, plant inlet volumes were approximately 1.6 billion cubic feet per day, a 9% decrease compared to the same period in 2010, but NGL production for the segment was essentially flat.

Relative to other Coastal G&P volumes, VESCO volumes are significantly richer in NGL content. While the Coastal segment volumes decreased 9% in total, volumes at VESCO increased 18% when compared to the first quarter of 2010 and resulted in flat NGL production for the segment.

The strong performance of the Coastal segment was driven both by new packages of gas tied into VESCO in the first quarter and more favorable processing economics across the entire segment. This drove a 32% increase in first-quarter 2011 operating margin compared to last year. Next, I will provide an overview of the two segments in the downstream business.

Starting with the logistics assets segment, fractionation volumes for the first quarter 2011 were flat with 2010. First quarter operating margin increased 98% driven by increased LPG export activity, lower operating expenses at CBF and LCF due to favorable system gain loss and lower turnaround cost compared to the first quarter of 2010.

In the Marketing and Distribution segment, NGL sales volumes for the quarter increased by approximately 11% compared to 2010, driven by increased West Coast propane sales and an increased LPG export sales. Operating margin for the segment increased 65% in the first quarter 2011 compared to 2010. The increase was driven by increased NGL sales volumes and an approximate 6% increase in NGL prices over 2010. With that, let’s now discuss a few key sequential comparisons for the first quarter of 2011.

Starting with the Field Gathering and Processing segment, first-quarter plant natural gas inlet decreased 5% from the first quarter of 2010, driven by colder than normal winter weather, but despite a lower inlet volumes, operating margin for the Field G&P segment increased 2% over the fourth quarter of 2010 driven by higher natural gas, NGL and condensate prices.

Moving to the Coastal Gathering and Processing, operating margin for the segment increased 10% over the previous quarter, driven by increased NGL production from higher VESCO and Lou volumes and by NGL prices which were 8% higher in the first quarter of 2011.

Turning now to the downstream business, in the logistics assets segment fractionation volumes for the first quarter 2011 decreased approximately 14% from the fourth quarter of 2010, driven by the cold weather which decreased the supply of liquids available to Belvieu market and by a decrease in a y-grade exchange with a third party at the Lake Charles Fractionator.

Logistics Assets segment operating margin declined 27% sequentially, driven by lower fractionation volumes and lower contribution from the LSNG unit, which received take-or-pay payments on contracts specifying minimum annual volume commitments in the fourth quarter.

Marketing and Distribution segment operating margin was essentially flat with the previous quarter. With that, let’s now move briefly to capital structure and liquidity.

At March 31, we had approximately $785 million in capacity available under our senior secured revolving credit facility, after giving effect to outstanding borrowings of approximately $201 million and $114 million in Letters of Credit. This capacity and approximately $64 million of cash on hand resulted in approximately $850 million of liquidity, leaving us with substantial flexibility to fund organic growth and acquisition opportunities.

Total funded debt on March 31 was approximately $1.2 billion or about 48% of total capitalization and our consolidated leverage ratio at quarter end was approximately 2.9 times. Similar to our high level of growth projects and commercial activity, we have already had a very busy and productive start to 2011 on the financing front, having completed three important capital market transactions and over $600 million of new capital raised.

We closed a public offering of 9.2 million common units, including exercise of the full Greenshoe, which resulted in net proceeds of $298 million, as well as a private offering of $325 million of 6 7/8 senior notes due 2021, resulted in $319 million of net proceeds. The net proceeds from both the debt and equity offerings were used to reduce borrowings under our senior secured credit facility and increase on our liquidity.

We also closed an exchange offer to holders of our 11.25 senior notes due 2017, for the 6 7/8 senior notes due 2021 that constituted the issuance of $158.6 million of additional principal amount of the 6 7/8 notes. With the exchange offer, we now have approximately $484 million of principal amount of the 6 7/8 notes outstanding due 2021.

Next, I would like to take a few minutes to comment on our hedging and capital spending programs for the year. Using hedges in place as of March 31, we estimate the partnership has hedged approximately 85% of its 2011 expected natural gas and 85% of its 2011 expected combined NGL and condensate equity volumes.

Since March 31, we have added incremental NGL and condensate hedges. Including those new hedges, we estimate our percent of equity volumes hedged for combined NGLs and condensate in 2011 would be closer to 90%.

At this point in 2011, our hedge percentages for next year are similar to those we have hedged in years past. In 2012, gas is hedged 65% to 75% of expected 2011 volumes and NGLs in 2012 are hedged 75% to 85% of 2011 volumes, recognizing that we believe Field G&P volumes in 2012 will be higher than 2011.

Moving on to capital spending, we estimate we will spend on a net basis approximately $250 million of capital expenditures in 2011, with approximately 20% to 25% of the total comprising maintenance capital spending. This amount does not include the $29 million to acquire the Channelview Terminal, nor does it include our share of the investment related to our minority 38.8% ownership in the expansion of the Gulf Coast fractionator.

The increase in our total 2011 CapEx estimate from the previous quarter is largely due to additional expenditures related to liquid export activity at Galena Park as well as some additional Gathering and Processing expenditures. Joe Bob spoke of the exports in his introduction and we will discuss the CapEx projects in this area in more detail later.

Before handing the call back to Joe Bob, I would like to make some brief remarks about the results of Targa Resources Corp. At March 31st, the balance of the TRC HoldCo loan due 2015 was $89.3 million, where we are currently paying a LIBOR plus 300 basis point margin. Also at March 31, there were no borrowings under the senior secured revolving credit facility with $75 million of availability.

At March 31st, TRC had a cash balance of approximately $84 million that gives TRC total liquidity of approximately $160 million. TRC standalone general and administrative expenses in the first quarter were $2.8 million and included $1.5 million of compensation related to the TRGP IPO. For the remainder of 2011, we expect TRC standalone general and administrative expenses to be approximately $4 million.

On April 11 TRC declared its first quarter cash dividend of $0.2725 per common share or $1.09 per common share on an annualized basis, representing an approximate 6% increase over the annualized rate paid with respect to the pro-rated fourth quarter 2010. TRC’s standalone distributable cash flow for the quarter was $13.2 million, which represents a strong coverage ratio of approximately 1.15 times.

This concludes my review. So, I will now turn the call back to Joe Bob.

Joe Bob Perkins

Thanks, Matt. To wrap up the final portion of our prepared remarks, I would like to quickly provide an update on our growth projects and an overall assessment of future prospects. First, an update on some projects in process.

As we have told you, our 78,000 barrel per day fractionation expansion at CBF is online and running at capacity, further integrating the Partnership's capabilities with the pet-chem markets. The benzene treating project is on track and is scheduled for completion in Q4 of this year. The GCF expansion is underway and on track and is scheduled for completion in the second quarter of 2012.

In the area of new projects, we continue to work on our second CBF expansion, which will be for an additional 100,000 barrels per day. And we are encouraged by the progress in that area. I expect that you will see a more definitive announcement from us shortly.

The Board has recently approved additional expenditures related to our Galena Park Marine Terminal to facilitate the increased export activity that I was discussing at our docks. This investment, about $13 million, provides a modest improvement to existing facilities, which support term export contracts, increasing our ability to load semi-refrigerated propane and butane for Latin America markets.

This modest investment in some ways is a first step towards additional export expansion. We are currently discussing long-term contracts for other international markets, which would support and require major capital investment, potentially a couple hundred million dollars or so. The project would support the international propane market and be capable of loading rates comparable to the only competing export facility on the Houston Ship Channel.

Matt mentioned that we had increased CapEx guidance to $250 million. I would like to add that, as is our practice, that number is conservative based on our original 2011 plan, developed in the second half of 2010, plus only the approved new projects.

Based on high activity levels that we have been discussing across our business, the amount of opportunities we are currently working on but have not yet approved, I would expect continued increases in our capital expenditures for additional attractive projects.

As we have mentioned, we are very pleased to have closed the acquisition of the Channelview Terminal. That is our first entry into refined products and crude terminaling and storage. And we expect more additions in this area, new acquisitions and new growth capital opportunities for the acquired properties.

And our Gathering and Processing business is booming, especially in North Texas, SAOU, and VESCO. We provided some insight on the scale of those opportunities in our last call. I will only add that the outlook is even stronger a quarter later and we're working hard to keep up with our active producer customers.

We provided an outlook for 2011 inlet volumes on our last call. I am going to try to avoid the predictable question requesting an update on that by saying that we will only say that the prior outlook is still appropriate. And since it was a conservative outlook then and we say even more activity now, it is probably even more conservative today.

The industry dynamics driving Gathering and Processing volume increases also drive our downstream. Advancements in technology creating E&P resource plays, favorable oil condensate and NGL prices, increasing NGL volumes that feed our downstream business and economic incentives to increase NGL exports all play to our business. These dynamics continue to benefit Targa, and our outlook is that these dynamics will continue for the foreseeable future.

That concludes the formal part of the call. We will now open it up for your questions. Operator, we are ready for the questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from James Wang with Raymond James.

James Wang – Raymond James

Good morning, guys. First, congrats on a great quarter. I just have a couple of quick questions. First, how do you feel about the current high NGL pricing environment? Do you expect it to persist for the near future?

Joe Bob Perkins

The current high pricing environment, we feel good about it. We are enjoying it. We also said that we have most of our NGLs hedged, so you will see a reflection of both the hedged and the unhedged in future quarters. As we look out at the positive industry dynamics, we expect that supply and demand will support attractive pricing. May not be this high, but we think it will be attractive pricing for the foreseeable future.

James Wang – Raymond James

Great. Can we also get a quick update on that Eagle Ford expansion that was announced a while ago? I believe you signed a memorandum of understanding with TexStar and TEAK. I understand the 100,000 barrel a day expansion to CBF is part of it. But are you also developing a Y-grade pipeline in the area as well?

Joe Bob Perkins

During my comments you saw I was trying to avoid going into a lot of detail about our new expansion project. We feel really good about it. And those kind of discussions are typically covered by CAs. The announcement we made was at the mutual agreement of the parties.

I understand that those gathering and processors are having good success signing up their customers. We look forward to good things from them. And I alluded in my comments that we do expect to have a more definitive announcement for you in the near future.

Operator

Thank you. Our next question comes from John Tysseland with Citigroup.

John Tysseland – Citigroup

Hi, guys. Good morning. Just with all the activity that we have seen recently both on the cracker side and petro-chem expansions and also now we have gotten a couple expansions announcements on the fractionation side this week. Just your cost estimates on some of these facilities and just on the E&C side of the business, are you seeing any cost creep? Is it too early to determine? Or how do you look at this build out over the course of the next couple years, being able to accurately put a cost number out there?

Mike Heim

This is Mike Heim. As far as the cost is concerned, we continually update our cost estimates as we work through the development of these different projects. We feel very good about the current estimate. I think we have told you all in the past that we think that the CBF next expansion, which is not just a fractionator but a lot of other enhancements to the facilities, is going to run about $350 million, $360 million. We constantly look at things like steel prices, compression costs and that sort of stuff. And at this point in time we don't think that estimate has moved.

John Tysseland – Citigroup

Then also on the downstream side, connectivity to both the refiners and the pet-chems, do you envision more capacity being added to some of those downstream pipelines that you guys have? Some of these fractionators don't necessarily have that type of connectivity. How do you see that playing out in terms of, over the course of the next couple years and how much capital goes into that? Is that in that number that you provided for CBF, the 100,000 barrel per day, or no?

Mike Heim

We have great connectivity today, but we are working on at least three or four more new connections or expanded diameter connections. Those are not included in it. They are not expensive. They aren't going to be material to our capital spend and we expect to have all of those done by the end of this year.

Joe Bob Perkins

At the same time, we can talk a lot more about our projects than someone else's, but that is one of the advantages that the Targa CBF assets have relative to some other fractionation projects that you may be referring to. We have got high connectivity already in place in the crowded Ship Channel pet-chem corridors.

We have got right of ways in place and pipelines in place across the Ship Channel. We have permits already in place or others would have to get more involved permits. That certainty of connectivity is something that we are proud to offer to our customers.

Mike Heim

We still have a little bit of idle equipment that we could put back in service that will facilitate pipeline construction into the Mont Belvieu area in the near future. And we are hoping to make sure that all gets utilized.

John Tysseland – Citigroup

Is it fair to say or fair to assume that that existing connectivity, expanding that is a lot cheaper than trying to go build something new?

Joe Bob Perkins

Greenfield in some cases may not be doable. There are a couple of major export facilities in the Gulf Coast; a brand new Greenfield would take time and a lot of dollars. Connectivity from a brand new location would be almost impossible; and connectivity with a location that doesn't have much right now would be time consuming and quite expensive. But for more details on that, for someone who doesn't have what we have in place, you would need to be talking to those companies.

John Tysseland – Citigroup

Fair enough. Good color. And then lastly, I don't know if you guys provided this; I don't think you provided it. But what kind of volumes are we talking about in the export market? How much are we exporting today? And where do you think we potentially could get to over the next couple years? Considering that the contracts that you guys are looking at on a pass through basis for some of your international customers.

Joe Bob Perkins

Let's build this up at levels. Ours are pretty modest right now, but we're also the only other person doing it. With the small investment we talked about of about $13 million, we could be increased, ramping up quickly to five to eight cargoes a month. Each of those cargoes, Mike, are about how much on volume?

Mike Heim

145,000 barrels

Joe Bob Perkins

And with smaller ships. This is our modest, existing capabilities, but each of those ships can be $300,000 to $400,000 apiece margin for us or more. The allusion, it wasn't an allusion. The potential new project that I discussed of being a couple hundred million dollars would make us competitive with the only other ship channel exporter. And that is a higher pumping rate and a higher quality of propane not just to Latin American markets; it can go to all international markets. Enterprise has been doing that for some time at volume levels that look like what, Mike?

Mike Heim

About 3 million barrels a month.

Joe Bob Perkins

So you can and our exports right now have been on the order of several hundred thousand and growing per month. So that is kind of building up from where we are to where we are going and how that scales with other folks.

Mike Heim

This increase in the ability to export world grade propane, which is 2% or less ethane entrained in the propane, will not impact the business that we have got going into the Caribbean and South America. These are two independent types of product. One is HD-5; one is low-ethane propane. In the $200-million-plus Joe Bob was referring to, we have enough expansions that one doesn't impact the other. And we continue to plan on having both types of export capacity.

John Tysseland – Citigroup

That's great color, guys. Appreciate it.

Operator

Thank you. Our next question comes from Helen Ryoo with Barclays Capital.

Helen Ryoo – Barclays Capital

Thank you. Good morning. A question on your growth CapEx; it seems like it is up maybe $20 million to $30 million from your previous number. You did mention that some of that is related to liquids exports; so I assume that some of that is on the Galena Park project and then there is some G&P project there. Could you talk a little bit about how much is going to G&P and where it is going? And also whether the –?

Joe Bob Perkins

Your math is about right. That increase, that conservative increase is only on approved projects. About a little more than half of that is the Galena Park $13 million we were talking about. And the other is spread amongst several Gathering and Processing projects primarily in North Texas and SAOU, beyond what we had already disclosed as approved.

Helen Ryoo – Barclays Capital

Okay. Great. Thanks. And then on the Cedar Bayou, the 100,000 expansion, you commented that you are progressing well and you may announce that as a firm project soon. Are you still looking into late 2012, as the in-service date?

Mike Heim

We are talking primarily mid-2013 for that startup. What we had been talking about for incremental capacity on fractionation would have been the Gulf Coast Fractionator, which we are still predicting second quarter '12.

Joe Bob Perkins

That we have access to.

Helen Ryoo – Barclays Capital

Okay, right. And then this 100,000 Gulf Coast Fractionator expansion, that is not necessarily predicated on the other Eagle Ford Y-grade NGL pipeline project going forward?

Joe Bob Perkins

Two things. You said Gulf Coast; I understand we are doing this live. It's a Cedar Bayou Fractionator expansion, the second one.

Helen Ryoo – Barclays Capital

Right.

Joe Bob Perkins

Secondly, the announced work that we were doing with the two producers that were, two gatherer processors that were named, does not result in the only customers that will be using CBF. They are likely to be one of the customers going forward. And as we said we would have a more definitive announcement expected soon.

Mike Heim

The design is to receive liquids from all pipelines, whether they are from the Eagle Ford or from farther out in the Permian or the Rocky Mountains, Oklahoma. We are connected to everybody and we anticipate to get barrels from our discussions with different suppliers from all sources of pipeline capacity.

Helen Ryoo – Barclays Capital

Okay. Great. Just last one. At the TRGP level, you had coverage of 1.15 times. Is this the kind of level of coverage you plan to maintain up there?

Matt Meloy

A couple things happened in Q1 that I would consider one-time events. One, we had $3 million of business interruption proceeds we received in Q1, which resulted in, say, a bit higher than normal coverage. That was offset a bit by the one-time IPO related general and administrative costs of $1.5 million. So, those two offset; and if you take those out, your coverage is a little bit closer to the 1.0 times.

Helen Ryoo – Barclays Capital

Okay. And that is the level you plan to maintain?

Matt Meloy

Yeah, I mean, we don't, it is going to similar to the partnership. We don't really give a forecast of what our target distribution coverage ratio is. And when we look at a number of factors, it's a quarter-by-quarter decision. And we look at the long-term prospects and forecasts of both the partnership and just how all the business fundamentals look. So, we don't have target coverage at TRGP, just like we don't have target coverage at TRP.

Helen Ryoo – Barclays Capital

Okay. Thank you very much.

Operator

(Operator Instructions) our next question comes from Michael Blum with Wells Fargo.

Michael Blum – Wells Fargo

Thanks. My questions were asked. Thank you.

Operator

Thank you. Our next question comes from T.J. Schultz with RBC Capital Markets.

T.J. Schultz – RBC Capital Markets

Hi, guys. Thanks. Just one thing. Can you talk a little bit more on timing around the world grade or the potential world grade propane facility? I know you talked on the Eagle Ford it would be near-term. Just timing on the facility, where you are with the contract negotiations and then post that how long it would take to get this thing up and running?

Mike Heim

We have basically done the majority of the front-end engineering, so that we know within a reasonable cost estimate percentage what it is going to cost. We have active offers out to several global potential customers. We are in negotiations with those customers. We are meeting with them or having phone calls with them every week. We anticipate, we would like to have contracts executed in the next 90 days. But it is a business that you can't force into a particular timeframe, and that is, basically on our wish list.

T.J. Schultz – RBC Capital Markets

Okay. And then, how long, assuming contracts get in place, how long after that is the build period?

Mike Heim

We are telling those customers 21 to 24 months.

T.J. Schultz – RBC Capital Markets

Okay. Great. Thanks, guys.

Operator

Thank you. I am showing no further questions at this time. I would like to turn the call back over to Joe Bob Perkins.

Joe Bob Perkins

Thanks, operator. If anyone has follow-up questions, you know you can feel free to contact Matt or any of us around the table. Thank you again for your time. We look forward to speaking with you again.

Operator

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

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