UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549







Form 10-Q







þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the quarterly period ended March 31, 2009




Or




 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the transition period from
                          
      to




Commission
File Number 001-33303







TARGA
RESOURCES, INC.


(Exact
name of registrant as specified in its charter)







Delaware
            74-3117058(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)1000
      Louisiana, Suite 4300, Houston, Texas
            77002(Address
      of principal executive offices)
            (Zip
      Code)




Registrant’s
telephone number, including area code:


(713) 584-1000




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days.    Yes þ    No  ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes o    No  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
accelerated filer  ̈    Accelerated
filer  ̈    Non-accelerated
filer þ    Smaller
reporting company  ̈


(Do
not check if a smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  þ











PART I — FINANCIAL INFORMATIONItem
      1.
              
              Financial Statements
              4Consolidated Balance Sheets as of March 31, 2009 and
      December 31, 2008
              4Consolidated Statements of Operations for the three months
      ended March 31, 2009 and 2008
              5Consolidated Statements of Cash Flows for the three months
      ended March 31, 2009 and 2008
              6Notes to Consolidated Financial Statements
              7Item
      2.
              
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              32Item
      3.
              
              Quantitative and Qualitative Disclosures about Market
      Risk
              42Item
      4T.
              
              Controls and Procedures
              47PART II —
      OTHER INFORMATIONItem
      1.
              
              Legal Proceedings
              48Item
      1A.
              
              Risk Factors
              48Item
      2.
              
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              48Item
      3.
              
              Defaults Upon Senior Securities
              48Item
      4.
              
              Submission of Matters to a Vote of Security
      Holders
              48Item
      5.
              
              Other Information
              48Item
      6.
              
              Exhibits
              49SIGNATURES
              51


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As
generally used in the energy industry and in this Quarterly Report on
Form 10-Q (“Quarterly Report”), the identified terms have the following
meanings:




Bbl
                          Barrel(s)BBtu
                          Billion
      British thermal unit(s)Btu
                          British
      thermal unit, a measure of heating value/d
                          Per
      dayGal
                          Gallon(s)MBbl
                          Thousand
      barrelsMMBtu
                          Million
      British thermal unitsMMcf
                          Million
      cubic feetNGL(s)
                          Natural
      gas liquid(s)Price
      Index DefinitionsIF-HSC
                          Inside
      FERC Gas Market Report, Houston Ship Channel/Beaumont,
    TexasIF-NGPL MC
                          Inside
      FERC Gas Market Report, Natural Gas Pipeline,
  Mid-ContinentIF-Waha
                          Inside
      FERC Gas Market Report, West Texas WahaIF-PB
                          Inside
      FERC Gas Market Report, Permian BasinNY-HH
                          NYMEX,
      Henry Hub Natural GasNY-WTI
                          NYMEX,
      West Texas Intermediate Crude OilOPIS-MB
                          Oil
      Price Information Service, Mont Belvieu,
Texas




As
used in this Quarterly Report, unless the context otherwise requires, “Targa,”
“we,” “us,” “our,” and similar terms refer to Targa Resources, Inc., together
with its consolidated subsidiaries, including our publicly traded master limited
partnership, Targa Resources Partners LP, which we refer to in this Quarterly
Report as the “Partnership.”





Cautionary
Statement About Forward-Looking Statements





Our
reports, filings and other public announcements may from time to time contain
statements that do not directly or exclusively relate to historical facts. Such
statements are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. You can typically identify
forward-looking statements by the use of forward-looking words, such as “may,”
“could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “potential,”
“plan,” “forecast” and other similar words.





All
statements that are not statements of historical facts, including statements
regarding our future financial position, business strategy, budgets, projected
costs and plans and objectives of management for future operations, are
forward-looking statements.





These
forward-looking statements reflect our intentions, plans, expectations,
assumptions and beliefs about future events and are subject to risks,
uncertainties and other factors, many of which are outside our control.
Important factors that could cause actual results to differ materially from the
expectations expressed or implied in the forward-looking statements include
known and unknown risks. These risks and uncertainties many of which are beyond
our control include, but are not limited to the risks set forth in “Item 1A.
Risk Factors” as well as the following:







•
            our
      ability to access the debt and equity markets, which will depend on
      general market conditions and the credit ratings for our debt
      obligations;




•
            the
      amount of collateral required to be posted from time to time in our
      transactions;




•
            our
      success in risk management activities, including the use of derivative
      financial instruments to hedge commodity and interest rate
      risks;




•
            the
      level of creditworthiness of counterparties to
    transactions;




•
            changes
      in laws and regulations, particularly with regard to taxes, safety and
      protection of the environment;


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•
            the
      timing and extent of changes in natural gas, natural gas liquids and other
      commodity prices, interest rates and demand for our
    services;




•
            weather
      and other natural phenomena;




•
            industry
      changes, including the impact of consolidations and changes in
      competition;




•
            our
      ability to obtain necessary licenses, permits and other
      approvals;




•
            the
      level and success of crude oil and natural gas drilling around our assets,
      and our success in connecting natural gas supplies to our gathering and
      processing systems, and NGL supplies to our logistics and marketing
      facilities;




•
            our
      ability to grow through acquisitions or internal growth projects, and the
      successful integration and future performance of such
    assets;




•
            general
      economic, market and business
  conditions; and




•
            the
      risks described in this Quarterly Report on form 10-Q and our Annual
      Report on Form 10-K for the year ended December 31,
    2008.







Although
we believe that the assumptions underlying our forward-looking statements are
reasonable, any of the assumptions could be inaccurate, and, therefore, we
cannot assure you that the forward-looking statements included in this Quarterly
Report will prove to be accurate. Some of these and other risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements are more fully described under the heading Risk
Factors in this Quarterly Report and our Annual Report on Form 10-K for the year
ended December 31, 2008. Except as may be required by applicable law, we
undertake no obligation to publicly update or advise of any change in any
forward-looking statement, whether as a result of new information, future events
or otherwise.







3
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PART I
— FINANCIAL INFORMATION




Item 1.Financial
      Statements







TARGA RESOURCES,
      INC.CONSOLIDATED
      BALANCE SHEETSMarch
      31,
                
                
                December
      31,2009
                
                
                2008(Unaudited)(In
      thousands)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                370,283
                
                
                $
                362,769Trade
      receivables, net of allowances of $9,164 and $9,380
                
                
                258,617
                
                
                
                303,904Inventory
                
                
                25,308
                
                
                
                68,519Assets
      from risk management activities
                
                
                118,873
                
                
                
                112,341Other
      current assets
                
                
                10,789
                
                
                
                9,615Total
      current assets
                
                
                783,870
                
                
                
                857,148Property,
      plant and equipment, at cost
                
                
                3,124,862
                
                
                
                3,093,264Accumulated
      depreciation
                
                
                (517,370
                )
                
                
                (475,895
                )Property,
      plant and equipment, net
                
                
                2,607,492
                
                
                
                2,617,369Long-term
      assets from risk management activities
                
                
                88,807
                
                
                
                89,774Investment
      in debt obligations of Targa Resources Investments Inc.
                
                
                19,642
                
                
                
                10,953Other
      assets
                
                
                72,713
                
                
                
                73,333Total
      assets
                
                $
                3,572,524
                
                
                $
                3,648,577LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                151,312
                
                
                $
                153,756Accrued
      liabilities
                
                
                175,644
                
                
                
                253,384Current
      maturities of debt
                
                
                12,500
                
                
                
                12,500Liabilities
      from risk management activities
                
                
                16,002
                
                
                
                11,664Deferred
      income taxes
                
                
                28,796
                
                
                
                36,240Total
      current liabilities
                
                
                384,254
                
                
                
                467,544Long-term
      debt, less current maturities
                
                
                1,549,315
                
                
                
                1,552,440Long-term
      liabilities from risk management activities
                
                
                19,593
                
                
                
                9,679Deferred
      income taxes
                
                
                46,370
                
                
                
                40,027Other
      long-term liabilities
                
                
                56,539
                
                
                
                49,638Commitments
      and contingencies (see Note 13)Stockholders'
      equity:Common
      stock ($0.001 par value, 1,000 shares authorized, issued,and
      outstanding at March 31, 2009 and December 31, 2008,collateral
      for Targa Resources Investments Inc. debt)
                
                
                -
                
                
                
                -Additional
      paid-in capital
                
                
                420,228
                
                
                
                420,067Retained
      earnings
                
                
                130,231
                
                
                
                127,640Accumulated
      other comprehensive income
                
                
                38,626
                
                
                
                31,934Total
      Targa Resources, Inc. stockholder's equity
                
                
                589,085
                
                
                
                579,641Noncontrolling
      interest in subsidiaries
                
                
                927,368
                
                
                
                949,608Total
      stockholders' equity
                
                
                1,516,453
                
                
                
                1,529,249Total
      liabilities and stockholders' equity
                
                $
                3,572,524
                
                
                $
                3,648,577See
      notes to consolidated financial statements







4
 TABLE OF CONTENTS







TARGA RESOURCES, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONSThree
      Months Ended March 31,2009
                
                
                2008(Unaudited)(In
      thousands)Revenues
                
                $
                1,001,891
                
                
                $
                2,202,393Costs
      and expenses:Product
      purchases
                
                
                845,998
                
                
                
                2,001,441Operating
      expenses
                
                
                64,954
                
                
                
                63,578Depreciation
      and amortization expense
                
                
                41,600
                
                
                
                38,192General
      and administrative expense
                
                
                23,853
                
                
                
                24,093Gain
      on sale of assets
                
                
                (13
                )
                
                
                (4,443
                )976,392
                
                
                
                2,122,861Income
      from operations
                
                
                25,499
                
                
                
                79,532Other
      income (expense):Interest
      expense, net
                
                
                (25,702
                )
                
                
                (25,585
                )Equity
      in earnings of unconsolidated investments
                
                
                121
                
                
                
                3,459Other
      income (see Note 16)
                
                
                963
                
                
                
                -Income
      before income taxes
                
                
                881
                
                
                
                57,406Income
      tax (expense) benefit:Current
                
                
                (2
                )
                
                
                (962
                )Deferred
                
                
                73
                
                
                
                (11,144
                )71
                
                
                
                (12,106
                )Net
      income
                
                
                952
                
                
                
                45,300Less:
      Net income (loss) attributable to noncontrolling interest
                
                
                (1,639
                )
                
                
                26,884Net
      income attributable to Targa Resources, Inc.
                
                $
                2,591
                
                
                $
                18,416See
      notes to consolidated financial statements











5
 TABLE OF CONTENTS





TARGA RESOURCES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSThree
      Months Ended March 31,2009
                
                
                2008(Unaudited)(In
      thousands)Cash
      flows from operating activitiesNet
      income
                
                $
                952
                
                
                $
                45,300Adjustments
      to reconcile net income to net cash providedby
      operating activities:Amortization
      in interest expense
                
                
                1,897
                
                
                
                2,031Interest
      income on paid-in-kind investment
                
                
                (664
                )
                
                
                -Amortization
      in general and administrative expense
                
                
                223
                
                
                
                459Depreciation
      and amortization expense
                
                
                41,600
                
                
                
                38,192Accretion
      of asset retirement obligations
                
                
                695
                
                
                
                299Deferred
      income tax expense (benefit)
                
                
                (73
                )
                
                
                11,144Equity
      in earnings of unconsolidated investments, net of
      distributions
                
                
                (121
                )
                
                
                (2,684
                )Risk
      management activities
                
                
                17,279
                
                
                
                (2,180
                )Gain
      on sale of assets
                
                
                (13
                )
                
                
                (4,443
                )Changes
      in operating assets and liabilities:Accounts
      receivable and other assets
                
                
                43,662
                
                
                
                209,716Inventory
                
                
                33,071
                
                
                
                63,163Accounts
      payable and other liabilities
                
                
                (64,558
                )
                
                
                (121,177
                )Net
      cash provided by operating activities
                
                
                73,950
                
                
                
                239,820Cash
      flows from investing activitiesAdditions
      to property, plant and equipment
                
                
                (31,206
                )
                
                
                (23,269
                )Proceeds
      from property insurance
                
                
                -
                
                
                
                7,753Investment
      in debt obligations of Targa Resources Investments Inc.
                
                
                (6,761
                )
                
                
                -Other
                
                
                55
                
                
                
                349Net
      cash used in investing activities
                
                
                (37,912
                )
                
                
                (15,167
                )Cash
      flows from financing activitiesRepayments
      of senior secured debt
                
                
                (3,125
                )
                
                
                (53,125
                )Distributions
      to noncontrolling interests
                
                
                (26,508
                )
                
                
                (17,838
                )Contribution
      from non-controlling interests
                
                
                1,072
                
                
                
                -Contribution
      from (distribution to) Targa Resources Investments Inc.
                
                
                37
                
                
                
                (52,891
                )Net
      cash used in financing activities
                
                
                (28,524
                )
                
                
                (123,854
                )Net
      increase in cash and cash equivalents
                
                
                7,514
                
                
                
                100,799Cash
      and cash equivalents, beginning of period
                
                
                362,769
                
                
                
                177,949Cash
      and cash equivalents, end of period
                
                $
                370,283
                
                
                $
                278,748See
      notes to consolidated financial statements





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TARGA RESOURCES, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




(Unaudited)




Note
1—Organization and Basis of Presentation




Targa
Resources, Inc. is a Delaware corporation formed on February 26, 2004.
Unless the context requires otherwise, references to “we,” “us,” “our,” “the
Company” or “Targa” are intended to mean the consolidated business and
operations of Targa Resources, Inc.




We are a
second-tier, wholly owned subsidiary of our parent holding company, Targa
Resources Investments Inc. (“Targa Investments”). The only significant asset of
Targa Investments is its ownership of 100% of the outstanding capital stock of
an intermediate holding company, whose sole asset is its ownership of 100% of
our outstanding capital stock, which consists of one thousand shares of common
stock.




These
unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. The year-end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by GAAP. The unaudited
consolidated financial statements for the three months ended March 31, 2009
and 2008 include all adjustments, both normal and recurring, which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods. All significant intercompany balances and transactions have
been eliminated in consolidation. Our financial results for the three months
ended March 31, 2009 are not necessarily indicative of the results that may
be expected for the full year ending December 31, 2009. These unaudited
consolidated financial statements and other information included in this
Quarterly Report on Form 10-Q should be read in conjunction with our
consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2008.




We
currently own approximately 26.4% of Targa Resources Partners LP (the
“Partnership”), including our 2% general partner interest. Targa Resources GP
LLC, the general partner of the Partnership, is wholly owned by us. The
Partnership is consolidated within our Gas Gathering and Processing segment in
accordance with Emerging Issues Task Force (“EITF”) Issue No. 04-5, “Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights
..”




The
noncontrolling interest in our consolidated balance sheets consists primarily of
the investment by partners other than Targa Resources, Inc., including those
partners’ share of the net income, distributions and accumulated other
comprehensive income (loss) of the Partnership. Noncontrolling interest in net
income on our consolidated statements of operations consists primarily of those
partners’ share of the net income of the Partnership.




Note
2—Accounting Policies and Related Matters





Accounting Standards Codification.It is expected that the “Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification” (the “Codification”) will be
effective on July 1, 2009, officially becoming the single source of
authoritative nongovernmental GAAP, superseding existing FASB, American
Institute of Certified Public Accountants, Emerging Issues Task Force, and
related accounting literature. After that date, only one level of authoritative
GAAP will exist. All other accounting literature will be considered
non-authoritative. The Codification reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included in the Codification is relevant Securities
and Exchange Commission (“SEC”) guidance organized using the same topical
structure in separate sections within the Codification. This will have an impact
to our financial statements since all future references to authoritative
accounting literature will be references in accordance with the
Codification.





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 TABLE OF CONTENTS


Accounting
Pronouncements Recently Adopted





In
September 2006, FASB issued Statement of Financial Accounting Standards (“SFAS”)
157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 applies to other accounting pronouncements that require
or permit fair value measurements and, accordingly, does not require any new
fair value measurements. SFAS 157 was initially effective as of January 1, 2008,
but in February 2008, FASB delayed the effective date for applying this standard
to nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis
until periods beginning after November 15, 2008. We adopted SFAS 157 as of
January 1, 2008 for assets and liabilities within its scope and the impact was
not material to our financial statements. As of January 1, 2009, nonfinancial
assets and nonfinancial liabilities were also required to be measured at fair
value. The adoption of these additional provisions did not have a material
impact on our financial statements. See Note 12,





On
October 10, 2008, FASB issued FASB Staff Position (“FSP”) FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active.” FSP FAS
157-3 clarifies the application of SFAS 157 in a market that is not active and
provides factors to take into consideration when determining the fair value of
an asset in an inactive market. FSP FAS 157-3 was effective upon issuance,
including prior periods for which financial statements have not been issued. FSP
FAS 157-3 did not have a material impact on our financial
statements.





In
December 2007, FASB issued SFAS 141R, “Business Combinations.” SFAS
141R requires the acquiring entity in a business combination to recognize all
assets acquired and liabilities assumed in the transaction, establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed and requires the acquirer to disclose certain
information related to the nature and financial effect of the business
combination. SFAS 141R also establishes principles and requirements for how an
acquirer recognizes any noncontrolling interest in the acquiree and the goodwill
acquired in a business combination. SFAS 141R was effective on a prospective
basis for business combinations for which the acquisition date is on or after
January 1, 2009. For any business combination that takes place subsequent to
January 1, 2009, SFAS 141R may have a material impact on our financial
statements. The nature and extent of any such impact will depend upon the terms
and conditions of the transaction.





On April
1, 2009 FASB issued FSP FAS 141R-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination that Arise from
Contingencies.” FSP FAS 141R-1 amends and clarifies SFAS 141R to address
application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. This FSP is effective for assets
and liabilities arising from contingencies in business combinations for which
the acquisition date is on or after January 1, 2009. We do not expect any
material financial statement implications relating to the adoption of this
FSP.





In
December 2007, FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51.” SFAS 160 requires all entities to report noncontrolling
interests in subsidiaries as a separate component of equity in the consolidated
statement of financial position, to clearly identify consolidated net income
attributable to the parent and to the noncontrolling interest on the face of the
consolidated statement of income, and to provide sufficient disclosure that
clearly identifies and distinguishes between the interest of the parent and the
interests of noncontrolling owners. SFAS 160 also establishes accounting and
reporting standards for changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. We adopted SFAS 160 as of January 1, 2009. As a result,
previously presented amounts have been conformed to the required presentation
and additional disclosures have been provided.





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 TABLE OF CONTENTS


Accounting
Pronouncements Recently Issued




On April
9, 2009 FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.” FSP FAS
157-4 relates to determining fair values when there is no active market or where
the price inputs being used represent distressed sales. Specifically, it
reaffirms the need to use judgment to ascertain if a formerly active market has
become inactive and in determining fair values when markets have become
inactive. FSP FAS 157-4 is effective for interim and annual periods ending after
June 15, 2009 and should be applied prospectively. We do not expect any material
financial statement implications relating to our adoption of FSP FAS
157-4.





On April
9, 2009, FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value
of Financial Instruments.” This FSP requires disclosures of fair value
for any financial instruments not currently reflected at fair value on the
balance sheet for all interim periods. This FSP is effective for interim and
annual periods ending after June 15, 2009 and should be applied prospectively.
We do not expect any material financial statement implications relating to the
adoption of this FSP.





In March
2009, FASB released Proposed Staff Position SFAS 157-e, “Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed.”  This proposal
provides additional guidance in determining whether a market for a financial
asset is not active and a transaction is not distressed for fair value
measurement purposes as defined in SFAS 157. SFAS 157-e is effective for interim
periods ending after June 15, 2009, but early adoption is permitted for interim
periods ending after March 15, 2009.  We plan to adopt the provisions
of SFAS 157-e as of April 1, 2009, but do not believe this guidance will have a
significant impact on our financial statements.





In March
2009, FASB issued Proposed Staff Position SFAS 115-a, SFAS 124-a, and EITF
99-20-b, “Recognition and
Presentation of Other-Than-Temporary Impairments.”  This
proposal provides guidance in determining whether impairments in debt securities
are other than temporary, and modifies the presentation and disclosures
surrounding such instruments.  This Proposed Staff Position is
effective for interim periods ending after June 15, 2009, but early adoption is
permitted for interim periods ending after March 15, 2009.  We plan to
adopt the provisions of this Proposed Staff Position as of April 1, 2009, but do
not believe this guidance will have a significant impact on our financial
statements.




Note
3—Partnership Units and Related Matters




The
following table lists the Partnership’s distributions declared and paid in the
three months ended March 31, 2009 and 2008:


Distributions Paid
                    
                    
                    DistributionsLimited Partners
                    
                    
                    General Partner
                    
                    
                    
                    
                    
                    per
      limitedDate Paid
                    Quarter Ended
                    
                    Common
                    
                    
                    Subordinated
                    
                    
                    Incentive
                    
                    
                    
                    2%
                    
                    
                    Total
                    
                    
                    partner unit(In
      thousands, except per unit amounts)2009February
      13, 2009
                    December
      31, 2008
                    
                    $
                    17,949
                    
                    
                    $
                    5,965
                    
                    
                    $
                    1,933
                    
                    
                    $
                    527
                    
                    
                    $
                    26,374
                    
                    
                    $
                    0.51752008February
      14, 2008
                    December
      31, 2007
                    
                    
                    13,768
                    
                    
                    
                    4,582
                    
                    
                    
                    66
                    
                    
                    
                    376
                    
                    
                    
                    18,792
                    
                    
                    
                    0.3975







On April
23, 2009, we declared a cash distribution of $0.5175 per unit on the
Partnership’s outstanding common and subordinated units. The distribution will
be paid on May 15, 2009 to unitholders of record on May 6, 2009, for the period
January 1, 2009 through March 31, 2009. The total distribution to be paid is
$26.4 million, with  $18.0 million paid to the Partnership’s common
unitholders and $6.0 million, $0.5 million and $1.9 million to be paid to us in
respect of our subordinated units, general partner interest and incentive
distribution rights.





9
 TABLE OF CONTENTS


Note
4—Investment in Debt Securities of Targa Investments





During
the first quarter of 2009, we paid $6.8 million to acquire from a third party
$16.2 million of Targa Investments’ outstanding variable rate indebtedness. As
of March 31, 2009, the carrying value of our investment was $19.6 million,
including a similar purchase completed during 2008.





The
stated maturity date of the indebtedness is February 10, 2015, and as of
March 31, 2009, the variable rate was 9.0%. We have classified this
investment as an available-for-sale security. During the first quarter of 2009,
we recognized an unrealized gain of $0.9 million in accumulated other
comprehensive income, based on an indicative valuation supplied by a bank. As of
March 31, 2009 accumulated other comprehensive income (loss) (“OCI”) included
$5.8 million ($4.2 million, net of tax) of net unrealized losses related to our
investment in Targa Investments’ debt.





Note
5—Income Tax Expense





Our
effective tax rate for the first quarter of 2009 is a net benefit of 8.1%,
comprising a 17.8% Federal benefit and a 9.7% provision for state taxes. The
state tax rate is primarily attributable to Texas margin tax. The reported
Federal tax benefit is primarily the result of our adoption of SFAS 160.
Although SFAS 160 did not change our computation of tax expense, the denominator
in our effective rate calculation does not include a deduction for income
attributable to noncontrolling interests.





Note
6—Debt Obligations




Our
consolidated debt obligations consisted of the following as of the dates
indicated:




March
      31,
                
                
                December
      31,2009
                
                
                2008(In
      thousands)Long-term
      debt:Obligations
      of Targa:Senior
      secured term loan facility, variable rate, due October
2012
                
                $
                519,050
                
                
                $
                522,175Senior
      unsecured notes, 81⁄2% fixed rate, due November 2013
                
                
                250,000
                
                
                
                250,000Senior
      secured revolving credit facility, variable rate, due October
      2011
                
                
                95,920
                
                
                
                95,920Obligations
      of the Partnership: (1)Senior
      secured revolving credit facility, variable rate, due February
      2012
                
                
                487,765
                
                
                
                487,765Senior
      unsecured notes, 81⁄4% fixed rate, due July 2016
                
                
                209,080
                
                
                
                209,080Total
      debt
                
                
                1,561,815
                
                
                
                1,564,940Current
      maturities of debt
                
                
                (12,500
                )
                
                
                (12,500
                )Total
      long-term debt
                
                $
                1,549,315
                
                
                $
                1,552,440Irrevocable
      standby letters of credit:Letters
      of credit outstanding under synthetic letter of credit facility
      (2)
                
                $
                74,519
                
                
                $
                114,019Letters
      of credit outstanding under senior secured revolving
creditfacility
      of the Partnership
                
                
                14,985
                
                
                
                9,651$
                89,504
                
                
                $
                123,670





(1)
            We
      consolidate the debt of the Partnership with that of our own; however, we
      do not have the obligation to make interest payments or debt payments with
      respect to the debt of the
Partnership.


(2)
            The
      $300 million senior secured synthetic letter of credit facility terminates
      in October 2012.


10
 TABLE OF CONTENTS




Information
Regarding Variable Interest Rates Paid




The
following table shows the range of interest rates paid and weighted average
interest rates paid on our significant consolidated variable-rate debt
obligations during the three months ended March 31, 2009.







Range of interest rates
      paid
              Weighted average interest rate
      paidSenior
      secured term loan facility
              2.5%
      to 6.0%
              5.9%Senior
      secured revolving credit facility
              2.1%
      to 3.5%
              2.9%Senior
      secured revolving credit facility of the Partnership
              1.3%
      to 4.5%
              2.0%





Note
7—Asset Retirement Obligations




The
changes in our aggregate asset retirement obligations were as
follows:




Three Months Ended
                March 31, 2009(In
      thousands)Beginning
      of period
              
              $
              33,985Change
      in cash flow estimate (1)
              
              
              (4,462
              )Accretion
      expense
              
              
              695End
      of period
              
              $
              30,218


____________


(1)  Results
primarily from a reassessment of the estimated abandonment dates of certain of
our offshore natural gas gathering systems.





Note 8—Statement
of Changes in Stockholders’ Equity





The
following table reflects the reconciliation at the beginning and the end of the
period of the carrying amount of total equity, the components of equity
attributable to Targa Resources, Inc. and equity attributable to noncontrolling
interests:





AccumulatedOther
                
                
                Additional
                
                
                Non-Comprehensive
                
                
                Retained
                
                
                Comprehensive
                
                
                Paid-in
                
                
                controllingThree Months Ended March 31,
      2009
                
                Total
                
                
                Income
                
                
                Earnings
                
                
                Income
                
                
                Capital
                
                
                interests(In
      thousands)Balance,
      December 31, 2008
                
                $
                1,529,249
                
                
                
                
                
                $
                127,640
                
                
                $
                31,934
                
                
                $
                420,067
                
                
                $
                949,608Contributions
                
                
                1,109
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                37
                
                
                
                1,072Distributions
                
                
                (26,508
                )
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (26,508
                )Amortization
      of equity awards
                
                
                223
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                124
                
                
                
                99Comprehensive
      income:Net
      income
                
                
                952
                
                
                $
                952
                
                
                
                2,591
                
                
                
                -
                
                
                
                -
                
                
                
                (1,639
                )Other
      comprehensive income (loss):Change
      in fair value:Commodity
      hedging contracts
                
                
                29,886
                
                
                
                29,886
                
                
                
                -
                
                
                
                19,394
                
                
                
                -
                
                
                
                10,492Interest
      rate swaps
                
                
                (6,588
                )
                
                
                (6,588
                )
                
                
                -
                
                
                
                (3,839
                )
                
                
                -
                
                
                
                (2,749
                )Available
      for sale securities
                
                
                926
                
                
                
                926
                
                
                
                -
                
                
                
                926
                
                
                
                -Reclassification
      adjustment for settled periods:Commodity
      hedging contracts
                
                
                (16,165
                )
                
                
                (16,165
                )
                
                
                -
                
                
                
                (11,303
                )
                
                
                -
                
                
                
                (4,862
                )Interest
      rate swaps
                
                
                2,522
                
                
                
                2,522
                
                
                
                -
                
                
                
                667
                
                
                
                -
                
                
                
                1,855Foreign
      currency translation adjustment
                
                
                (181
                )
                
                
                (181
                )
                
                
                -
                
                
                
                (181
                )
                
                
                -
                
                
                
                -Related
      income taxes
                
                
                1,028
                
                
                
                1,028
                
                
                
                -
                
                
                
                1,028
                
                
                
                -
                
                
                
                -Balance,
      March 31, 2009
                
                $
                1,516,453
                
                
                $
                12,380
                
                
                $
                130,231
                
                
                $
                38,626
                
                
                $
                420,228
                
                
                $
                927,368





11
 TABLE OF CONTENTS





AccumulatedOther
                
                
                Additional
                
                
                Non-Comprehensive
                
                
                Retained
                
                
                Comprehensive
                
                
                Paid-in
                
                
                controllingThree Months Ended March 31,
      2008
                
                Total
                
                
                Loss
                
                
                Earnings
                
                
                Loss
                
                
                Capital
                
                
                interests(In
      thousands)Balance,
      December 31, 2007
                
                $
                1,307,530
                
                
                
                
                
                $
                74,736
                
                
                $
                (56,116
                )
                
                $
                473,784
                
                
                $
                815,126Contributions
                
                
                (52,891
                )
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                (52,891
                )
                
                
                -Distributions
                
                
                (17,838
                )
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (17,838
                )Amortization
      of equity awards
                
                
                459
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                418
                
                
                
                41Tax
      expense on vesting of common stock
                
                
                134
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                134
                
                
                
                -Comprehensive
      income:Net
      income
                
                
                45,300
                
                
                $
                45,300
                
                
                
                18,416
                
                
                
                
                
                
                
                
                
                
                
                26,884Other
      comprehensive income (loss):Change
      in fair value:Commodity
      hedging contracts
                
                
                (93,388
                )
                
                
                (93,388
                )
                
                
                
                
                
                
                (55,299
                )
                
                
                
                
                
                
                (38,089
                )Interest
      rate swaps
                
                
                (9,435
                )
                
                
                (9,435
                )
                
                
                
                
                
                
                (2,497
                )
                
                
                
                
                
                
                (6,938
                )Available
      for sale securities
                
                
                -
                
                
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                -Reclassification
      adjustment for settled periods:Commodity
      hedging contracts
                
                
                16,044
                
                
                
                16,044
                
                
                
                
                
                
                
                8,692
                
                
                
                
                
                
                
                7,352Interest
      rate swaps
                
                
                (233
                )
                
                
                (233
                )
                
                
                
                
                
                
                (62
                )
                
                
                
                
                
                
                (171
                )Foreign
      currency translation adjustment
                
                
                (342
                )
                
                
                (342
                )
                
                
                
                
                
                
                (342
                )
                
                
                
                
                
                
                -Related
      income taxes
                
                
                16,765
                
                
                
                16,765
                
                
                
                -
                
                
                
                16,765
                
                
                
                -
                
                
                
                -Balance,
      March 31, 2008
                
                $
                1,212,105
                
                
                $
                (25,289
                )
                
                $
                93,152
                
                
                $
                (88,859
                )
                
                $
                421,445
                
                
                $
                786,367





Note
9—Stock and Other Compensation Plans




Stock
Option Plans




Share-based
compensation cost related to stock options included in general and
administrative expense for the three months ended March 31, 2009 and 2008
was $33,000 and $15,000. As of March 31, 2009, our remaining unamortized
compensation cost related to stock options was $0.1 million, which is expected
to be recognized over a weighted-average period of approximately one
year.




Non-vested
(Restricted) Common Stock




Share-based
compensation cost related to restricted stock included in general and
administrative expense for the three months ended March 31, 2009 and 2008
was $0.1 million and $0.4 million. As of March 31, 2009, our remaining
unamortized compensation cost related to restricted stock was $0.2 million,
which is expected to be recognized over a weighted-average period of
approximately one year.




Incentive
Plans related to the Partnership’s Common Units




Non-Employee Director Grants.On January 22, 2009, the general partner of the Partnership awarded
32,000 restricted common units of the Partnership (4,000 restricted common units
to each of the Partnership’s non-management directors and to each of Targa
Investments’ independent directors).




Compensation
expense on the restricted common units is recognized on a straight-line basis
over the vesting period. The fair value of an award of restricted common units
is measured on the grant date using the market price of a common unit on such
date. For the three months ended March 31, 2009 and 2008, we recognized
compensation expense of less than $0.1 million related to these awards. We
estimate that the remaining fair value of $0.4 million will be recognized in
expense over a weighted average period of approximately two years.




Performance
Units.  In January 2009, 122,100 performance units were awarded
under Targa Investments’ long-term incentive plan. Upon vesting, each
performance unit will entitle the awardee to a cash payment equal to the then
value of a Partnership common unit, including distribution equivalent rights.
Vesting of performance units is based on the total return per common unit of the
Partnership through the end of the performance period, relative to the total
return of a defined peer group.


12
 TABLE OF CONTENTS




As of
March 31, 2009, the aggregate fair value of performance units expected to
vest was $7.3 million. For the three months ended March 31, 2009 and 2008
we recognized compensation expense related to the performance units of $0.6
million and $0.1 million. The recognition period for the remaining unrecognized
compensation cost is approximately three years.




Note 10—Hurricane
Insurance Claims





Certain
of our Louisiana and Texas facilities sustained damage and had disruption to
their operations during the 2008 hurricane season from two Gulf Coast
hurricanes—Gustav and Ike. As of December 31, 2008, we recorded a $19.3 million
loss provision (net of estimated insurance reimbursements) related to the
hurricanes. That estimate remains unchanged.





During
the first quarter of 2009, expenditures related to the hurricanes included $17.5
million for repairs and $4.3 million for improvements. In addition, we executed
a proof of loss for $5.9 million, comprising $4.7 million for property damage
insurance claims and $1.2 million for business interruption insurance
claims.




Note 11—Derivative
Instruments and Hedging Activities





Our
principal market risks are our exposure to changes in commodity prices,
particularly to the prices of natural gas and NGLs, changes in interest rates,
as well as nonperformance by our counterparties.





Commodity Price Risk.A majority of our revenues
are derived from percent-of-proceeds contracts under which we receive a portion
of the natural gas and/or NGLs or equity volumes, as payment for services. The
prices of natural gas and NGLs are subject to market fluctuations in response to
changes in supply, demand, market uncertainty and a variety of additional
factors beyond our control. We monitor these risks and enter into commodity
derivative transactions designed to mitigate the impact of commodity price
fluctuations on our business. Cash flows from a derivative instrument designated
as hedge are classified in the same category as the cash flows from the item
being hedged.





The
primary purpose of our commodity risk management activities is to hedge our
exposure to commodity price risk and reduce fluctuations in our operating cash
flow despite fluctuations in commodity prices. In an effort to reduce the
variability of our cash flows, as of March 31, 2009, we have hedged the
commodity price associated with a significant portion of our expected natural
gas, NGL and condensate equity volumes for the years 2009 through 2013 by
entering into derivative financial instruments including swaps and purchased
puts (or floors). The percentages of our expected equity volumes that are hedged
decrease over time. With swaps, we typically receive an agreed upon fixed price
for a specified notional quantity of natural gas or NGL and we pay the hedge
counterparty a floating price for that same quantity based upon published index
prices. Since we receive from our customers substantially the same floating
index price from the sale of the underlying physical commodity, these
transactions are designed to effectively lock-in the agreed fixed price in
advance for the volumes hedged. In order to avoid having a greater volume hedged
than our actual equity volumes, we typically limit our use of swaps to hedge the
prices of less than our expected natural gas and NGL equity volumes. We utilize
purchased puts (or floors) to hedge additional expected equity commodity volumes
without creating volumetric risk. Our commodity hedges may expose us to the risk
of financial loss in certain circumstances. Our hedging arrangements provide us
protection on the hedged volumes if market prices decline below the prices at
which these hedges are set. If market prices rise above the prices at which we
have hedged, we will receive less revenue on the hedged volumes than we would
receive in the absence of hedges.





We have
tailored our hedges to generally match the NGL product composition and the NGL
and natural gas delivery points to those of our physical equity volumes. Our NGL
hedges cover baskets of ethane, propane, normal butane, iso-butane and natural
gasoline based upon our expected equity NGL composition. We believe this
strategy avoids uncorrelated risks resulting from employing hedges on crude oil
or other petroleum products as “proxy” hedges of NGL prices. Additionally, our
NGL hedges are based on published index prices for delivery at Mont Belvieu and
our natural gas hedges are based on published index prices for delivery at Waha,
Houston Ship channel, Permian Basin and Mid-Continent, which closely
approximate our actual NGL and natural gas delivery points. We hedge a portion
of our condensate sales using crude oil hedges that are based on the NYMEX
futures contracts for West Texas Intermediate light, sweet
crude.


13
 TABLE OF CONTENTS


Interest Rate Risk.We are exposed to changes
in interest rates, primarily as a result of our variable rate debt under our
credit facility. To the extent that interest rates increase, our interest
expense for our revolving debt will also increase. As of March 31, 2009, we had
outstanding variable rate borrowings of approximately $1,103 million. In an
effort to reduce the variability of our cash flows, we have entered into several
interest rate swap and interest rate basis swap agreements. Under these
agreements, which are accounted for as cash flow hedges, the base interest rate
on the specified notional amount of our variable rate debt is effectively fixed
for the term of each agreement and ineffectiveness is required to be measured
each reporting period.  The fair values of the interest rate swap
agreements, which are adjusted regularly, have been aggregated by counterparty
for classification in our consolidated balance sheets. Accordingly,
unrealized gains and losses relating to the interest rate swaps are recorded in
accumulated other comprehensive income (“OCI”) until the interest expense on the
related debt is recognized in earnings.





Credit Risk.Our credit exposure related
to commodity derivative instruments is represented by the fair value of
contracts with a net positive fair value to us at the reporting
date.  At such times, these outstanding instruments expose us to
credit loss in the event of nonperformance by the counterparties to the
agreements. Should the creditworthiness of one or more of our
counterparties decline, our ability to mitigate nonperformance risk is limited
to a counterparty agreeing to either a voluntary termination and subsequent cash
settlement or a novation of the derivative contract to a third party. In the
event of a counterparty default, we may sustain a loss and our cash receipts
could be negatively impacted.





As of
March 31, 2009, affiliates of Goldman Sachs, Merrill Lynch and Barclays Bank
accounted for 56%, 24% and 20% of our counterparty credit exposure related to
commodity derivative instruments. Goldman Sachs, Merrill Lynch and Barclays Bank
are major financial institutions, each possessing investment grade credit
ratings, based upon minimum credit ratings assigned by Standard & Poor’s
Ratings Services, a division of the McGraw-Hill Companies, Inc.





The
following schedules reflect the fair values of derivative instruments in our
financial statements.





Asset Derivatives
                    
                    Liability DerivativesBalance
                    
                    Fair Value as of
                    
                    Balance
                    
                    Fair Value as ofSheet
                    
                    March
      31,
                    
                    
                    December
      31,
                    
                    Sheet
                    
                    March
      31,
                    
                    
                    December
      31,Location
                    
                    2009
                    
                    
                    2008
                    
                    Location
                    
                    2009
                    
                    
                    2008Derivatives
      designated as
                    
                    
                    (In
      thousands)
                    
                    
                    
                    (In
      thousands)hedging
      instruments underSFAS
      133Commodity
      contracts
                    Current
      assets
                    
                    $
                    114,373
                    
                    
                    $
                    108,731
                    
                    Current
      liabilities
                    
                    $
                    8
                    
                    
                    $
                    -Other
      assets
                    
                    
                    87,776
                    
                    
                    
                    89,774
                    
                    Other
      liabilities
                    
                    
                    7,283
                    
                    
                    
                    123Interest
      rate contracts
                    Current
      assets
                    
                    
                    -
                    
                    
                    
                    -
                    
                    Current
      liabilities
                    
                    
                    11,429
                    
                    
                    
                    8,020Other
      assets
                    
                    
                    890
                    
                    
                    
                    -
                    
                    Other
      liabilities
                    
                    
                    12,165
                    
                    
                    
                    9,556Total
                    
                    
                    
                    203,039
                    
                    
                    
                    198,505
                    
                    
                    
                    
                    30,885
                    
                    
                    
                    17,699Derivatives
      not designated ashedging
      instruments underSFAS
      133Commodity
      contracts
                    Current
      assets
                    
                    
                    4,500
                    
                    
                    
                    3,610
                    
                    Current
      liabilities
                    
                    
                    4,565
                    
                    
                    
                    3,644Other
      assets
                    
                    
                    141
                    
                    
                    
                    -
                    
                    Other
      liabilities
                    
                    
                    145
                    
                    
                    
                    -Total
                    
                    
                    
                    4,641
                    
                    
                    
                    3,610
                    
                    
                    
                    
                    4,710
                    
                    
                    
                    3,644Total
      derivatives
                    
                    
                    $
                    207,680
                    
                    
                    $
                    202,115
                    
                    
                    
                    $
                    35,595
                    
                    
                    $
                    21,343





14
 TABLE OF CONTENTS





Gain
      (Loss)Derivatives
      in
                
                Recognized
      in OCI onFAS
      133
                
                Derivatives (Effective
    Portion)Cash
      Flow Hedging
                
                Three Months Ended March
31,Relationships
                
                2009
                
                
                2008(In
      thousands)Interest
      rate contracts
                
                $
                (6,588
                )
                
                $
                (9,435
                )Commodity
      contracts
                
                
                29,886
                
                
                
                (93,388
                )$
                23,298
                
                
                $
                (102,823
                )











Amount
      of Gain (Loss)
                
                
                Amount
      of Gain (Loss)Location
      of Gain (Loss)
                
                Reclassified
      from OCI into
                
                
                Recognized
      in Income onReclassified
      from
                
                Income (Effective Portion)
                
                
                Derivatives (Ineffective
      Portion)Accumulated
      OCI
                
                Three Months Ended March
31,
                
                
                Three Months Ended March
31,into Income
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008(In
      thousands)
                
                
                (In
      thousands)Interest
      expense, net
                
                $
                (2,522
                )
                
                $
                233
                
                
                $
                -
                
                
                $
                -Revenues
                
                
                15,792
                
                
                
                (16,044
                )
                
                
                373
                
                
                
                -$
                13,270
                
                
                $
                (15,811
                )
                
                $
                373
                
                
                $
                -













As of
December 31, 2008, OCI consisted of $125.6 million
($105.2 million, net of tax) of unrealized net gains on commodity hedges,
and $17.6 million ($16.0 million, net of tax) of unrealized net losses on
interest rate hedges.







As of
March 31, 2009, OCI consisted of $139.3 million ($120.1 million, net of
tax) of unrealized net gains on commodity hedges, and $21.6 million ($19.5
million, net of tax) of unrealized net losses on interest rate hedges. Deferred
net gains of $84.1 million on commodity hedges and deferred net losses of $11.9
million on interest rate hedges recorded in OCI are expected to be reclassified
to revenues and interest expense during the next twelve months.


15
 TABLE OF CONTENTS


As of
March 31, 2009, we had the following hedge arrangements which will settle
during the years ending December 31, 2009 through 2013 (except as indicated
otherwise, the 2009 volumes reflect daily volumes for the period from
April 1, 2009 through December 31, 2009):




Natural
Gas


Instrument
                                
                                
                                Avg.
      Price
                                
                                
                                MMBtu per dayType
                                Index
                                
                                $/MMBtu
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2011
                                
                                
                                2012
                                
                                
                                2013
                                
                                
                                Fair Value(In
      thousands)SalesSwap
                                IF-Waha
                                
                                
                                6.62
                                
                                
                                
                                21,918
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                $
                                16,880Swap
                                IF-Waha
                                
                                
                                6.69
                                
                                
                                
                                -
                                
                                
                                
                                16,300
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                7,911Swap
                                IF-Waha
                                
                                
                                6.46
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                12,500
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,694Swap
                                IF-Waha
                                
                                
                                7.18
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                5,500
                                
                                
                                
                                -
                                
                                
                                
                                1,34421,918
                                
                                
                                
                                16,300
                                
                                
                                
                                12,500
                                
                                
                                
                                5,500
                                
                                
                                
                                -Swap
                                IF-PB
                                
                                
                                5.42
                                
                                
                                
                                -
                                
                                
                                
                                2,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                180Swap
                                IF-PB
                                
                                
                                5.42
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,000
                                
                                
                                
                                
                                
                                
                                
                                -
                                
                                
                                
                                (277
                                )Swap
                                IF-PB
                                
                                
                                5.54
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                4,000
                                
                                
                                
                                -
                                
                                
                                
                                (895
                                )Swap
                                IF-PB
                                
                                
                                5.54
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                4,000
                                
                                
                                
                                (1,355
                                )-
                                
                                
                                
                                2,000
                                
                                
                                
                                2,000
                                
                                
                                
                                4,000
                                
                                
                                
                                4,000Total
      Sales
                                
                                
                                
                                
                                
                                
                                21,918
                                
                                
                                
                                18,300
                                
                                
                                
                                14,500
                                
                                
                                
                                9,500
                                
                                
                                
                                4,000$
                                25,482









NGLs





Instrument
                                
                                
                                Avg.
      Price
                                
                                
                                Barrels per dayType
                                Index
                                
                                $/gal
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2011
                                
                                
                                2012
                                
                                
                                2013
                                
                                
                                Fair Value(In
      thousands)SalesSwap
                                OPIS-MB
                                
                                
                                0.78
                                
                                
                                
                                3,347
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                $
                                6,714Swap
                                OPIS-MB
                                
                                
                                0.87
                                
                                
                                
                                -
                                
                                
                                
                                2,750
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                8,360Swap
                                OPIS-MB
                                
                                
                                0.91
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,550
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                4,549Swap
                                OPIS-MB
                                
                                
                                0.92
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,250
                                
                                
                                
                                -
                                
                                
                                
                                3,112Total
      Swaps
                                
                                
                                
                                
                                
                                
                                3,347
                                
                                
                                
                                2,750
                                
                                
                                
                                1,550
                                
                                
                                
                                1,250
                                
                                
                                
                                -Floor
                                OPIS-MB
                                
                                
                                1.44
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                54
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                525Floor
                                OPIS-MB
                                
                                
                                1.43
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                63
                                
                                
                                
                                -
                                
                                
                                
                                570Total
      Floors
                                
                                
                                
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                54
                                
                                
                                
                                63
                                
                                
                                
                                -Total
      Sales
                                
                                
                                
                                
                                
                                
                                3,347
                                
                                
                                
                                2,750
                                
                                
                                
                                1,604
                                
                                
                                
                                1,313
                                
                                
                                
                                -$
                                23,830





16
 TABLE OF CONTENTS





As of
March 31, 2009, the Partnership had the following hedge arrangements which
will settle during the years ended December 31, 2009 through 2013 (except
as indicated otherwise, the 2009 volumes reflect daily volumes for the period
from April 1, 2009 through December 31, 2009):




Natural
Gas




Instrument
                                    
                                    
                                    Avg.
      Price
                                    
                                    
                                    MMBtu per dayType
                                    Index
                                    
                                    $/MMBtu
                                    
                                    
                                    2009
                                    
                                    
                                    2010
                                    
                                    
                                    2011
                                    
                                    
                                    2012
                                    
                                    
                                    2013
                                    
                                    
                                    Fair Value(In
      thousands)SalesSwap
                                    IF-HSC
                                    
                                    
                                    7.39
                                    
                                    
                                    
                                    1,966
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    1,7431,966
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Swap
                                    IF-NGPL
      MC
                                    
                                    
                                    9.18
                                    
                                    
                                    
                                    6,256
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    9,410Swap
                                    IF-NGPL
      MC
                                    
                                    
                                    8.86
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,685
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7,089Swap
                                    IF-NGPL
      MC
                                    
                                    
                                    7.34
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,750
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,286Swap
                                    IF-NGPL
      MC
                                    
                                    
                                    7.18
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,750
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7896,256
                                    
                                    
                                    
                                    5,685
                                    
                                    
                                    
                                    2,750
                                    
                                    
                                    
                                    2,750
                                    
                                    
                                    
                                    -Swap
                                    IF-Waha
                                    
                                    
                                    7.79
                                    
                                    
                                    
                                    9,936
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    10,910Swap
                                    IF-Waha
                                    
                                    
                                    6.53
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    11,709
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,715Swap
                                    IF-Waha
                                    
                                    
                                    6.10
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    11,250
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    145Swap
                                    IF-Waha
                                    
                                    
                                    6.30
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7,250
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (326
                                    )Swap
                                    IF-Waha
                                    
                                    
                                    5.59
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,000
                                    
                                    
                                    
                                    (1,478
                                    )9,936
                                    
                                    
                                    
                                    11,709
                                    
                                    
                                    
                                    11,250
                                    
                                    
                                    
                                    7,250
                                    
                                    
                                    
                                    4,000Total
      Swaps
                                    
                                    
                                    
                                    
                                    
                                    
                                    18,158
                                    
                                    
                                    
                                    17,394
                                    
                                    
                                    
                                    14,000
                                    
                                    
                                    
                                    10,000
                                    
                                    
                                    
                                    4,000Floor
                                    IF-NGPL
      MC
                                    
                                    
                                    6.55
                                    
                                    
                                    
                                    850
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    710850
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Floor
                                    IF-Waha
                                    
                                    
                                    6.55
                                    
                                    
                                    
                                    565
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    459565
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Total
      Floors
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,415
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Total
      Sales
                                    
                                    
                                    
                                    
                                    
                                    
                                    19,573
                                    
                                    
                                    
                                    17,394
                                    
                                    
                                    
                                    14,000
                                    
                                    
                                    
                                    10,000
                                    
                                    
                                    
                                    4,000$
                                    35,452





17
 TABLE OF CONTENTS


NGLs





Instrument
                                
                                
                                Avg.
      Price
                                
                                
                                Barrels per dayType
                                Index
                                
                                $/gal
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2011
                                
                                
                                2012
                                
                                
                                2013
                                
                                
                                Fair Value(In
      thousands)SalesSwap
                                OPIS-MB
                                
                                
                                1.32
                                
                                
                                
                                6,248
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                $
                                48,006Swap
                                OPIS-MB
                                
                                
                                1.27
                                
                                
                                
                                -
                                
                                
                                
                                4,809
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                40,659Swap
                                OPIS-MB
                                
                                
                                0.92
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,400
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                9,420Swap
                                OPIS-MB
                                
                                
                                0.92
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,700
                                
                                
                                
                                -
                                
                                
                                
                                6,197Total
      Swaps
                                
                                
                                
                                
                                
                                
                                6,248
                                
                                
                                
                                4,809
                                
                                
                                
                                3,400
                                
                                
                                
                                2,700
                                
                                
                                
                                -Floor
                                OPIS-MB
                                
                                
                                1.44
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                199
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,935Floor
                                OPIS-MB
                                
                                
                                1.43
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                231
                                
                                
                                
                                -
                                
                                
                                
                                2,089Total
      Floors
                                
                                
                                
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                199
                                
                                
                                
                                231
                                
                                
                                
                                -Total
      Sales
                                
                                
                                
                                
                                
                                
                                6,248
                                
                                
                                
                                4,809
                                
                                
                                
                                3,599
                                
                                
                                
                                2,931
                                
                                
                                
                                -$
                                108,306









Condensate





Instrument
                                          
                                          
                                          Avg.
      Price
                                          
                                          
                                          Barrels per dayType
                                          Index
                                          
                                          $/Bbl
                                          
                                          
                                          2009
                                          
                                          
                                          2010
                                          
                                          
                                          2011
                                          
                                          
                                          2012
                                          
                                          
                                          2013
                                          
                                          
                                          Fair Value(In
      thousands)SalesSwap
                                          NY-WTI
                                          
                                          
                                          69.00
                                          
                                          
                                          
                                          322
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          1,153Swap
                                          NY-WTI
                                          
                                          
                                          68.10
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          301
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          518Total
      Swaps
                                          
                                          
                                          
                                          
                                          
                                          
                                          322
                                          
                                          
                                          
                                          301
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Floor
                                          NY-WTI
                                          
                                          
                                          60.00
                                          
                                          
                                          
                                          50
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          117Total
      Floors
                                          
                                          
                                          
                                          
                                          
                                          
                                          50
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Total
      Sales
                                          
                                          
                                          
                                          
                                          
                                          
                                          372
                                          
                                          
                                          
                                          301
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -$
                                          1,788








18
 TABLE OF CONTENTS


Customer
Hedges




As of
March 31, 2009, the Partnership had the following commodity derivative
contracts directly related to short-term fixed price arrangements elected by
certain customers in various natural gas purchase and sale agreements, which
have been marked to market through earnings:





Period
                    Commodity
                    Instrument Type
                    
                    Daily Volume
                    
                    Average Price
                    Index
                    
                    Fair Value(In
      thousands)PurchasesApr
      2009 - Dec 2009
                    Natural
      gas
                    Swap
                    
                    
                    5,891
                    
                    MMBtu
                    
                    $
                    6.71
                    
                    per
      MMBtu
                    NY-HH
                    
                    $
                    (4,436
                    )Jan
      2010 - Jun 2010
                    Natural
      gas
                    Swap
                    
                    
                    663
                    
                    MMBtu
                    
                    
                    8.03
                    
                    per
      MMBtu
                    NY-HH
                    
                    
                    (273
                    )SalesApr
      2009 - Dec 2009
                    Natural
      gas
                    Fixed
      price sale
                    
                    
                    5,891
                    
                    MMBtu
                    
                    
                    6.71
                    
                    per
      MMBtu
                    NY-HH
                    
                    
                    4,373Jan
      2010 - Jun 2010
                    Natural
      gas
                    Fixed
      price sale
                    
                    
                    663
                    
                    MMBtu
                    
                    
                    8.03
                    
                    per
      MMBtu
                    NY-HH
                    
                    
                    267$
                    (69
                    )








Interest
Rate Hedges




Our
consolidated variable rate indebtedness accrues interest at a base rate plus an
applicable margin. Our interest rate hedges effectively fix the base rate on the
indicated notional amount of borrowings for the indicated periods:


Fixed
                
                NotionalPeriod
                
                Rate
                
                Amount
                
                Fair Value(In
      thousands)4/1/2009-3/31/2010
                
                
                1.65
                %
                $400
      million
                
                $
                (3,742
                )4/1/2010-3/31/2011
                
                
                1.65
                %
                350
      million
                
                
                (829
                )4/1/2011-3/31/2012
                
                
                1.65
                %
                300
      million
                
                
                1,718$
                (2,853
                )









In
addition, the Partnership’s interest rate swaps and interest rate basis swaps
effectively fix the base rate on the indicated notional amount of borrowings as
shown below:





Period
                
                Fixed Rate
                
                
                Notional Amount
                
                Fair Value(In
      thousands)Remainder
      of 2009
                
                
                3.68
                %
                
                $
                300
                
                million
                
                $
                (5,896
                )2010
                
                
                3.67
                %
                
                
                300
                
                million
                
                
                (6,712
                )2011
                
                
                3.48
                %
                
                
                300
                
                million
                
                
                (4,211
                )2012
                
                
                3.40
                %
                
                
                300
                
                million
                
                
                (1,969
                )2013
                
                
                3.39
                %
                
                
                300
                
                million
                
                
                (962
                )1/1
      - 4/24/2014
                
                
                3.39
                %
                
                
                300
                
                million
                
                
                (101
                )$
                (19,851
                )








We have
designated all interest rate swaps and interest rate basis swaps as cash flow
hedges. Accordingly, unrealized gains and losses relating to the swaps are
recorded in OCI until interest expense on the related debt is recognized in
earnings.





See Note
12 and Note 14 for additional disclosures related to derivative instruments and
hedging activities.





19
 TABLE OF CONTENTS


Note
12—Fair Value Measurements





We
classify our assets and liabilities measured at fair value on a recurring and
nonrecurring basis using a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. These tiers include: Level 1, defined
as observable inputs such as quoted prices in active markets; Level 2, defined
as inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring us to develop our own
assumptions.





The
following table sets forth, by level within the fair value hierarchy, our
financial assets and liabilities measured at fair value on a recurring basis as
of March 31, 2009. These financial assets and liabilities are classified in
their entirety based on the lowest level of input that is significant to the
fair value measurement. Our assessment of the significance of a particular input
to the fair value measurement requires judgment, and may affect the valuation of
the fair value assets and liabilities and their placement within the fair value
hierarchy levels.





Total
                  
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3(In
      thousands)Assets
      from commodity derivative contracts
                  
                  $
                  206,790
                  
                  
                  $
                  -
                  
                  
                  $
                  74,654
                  
                  
                  $
                  132,136Available-for-sale
      securities (1)
                  
                  
                  17,387
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,387Assets
      from interest rate derivatives
                  
                  
                  890
                  
                  
                  
                  -
                  
                  
                  
                  890
                  
                  
                  
                  -Total
      assets
                  
                  $
                  225,067
                  
                  
                  $
                  -
                  
                  
                  $
                  75,544
                  
                  
                  $
                  149,523Liabilities
      from commodity derivative contracts
                  
                  $
                  12,001
                  
                  
                  $
                  -
                  
                  
                  $
                  12,001
                  
                  
                  $
                  -Liabilities
      from interest rate derivatives
                  
                  
                  23,594
                  
                  
                  
                  -
                  
                  
                  
                  23,594
                  
                  
                  
                  -Total
      liabilities
                  
                  $
                  35,595
                  
                  
                  $
                  -
                  
                  
                  $
                  35,595
                  
                  
                  $
                  -








(1)
            Excludes
      $1.6 million of interest paid in-kind and $0.6 million in discount
      amortization.





The
following table sets forth a reconciliation of the changes in the fair value of
our financial instruments classified as Level 3 in the fair value
hierarchy:


AvailableDerivatives
                  
                  
                  For
      SaleContracts
                  
                  
                  Securities
                  
                  
                  Total(In
      thousands)Balance,
      December 31, 2008
                  
                  $
                  148,194
                  
                  
                  $
                  9,700
                  
                  
                  $
                  157,894Unrealized
      gains included in OCI
                  
                  
                  3,213
                  
                  
                  
                  926
                  
                  
                  
                  4,139Purchases
                  
                  
                  -
                  
                  
                  
                  6,761
                  
                  
                  
                  6,761Settlements
                  
                  
                  (19,271
                  )
                  
                  
                  -
                  
                  
                  
                  (19,271
                  )Balance,
      March 31, 2009
                  
                  $
                  132,136
                  
                  
                  $
                  17,387
                  
                  
                  $
                  149,523








No
unrealized gains or losses related to assets and liabilities still held as of
March 31, 2009 were included in our consolidated statement of
operations.





Note 13—Commitments
and Contingencies




Environmental




For
environmental matters, we record liabilities when remedial efforts are probable
and the costs can be reasonably estimated in accordance with the American
Institute of Certified Public Accountants Statement of Position No. 96-1,
“Environmental Remediation
Liabilities.” Environmental reserves do not reflect management’s
assessment of the insurance coverage that may be applicable to the matters at
issue. Management has assessed each of the matters based on current information
and made a judgment concerning its potential outcome, considering the nature of
the claim, the amount and nature of damages sought and the probability of
success.


20
 TABLE OF CONTENTS




We have
been in discussions with the New Mexico Environment Department (“NMED”) to
resolve alleged air emissions violations at the Eunice, Monument and Saunders
gas processing plants. In May 2007, the NMED initially provided us with a draft
compliance order proposing to resolve certain of these alleged violations, which
were identified in the course of an inspection of the Eunice plant conducted by
the NMED in August 2005. In December 2007, the NMED offered a settlement
containing a proposed penalty of approximately $2 million to resolve
the alleged violations arising out of the August 2005 inspection of the
Eunice plant.  We have since discussed with the NMED an expansion of
the proposed compliance order to include the resolution of other alleged
violations associated with the operation of flares at the Eunice, Monument and
Saunders plants and to install air pollution control technology. We may
incur additional operating costs to implement various leak detection and
monitoring programs in order to resolve these alleged violations, the amount of
which currently is not reasonably ascertainable.  It is also possible
that the NMED may assess a penalty for the alleged violations associated with
the operation of the flares at the Eunice, Monument and Saunders plants as part
of an overall settlement.




Our
environmental liability as of March 31, 2009 was $3.8 million, consisting
of $0.2 million for gathering system leaks, $1.5 million for ground water
assessment and remediation and $2.1 million for gas processing plant
environmental violations.




Legal
Proceedings





We are a
party to various legal proceedings and/or regulatory proceedings and certain
claims, suits and complaints arising in the ordinary course of business have
been filed or are pending against us. We believe all such matters are without
merit or involve amounts which, if resolved unfavorably, would not have a
material effect on our financial position, results of operations, or cash flows,
except for the items more fully described below.




In May
2002, Apache Corporation (“Apache”) filed suit in Texas state court against
Versado Gas Processors, LLC (“Versado”), as purchaser and processor of Apache’s
gas, and Dynegy Midstream Services, Limited Partnership (now known as Targa
Midstream Services Limited Partnership, a wholly owned subsidiary of ours), as
operator of the Versado assets in New Mexico (“Versado Defendants”) alleging
(i) excessive field losses of natural gas from wells owned by the
plaintiff, (ii) that the Versado Defendants engaged in certain transactions
with affiliates, resulting in the Versado Defendants not receiving fair market
value when it sold gas and liquids, and (iii) that the formula for
calculating the amount the Versado Defendants received from its buyers of gas
and liquids is flawed since it is based on gas price indices that were allegedly
manipulated. At trial, the jury found in favor of Apache on the lost gas
claim, awarding approximately $1.6 million in damages. Apache’s claims with
respect to the alleged “sham” transactions and index manipulation, among others,
were severed by the trial court and abated for a future trial. The parties
settled the severed lawsuit in May 2007.




In May
2004, the trial court granted the Versado Defendants’ motion to set aside the
jury verdict on the lost gas claim and vacated the jury award to Apache. Apache
filed its notice of appeal with the 14th Court of Appeals of Houston in October
2004. In 2006, the Court of Appeals reinstated the jury verdict in Apache’s
favor on the issue of lost gas and also awarded Apache legal fees and interest,
bringing the total award against the Versado Defendants to approximately $2.7
million. After rehearing, the Court of Appeals affirmed its decision reinstating
the original jury verdict in Apache’s favor. With interest and attorneys’ fees
that verdict stands at approximately $3.0 million.




In
January 2007, the Versado Defendants filed their petition for review with the
Supreme Court of Texas and in March 2007, Apache filed its conditional petition
for review with the Supreme Court of Texas. On April 4, 2008, the Supreme
Court of Texas granted review of the petitions. On September 9, 2008, the
parties presented oral arguments, and the appeal is currently pending before the
Supreme Court of Texas.





21
 TABLE OF CONTENTS


On
December 8, 2005, WTG Gas Processing (“WTG”) filed suit in the 333rd District
Court of Harris County, Texas against several defendants, including Targa
Resources, Inc. and three other Targa entities and private equity funds
affiliated with Warburg Pincus LLC, seeking damages from the defendants. The
suit alleges that Targa and private equity funds affiliated with Warburg Pincus
LLC, along with ConocoPhillips Company (“ConocoPhillips”) and Morgan Stanley,
tortiously interfered with (i) a contract WTG claims to have had to purchase the
SAOU System from ConocoPhillips and (ii) prospective business relations of WTG.
WTG claims the alleged interference resulted from Targa’s competition to
purchase the ConocoPhillips’ assets and its successful acquisition of those
assets in 2004. On October 2, 2007, the District Court granted defendants’
motions for summary judgment on all of WTG’s claims. WTG’s motion to reconsider
and for a new trial was overruled. On January 2, 2008, WTG filed a notice of
appeal. On February 3, 2009, the parties presented oral arguments and the appeal
is pending before the 14th
Court of Appeals in Houston, Texas.  We are contesting WTG’s appeal,
but can give no assurances regarding the outcome of the proceeding. We have
agreed to indemnify the Partnership for any claim or liability arising out
of the WTG suit.





Note
14—Related-Party Transactions





Relationship
with Warburg Pincus LLC





Two of
the directors of Targa are Managing Directors of Warburg Pincus LLC and are also
directors of Broad Oak Energy, Inc. (“Broad Oak”) from whom we buy natural gas
and NGL products. Affiliates of Warburg Pincus LLC own a controlling interest in
Broad Oak. During the three months ended March 31, 2009 and 2008 we purchased
$1.4 million and less than $0.1 million of product from Broad Oak.





Relationship
with Bank of America/Merrill Lynch





Bank of
America Corp. (“BofA”) acquired Merrill Lynch & Co. (“Merrill Lynch”) on
January 1, 2009. An affiliate of Merrill Lynch is an equity investor in Targa
Investments.





Financial Services.BofA and
an affiliate of Merrill Lynch are lenders under our senior secured credit
facilities. Additionally, BofA is a lender and an administrative agent under the
Partnership’s senior secured credit facility.





Commodity Hedges.We have
entered into various commodity derivative transactions with Merrill Lynch
Commodities Inc. (“MLCI”), an affiliate of Merrill Lynch. The following table
shows our open commodity derivatives with MLCI as of March 31,
2009:




Period
                            
                            Commodity
                            
                            Daily Volumes
                            
                            Average Price
                            
                            IndexApr
      2009 - Dec 2009
                            
                            Natural
      gas
                            
                            
                            21,918
                            
                            MMBtu
                            
                            $
                            6.62
                            
                            per
      MMBtu
                            
                            IF-WahaApr
      2009 - Dec 2009
                            
                            NGL
                            
                            
                            2,847
                            
                            Bbl
                            
                            
                            31.00
                            
                            per
      gallon
                            
                            OPIS-MB








As of
March 31, 2009, the fair value of these open positions was $21.2 million.
For the three months ended March 31, 2009 and 2008 we received from (paid
to) MLCI $7.1 million and ($8.0) million for amounts due under settled commodity
derivative transactions.





22
 TABLE OF CONTENTS


The
following table shows the Partnership’s open commodity derivatives with MLCI as
of March 31, 2009:





Period
                        
                        Commodity
                        
                        Daily Volumes
                        
                        Average Price
                        
                        IndexApr
      2009 - Dec 2009
                        
                        Natural
      gas
                        
                        
                        3,556
                        
                        MMBtu
                        
                        $
                        8.07
                        
                        per
      MMBtu
                        
                        IF-WahaApr
      2009 - Dec 2009
                        
                        Natural
      gas
                        
                        
                        545
                        
                        MMBtu
                        
                        
                        7.98
                        
                        per
      MMBtu
                        
                        NY-HHJan
      2010 - Dec 2010
                        
                        Natural
      gas
                        
                        
                        3,289
                        
                        MMBtu
                        
                        
                        7.39
                        
                        per
      MMBtu
                        
                        IF-WahaJan
      2010 - Jun 2010
                        
                        Natural
      gas
                        
                        
                        497
                        
                        MMBtu
                        
                        
                        8.17
                        
                        per
      MMBtu
                        
                        NY-HHApr
      2009 - Dec 2009
                        
                        NGL
                        
                        
                        3,000
                        
                        Bbl
                        
                        
                        1.18
                        
                        per
      gallon
                        
                        OPIS-MBApr
      2009 - Dec 2009
                        
                        Condensate
                        
                        
                        202
                        
                        Bbl
                        
                        
                        70.60
                        
                        per
      barrel
                        
                        NY-WTIJan
      2010 - Dec 2010
                        
                        Condensate
                        
                        
                        181
                        
                        Bbl
                        
                        
                        69.28
                        
                        per
      barrel
                        
                        NY-WTI









As of
March 31, 2009, the fair value of these Partnership open positions was
$25.1 million. For the three months ended March 31, 2009 and 2008, the
Partnership received from (paid to) MLCI $8.5 million and ($4.1) million to
settle payments due under hedge transactions.





Prior to
BofA’s acquisition of Merrill Lynch, the Partnership entered into several
interest rate derivative transactions with BofA. Open positions as of March 31,
2009 consisted of interest rate swaps and interest rate basis swaps expiring on
January 24, 2012. As of March 31, 2009, the aggregate fair value of these
positions was a liability of $2.9 million. Payments to BofA related to settled
portions were $1.0 million for the quarter ended March 31, 2009.





Commercial Relationships.During the three months ended March 31, 2009 and 2008 we had product
sales to MLCI which are included in revenues of $14.8 million and $28.0 million.
For the same periods, we had natural gas and NGL product purchases of $0.6
million and $1.6 million from MLCI.





Transactions
with Unconsolidated Affiliates





For the
periods indicated, related-party transactions included in our statements of
operations were as follows:




Three
      Months Ended March 31,2009
                
                
                2008(In
      thousands)Included in revenuesGCF
                
                $
                92
                
                
                $
                35VESCO
      (1)
                
                
                -
                
                
                
                664$
                92
                
                
                $
                699Included in costs and
    expensesGCF
                
                $
                1,206
                
                
                $
                1,341VESCO
      (1)
                
                
                -
                
                
                
                47,231$
                1,206
                
                
                $
                48,572








(1)
            Subsequent
      to July 31, 2008, VESCO is consolidated in our results of operations and
      all intercompany transactions have been
  eliminated.


23
 TABLE OF CONTENTS


Note 15—Segment
      Information




We
categorize the midstream natural gas industry into, and describe our business
in, two divisions: (i) Natural Gas Gathering and Processing (also a
segment) and (ii) NGL Logistics and Marketing. Our NGL Logistics and
Marketing division consists of three segments: (a) Logistics Assets,
(b) NGL Distribution and Marketing and (c) Wholesale
Marketing.




Our
Natural Gas Gathering and Processing segment includes assets used in the
gathering of natural gas produced from oil and gas wells and processing this raw
natural gas into merchantable natural gas by extracting natural gas liquids and
removing impurities. These assets are located in North Texas, Louisiana and the
Permian Basin of West Texas and Southeast New Mexico. We are also party to
natural gas processing agreements with third party plants.




Our
Logistics Assets segment is involved with gathering and storing mixed NGLs and
fractionating, storing, and transporting finished NGLs. These assets are
generally connected to and supplied, in part, by our Natural Gas Gathering and
Processing segment and are predominantly located in Mont Belvieu, Texas and
Western Louisiana.




Our NGL
Distribution and Marketing segment markets our own natural gas liquids
production and purchased natural gas liquids products in selected United States
markets.




Our
Wholesale Marketing segment includes our refinery services business and
wholesale propane marketing operations. In our refinery services business, we
provide LPG (liquefied petroleum gas) balancing services, purchase natural gas
liquids products from refinery customers and sell natural gas liquids products
to various customers. Our wholesale propane marketing operations include the
sale of propane and related logistics services to multi-state retailers,
independent retailers and other end-users. Wholesale Marketing operates
principally in the United States, and has a small marketing presence in
Canada.




The
“Eliminations and Other” column in the following tables includes amounts related
to general and administrative expenses not allocated to segment operations,
corporate development, interest expense, income tax expense, and the
depreciation and cost of equipment used in our headquarters office.
“Eliminations and Other” also includes the elimination of intersegment revenues
and expenses.


24
 TABLE OF CONTENTS


Our reportable segment
information is shown in the following tables.





Three Months Ended March 31,
      2009Natural Gas Gathering and
      Processing
                
                
                Logistics Assets
                
                
                NGL Distribution
                  and Marketing
                
                
                Wholesale Marketing
                
                
                Eliminations and Other
                
                
                Total(In
      thousands)Revenues
                
                $
                247,039
                
                
                $
                21,786
                
                
                $
                467,357
                
                
                $
                265,709
                
                
                $
                -
                
                
                $
                1,001,891Intersegment
      revenues
                
                
                190,985
                
                
                
                22,634
                
                
                
                120,403
                
                
                
                22,965
                
                
                
                (356,987
                )
                
                
                -Revenues
                
                
                438,024
                
                
                
                44,420
                
                
                
                587,760
                
                
                
                288,674
                
                
                
                (356,987
                )
                
                
                1,001,891Product
      purchases
                
                
                335,372
                
                
                
                -
                
                
                
                349,781
                
                
                
                160,845
                
                
                
                -
                
                
                
                845,998Intersegment
      product purchases
                
                
                4,498
                
                
                
                -
                
                
                
                223,131
                
                
                
                123,489
                
                
                
                (351,118
                )
                
                
                -Product
      purchases
                
                
                339,870
                
                
                
                -
                
                
                
                572,912
                
                
                
                284,334
                
                
                
                (351,118
                )
                
                
                845,998Operating
      expenses
                
                
                34,868
                
                
                
                29,776
                
                
                
                299
                
                
                
                11
                
                
                
                -
                
                
                
                64,954Intersegment
      operating expenses
                
                
                198
                
                
                
                5,671
                
                
                
                -
                
                
                
                -
                
                
                
                (5,869
                )
                
                
                -Operating
      expenses
                
                
                35,066
                
                
                
                35,447
                
                
                
                299
                
                
                
                11
                
                
                
                (5,869
                )
                
                
                64,954Operating
      margin
                
                $
                63,088
                
                
                $
                8,973
                
                
                $
                14,549
                
                
                $
                4,329
                
                
                $
                -
                
                
                $
                90,939Equity
      in earnings of unconsolidated investments
                
                $
                -
                
                
                $
                121
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                121Unconsolidated
      investments
                
                $
                -
                
                
                $
                18,586
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                18,586Capital
      expenditures
                
                $
                17,475
                
                
                $
                4,719
                
                
                $
                -
                
                
                $
                -
                
                
                $
                689
                
                
                $
                22,883








Three Months Ended March 31,
      2008Natural Gas Gathering and
      Processing
                
                
                Logistics Assets
                
                
                NGL Distribution and
    Marketing
                
                
                Wholesale Marketing
                
                
                Eliminations and Other
                
                
                Total(In
      thousands)Revenues
                
                $
                439,201
                
                
                $
                20,818
                
                
                $
                1,219,113
                
                
                $
                523,261
                
                
                $
                -
                
                
                $
                2,202,393Intersegment
      revenues
                
                
                434,033
                
                
                
                30,336
                
                
                
                200,504
                
                
                
                20,086
                
                
                
                (684,959
                )
                
                
                -Revenues
                
                
                873,234
                
                
                
                51,154
                
                
                
                1,419,617
                
                
                
                543,347
                
                
                
                (684,959
                )
                
                
                2,202,393Product
      purchases
                
                
                724,045
                
                
                
                -
                
                
                
                944,386
                
                
                
                333,010
                
                
                
                -
                
                
                
                2,001,441Intersegment
      product purchases
                
                
                6,419
                
                
                
                -
                
                
                
                466,429
                
                
                
                200,732
                
                
                
                (673,580
                )
                
                
                -Product
      purchases
                
                
                730,464
                
                
                
                -
                
                
                
                1,410,815
                
                
                
                533,742
                
                
                
                (673,580
                )
                
                
                2,001,441Operating
      expenses
                
                
                30,020
                
                
                
                33,048
                
                
                
                499
                
                
                
                11
                
                
                
                -
                
                
                
                63,578Intersegment
      operating expenses
                
                
                148
                
                
                
                11,231
                
                
                
                -
                
                
                
                -
                
                
                
                (11,379
                )
                
                
                -Operating
      expenses
                
                
                30,168
                
                
                
                44,279
                
                
                
                499
                
                
                
                11
                
                
                
                (11,379
                )
                
                
                63,578Operating
      margin
                
                $
                112,602
                
                
                $
                6,875
                
                
                $
                8,303
                
                
                $
                9,594
                
                
                $
                -
                
                
                $
                137,374Equity
      in earnings of unconsolidated investments
                
                $
                2,375
                
                
                $
                1,084
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                3,459Unconsolidated
      investments
                
                $
                31,142
                
                
                $
                19,547
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                50,689Capital
      expenditures
                
                $
                16,290
                
                
                $
                5,920
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,059
                
                
                $
                23,269





25
 TABLE OF CONTENTS


The
following table is a reconciliation of operating margin to net income for each
of the periods presented:


Three Months Ended March
31,2009
                
                
                2008(In
      thousands)Reconciliation
      of operating margin to net incomeattributable
      to Targa Resources, Inc.:Operating
      margin
                
                $
                90,939
                
                
                $
                137,374Net
      (income) loss attibutable to noncontrolling interests
                
                
                1,639
                
                
                
                (26,884
                )Depreciation
      and amortization expense
                
                
                (41,600
                )
                
                
                (38,192
                )General
      and administrative expense
                
                
                (23,853
                )
                
                
                (24,093
                )Interest
      expense, net
                
                
                (25,702
                )
                
                
                (25,585
                )Income
      tax benefit (expense)
                
                
                71
                
                
                
                (12,106
                )Other,
      net
                
                
                1,097
                
                
                
                7,902Net
      income attributable to Targa Resources, Inc.
                
                $
                2,591
                
                
                $
                18,416










Note
16—Sale of Bankruptcy Claim





In 2008,
we terminated certain derivative contracts with Lehman Brothers Commodity
Services, Inc. and filed a claim with the United States bankruptcy court. During
the first quarter, we sold our claim for $1.0 million and recognized the
proceeds as other income in our consolidated statement of operations. The income
recognized comprises $0.3 million in claims sold by us and $0.7 million in
claims sold by the Partnership.




Note 17—Consolidating
Financial Statements




We are
the issuer of the notes discussed in Note 10 to the financial statements of
our Annual Report on Form 10-K for the year ended December 31, 2008.
The notes are jointly and severally, irrevocably and unconditionally guaranteed
by our wholly owned subsidiaries (referred to as “Guarantor
Subsidiaries”).




The
following financial information presents condensed consolidating financial
statements, which include:




•
            The
      Parent company only (“Parent”);




•
            The
      Guarantor Subsidiaries on a consolidated
basis;




•
            Non-wholly
      owned and foreign subsidiaries (referred to as “Non-Guarantor
      Subsidiaries”);




•
            Elimination
      entries necessary to consolidate the Parent, the Guarantor Subsidiaries,
      and the Non-Guarantor
Subsidiaries; and




•
            The
      Company on a consolidated basis.




26
 TABLE OF CONTENTS





Targa
      Resources, Inc.Condensed
      Consolidating Balance SheetMarch
      31, 2009(In
      thousands)Parent
                
                
                Guarantor Subsidiaries
                
                
                Non-Guarantor Subsidiaries
                
                
                Intercompany Eliminations
                
                
                ConsolidatedAssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                -
                
                
                $
                264,023
                
                
                $
                106,260
                
                
                $
                -
                
                
                $
                370,283Trade
      receivables and other current assets
                
                
                260
                
                
                
                271,261
                
                
                
                142,066
                
                
                
                -
                
                
                
                413,587Total
      current assets
                
                
                260
                
                
                
                535,284
                
                
                
                248,326
                
                
                
                -
                
                
                
                783,870Property,
      plant, and equipment, at cost
                
                
                -
                
                
                
                862,103
                
                
                
                2,262,759
                
                
                
                -
                
                
                
                3,124,862Accumulated
      depreciation
                
                
                -
                
                
                
                44,840
                
                
                
                (562,210
                )
                
                
                -
                
                
                
                (517,370
                )Property,
      plant, and equipment, net
                
                
                -
                
                
                
                906,943
                
                
                
                1,700,549
                
                
                
                -
                
                
                
                2,607,492Investment
      in subsidiaries
                
                
                (195,526
                )
                
                
                288,493
                
                
                
                -
                
                
                
                (92,967
                )
                
                
                -Advance
      to (from) subsidiaries
                
                
                (99,532
                )
                
                
                36,997
                
                
                
                62,535
                
                
                
                -
                
                
                
                -Other
      assets
                
                
                44,322
                
                
                
                57,530
                
                
                
                79,310
                
                
                
                -
                
                
                
                181,162Total
      assets
                
                $
                (250,476
                )
                
                $
                1,825,247
                
                
                $
                2,090,720
                
                
                $
                (92,967
                )
                
                $
                3,572,524Liabilities
      and stockholder's equityCurrent
      liabilities:Accounts
      payable and other liabilities
                
                $
                38,654
                
                
                $
                200,058
                
                
                $
                133,042
                
                
                $
                -
                
                
                $
                371,754Current
      maturities of debt
                
                
                12,500
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                12,500Total
      current liabilities
                
                
                51,154
                
                
                
                200,058
                
                
                
                133,042
                
                
                
                -
                
                
                
                384,254Long-term
      liabilities:Long-term
      debt, net of current maturities
                
                
                (938,166
                )
                
                
                1,790,636
                
                
                
                696,845
                
                
                
                -
                
                
                
                1,549,315Other
      long-term obligations
                
                
                47,451
                
                
                
                30,079
                
                
                
                44,972
                
                
                
                -
                
                
                
                122,502Total
      long-term liabilities
                
                
                (890,715
                )
                
                
                1,820,715
                
                
                
                741,817
                
                
                
                -
                
                
                
                1,671,817Total
      Targa Resources, Inc.'s stockholder's equity
                
                
                589,085
                
                
                
                (195,526
                )
                
                
                288,493
                
                
                
                (92,967
                )
                
                
                589,085Noncontrolling
      interests in subsidiaries
                
                
                -
                
                
                
                -
                
                
                
                927,368
                
                
                
                -
                
                
                
                927,368Total
      stockholders' equity
                
                
                589,085
                
                
                
                (195,526
                )
                
                
                1,215,861
                
                
                
                (92,967
                )
                
                
                1,516,453Total
      liabilities and stockholders' equity
                
                $
                (250,476
                )
                
                $
                1,825,247
                
                
                $
                2,090,720
                
                
                $
                (92,967
                )
                
                $
                3,572,524








27
 TABLE OF CONTENTS





Targa
      Resources, Inc.Condensed
      Consolidating Balance SheetDecember
      31, 2008(In
      thousands)Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-Guarantor
                  Subsidiaries
                
                
                Intercompany
                  Eliminations
                
                
                ConsolidatedAssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                -
                
                
                $
                219,620
                
                
                $
                143,149
                
                
                $
                -
                
                
                $
                362,769Trade
      receivables and other current assets
                
                
                298
                
                
                
                328,517
                
                
                
                165,564
                
                
                
                -
                
                
                
                494,379Total
      current assets
                
                
                298
                
                
                
                548,137
                
                
                
                308,713
                
                
                
                -
                
                
                
                857,148Property,
      plant, and equipment, at cost
                
                
                -
                
                
                
                837,268
                
                
                
                2,255,996
                
                
                
                -
                
                
                
                3,093,264Accumulated
      depreciation
                
                
                -
                
                
                
                58,095
                
                
                
                (533,990
                )
                
                
                -
                
                
                
                (475,895
                )Property,
      plant, and equipment, net
                
                
                -
                
                
                
                895,363
                
                
                
                1,722,006
                
                
                
                -
                
                
                
                2,617,369Unconsolidated
      investments
                
                
                -
                
                
                
                18,465
                
                
                
                -
                
                
                
                -
                
                
                
                18,465Investment
      in subsidiaries
                
                
                (193,993
                )
                
                
                307,175
                
                
                
                -
                
                
                
                (113,182
                )
                
                
                -Advances
      to (from) subsidiaries
                
                
                (177,700
                )
                
                
                131,971
                
                
                
                45,729
                
                
                
                -
                
                
                
                -Other
      assets
                
                
                146,950
                
                
                
                (75,141
                )
                
                
                83,786
                
                
                
                -
                
                
                
                155,595Total
      assets
                
                $
                (224,445
                )
                
                $
                1,825,970
                
                
                $
                2,160,234
                
                
                $
                (113,182
                )
                
                $
                3,648,577Liabilities
      and stockholders' equityCurrent
      liabilities:Accounts
      payable and other liabilities
                
                $
                50,735
                
                
                $
                239,929
                
                
                $
                164,380
                
                
                $
                -
                
                
                $
                455,044Current
      maturities of debt
                
                
                12,500
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                12,500Total
      current liabilities
                
                
                63,235
                
                
                
                239,929
                
                
                
                164,380
                
                
                
                -
                
                
                
                467,544Long-term
      debt, net of current maturities
                
                
                (900,976
                )
                
                
                1,756,571
                
                
                
                696,845
                
                
                
                -
                
                
                
                1,552,440Other
      long-term obligations
                
                
                33,655
                
                
                
                23,463
                
                
                
                42,226
                
                
                
                -
                
                
                
                99,344Total
      long-term liabilities
                
                
                (867,321
                )
                
                
                1,780,034
                
                
                
                739,071
                
                
                
                -
                
                
                
                1,651,784Total
      Targa Resources, Inc.'s stockholder's equity
                
                
                579,641
                
                
                
                (193,993
                )
                
                
                307,175
                
                
                
                (113,182
                )
                
                
                579,641Noncontrolling
      interests in subsidiaries
                
                
                -
                
                
                
                -
                
                
                
                949,608
                
                
                
                -
                
                
                
                949,608Total
      stockholders' equity
                
                
                579,641
                
                
                
                (193,993
                )
                
                
                1,256,783
                
                
                
                (113,182
                )
                
                
                1,529,249Total
      liabilities and stockholders' equity
                
                $
                (224,445
                )
                
                $
                1,825,970
                
                
                $
                2,160,234
                
                
                $
                (113,182
                )
                
                $
                3,648,577





28
 TABLE OF CONTENTS





Targa
      Resources, Inc.Condensed
      Consolidating Statement of OperationsThree
      Months Ended March 31, 2009(In
      thousands)Parent
                  
                  
                  Guarantor Subsidiaries
                  
                  
                  Non-Guarantor Subsidiaries
                  
                  
                  Intercompany Eliminations
                  
                  
                  ConsolidatedRevenues
                  
                  $
                  -
                  
                  
                  $
                  919,522
                  
                  
                  $
                  355,756
                  
                  
                  $
                  (273,387
                  )
                  
                  $
                  1,001,891Operating
      costs and expenses:Product
      purchases
                  
                  
                  -
                  
                  
                  
                  841,730
                  
                  
                  
                  268,222
                  
                  
                  
                  (263,954
                  )
                  
                  
                  845,998Operating
      expenses
                  
                  
                  -
                  
                  
                  
                  29,087
                  
                  
                  
                  45,300
                  
                  
                  
                  (9,433
                  )
                  
                  
                  64,954Depreciation
      and amortization expense
                  
                  
                  -
                  
                  
                  
                  13,310
                  
                  
                  
                  28,290
                  
                  
                  
                  -
                  
                  
                  
                  41,600General
      and administrative and other
                  
                  
                  86
                  
                  
                  
                  18,377
                  
                  
                  
                  5,377
                  
                  
                  
                  -
                  
                  
                  
                  23,84086
                  
                  
                  
                  902,504
                  
                  
                  
                  347,189
                  
                  
                  
                  (273,387
                  )
                  
                  
                  976,392Income
      (loss) from operations
                  
                  
                  (86
                  )
                  
                  
                  17,018
                  
                  
                  
                  8,567
                  
                  
                  
                  -
                  
                  
                  
                  25,499Other
      income (expense):Interest
      income (expense), net
                  
                  
                  17,549
                  
                  
                  
                  (33,389
                  )
                  
                  
                  (9,862
                  )
                  
                  
                  -
                  
                  
                  
                  (25,702
                  )Equity
      in earnings of unconsolidated investments
                  
                  
                  -
                  
                  
                  
                  121
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  121Equity
      in earnings of subsidiaries
                  
                  
                  (14,943
                  )
                  
                  
                  1,071
                  
                  
                  
                  -
                  
                  
                  
                  13,872
                  
                  
                  
                  -Other
      income (expense)
                  
                  
                  -
                  
                  
                  
                  236
                  
                  
                  
                  727
                  
                  
                  
                  -
                  
                  
                  
                  963Income
      (loss) before income taxes
                  
                  
                  2,520
                  
                  
                  
                  (14,943
                  )
                  
                  
                  (568
                  )
                  
                  
                  13,872
                  
                  
                  
                  881Income
      tax benefit
                  
                  
                  71
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  71Net
      income (loss)
                  
                  
                  2,591
                  
                  
                  
                  (14,943
                  )
                  
                  
                  (568
                  )
                  
                  
                  13,872
                  
                  
                  
                  952Net
      loss attributable to noncontrolling interests
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,639
                  )
                  
                  
                  -
                  
                  
                  
                  (1,639
                  )Net
      income (loss) attributable to Targa Resources, Inc.
                  
                  $
                  2,591
                  
                  
                  $
                  (14,943
                  )
                  
                  $
                  1,071
                  
                  
                  $
                  13,872
                  
                  
                  $
                  2,591




Targa
      Resources, Inc.Condensed
      Consolidating Statement of OperationsThree
      Months Ended March 31, 2008(In
      thousands)Parent
                
                
                Guarantor Subsidiaries
                
                
                Non-Guarantor Subsidiaries
                
                
                Intercompany Eliminations
                
                
                ConsolidatedRevenues:
                
                $
                -
                
                
                $
                2,018,510
                
                
                $
                704,761
                
                
                $
                (520,878
                )
                
                $
                2,202,393Operating
      costs and expenses:Product
      purchases
                
                
                -
                
                
                
                1,936,502
                
                
                
                571,893
                
                
                
                (506,954
                )
                
                
                2,001,441Operating
      expenses
                
                
                -
                
                
                
                34,962
                
                
                
                42,540
                
                
                
                (13,924
                )
                
                
                63,578Depreciation
      and amortization expense
                
                
                -
                
                
                
                12,558
                
                
                
                25,634
                
                
                
                -
                
                
                
                38,192General
      and administrative and other
                
                
                -
                
                
                
                14,762
                
                
                
                4,888
                
                
                
                -
                
                
                
                19,650-
                
                
                
                1,998,784
                
                
                
                644,955
                
                
                
                (520,878
                )
                
                
                2,122,861Income
      from operations
                
                
                -
                
                
                
                19,726
                
                
                
                59,806
                
                
                
                -
                
                
                
                79,532Other
      income (expense):Interest
      income (expense), net
                
                
                8,976
                
                
                
                (26,089
                )
                
                
                (8,472
                )
                
                
                -
                
                
                
                (25,585
                )Equity
      in earnings of unconsolidated investments
                
                
                -
                
                
                
                3,459
                
                
                
                -
                
                
                
                -
                
                
                
                3,459Equity
      in earnings of subsidiaries
                
                
                21,399
                
                
                
                24,113
                
                
                
                -
                
                
                
                (45,512
                )
                
                
                -Income
      before income taxes
                
                
                30,375
                
                
                
                21,209
                
                
                
                51,334
                
                
                
                (45,512
                )
                
                
                57,406Income
      tax (expense) benefit
                
                
                (11,959
                )
                
                
                190
                
                
                
                (337
                )
                
                
                -
                
                
                
                (12,106
                )Net
      income
                
                
                18,416
                
                
                
                21,399
                
                
                
                50,997
                
                
                
                (45,512
                )
                
                
                45,300Less:
      Net income attibutable to noncontrolling interests
                
                
                -
                
                
                
                -
                
                
                
                26,884
                
                
                
                -
                
                
                
                26,884Net
      income attributable to Targa Resources, Inc.
                
                $
                18,416
                
                
                $
                21,399
                
                
                $
                24,113
                
                
                $
                (45,512
                )
                
                $
                18,416








29
 TABLE OF CONTENTS





Targa
      Resources, Inc.Condensed
      Consolidating Statement of Cash FlowsThree
      Months Ended March 31, 2009(In
      thousands)Parent
                
                
                Guarantor Subsidiaries
                
                
                Non-Guarantor Subsidiaries
                
                
                Intercompany Eliminations
                
                
                ConsolidatedCash
      flows from operating activitiesNet
      income (loss)
                
                $
                2,591
                
                
                $
                (14,943
                )
                
                $
                (568
                )
                
                $
                13,872
                
                
                $
                952Adjustments
      to reconcile net income (loss) to net cashprovided
      by (used in) operating activities:Depreciation,
      amortization and accretion
                
                
                1,153
                
                
                
                13,128
                
                
                
                29,470
                
                
                
                -
                
                
                
                43,751Deferred
      income taxes
                
                
                (73
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (73
                )Earnings
      (loss) from unconsolidated investments, net of
    distributions
                
                
                -
                
                
                
                (121
                )
                
                
                -
                
                
                
                -
                
                
                
                (121
                )Equity
      in earnings of subsidiaries
                
                
                14,943
                
                
                
                (1,071
                )
                
                
                -
                
                
                
                (13,872
                )
                
                
                -Other
                
                
                -
                
                
                
                (5,976
                )
                
                
                23,242
                
                
                
                -
                
                
                
                17,266Changes
      in operating assets and liabilities:Accounts
      receivable and other assets
                
                
                (127
                )
                
                
                19,647
                
                
                
                24,142
                
                
                
                -
                
                
                
                43,662Inventory
                
                
                -
                
                
                
                34,790
                
                
                
                (1,719
                )
                
                
                -
                
                
                
                33,071Accounts
      payable and other liabilities
                
                
                (4,637
                )
                
                
                (35,599
                )
                
                
                (24,322
                )
                
                
                -
                
                
                
                (64,558
                )Net
      cash provided by operating activities
                
                
                13,850
                
                
                
                9,855
                
                
                
                50,245
                
                
                
                -
                
                
                
                73,950Cash
      flows from investing activitiesPurchases
      of property and equipment
                
                
                -
                
                
                
                (12,310
                )
                
                
                (18,896
                )
                
                
                -
                
                
                
                (31,206
                )Other
                
                
                -
                
                
                
                (6,713
                )
                
                
                7
                
                
                
                -
                
                
                
                (6,706
                )Net
      cash used in investing activities
                
                
                -
                
                
                
                (19,023
                )
                
                
                (18,889
                )
                
                
                -
                
                
                
                (37,912
                )Cash
      flows from financing activitiesRepayments
      of debt
                
                
                (3,125
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (3,125
                )Distributions
      to noncontrolling interests
                
                
                -
                
                
                
                -
                
                
                
                (26,508
                )
                
                
                -
                
                
                
                (26,508
                )Contribution
      from noncontrolling interest
                
                
                -
                
                
                
                -
                
                
                
                1,072
                
                
                
                -
                
                
                
                1,072Receipts
      from (payments to) subsidiaries
                
                
                (10,725
                )
                
                
                53,571
                
                
                
                (42,809
                )
                
                
                -
                
                
                
                37Net
      cash provided by (used in) financing activities
                
                
                (13,850
                )
                
                
                53,571
                
                
                
                (68,245
                )
                
                
                -
                
                
                
                (28,524
                )Net
      increase (decrease) in cash and cash equivalents
                
                
                -
                
                
                
                44,403
                
                
                
                (36,889
                )
                
                
                -
                
                
                
                7,514Cash
      and cash equivalents, beginning of period
                
                
                -
                
                
                
                219,620
                
                
                
                143,149
                
                
                
                -
                
                
                
                362,769Cash
      and cash equivalents, end of period
                
                $
                -
                
                
                $
                264,023
                
                
                $
                106,260
                
                
                $
                -
                
                
                $
                370,283





30
 TABLE OF CONTENTS





Targa
      Resources, Inc.Condensed
      Consolidating Statement of Cash FlowsThree
      Months Ended March 31, 2008(In
      thousands)Parent
                    
                    
                    Guarantor Subsidiaries
                    
                    
                    Non-Guarantor Subsidiaries
                    
                    
                    Intercompany Eliminations
                    
                    
                    ConsolidatedCash
      flows from operating activitiesNet
      income (loss)
                    
                    $
                    18,416
                    
                    
                    $
                    21,399
                    
                    
                    $
                    50,997
                    
                    
                    $
                    (45,512
                    )
                    
                    $
                    45,300Adjustments
      to reconcile net income (loss) to net cashprovided
      by (used in)operating activities:Depreciation,
      amortization and accretion
                    
                    
                    2,047
                    
                    
                    
                    12,697
                    
                    
                    
                    26,237
                    
                    
                    
                    -
                    
                    
                    
                    40,981Deferred
      income taxes
                    
                    
                    10,807
                    
                    
                    
                    -
                    
                    
                    
                    337
                    
                    
                    
                    -
                    
                    
                    
                    11,144Earnings
      (loss) from unconsolidated investments, net of
    distributions
                    
                    
                    -
                    
                    
                    
                    (2,684
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,684
                    )Equity
      in earnings (losses) of subsidiaries
                    
                    
                    (21,399
                    )
                    
                    
                    (24,113
                    )
                    
                    
                    -
                    
                    
                    
                    45,512
                    
                    
                    
                    -Other
                    
                    
                    -
                    
                    
                    
                    (14,119
                    )
                    
                    
                    7,496
                    
                    
                    
                    -
                    
                    
                    
                    (6,623
                    )Changes
      in operating assets and liabilities:Accounts
      receivable and other assets
                    
                    
                    (27
                    )
                    
                    
                    227,943
                    
                    
                    
                    (18,200
                    )
                    
                    
                    -
                    
                    
                    
                    209,716Inventory
                    
                    
                    -
                    
                    
                    
                    64,396
                    
                    
                    
                    (1,233
                    )
                    
                    
                    -
                    
                    
                    
                    63,163Accounts
      payable and other liabilities
                    
                    
                    (19,626
                    )
                    
                    
                    (138,546
                    )
                    
                    
                    36,995
                    
                    
                    
                    -
                    
                    
                    
                    (121,177
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    (9,782
                    )
                    
                    
                    146,973
                    
                    
                    
                    102,629
                    
                    
                    
                    -
                    
                    
                    
                    239,820Cash
      flows from investing activitiesPurchases
      of property and equipment
                    
                    
                    -
                    
                    
                    
                    (7,316
                    )
                    
                    
                    (15,953
                    )
                    
                    
                    -
                    
                    
                    
                    (23,269
                    )Other
                    
                    
                    -
                    
                    
                    
                    7,760
                    
                    
                    
                    342
                    
                    
                    
                    -
                    
                    
                    
                    8,102Net
      cash used in investing activities
                    
                    
                    -
                    
                    
                    
                    444
                    
                    
                    
                    (15,611
                    )
                    
                    
                    -
                    
                    
                    
                    (15,167
                    )Cash
      flows from financing activitiesDebt
      Repayments
                    
                    
                    (3,125
                    )
                    
                    
                    -
                    
                    
                    
                    (50,000
                    )
                    
                    
                    -
                    
                    
                    
                    (53,125
                    )Distribution
      to Targa Resources Investments Inc.
                    
                    
                    (52,891
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (52,891
                    )Distributions
      to noncontrolling interests
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (17,838
                    )
                    
                    
                    -
                    
                    
                    
                    (17,838
                    )Receipts
      from (payments to) subsidiaries
                    
                    
                    65,798
                    
                    
                    
                    (14,719
                    )
                    
                    
                    (51,079
                    )
                    
                    
                    -
                    
                    
                    
                    -Net
      cash provided by (used in) financing activities
                    
                    
                    9,782
                    
                    
                    
                    (14,719
                    )
                    
                    
                    (118,917
                    )
                    
                    
                    -
                    
                    
                    
                    (123,854
                    )8Net
      increase in cash and cash equivalents
                    
                    
                    -
                    
                    
                    
                    132,698
                    
                    
                    
                    (31,899
                    )
                    
                    
                    -
                    
                    
                    
                    100,799Cash
      and cash equivalents, beginning of period
                    
                    
                    -
                    
                    
                    
                    88,303
                    
                    
                    
                    89,646
                    
                    
                    
                    -
                    
                    
                    
                    177,949Cash
      and cash equivalents, end of period
                    
                    $
                    -
                    
                    
                    $
                    221,001
                    
                    
                    $
                    57,747
                    
                    
                    $
                    -
                    
                    
                    $
                    278,748





31
 TABLE OF CONTENTS


Item2.                      Management’s
Discussion and Analysis of Financial Condition and Results of
Operations




The
following discussion analyzes our financial condition and results of operations.
You should read the following discussion of our financial condition and results
of operations in conjunction with our consolidated financial statements and
notes included elsewhere in this Quarterly Report on Form 10-Q and in our
consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2008.




Overview




We are a
Delaware corporation formed in 2004 by our management team and Warburg Pincus
LLC to acquire, own and operate assets in the midstream natural gas
business.




Our
gathering and processing assets are located primarily in the Permian Basin in
West Texas and Southeast New Mexico, the Louisiana Gulf Coast primarily
accessing the offshore region of Louisiana, and, through the Partnership, the
Fort Worth Basin in North Texas, the Permian Basin in West Texas and the onshore
region of the Louisiana Gulf Coast. Our NGL logistics and marketing assets are
located primarily at Mont Belvieu and Galena Park near Houston, Texas and in
Lake Charles, Louisiana, with terminals and transportation assets across the
United States.




We
conduct our business operations through two divisions and report our results of
operations under four segments: Our Natural Gas Gathering and Processing
division, which includes the Partnership, is a single segment consisting of our
natural gas gathering and processing facilities, as well as certain
fractionation capability integrated within those facilities; and the NGL
Logistics and Marketing division, which consists of three segments: Logistics
Assets, NGL Distribution and Marketing and Wholesale Marketing.




Recently
Issued Pronouncements




See Note
2 of the Notes to Consolidated Financial Statements included in Item 1 of this
Quarterly Report.


32
 TABLE OF CONTENTS




Results
of Operations




The
following table and discussion relate to the three months ended March 31,
2009 and 2008 and is a summary of our results of operations for the periods then
ended:


Three Months Ended March
31,2009
                
                
                2008(In
      millions, except operating and price data)Revenues
      (1)
                
                $
                1,001.9
                
                
                $
                2,202.4Product
      purchases
                
                
                846.0
                
                
                
                2,001.4Operating
      expenses
                
                
                65.0
                
                
                
                63.6Depreciation
      and amortization expense
                
                
                41.6
                
                
                
                38.2General
      and administrative expense
                
                
                23.8
                
                
                
                24.1Gain
      on sales of assets
                
                
                -
                
                
                
                (4.4
                )Income
      from operations
                
                
                25.5
                
                
                
                79.5Interest
      expense, net
                
                
                (25.7
                )
                
                
                (25.6
                )Equity
      in earnings of unconsolidated investments
                
                
                0.1
                
                
                
                3.5Other
                
                
                1.0
                
                
                
                -Income
      tax (expense) benefit
                
                
                0.1
                
                
                
                (12.1
                )Net
      income
                
                
                1.0
                
                
                
                45.3Less:
      Net income (loss) attibutable to noncontrolling interests
                
                
                (1.6
                )
                
                
                26.9Net
      income attributable to Targa Resources, Inc.
                
                $
                2.6
                
                
                $
                18.4Financial
      data:Operating
      margin (2)
                
                $
                90.9
                
                
                $
                137.4Adjusted
      EBITDA (3)
                
                
                87.1
                
                
                
                91.9Operating
      statistics:Gathering
      throughput  MMcf/d (4)
                
                
                1,960.6
                
                
                
                2,181.4Plant
      natural gas inlet, MMcf/d (5) (6)
                
                
                1,916.9
                
                
                
                2,143.1Gross
      NGL production, MBbl/d
                
                
                109.4
                
                
                
                104.7Natural
      gas sales, BBtu/d (6)
                
                
                518.2
                
                
                
                533.0NGL
      sales, MBbl/d
                
                
                298.7
                
                
                
                317.5Condensate
      sales, MBbl/d
                
                
                4.3
                
                
                
                3.6Average
      realized prices:Natural
      gas, $/MMBtu
                
                
                4.48
                
                
                
                7.91NGL,
      $/gal
                
                
                0.66
                
                
                
                1.45Condensate,
      $/Bbl
                
                
                39.44
                
                
                
                93.36








(1)
            Includes
      business interruption insurance revenue of $1.7 million for the three
      months ended March 31, 2009.


(2)
            Operating
      margin is revenues less product purchases and operating expense. See
      “Non-GAAP Financial Measures—Operating Margin” included in this Item
      2.


(3)
            Adjusted
      EBITDA is net income before interest, income taxes, depreciation and
      amortization and non-cash income or loss related to derivative
      instruments. See “—Non-GAAP Financial
  Measures.”


(4)
            Gathering
      throughput represents the volume of natural gas gathered and passed
      through natural gas gathering pipelines from connections to producing
      wells and central delivery points.


(5)
            Plant
      natural gas inlet represents the volume of natural gas passing through the
      meter located at the inlet of a natural gas processing
    plant.


(6)
            Plant
      natural gas inlet volumes include producer take-in-kind volumes, while
      natural gas sales exclude producer take-in-kind
  volumes.


33
 TABLE OF CONTENTS


Three
      Months Ended March 31, 2009 Compared to Three Months Ended
      March 31, 2008




Revenues
decreased by $1,200.5 million, or 55%, to $1,001.9 million for the three months
ended March 31, 2009 compared to $2,202.4 million for the three months
ended March 31, 2008. Revenues from the sale of natural gas decreased by
$174.1 million, consisting of a decrease of $159.4 million due to lower realized
prices and a decrease of $14.7 million due to lower sales volumes. Revenues from
the sale of NGLs decreased by $1,015.1 million, consisting of a decrease of
$893.0 million due to lower realized prices and a decrease of $122.1 million due
to lower sales volumes. Revenues from the sale of condensate decreased by $15.6
million, consisting of a decrease of $21.1 million due to lower realized prices,
partially offset by an increase of $5.5 million due to higher sales volumes.
Other revenues, which includes revenues principally derived from fee-based
services, increased by $4.3 million.




Our
average realized prices for natural gas decreased by $3.43 per MMBtu, or 43%, to
$4.48 per MMBtu for the three months ended March 31, 2009 compared to $7.91
per MMBtu for the three months ended March 31, 2008. Average realized
prices for NGLs decreased by $0.79 per gallon, or 54%, to $0.66 per gallon for
the three months ended March 31, 2009 compared to $1.45 per gallon for the
three months ended March 31, 2008. Our average realized price for
condensate decreased by $53.92 per Bbl, or 58%, to $39.44 per Bbl for the three
months ended March 31, 2009 compared to $93.36 per Bbl for the three months
ended March 31, 2008.




Our
natural gas sales volumes decreased by 14.8 BBtu/d, or 3%, to 518.2 BBtu/d for
the three months ended March 31, 2009 compared to 533.0 BBtu/d for the
three months ended March 31, 2008. NGL sales volumes decreased by 18.8
MBbl/d, or 6%, to 298.7 MBbl/d for the three months ended March 31, 2009
compared to 317.5 MBbl/d for the three months ended March 31, 2008.
Condensate sales volumes increased by 0.7 MBbl/d, or 19%, to 4.3 MBbl/d for the
three months ended March 31, 2009 compared to 3.6 MBbl/d for the three
months ended March 31, 2008. For information regarding the period to period
changes in our commodity sales volumes, see “—Results of Operations—By
Segment.”




Our
product purchases decreased by $1,155.4 million, or 58%, to $846.0 million for
the three months ended March 31, 2009 compared to $2,001.4 million for the
three months ended March 31, 2008. See “—Results of Operations—By Segment”
for an explanation of the components of the decrease.




Our
operating expenses increased by $1.4 million, or 2%, to $65.0 million for the
three months ended March 31, 2009 compared to $63.6 million for the three
months ended March 31, 2008. See “—Results of Operations—By Segment” for a
detailed explanation of the components of the increase.




Depreciation
and amortization expense increased by $3.4 million, or 9%, to $41.6 million for
the three months ended March 31, 2009 compared to $38.2 million for the
three months ended March 31, 2008. The increase is due to the addition of
property, plant and equipment.




General
and administrative expense decreased by $0.3 million, or 1%, to $23.8 million
for the three months ended March 31, 2009 compared to $24.1 million for the
three months ended March 31, 2008. The decrease is primarily due to a $1.8
million decrease in compensation expenses and a $0.5 million decrease in
auditing fees, partially offset by a $2.0 million increase in higher insurance
premiums.




Interest
expense increased by $0.1 million, or less than 1%, to $25.7 million for the
three months ended March 31, 2009 compared to $25.6 million for the three
months ended March 31, 2008.


34
 TABLE OF CONTENTS




Results
of Operations—By Segment




Natural
Gas Gathering and Processing Segment




The
following table provides summary financial data regarding results of operations
in our Natural Gas Gathering and Processing segment for the periods
presented:




Three Months Ended March
31,2009
                
                
                2008($
      in millions)Revenues
      (1) (2)
                
                $
                438.1
                
                
                $
                873.2Product
      purchases
                
                
                (339.9
                )
                
                
                (730.4
                )Operating
      expenses
                
                
                (35.1
                )
                
                
                (30.2
                )Operating
      margin (3)
                
                $
                63.1
                
                
                $
                112.6Equity
      in earnings of VESCO (4)
                
                $
                -
                
                
                $
                2.4Operating
      statistics: (5)Gathering
      throughput, MMcf/d
                
                
                1,960.6
                
                
                
                2,181.4Plant
      natural gas inlet, MMcf/d
                
                
                1,916.9
                
                
                
                2,143.1Gross
      NGL production, MBbl/d
                
                
                109.4
                
                
                
                104.7Natural
      gas sales, BBtu/d
                
                
                534.0
                
                
                
                550.2NGL
      sales, MBbl/d
                
                
                92.6
                
                
                
                89.6Condensate
      sales, MBbl/d
                
                
                5.0
                
                
                
                5.0Average
      realized prices:Natural
      gas, $/MMBtu
                
                
                4.48
                
                
                
                7.91NGL,
      $/gal
                
                
                0.56
                
                
                
                1.26Condensate,
      $/Bbl
                
                
                38.19
                
                
                
                85.89








(1)
            Segment
      operating statistics include the effect of intersegment sales, which have
      been eliminated from the consolidated presentation. For all volume
      statistics presented, the numerator is the total volume sold during the
      period and the denominator is the number of calendar days during the
      period.


(2)        Includes
business interruption insurance revenue of $1.2 million for the three months
ended March 31, 2009.


(3)        See
“Non-GAAP Financial Measures – Operating Margin” included in this Item
2.


(4)
            Amounts
      are through March 31, 2008. VESCO is included in our consolidated
      results effective August 1,
2008.


(5)
            Segment
      operating statistics include the effect of intersegment sales, which have
      been eliminated from the consolidated presentation. For all volume
      statistics presented, the numerator is the total volume sold during the
      quarter and the denominator is the number of calendar days during the
      quarter.





Three
      Months Ended March 31, 2009 Compared to Three Months Ended
      March 31, 2008




Revenues
decreased by $435.1 million, or 50%, to $438.1 million for the three months
ended March 31, 2009 compared to $873.2 million for the three months ended
March 31, 2008. The decrease was primarily due to lower natural gas, NGL
and condensate prices, and lower natural gas sales volumes, partially offset by
higher NGL and condensate sales volumes.




Our
average realized price for natural gas decreased by $3.43 per MMBtu, or 43%, to
$4.48 per MMBtu for the three months ended March 31, 2009 compared to $7.91
per MMBtu for the three months ended March 31, 2008. Our average realized
price for NGLs decreased by $0.70 per gallon, or 56%, to $0.56 per gallon for
the three months ended March 31, 2009 compared to $1.26 per gallon for the
three months ended March 31, 2008. Our average realized price for
condensate decreased by $47.70 per Bbl, or 56%, to $38.19 per Bbl for the three
months ended March 31, 2009 compared to $85.89 per barrel for the three
months ended March 31, 2008.


35
 TABLE OF CONTENTS




Our
natural gas sales volumes decreased by 16.2 BBtu/d, or 3%, to 534.0 BBtu/d for
the three months ended March 31, 2009 compared to 550.2 BBtu/d for the
three months ended March 31, 2008.  Our NGL sales volumes
increased by 3.0 MBbl/d, or 3%, to 92.6 MBbl/d for the three months ended
March 31, 2009 compared to 89.6 MBbl/d for the three months ended
March 31, 2008. Our condensate sales volumes were unchanged at 5.0 MBbl/d
for the three months ended March 31, 2009 and the comparable period of
2008.




Our
product purchases decreased by $390.5 million, or 53%, to $339.9 million for the
three months ended March 31, 2009 compared to $730.4 million for the three
months ended March 31, 2008. The decrease in product purchase cost
corresponds to the decrease in commodity revenue.




Our
operating expenses increased $4.9 million, or 16%, to $35.1 million for the
three months ended March 31, 2009 compared to $30.2 million for the three
months ended March 31, 2008. The increase is primarily due to the inclusion
of VESCO as a consolidated subsidiary and increases in utilities, environmental
and legal expenses partially offset by decreases in compensation, maintenance,
repairs and supplies.




Logistics
Assets Segment




The
following table provides summary financial data regarding results of operations
of our Logistics Assets segment for the periods presented:




Three Months Ended March
31,2009
                
                
                2008($
      in millions)Revenues
      from services
                
                $
                44.5
                
                
                $
                51.2Operating
      expenses
                
                
                (35.5
                )
                
                
                (44.3
                )Operating
      margin (1)
                
                $
                9.0
                
                
                $
                6.9Equity
      in earnings of GCF
                
                $
                0.1
                
                
                $
                1.1Operating
      statistics:Fractionation
      volumes, MBbl/d
                
                
                189.7
                
                
                
                215.9Treating
      volumes, MBbl/d (2)
                
                
                8.4
                
                
                
                15.1








(1)
            See
      “Non-GAAP Financial Measures – Operating Margin” included in this
      Item 2.


(2)
            Consists
      of the volumes treated in our low sulfur natural gasoline (“LSNG”)
      unit.




Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008




Revenues
from services (fractionation, terminalling and storage, transportation and
treating) decreased by $6.7 million, or 13%, to $44.5 million for the three
months ended March 31, 2009 compared to $51.2 million for the three months
ended March 31, 2008. The decrease is primarily due to decreased volumes as
a result of damage to certain of our and third party Gulf Coast facilities from
Hurricane Ike as well as lower fractionation fees related to lower natural gas
prices.




Operating
expenses decreased by $8.8 million, or 20%, to $35.5 million for the three
months ended March 31, 2009 compared to $44.3 million for the three months
ended March 31, 2008. The decrease was due to lower fuel, utilities and
barge fees related to lower volumes and decreased fuel and utilities
rates.


36
 TABLE OF CONTENTS


NGL
Distribution and Marketing Services Segment




The
following table provides summary financial data regarding results of operations
of our NGL Distribution and Marketing Services segment for the periods
presented:




Three Months Ended March
31,2009
              
              
              2008($
      in millions)NGL
      sales revenues
              
              $
              586.6
              
              
              $
              1,418.8Other
      revenues
              
              
              1.1
              
              
              
              0.8587.7
              
              
              
              1,419.6Product
      purchases
              
              
              (572.9
              )
              
              
              (1,410.8
              )Operating
      expenses
              
              
              (0.3
              )
              
              
              (0.5
              )Operating
      margin (1)
              
              $
              14.5
              
              
              $
              8.3Operating
      data:NGL
      sales, MBbl/d
              
              
              252.8
              
              
              
              262.2NGL
      realized price, $/gal
              
              
              0.61
              
              
              
              1.42








(1)        See
“Non-GAAP Financial Measures – Operating Margin” included in this Item
2.





Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008




Our NGL
sales revenues decreased by $832.2 million, or 59%, to $586.6 million for the
three months ended March 31, 2009 compared to $1,418.8 million for the
three months ended March 31, 2008. The net decrease comprised a $766.5
million decrease from lower average sales prices, which were down 57% to $0.61
per gallon during the three months ended March 31, 2009 from $1.42 during the
three months ended March 31, 2008; and a $65.7 million decrease from lower
sales volumes, down 4% to 252.8 MBbl/d during the three months ended March 31,
2009 from 262.2 MBbl/d during the three months ended March 31, 2008. The
decrease in sales volume was primarily attributable to reduced sales to
petrochemical customers associated with their lower plant operational rates and
reduced demand for product.




Other
revenues, which consists primarily of non-commodity based service revenue,
increased by $0.3 million.




Product
purchases decreased by $837.9 million, or 59%, to $572.9 million for the three
months ended March 31, 2009 compared to $1,410.8 million for the three
months ended March 31, 2008. Lower NGL market prices and lower sales
volumes resulted in decreases in product purchases of $771.2 million and $65.3
million. Lower of cost or market inventory adjustments increased our product
purchases by $0.3 million for the three months ended March 31, 2009 compared to
$1.7 million for the same period of 2008.




37
 TABLE OF CONTENTS


Wholesale
Marketing Segment




The
following table provides summary financial data regarding results of operations
of our Wholesale Marketing segment for the periods presented:





Three Months Ended March
31,2009
              
              
              2008($
      in millions)NGL
      sales revenues
              
              $
              287.9
              
              
              $
              543.3Other
      revenues (1)
              
              
              0.7
              
              
              
              -288.6
              
              
              
              543.3Product
      purchases
              
              
              (284.3
              )
              
              
              (533.7
              )Operating
      expenses
              
              
              -
              
              
              
              -Operating
      margin (2)
              
              $
              4.3
              
              
              $
              9.6Operating
      data:NGL
      sales, MBbl/d
              
              
              80.6
              
              
              
              86.9NGL
      realized price, $/gal
              
              
              0.94
              
              
              
              1.64








(1)
            Includes
      business interruption insurance revenue of $0.5 million for the three
      months ended March 31, 2009.


(2)        See
“Non-GAAP Financial Measures – Operating Margin” included in this Item
2.




Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008




NGL sales
revenues decreased by $255.4 million, or 47%, to $287.9 million for the three
months ended March 31, 2009 compared to $543.3 million for the three months
ended March 31, 2008. Lower NGL market prices decreased revenue by $210.5
million and lower sales volumes reduced revenue by an additional $44.9 million.
The 6.3 MBbl/d decrease in volumes is primarily due to decreased West Coast
refinery production and the expiration of a refinery supply
agreement.




Product
purchases decreased by $249.4 million, or 47%, to $284.3 million for the three
months ended March 31, 2009 compared to $533.7 million for the three months
ended March 31, 2008. Lower NGL market prices and lower sales volumes
resulted in decreases in product purchases of $205.8 million and $44.1 million.
Lower of cost or market inventory adjustments increased our product purchases by
$0.7 million for the three months ended March 31, 2009 compared to $0.2 million
for the same period of 2008.




Hurricane
Update





Certain
of our Louisiana and Texas facilities sustained damage and had disruption to
their operations during the 2008 hurricane season from two Gulf Coast
hurricanes—Gustav and Ike. As of December 31, 2008, we recorded a $19.3 million
loss provision (net of estimated insurance reimbursements) related to the
hurricanes. That estimate remains unchanged.





As of
March 31, 2009, total expenditures related to the hurricanes included $32.1
million for repairs and $6.5 million for improvements. In addition, we executed
a proof of loss for $5.9 million, comprising $4.7 million for property damage
insurance claims and $1.2 million for business interruption insurance
claims.


38
 TABLE OF CONTENTS




Liquidity
and Capital Resources




Our
ability to finance our operations, including funding capital expenditures and
acquisitions, to meet our indebtedness obligations, to refinance our
indebtedness or to meet our collateral requirements depends on our ability to
generate cash in the future. Our ability to generate cash is subject to a number
of factors, some of which are beyond our control, including weather, commodity
prices, particularly for natural gas and NGLs, and our ongoing efforts to manage
operating costs and maintenance capital expenditures as well as general
economic, financial, competitive, legislative, regulatory and other factors. See
“Item 1A.  Risk Factors” in this Quarterly Report and our Annual
Report on Form, 10-K for the year ended December 31, 2008.




Our main
sources of liquidity and capital resources are internally generated cash flow
from operations, borrowings under our senior secured credit facility and access
to debt markets. The credit markets are undergoing significant volatility. Many
financial institutions have liquidity concerns, prompting government
intervention to mitigate pressure on the credit markets. Our exposure to the
current credit crisis includes our revolving credit facility, cash investments
and counterparty performance risks. Continued volatility in the debt markets may
increase costs associated with issuing debt instruments due to increased spreads
over relevant interest rate benchmarks and affect our ability to access those
markets.




Current
market conditions also elevate the concern over counterparty risks related to
our commodity derivative contracts and trade credit. We have substantially all
of our commodity derivatives with major financial institutions. Should any of
these financial counterparties not perform, we may not realize the benefit of
some of our hedges under lower commodity prices, which could have a materially
adverse effect on our results of operations. We sell a significant portion of
our natural gas, NGLs and condensate to a variety of purchasers. Non-performance
by a trade creditor could result in losses.




Crude oil
and natural gas prices are also volatile and in the case of natural gas have
declined significantly during the quarter, continuing downward since the end of
the quarter. In a continuing effort to reduce the volatility of our cash flows,
we have periodically entered into commodity derivative contracts for a portion
of our estimated equity volumes through 2013 (see Note 11 of the Notes to
Consolidated Financial Statements included in Item 1 of this Quarterly Report).
The current market conditions may also impact our ability to enter into future
commodity derivative contracts. In the event of a global recession, commodity
prices may stay depressed or reduce further thereby causing a prolonged
downturn, which could reduce our operating margins and cash flow from
operations.




At this
point, we do not believe our liquidity has been materially affected by the
current credit crisis and we do not expect our liquidity to be materially
impacted in the near future. We will continue to monitor our liquidity and the
credit markets. Additionally, we will continue to monitor events and
circumstances surrounding each of the lenders under our senior secured revolving
credit facility and the lenders under the Partnership’s senior secured credit
facility. To date, other than a default by Lehman Bank on a borrowing request in
October 2008, neither we nor the Partnership have experienced any material
disruptions in our ability to access our respective bank credit facilities.
However, we cannot predict with any certainty the impact to us of any further
disruption in the credit environment. See “Item 1A.  Risk Factors” in
our Annual Report on Form 10-K for the year ended December 31,
2008.




Historically,
our cash generated from operations has been sufficient to finance our operating
expenditures and non-acquisition related capital expenditures. Based on our
anticipated levels of operations and absent any disruptive events, we believe
that internally generated cash flow and borrowings available under our senior
secured credit facilities should provide sufficient resources to finance our
operations, non-acquisition related capital expenditures, hurricane-related
repair expenditures, long-term indebtedness obligations and collateral
requirements for at least the next year.




A
significant portion of our capital resources are utilized in the form of cash
and letters of credit to satisfy counterparty collateral demands. These
counterparty collateral demands reflect our non-investment grade status and
counterparties’ views of our financial condition and ability to satisfy our
performance obligations, as well as commodity prices and other factors. As of
March 31, 2009, our total outstanding letter of credit postings were $89.5
million.


39
 TABLE OF CONTENTS




Our
derivative contracts do not have margin requirements or collateral provisions
that could require posting of margin prior to the scheduled cash settlement
date. See “Item 3. Quantitative and Qualitative Disclosures about Market Risk”
in this Quarterly Report and our Annual Report on Form 10-K for the year ended
December 31, 2008.




Contractual
Obligations.  Except for changes in the ordinary course of our
business, our contractual obligations have not changed materially from those
reported in our Annual Report on Form 10-K for the year ended
December 31, 2008.




Available Credit.As of
March 31, 2009, we had approximately $369 million in total availability
under our credit facility, including $143.9 million under our senior secured
revolving credit facility (after giving effect to the Lehman Bank default) and
$225.5 million under our senior secured synthetic letter of credit facility. In
addition, the Partnership had approximately $337 million in availability under
its senior secured credit facility (also after giving effect to the Lehman Bank
default).




Cash Flow. Net cash provided
by or used in operating activities, investing activities and financing
activities for the periods presented were as follows:


Three Months Ended March
31,2009
                
                
                2008(In
      millions)Net
      cash provided by (used in):Operating
      activities
                
                $
                74.0
                
                
                $
                239.8Investing
      activities
                
                
                (37.9
                )
                
                
                (15.2
                )Financing
      activities
                
                
                (28.5
                )
                
                
                (123.9
                )








Net cash
provided by operating activities was $74.0 million for the three months ended
March 31, 2009 compared to $239.8 million for the three months ended
March 31, 2008. The $165.8 million decrease was primarily due to changes in
operating assets and liabilities which used an additional $139.5 million quarter
over quarter as well as a $44.3 million decrease in net income, partially offset
by additional cash provided by $19.5 million in commodity hedge
adjustments.





Net cash
used in investing activities was $37.9 million for the three months ended
March 31, 2009 compared to $15.2 million for the three months ended
March 31, 2008. The $22.7 million increase is primarily due to increased
purchases of property, plant and equipment of $7.9 million, $7.8 million of
nonrecurring property insurance proceeds received in the prior comparable
quarter, and $6.8 million paid in the current quarter to acquire debt
obligations of Targa Investments.




Net cash
used in financing activities was $28.5 million for the three months ended
March 31, 2009 compared to $123.9 million for the three months ended
March 31, 2008. The decrease was primarily from distributions of $52.9
million to Targa Investments and $50 million in debt repayments by the
Partnership during 2008, partially offset by increased distributions to
noncontrolling interests during 2009.




Capital Requirements. The
midstream energy business can be capital intensive, requiring significant
investment to maintain and upgrade existing operations. A significant portion of
the cost of constructing new gathering lines to connect to our gathering system
is generally paid for by the natural gas producer. However, we expect to
continue to incur significant expenditures throughout 2009 related to the
expansion of our natural gas gathering and processing
infrastructure.




We
estimate that our total capital expenditures for 2009 will be approximately $150
million. Given our objective of growth through acquisitions, expansions of
existing assets and other internal growth projects, we anticipate that we will
invest significant amounts of capital to grow and acquire assets. Expansion
capital expenditures may vary significantly based on investment
opportunities.




We expect
to fund future capital expenditures with funds generated from our operations,
borrowings under our senior secured credit facility and debt
offerings.


40
 TABLE OF CONTENTS




Non-GAAP
Financial Measures




For a
complete discussion of the measures that management uses to evaluate our
operations, see “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—How We Evaluate our Operations” in our
Annual Report on Form 10-K for the year ended December 31,
2008.




Our
operating margin by segment and in total is as follows for the periods
indicated:




Three
      Months Ended March 31,2009
              
              
              2008(In
      millions)Natural
      Gas Gathering and Processing
              
              $
              63.1
              
              
              $
              112.6Logistics
      Assets
              
              
              9.0
              
              
              
              6.9NGL
      Distribution and Marketing Services
              
              
              14.5
              
              
              
              8.3Wholesale
      Marketing
              
              
              4.3
              
              
              
              9.6$
              90.9
              
              
              $
              137.4








The
following tables reconcile the non-GAAP financial measures used by management to
their most directly comparable GAAP measures for the periods
indicated:


Three
      Months Ended March 31,2009
                
                
                2008Reconciliation
      of net cash provided by
                
                (In
      millions)operating
      activities to Adjusted EBITDA:Net
      cash provided by operating activities
                
                $
                74.0
                
                
                $
                239.8Net
      (income) loss attibutable to noncontrolling interests
                
                
                1.6
                
                
                
                (26.9
                )Interest
      expense, net (1)
                
                
                23.8
                
                
                
                23.6Current
      income tax expense
                
                
                -
                
                
                
                1.0Other
                
                
                (0.2
                )
                
                
                6.1Changes
      in operating assets and liabilities which used (provided)
      cash:Accounts
      receivable and other assets
                
                
                (76.7
                )
                
                
                (272.9
                )Accounts
      payable and other liabilities
                
                
                64.6
                
                
                
                121.2Adjusted
      EBITDA
                
                $
                87.1
                
                
                $
                91.9Reconciliation
      of net income attributable to TargaResources,
      Inc. to Adjusted EBITDA:Net
      income attributable to Targa Resources, Inc.
                
                $
                2.6
                
                
                $
                18.4Add:Interest
      expense, net
                
                
                25.7
                
                
                
                25.6Income
      tax expense (benefit)
                
                
                (0.1
                )
                
                
                11.9Depreciation
      and amortization expense
                
                
                41.6
                
                
                
                38.2Non-cash
      (gain) loss related to derivatives
                
                
                17.3
                
                
                
                (2.2
                )Adjusted
      EBITDA
                
                $
                87.1
                
                
                $
                91.9








(1)  Net
      of debt issue costs of $1.9 million for the three months ended March 31,
      2009 and $2.0 million for the three months ended March 31,
      2008.


41
 TABLE OF CONTENTS





Three Months Ended March
31,2009
                
                
                2008(In
      millions)Reconciliation
      of net income attributable to TargaResources,
      Inc. to operating margin:Net
      income attributable to Targa Resources, Inc.
                
                $
                2.6
                
                
                $
                18.4Add:Net
      (income) loss attibutable to noncontrolling interests
                
                
                (1.6
                )
                
                
                26.9Depreciation
      and amortization expense
                
                
                41.6
                
                
                
                38.2General
      and administrative expense
                
                
                23.8
                
                
                
                24.1Interest
      expense, net
                
                
                25.7
                
                
                
                25.6Income
      tax benefit (expense)
                
                
                (0.1
                )
                
                
                12.1Other,
      net
                
                
                (1.1
                )
                
                
                (7.9
                )Operating
      margin
                
                $
                90.9
                
                
                $
                137.4











Item 3.                      Quantitative and
Qualitative Disclosures about Market Risk




For an
in-depth discussion of market risks, see “Item 7A. Quantitative and
Qualitative Disclosures about Market Risk” in our Annual Report on
Form 10-K for the year ended December 31, 2008.




Our
principal market risks are our exposure to changes in commodity prices,
particularly to the prices of natural gas and NGLs (including the impact of
reduced commodity prices on oil and gas drilling levels), changes in interest
rates, as well as nonperformance by our customers, joint venture partners and
derivative counterparties. We do not use risk sensitive instruments for trading
purposes.





Commodity Price Risk.A
significant portion of our revenues is derived from percent-of-proceeds
contracts under which we receive either an agreed upon percentage of the actual
proceeds that we receive from our sales of the residue natural gas and NGLs or
an agreed upon percentage based on index-related prices for the natural gas and
NGLs. The prices of natural gas and NGLs are subject to fluctuations in response
to changes in supply, demand, market uncertainty and a variety of additional
factors beyond our control. We monitor these risks and enter into hedging
transactions designed to mitigate the impact of commodity price fluctuations on
our business. Cash flows from a derivative instrument designated as a hedge are
classified in the same category as the cash flows from the item being hedged.
For an in-depth discussion of our hedging strategies, see Item “7A.
Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk”
in our Annual Report on Form 10-K for the year ended December 31,
2008.




Our
payment obligations in connection with substantially all of these hedging
transactions, and any additional credit exposure due to a rise in natural gas
and NGL prices relative to the fixed prices set forth in the hedges, are secured
by a first priority lien in the collateral securing our senior secured
indebtedness that ranks equal in right of payment with liens granted in favor of
our senior secured lenders. As long as this first priority lien is in effect, we
expect to have no obligation to post cash, letters of credit or other additional
collateral to secure these hedges at any time even if our counterparty’s
exposure to our credit increases over the term of the hedge as a result of
higher commodity prices or because there has been a change in our
creditworthiness. A purchased put (or floor) transaction does not create credit
exposure to us for our counterparties.


42
 TABLE OF CONTENTS




We have
entered into hedging arrangements for a portion of our forecasted equity
volumes. Floor volumes and floor pricing are based solely on purchased puts (or
floors). As of March 31, 2009, we had the following hedge arrangements
which will settle during the years ending December 31, 2009 through 2013
(except as indicated otherwise, the 2009 volumes reflect daily volumes for the
period from April 1, 2009 through December 31, 2009):




Natural
Gas


Instrument
                              
                              
                              Avg.
      Price
                              
                              
                              MMBtu per dayType
                              Index
                              
                              $/MMBtu
                              
                              
                              2009
                              
                              
                              2010
                              
                              
                              2011
                              
                              
                              2012
                              
                              
                              2013
                              
                              
                              Fair Value(In
      thousands)SalesSwap
                              IF-Waha
                              
                              
                              6.62
                              
                              
                              
                              21,918
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              $
                              16,880Swap
                              IF-Waha
                              
                              
                              6.69
                              
                              
                              
                              -
                              
                              
                              
                              16,300
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              7,911Swap
                              IF-Waha
                              
                              
                              6.46
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              12,500
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,694Swap
                              IF-Waha
                              
                              
                              7.18
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,500
                              
                              
                              
                              -
                              
                              
                              
                              1,34421,918
                              
                              
                              
                              16,300
                              
                              
                              
                              12,500
                              
                              
                              
                              5,500
                              
                              
                              
                              -Swap
                              IF-PB
                              
                              
                              5.42
                              
                              
                              
                              -
                              
                              
                              
                              2,000
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              180Swap
                              IF-PB
                              
                              
                              5.42
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,000
                              
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              (277
                              )Swap
                              IF-PB
                              
                              
                              5.54
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,000
                              
                              
                              
                              -
                              
                              
                              
                              (895
                              )Swap
                              IF-PB
                              
                              
                              5.54
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,000
                              
                              
                              
                              (1,355
                              )-
                              
                              
                              
                              2,000
                              
                              
                              
                              2,000
                              
                              
                              
                              4,000
                              
                              
                              
                              4,000Total
      Sales
                              
                              
                              
                              
                              
                              
                              21,918
                              
                              
                              
                              18,300
                              
                              
                              
                              14,500
                              
                              
                              
                              9,500
                              
                              
                              
                              4,000$
                              25,482









NGLs





Instrument
                                
                                
                                Avg.
      Price
                                
                                
                                Barrels per dayType
                                Index
                                
                                $/gal
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2011
                                
                                
                                2012
                                
                                
                                2013
                                
                                
                                Fair Value(In
      thousands)SalesSwap
                                OPIS-MB
                                
                                
                                0.78
                                
                                
                                
                                3,347
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                $
                                6,714Swap
                                OPIS-MB
                                
                                
                                0.87
                                
                                
                                
                                -
                                
                                
                                
                                2,750
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                8,360Swap
                                OPIS-MB
                                
                                
                                0.91
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,550
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                4,549Swap
                                OPIS-MB
                                
                                
                                0.92
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,250
                                
                                
                                
                                -
                                
                                
                                
                                3,112Total
      Swaps
                                
                                
                                
                                
                                
                                
                                3,347
                                
                                
                                
                                2,750
                                
                                
                                
                                1,550
                                
                                
                                
                                1,250
                                
                                
                                
                                -Floor
                                OPIS-MB
                                
                                
                                1.44
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                54
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                525Floor
                                OPIS-MB
                                
                                
                                1.43
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                63
                                
                                
                                
                                -
                                
                                
                                
                                570Total
      Floors
                                
                                
                                
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                54
                                
                                
                                
                                63
                                
                                
                                
                                -Total
      Sales
                                
                                
                                
                                
                                
                                
                                3,347
                                
                                
                                
                                2,750
                                
                                
                                
                                1,604
                                
                                
                                
                                1,313
                                
                                
                                
                                -$
                                23,830







43
 TABLE OF CONTENTS


As of
March 31, 2009, the Partnership had the following hedge arrangements which
will settle during the years ended December 31, 2009 through 2013 (except
as indicated otherwise, the 2009 volumes reflect daily volumes for the period
from April 1, 2009 through December 31, 2009):




Natural
Gas




Instrument
                                        
                                        
                                        Avg.
      Price
                                        
                                        
                                        MMBtu per dayType
                                        Index
                                        
                                        $/MMBtu
                                        
                                        
                                        2009
                                        
                                        
                                        2010
                                        
                                        
                                        2011
                                        
                                        
                                        2012
                                        
                                        
                                        2013
                                        
                                        
                                        Fair Value(In
      thousands)SalesSwap
                                        IF-HSC
                                        
                                        
                                        7.39
                                        
                                        
                                        
                                        1,966
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        1,7431,966
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Swap
                                        IF-NGPL
      MC
                                        
                                        
                                        9.18
                                        
                                        
                                        
                                        6,256
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        9,410Swap
                                        IF-NGPL
      MC
                                        
                                        
                                        8.86
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,685
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        7,089Swap
                                        IF-NGPL
      MC
                                        
                                        
                                        7.34
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        2,750
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,286Swap
                                        IF-NGPL
      MC
                                        
                                        
                                        7.18
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        2,750
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        7896,256
                                        
                                        
                                        
                                        5,685
                                        
                                        
                                        
                                        2,750
                                        
                                        
                                        
                                        2,750
                                        
                                        
                                        
                                        -Swap
                                        IF-Waha
                                        
                                        
                                        7.79
                                        
                                        
                                        
                                        9,936
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        10,910Swap
                                        IF-Waha
                                        
                                        
                                        6.53
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11,709
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,715Swap
                                        IF-Waha
                                        
                                        
                                        6.10
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11,250
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        145Swap
                                        IF-Waha
                                        
                                        
                                        6.30
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        7,250
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (326
                                        )Swap
                                        IF-Waha
                                        
                                        
                                        5.59
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,000
                                        
                                        
                                        
                                        (1,478
                                        )9,936
                                        
                                        
                                        
                                        11,709
                                        
                                        
                                        
                                        11,250
                                        
                                        
                                        
                                        7,250
                                        
                                        
                                        
                                        4,000Total
      Swaps
                                        
                                        
                                        
                                        
                                        
                                        
                                        18,158
                                        
                                        
                                        
                                        17,394
                                        
                                        
                                        
                                        14,000
                                        
                                        
                                        
                                        10,000
                                        
                                        
                                        
                                        4,000Floor
                                        IF-NGPL
      MC
                                        
                                        
                                        6.55
                                        
                                        
                                        
                                        850
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        710850
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Floor
                                        IF-Waha
                                        
                                        
                                        6.55
                                        
                                        
                                        
                                        565
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        459565
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Total
      Floors
                                        
                                        
                                        
                                        
                                        
                                        
                                        1,415
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Total
      Sales
                                        
                                        
                                        
                                        
                                        
                                        
                                        19,573
                                        
                                        
                                        
                                        17,394
                                        
                                        
                                        
                                        14,000
                                        
                                        
                                        
                                        10,000
                                        
                                        
                                        
                                        4,000$
                                        35,452





44
 TABLE OF CONTENTS


NGLs





Instrument
                                
                                
                                Avg.
      Price
                                
                                
                                Barrels per dayType
                                Index
                                
                                $/gal
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2011
                                
                                
                                2012
                                
                                
                                2013
                                
                                
                                Fair Value(In
      thousands)SalesSwap
                                OPIS-MB
                                
                                
                                1.32
                                
                                
                                
                                6,248
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                $
                                48,006Swap
                                OPIS-MB
                                
                                
                                1.27
                                
                                
                                
                                -
                                
                                
                                
                                4,809
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                40,659Swap
                                OPIS-MB
                                
                                
                                0.92
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,400
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                9,420Swap
                                OPIS-MB
                                
                                
                                0.92
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,700
                                
                                
                                
                                -
                                
                                
                                
                                6,197Total
      Swaps
                                
                                
                                
                                
                                
                                
                                6,248
                                
                                
                                
                                4,809
                                
                                
                                
                                3,400
                                
                                
                                
                                2,700
                                
                                
                                
                                -Floor
                                OPIS-MB
                                
                                
                                1.44
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                199
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,935Floor
                                OPIS-MB
                                
                                
                                1.43
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                231
                                
                                
                                
                                -
                                
                                
                                
                                2,089Total
      Floors
                                
                                
                                
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                199
                                
                                
                                
                                231
                                
                                
                                
                                -Total
      Sales
                                
                                
                                
                                
                                
                                
                                6,248
                                
                                
                                
                                4,809
                                
                                
                                
                                3,599
                                
                                
                                
                                2,931
                                
                                
                                
                                -$
                                108,306









Condensate





Instrument
                                
                                
                                Avg.
      Price
                                
                                
                                Barrels per dayType
                                Index
                                
                                $/Bbl
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2011
                                
                                
                                2012
                                
                                
                                2013
                                
                                
                                Fair Value(In
      thousands)SalesSwap
                                NY-WTI
                                
                                
                                69.00
                                
                                
                                
                                322
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                $
                                1,153Swap
                                NY-WTI
                                
                                
                                68.10
                                
                                
                                
                                -
                                
                                
                                
                                301
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                518Total
      Swaps
                                
                                
                                
                                
                                
                                
                                322
                                
                                
                                
                                301
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Floor
                                NY-WTI
                                
                                
                                60.00
                                
                                
                                
                                50
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                117Total
      Floors
                                
                                
                                
                                
                                
                                
                                50
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Total
      Sales
                                
                                
                                
                                
                                
                                
                                372
                                
                                
                                
                                301
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -$
                                1,788









These
contracts may expose us to the risk of financial loss in certain circumstances.
Our hedging arrangements provide us protection on the hedged volumes if prices
decline below the prices at which these hedges are set. If prices rise above the
prices at which we have hedged, we will receive less revenue on the hedged
volumes than we would receive in the absence of hedges.




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 TABLE OF CONTENTS


Interest Rate Risk.We are
exposed to changes in interest rates primarily as a result of variable rate debt
under our senior secured credit facilities. To the extent that interest rates
increase, interest expense on our revolving debt will also increase. As of
March 31, 2009, we had approximately $1.6 billion of consolidated
indebtedness, of which $1.1 billion was at variable interest rates.





In order
to mitigate the risk of changes in cash flows attributable to changes in market
interest rates we entered into interest rate hedges that effectively fix the
base rate on the indicated notional amount of borrowings as shown
below:





Period
                            
                            Fixed Rate
                            
                            Notional Amount
                            
                            Fair Value(In
      thousands)4/1/2009-3/31/2010
                            
                            1.65%
                            
                            $400
      million
                            
                            $
                            (3,742
                            )4/1/2010-3/31/2011
                            
                            1.65%
                            
                            350
      million
                            
                            
                            (829
                            )4/1/2011-3/31/2012
                            
                            1.65%
                            
                            300
      million
                            
                            
                            1,718$
                            (2,853
                            )








In order
to mitigate the risk of changes in cash flows attributable to changes in market
interest rates the Partnership entered into interest rate hedges that
effectively fix the base rate on the borrowings as shown below:





Period
                                  
                                  Fixed Rate
                                  
                                  Notional Amount
                                  
                                  Fair Value(In
      thousands)Remainder
      of 2009
                                  
                                  3.68%
                                  
                                  $300
      million
                                  
                                  $
                                  (5,896
                                  )2010
                                  
                                  3.67%
                                  
                                  300 million
                                  
                                  
                                  (6,712
                                  )2011
                                  
                                  3.48%
                                  
                                  300 million
                                  
                                  
                                  (4,211
                                  )2012
                                  
                                  3.40%
                                  
                                  300 million
                                  
                                  
                                  (1,969
                                  )2013
                                  
                                  3.39%
                                  
                                  300 million
                                  
                                  
                                  (962
                                  )1/1
      - 4/24/2014
                                  
                                  3.39%
                                  
                                  300 million
                                  
                                  
                                  (101
                                  )$
                                  (19,851
                                  )








We have
designated all interest rate derivative instruments as cash flow hedges.
Accordingly, related unrealized gains and losses recorded in OCI until interest
expense on the related debt is recognized in earnings. A hypothetical increase
of 100 basis points in the underlying interest rate, after taking into
account these interest rate swaps and interest rate basis swaps, would increase
our annual interest expense by $4.0 million.





Credit Risk. We are subject
to risk of losses resulting from nonpayment or nonperformance by our customers,
joint venture partners and derivative counterparties.





We
monitor the creditworthiness of customers to whom we grant credit and establish
credit limits in accordance with our credit policy. A substantial portion of our
revenues are derived from companies in the domestic natural gas, NGL and
petrochemical industries. This concentration could impact our overall exposure
to credit risk since these customers may be impacted by similar economic or
other conditions. To help reduce our credit risk, we evaluate our
counterparties’ financial condition and, where appropriate, negotiate netting
agreements. We generally do not require collateral for our accounts receivable;
however, in certain circumstances we will call for prepayment, require automatic
debit agreements or obtain collateral to minimize our potential exposure to
defaults.





46
 TABLE OF CONTENTS


Our
credit exposure related to commodity derivative instruments is represented by
the fair value of contracts with a net positive fair value to us at the
reporting date. At such times, these outstanding instruments expose us to credit
loss in the event of nonperformance by the counterparties to the
agreements. Should the creditworthiness of one or more of our
counterparties decline, our ability to mitigate nonperformance risk is limited
to a counterparty agreeing to either a voluntary termination and subsequent cash
settlement or a novation of the derivative contract to a third party. In the
event of a counterparty default, we may sustain a loss and our cash receipts
could be negatively impacted.





As of
March 31, 2009, affiliates of Goldman Sachs, Merrill Lynch and Barclays Bank
accounted for 56%, 24% and 20% of our counterparty credit exposure related to
commodity derivative instruments. Goldman Sachs, Merrill Lynch and Barclays Bank
are major financial institutions, each possessing investment grade credit
ratings based upon minimum credit ratings assigned by Standard & Poor’s
Ratings Services, a division of the McGraw-Hill Companies, Inc.








Item 4T.            
Controls
and Procedures





Evaluation
of Disclosure Controls and Procedures




Our
management, under the supervision of and with the participation of our Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures, as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) as of the end of the period covered by this report.
Based on such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, our disclosure
controls and procedures were effective at a reasonable assurance level to
provide reasonable assurance that all material information relating to us
required to be included in our reports filed or submitted under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange
Commission.




There has
been no change in our internal control over financial reporting during the three
months ended March 31, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.


47
 TABLE OF CONTENTS




PART II—OTHER
INFORMATION




Item 1.
            LegalProceedings




The
information required for this item is provided in Note 13—Commitments and
Contingencies included in the Notes to Consolidated Financial Statements
included under Part I, Item 1, which is incorporated by reference into
this item.




Item 1A.
            Risk
      Factors





For an
in-depth discussion of our risk factors, see “Item 1A. Risk Factors” in our
Annual Report on Form 10-K for the year ended December 31, 2008. These
risks and uncertainties are not the only ones facing us and there may be
additional matters that we are unaware of or that we currently consider
immaterial. All of these risks and uncertainties could adversely affect our
business, financial condition and/or results of operations, as could the
following:





A
recent determination that emissions of carbon dioxide and other “greenhouse
gases” present an endangerment to public health could result in regulatory
initiatives that increase our costs of doing business and the costs of our
services.





On April
17, 2009, the U.S. Environmental Protection Agency (“EPA”) issued a notice of
its finding and determination that emissions of carbon dioxide, methane, and
other “greenhouse gases” (“GHGs”) presented an endangerment to human health and
the environment, because emissions of such gases contribute to warming of the
earth’s atmosphere.  The finding and determination allows the EPA to
begin regulating GHG emissions under existing provisions of the Clean Air
Act.  Although the EPA may take several years to adopt and impose
regulations limiting GHG emissions, any limitation on GHG emissions from our
natural gas–fired compressor stations and processing facilities or from the
combustion of natural gas or natural gas liquids that we produce could increase
our costs of doing business and/or increase the cost and reduce demand for our
services.  In addition, the U.S. Congress and various states are
currently considering legislation that may impose national or regional caps on
GHG emissions and may require major sources of GHG emissions to purchase
“allowances” that would permit such sources to continue to emit
GHGs.  Such legislation could require us to obtain allowances to
offset emissions of GHGs that result from the combustion of natural gas or
natural gas liquids we produce.  As an alternative to a “cap and
trade” program, it is possible that Congress or individual states could
implement carbon tax programs.  Any such regulatory initiatives
adopted by EPA or legislation adopted by Congress or the states could increase
our costs of doing business and/or increase the cost and reduce demand for our
services.







Item 2.               Unregistered Sales
of Equity Securities and Use of Proceeds




Not
applicable.




Item 3.
            DefaultsUpon Senior Securities




Not
applicable.




Item 4.
            Submission
      of Matters to a Vote of Security
Holders




Not
applicable.




Item 5.
            Other
      Information




Not
applicable.


48
 TABLE OF CONTENTS




Item 6.
            Exhibits





0Exhibit
      Number
            Description3.1
            Amended
      and Restated Certificate of Incorporation of Targa Resources, Inc.
      (incorporated by reference to Exhibit 3.1 to Targa Resources, Inc.’s
      Registration Statement on Form S-4 filed October 31, 2007 (File No.
      333-147066)).3.2
            Amended
      and Restated Bylaws of Targa Resources, Inc. (incorporated by reference to
      Exhibit 3.2 to Targa Resources, Inc.’s Registration Statement on Form S-4
      filed October 31, 2007 (File No. 333-147066)).3.3
            Certificate
      of Incorporation of Targa Resources Finance Corporation (incorporated by
      reference to Exhibit 3.3 to Targa Resources, Inc.’s Registration Statement
      on Form S-4 filed October 31, 2007 (File No.
  333-147066)).3.4
            Certificate
      of Amendment of the Certificate of Incorporation of Targa Resources
      Finance Corporation (incorporated by reference to Exhibit 3.4 to Targa
      Resources, Inc.’s Registration Statement on Form S-4 filed October 31,
      2007 (File No. 333-147066)).3.5
            Bylaws
      of Targa Resources Finance Corporation (incorporated by reference to
      Exhibit 3.5 to Targa Resources, Inc.’s Registration Statement on Form S-4
      filed October 31, 2007 (File No. 333-147066)).4.1
            Indenture
      dated October 31, 2005 among Targa Resources, Inc., Targa Resources
      Finance Corporation, the Guarantors named therein and Wells Fargo Bank,
      National Association (incorporated by reference to Exhibit 4.3 to Targa
      Resources, Inc.’s Registration Statement on Form S-4 filed October 31,
      2007 (File No. 333-147066)).4.2
            Supplemental
      Indenture dated October 31, 2008, among Targa Permian Intrastate LLC, a
      subsidiary of Targa Resources, Inc., Targa Resources Finance Corporation,
      the other Subsidiary Guarantors and Wells Fargo Bank, National
      Association. (incorporated by reference to Exhibit 4.1 to Targa Resources,
      Inc.’s Quarterly Report on Form 10-Q filed November 12, 2008 (File No.
      333-147066)).4.3
            Supplemental
      Indenture dated February 14, 2007, among Targa Resources GP LLC, a
      subsidiary of Targa Resources, Inc., Targa Resources Finance Corporation,
      the other Subsidiary Guarantors and Wells Fargo Bank, National
      Association. (incorporated by reference to Exhibit 4.3 to Targa Resources,
      Inc.’s Annual Report on Form 10-K filed on February 27, 2009 (File No.
      333-147066)).4.4
            Supplemental
      Indenture dated March 15, 2006, among Targa LSNG GP LLC and Targa LSNG LP,
      subsidiaries of Targa Resources, Inc., Targa Resources Finance
      Corporation, the other Subsidiary Guarantors and Wells Fargo Bank,
      National Association. (incorporated by reference to Exhibit 4.4 to Targa
      Resources, Inc.’s Annual Report on Form 10-K filed on February 27, 2009
      (File No. 333-147066)).4.5
            Supplemental
      Indenture dated December 22, 2005, among Targa GP Inc., Targa LP Inc.,
      Targa North Texas GP LLC, Targa Versado GP LLC, Targa Straddle GP LLC,
      Targa Permian GP LLC, Targa Downstream GP LLC, Targa North Texas LP, Targa
      Versado LP, Targa Straddle LP, Targa Permian LP, and Targa Downstream LP,
      subsidiaries of Targa Resources, Inc., Targa Resources Finance
      Corporation, the other Subsidiary Guarantors and Wells Fargo Bank,
      National Association. (incorporated by reference to Exhibit 4.5 to Targa
      Resources, Inc.’s Annual Report on Form 10-K filed on February 27, 2009
      (File No. 333-147066)).


49
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Exhibit
      Number
            Description4.6
            Supplemental
      Indenture dated December 14, 2005, among Targa Gas Marketing LLC, a
      subsidiary of Targa Resources, Inc., Targa Resources Finance Corporation,
      the other Subsidiary Guarantors and Wells Fargo Bank, National
      Association. (incorporated by reference to Exhibit 4.5 to Targa Resources,
      Inc.’s Annual Report on Form 10-K filed on February 27, 2009 (File No.
      333-147066)).4.7
            Registration
      Rights Agreement, dated as of October 31, 2005, among Targa Resources,
      Inc., Targa Resources Finance Corporation, the Guarantors named therein
      and the Initial Purchasers named therein (incorporated by reference to
      Exhibit 4.4 to Targa Resources, Inc.’s Registration Statement on Form S-4
      filed October 31, 2007 (File No. 333-147066)).4.8
            Indenture
      dated June 18, 2008, among Targa Resources Partners LP, Targa Resources
      Partners Finance Corporation, the Guarantors named therein and U.S. Bank
      National Association (incorporated by reference to Exhibit 4.1 to Targa
      Resources, Inc.’s Form 10-Q filed August 11, 2008 (File No.
      333-147066)).4.9
            Registration
      Rights Agreement dated June 18, 2008, among Targa Resources Partners LP,
      Targa Resources Partners Finance Corporations, the Guarantors named
      therein and the initial purchasers named therein (incorporated by
      reference to Exhibit 4.2 to Targa Resources, Inc.’s Quarterly Report on
      Form 10-Q filed August 11, 2008 (File No. 333-147066)).10.1*
            First Amendment to Credit Agreement dated November 18,
      2005 between Targa Resources Inc., the Lenders named therein and Credit
      Suisse, as Administrative Agent, Swing Line Lender, Revolving L/C Issuer
      and Synthetic L/C Issuer10.2*
            Second Amendment to Credit Agreement dated May 1, 2009
      between Targa Resources Inc., the Lenders named therein and Credit Suisse,
      as Administrative Agent, Swing Line Lender, Revolving L/C Issuer and
      Synthetic L/C Issuer31.1*
            Certification of the Chief Executive Officer pursuant to
      Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
      1934.31.2*
            Certification of the Chief Financial Officer pursuant to
      Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
      1934.32.1*
            Certification of the Chief Executive Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002.32.2*
            Certification of the Chief Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of
2002.




*
            Filed
      herewith




50
 TABLE OF CONTENTS




SIGNATURES






Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.




Targa
      Resources, Inc.
              (Registrant)By:
            /s/    JOHN ROBERT SPARGERJohn
      Robert Sparger
              Senior
      Vice President and
              Chief
      Accounting Officer
              (Authorized
      signatory and
              Principal
      Accounting Officer)




Date: May
8, 2009




51
 TABLE OF CONTENTS


Exhibit Index


Exhibit
      Number
            Description3.1
            Amended
      and Restated Certificate of Incorporation of Targa Resources, Inc.
      (incorporated by reference to Exhibit 3.1 to Targa Resources, Inc.’s
      Registration Statement on Form S-4 filed October 31, 2007 (File No.
      333-147066)).3.2
            Amended
      and Restated Bylaws of Targa Resources, Inc. (incorporated by reference to
      Exhibit 3.2 to Targa Resources, Inc.’s Registration Statement on Form S-4
      filed October 31, 2007 (File No. 333-147066)).3.3
            Certificate
      of Incorporation of Targa Resources Finance Corporation (incorporated by
      reference to Exhibit 3.3 to Targa Resources, Inc.’s Registration Statement
      on Form S-4 filed October 31, 2007 (File No.
  333-147066)).3.4
            Certificate
      of Amendment of the Certificate of Incorporation of Targa Resources
      Finance Corporation (incorporated by reference to Exhibit 3.4 to Targa
      Resources, Inc.’s Registration Statement on Form S-4 filed October 31,
      2007 (File No. 333-147066)).3.5
            Bylaws
      of Targa Resources Finance Corporation (incorporated by reference to
      Exhibit 3.5 to Targa Resources, Inc.’s Registration Statement on Form S-4
      filed October 31, 2007 (File No. 333-147066)).4.1
            Indenture
      dated October 31, 2005 among Targa Resources, Inc., Targa Resources
      Finance Corporation, the Guarantors named therein and Wells Fargo Bank,
      National Association (incorporated by reference to Exhibit 4.3 to Targa
      Resources, Inc.’s Registration Statement on Form S-4 filed October 31,
      2007 (File No. 333-147066)).4.2
            Supplemental
      Indenture dated October 31, 2008, among Targa Permian Intrastate LLC, a
      subsidiary of Targa Resources, Inc., Targa Resources Finance Corporation,
      the other Subsidiary Guarantors and Wells Fargo Bank, National
      Association. (incorporated by reference to Exhibit 4.1 to Targa Resources,
      Inc.’s Quarterly Report on Form 10-Q filed November 12, 2008 (File No.
      333-147066)).4.3
            Supplemental
      Indenture dated February 14, 2007, among Targa Resources GP LLC, a
      subsidiary of Targa Resources, Inc., Targa Resources Finance Corporation,
      the other Subsidiary Guarantors and Wells Fargo Bank, National
      Association. (incorporated by reference to Exhibit 4.3 to Targa Resources,
      Inc.’s Annual Report on Form 10-K filed on February 27, 2009 (File No.
      333-147066)).4.4
            Supplemental
      Indenture dated March 15, 2006, among Targa LSNG GP LLC and Targa LSNG LP,
      subsidiaries of Targa Resources, Inc., Targa Resources Finance
      Corporation, the other Subsidiary Guarantors and Wells Fargo Bank,
      National Association. (incorporated by reference to Exhibit 4.4 to Targa
      Resources, Inc.’s Annual Report on Form 10-K filed on February 27, 2009
      (File No. 333-147066)).4.5
            Supplemental
      Indenture dated December 22, 2005, among Targa GP Inc., Targa LP Inc.,
      Targa North Texas GP LLC, Targa Versado GP LLC, Targa Straddle GP LLC,
      Targa Permian GP LLC, Targa Downstream GP LLC, Targa North Texas LP, Targa
      Versado LP, Targa Straddle LP, Targa Permian LP, and Targa Downstream LP,
      subsidiaries of Targa Resources, Inc., Targa Resources Finance
      Corporation, the other Subsidiary Guarantors and Wells Fargo Bank,
      National Association. (incorporated by reference to Exhibit 4.5 to Targa
      Resources, Inc.’s Annual Report on Form 10-K filed on February 27, 2009
      (File No. 333-147066)).4.6
            Supplemental
      Indenture dated December 14, 2005, among Targa Gas Marketing LLC, a
      subsidiary of Targa Resources, Inc., Targa Resources Finance Corporation,
      the other Subsidiary Guarantors and Wells Fargo Bank, National
      Association. (incorporated by reference to Exhibit 4.5 to Targa Resources,
      Inc.’s Annual Report on Form 10-K filed on February 27, 2009 (File No.
      333-147066)).4.7
            Registration
      Rights Agreement, dated as of October 31, 2005, among Targa Resources,
      Inc., Targa Resources Finance Corporation, the Guarantors named therein
      and the Initial Purchasers named therein (incorporated by reference to
      Exhibit 4.4 to Targa Resources, Inc.’s Registration Statement on Form S-4
      filed October 31, 2007 (File No. 333-147066)).4.8
            Indenture
      dated June 18, 2008, among Targa Resources Partners LP, Targa Resources
      Partners Finance Corporation, the Guarantors named therein and U.S. Bank
      National Association (incorporated by reference to Exhibit 4.1 to Targa
      Resources, Inc.’s Form 10-Q filed August 11, 2008 (File No.
      333-147066)).4.9
            Registration
      Rights Agreement dated June 18, 2008, among Targa Resources Partners LP,
      Targa Resources Partners Finance Corporations, the Guarantors named
      therein and the initial purchasers named therein (incorporated by
      reference to Exhibit 4.2 to Targa Resources, Inc.’s Quarterly Report on
      Form 10-Q filed August 11, 2008 (File No. 333-147066)).10.1*
            First
      Amendment to Credit Agreement dated November 18, 2005 between Targa
      Resources Inc., the Lenders named therein and Credit Suisse, as
      Administrative Agent, Swing Line Lender, Revolving L/C Issuer and
      Synthetic L/C Issuer10.2*
            Second
      Amendment to Credit Agreement dated May 1, 2009 between Targa Resources
      Inc., the Lenders named therein and Credit Suisse, as Administrative
      Agent, Swing Line Lender, Revolving L/C Issuer and Synthetic L/C
      Issuer31.1*
            Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
      of the Securities Exchange Act of 1934.31.2*
            Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
      of the Securities Exchange Act of 1934.32.1*
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
      as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2*
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
      as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.


*           Filed
herewith




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