Targa Resources Corp. (NYSE: TRGP) said Feb. 6 that it has entered into development joint ventures with investment vehicles affiliated with Stonepeak Infrastructure Partners.

The DevCo JVs own Targa’s 25% interest in the Gulf Coast Express Pipeline (GCX), a 20% interest in the Grand Prix Pipeline, and a 100% interest in Targa’s next fractionation train. Targa controls the management, day-to-day construction and operation of the Grand Prix Pipeline and the Company’s next fractionation train in Mont Belvieu.

“Targa is very pleased to have the opportunity to partner with Stonepeak on the formation of these development joint ventures. We are committed to maintaining our strong balance sheet, and continuing to identify attractive opportunities that enhance Targa’s flexibility as we execute on our growth projects,” said Joe Bob Perkins, CEO of the company. “There are many benefits to this structure as it allows Targa to bring in common equity at the project level at an attractive cost of capital, while the purchase option means Targa retains the upside associated with the projects.”

Jack Howell, senior managing director and head of Stonepeak’s energy business, said, “We are thrilled to once again partner with Targa and its world class management team in joint ventures that provide our investors with exposure to Targa’s industry leading positions in the Permian Basin and Mont Belvieu.”

Stonepeak owns an 80% interest in the development joint venture entities that hold the GCX Interest and Targa’s next fractionation train, and a 95% interest in the development joint venture entity that holds the Grand Prix Interest, with Targa retaining the remaining interests. The DevCo JVs currently have approximately $220 million of assets. Stonepeak committed an aggregate of approximately $960 million of capital (including contingency), including an initial contribution of approximately $190 million that will be distributed to Targa to reimburse the Company for capital spent to date. Targa committed to fund approximately $150 million related to its share of the DevCo JVs’ future capital costs.

The DevCo JVs significantly reduce Targa’s equity funding needs for 2018 and 2019, and proceeds from Stonepeak’s initial contribution will be used to reduce Targa’s current debt.

Under the terms of the DevCo JV agreements, Targa has an option to acquire all or part (in $100 million increments) of Stonepeak’s interests for a four-year period beginning on the earlier of the date that all three projects have commenced commercial operations or Jan. 1, 2020. The purchase price payable for such partial or full interests is based on a predetermined fixed return or multiple on invested capital, including distributions received by Stonepeak from the DevCo JVs.

Targa will control the management of the DevCo JVs unless and until Targa declines to exercise its option to acquire Stonepeak’s interests. There will be no dilution associated with the DevCo JVs for Targa’s existing shareholders during the construction period, and if Targa elects to exercise its option to acquire all or part of the DevCo JV interests, significant upside associated with the three included DevCo JV projects will be for the benefit of Targa and its shareholders.

The companies worked with a deal team from the Sidley Austin law firm, including Cliff Vrielink, lead, Jon Daly, Chris Folmsbee, Zack Pullin, Alex Tanton, Nicole Lee, and Sabra Thomas.