Generation Essentials Group

Thank you, Gina. Good afternoon, everyone.

We appreciate you joining us as we discuss among other things our results from the Fourth Quarter of 2014, which are released through our press release and 10-K today. Joining me on the call this afternoon are David Dehaemers, Tallgrass' President and Chief Executive Officer; Bill Moler, Tallgrass’ Executive Vice President and Chief Operating Officer; and Gary Brauchle, Tallgrass’ Executive Vice President and Chief Financial Officer.

Before turning the call over to David, let me remind you that this event is being recorded and a replay will be available for a limited time on our website. Additionally, our comments today will include forward-looking statements and estimates.

These forward-looking comments are subject to various risks and uncertainties, and reflect management's views as of February 19, 2015. Please refer to our filings with the SEC which are available on our website, including our recently released 10-K, which provide a discussion of factors that may cause actual results to differ from management's projections, forecast, estimates and expectations.

Please note that except to the extent required by law, Tallgrass undertakes no obligation to update any forward-looking statement. With that, let me now turn the call over to David for his opening remarks.

Good afternoon, everybody, that’s able to join us today. Thank you for being part of our Tallgrass Energy Partners’ fourth quarter earnings call.

The fourth quarter of 2014 was a record one for TEP in terms of adjusted EBITDA and DCF. These record results drove the sixth consecutive quarterly distribution increase since our IPO in May of 2013.

The most recent increase of $0.075 per quarter to $0.485 per quarter or $1.94 annualize represents an increase of 18% for the third quarter of 2014, sequentially and 54% year-over-year growth. Again, since our -- and then since our IPO we have raised our distribution nearly 69%.

If you look at the compounded annual distribution growth rate, which you will hear me reference later in the call. TEP has delivered 42% growth since our IPO.

All of this has occurred prior to our second anniversary. I also would tell you that, we get a lot of industry reports on MLPs, et cetera, and the most recent one I saw the effect of -- I saw -- I have seen number of them were both for the fourth quarter of 2014 we were number one with that 18% sequential increase and also number one or number two in every report relative to the 54% for 2014.

I suppose the point I am making by telling you all this is that we feel like TEP is kind of walking to walk and not just talking to talk. Moving on with that, I would like to, this was kind of the first quarter, give a little bit of a, not feeling like a rock star necessarily, but just give a little bit of a shout out to our employees.

We -- notwithstanding that we’ve published our call on our website in the past, we have made all of our employees aware of it, a number of them I hope are listening in and we will listen in on the recorded call. So very proud of all of them and they are the thing that makes our company as good as it is.

As a reminder -- let’s move to the numbers, as a reminder, TEP acquired Trailblazer in a 33% interest in Pony Express from Tallgrass Development effective April 1st for Trailblazer and September 1st for Pony. The consolidated TEP net income and adjusted EBITDA results for the 12 months of 2014, and the three and 12 months of 2013 include results of Trailblazer and Pony Express, as if they had been acquired at the start of each of those periods.

In GAAP terms they call that a recast. In addition in order to more clearly depict the actual growth of the MLP, we also presented for everybody’s convenience the “as reported columns,” which show the results achieved by TEP corresponding for the periods we actually own these assets.

Just as a reminder, we close on the Pony acquisition like I said earlier on September 1st. We did have some income.

Pony really didn’t fully get in service until October of last year. As you recall, the first Pony Express TDev transaction provided TEP a minimum quarterly distribution preference payment of $16.65 million through the quarter ending September 30, 2015.

So in other words until through the third quarter of this we are currently in. For the fourth quarter of last year, Pony Express generated ample distribution -- distributable cash flow such that no contributions were made from Tallgrass Development to fund the minimum preference payment.

The point is that the condition requiring TDev to fund the preference was, perhaps, a belt and suspenders type provision when we bought the asset from TDev and was really put in place to just give some protection to TEP from very early start-up in volumetric ramp profiles of a new pipeline getting in service. But as expected, the volumetric ramp is occurring nicely and will continue to do so, as NECL and one of our upstream pipelines, Joint Tariff come online here in the coming months.

We will deal with that a little bit in more detail later, as we talk specifically about where we go forward. With that background, our fourth quarter adjusted EBITDA was $40 million, DCF was $35.4 million and coverage was 1.25 times, representing strong asset performance, accretive acquisitions and healthy distribution coverage.

Gary is going to go through in more -- through the numbers in little more detail in a minute. But as I previously mentioned, we increased our quarterly distribution by $0.075 to $0.485 per unit, which was 7% above the increase we anticipated making for the quarter, when we talked about it earlier or late last year.

The distribution was just paid. I think it was last week on February 13th to unitholders of record as of January 26th.

At this point, I’ll let Gary tell you about more of the numbers in detail.

Thanks, David and good afternoon to you all, inclusive of the Tallgrass employees that have joined us for the first time today on the call. Since David gave you the EBITDA and DCF and coverage figures for the quarter, I’ll give you our annual figures which were equally very strong.

Adjusted EBITDA for 2014 was $109.9 million on a recast basis, DCF was $96.1 million and coverage was 1.15 times, which includes the impact of the Fifth Distribution as we call around here of $3.2 million paid on the units that we issued through our follow-on offering in late July of last year. If you were to exclude that $3.2 million or Fifth Distribution, our fully year coverage would have been 1.20x.

In dollar terms, 1.15 equals about 13 million of excess coverage, 1.2 equals about 16 million of excess coverage and both are very conservative amounts. So it’s fair to say that we had an excellent quarter and an excellent full year as far as coverage is concerned and in fact, as you compare the guidance that we gave, as we compare our actual results or the guidance we gave to you over a year ago.

As you all know, we’ve talked about this in the past. Coverage changes overtime.

It varies in the short run, for example quarter-to-quarter. And as we said before, we don’t run our company based holistically on 90-day increments or achieving 90-day goals.

We run the company for long-term results and positive and appropriate performance in the long-term. So going forward, as the size, diversity and fee-based nature of our cash flows notably increase, you will probably see our coverage naturally come down and heightened over time as reflected in the guidance for 2015 that Dave will talk to you about a little bit later.

Moving to our balance sheet, which I would say is equally as conservative. As of year-end, we had $559 million drawn on our $850 million revolver, which is just below our third quarter balance at the end of the third quarter.

As with prior quarters, our leverage is comfortably within our guidance of three to four turns of debt-to-EBITDA and specifically a 3.5 turns, right in the middle of that range based on our Q4 annualized EBITDA numbers. So, let’s move onto to the segment performance in Q4.

The Gas Transportation & Logistics segment, which houses TIGT and Trailblazer, produced adjusted EBITDA of $15.5 million, approximately $2 million less than the recast figures for the same quarter of the prior year. The difference between the periods or the decrease between the periods was primarily related to the payment from TMID, for the buyout of its transportation contract with TIGT in the fourth quarter of 2013.

You will recall we discussed this a year ago. But as a reminder, it was expensed at TMID, revenue at TIGT and it was eliminated for no impact at the consolidated TEP level.

Firm contracted capacity in the segment was 1,550, which was up slightly from 1,475 for the comparable last quarter of 2013. And the segment’s performance in Q4 was in line with our expectations and also in line with our expectations on average during 2015.

Now to Crude Oil Transportation & Logistics or as we refer to as Pony Express, adjusted EBITDA was $15.7 million for the fourth quarter and included in TEP's Q4 results is the first $16.65 million of cash flows generated of PXP, according to the preference conditions that Dave outlined for you just a moment ago. Dave will give you more details about recent PXP throughput later but it's fair to say at this point, the volumetric flows were substantially up from Q4 and we expect to continue to see our volumes increase into the PXP Mainline at Guernsey in the beginning of year, as we move through the coming months.

At the Processing & Logistics segment, which includes TMID and our 80% interest in BNN Water solutions, adjusted EBITDA was $9.4 million, which is up approximately $2 million as compared to Q4 of 2013. The increase is primarily due to the income in the fourth quarter of 2014 from BNN Water Solutions and increased processing volumes at our midstream facilities during the fourth quarter of 2014.

Average inlet volumes for Q4 was 168 a day, which were up significantly from 147 in the comparable quarter of 2013 and that was due to an increase in customer deliveries to our facilities for processing. As we look ahead into 2015 for TMID, we would not be surprised to see inlet volumes decrease from Q4 levels based on the current commodity environment, reduced drilling activity and other factors that play in the region.

As always though, you can remain confident that we are staying ahead of the game and we have a number of initiatives that we’re working diligently on to minimize any impact primarily from volume metric changes. So with financial overview of our segment complete, I’ll turn it back over to Dave for additional comments on ‘15 and the individual assets.

Okay. Good.

So now we’re into what I call the fun part here. These are the forward-looking statement parts.

And so I also kind of described it as kind of the -- now you’ve told me what you’ve done for me. So once you tell me what are you going do for me part.

So prior to jumping into that update on the individual assets, I’ll give you a brief overview on what to expect from TEP in 2015 related to financial performance. As we did last year, we will provide guidance one time and we will not update it throughout the year.

We would update it obviously if we have material changes that we know about. It is important to note that the figures that follow include a second dropdown of Pony Express.

These figures are on a consolidated TEP basis. For 2015, we expect adjusted EBITDA of $205 million to $225 million.

We expect DCF, distributable cash flow of $180 million to $195 million and distribution coverage of $105 million to $110 million. Furthermore we expect our current annualized distribution of $1.94 to increase approximately by 20% for 2015 and grow at a minimum average compounded annual distribution growth rate, that’s a powerful CAGR for finance guys out there, of at least 20% through 2017 or beyond.

So that’s a three-year compounded annual distribution growth rate of 20% for three years or longer. So when I say average though, I think I would tell everybody just to understand there won’t be linear, some years it might be little more than 20 or more than 40, other years, it might be a little bit slack but we feel good about an average of 20 overall, going forward.

Another point, I guess I would make, we’re not an MLP that’s going to tell you, we’ll grow our distribution by $0.03 a quarter for every quarter for the next 20 quarters. Instead as an investor in TEP, you will get any increases we make immediately.

In other words, we’re able to pay it. Our goal is to always increase distributions as soon as possible, not just create some little bunny slope which you’re going to ski up.

In order to address our guided coverage -- another thing here I guess, is just address our guided-to-coverage ratio directly. Our guidance is lower in the 1.2-ish that we have kind of done over the last eight -- two years since we gone public in May of ‘13.

But we believe it makes good sense now that we’re bigger, less commodity exposed company. We’ve talked to you all in the past about what we’ve changed some of our processing contract to be fee based et cetera.

We have more -- we have first sort of Tony going in. We expect that second and third, Pony did come in this year, first half of this year.

And so therefore, we’re more firmly contracted MLP and feel like that's justified. Overall we believe that TEP will produce another year of top-tier growth, continued development to a larger, but very traditional midstream MLP for the long-term.

And again emphasis like I have tried to place in the past, traditional midstream, big pipes, long dated contracts, pipes are going to flow for a long, long time and produce good returns for our investors. Now I’ll get to specific acquisition updates.

Moving on to Pony Express, I'll remind you that TEP owns a 33% in third or third percent interest. And Tallgrass development currently owns two thirds 66.7% interest.

As I hope most of you know, we recently announced the TEP has been offered the opportunity to purchase an additional 33.3% interest in Pony Express. The price being offered at this point is approximately $700 million.

The terms haven’t been finalized and the closing date has not been set, but we are working with independent committee on those things. We expect an agreement to include a similar type of preferred distribution provisions similar to that of the previous transaction and that would be on the second third.

The reason for this is that NECL which is our Northeast Colorado lateral construction project while almost complete is not in service yet. And -- but it is nearing the point which we are going to start filling the line.

It will take some time to start up and debug this new pipe and get it running full out 24x7. Utilizing some of things that we learn when we started up the more complex Pony main line the last quarter of 2014, we think we’ll have fare or less start-up challenges with this and it will go much more smoothly, not that that didn't go somewhat smoothly for us.

We view this as again a smart belt suspenders move and the seller TDev understand and appears at this point willing to accommodate this type of arrangement. In addition to the potential acquisition of another third of Pony, I'm sure many of you are anxious to hear an update on the expansion of Pony which we told everybody about.

Given the recent undeniable leg down on the commodities market, which occurred in large part after we launched our open seasons, our current and prospective shippers are much less willing to commit to long-term contracts. Keep in mind the operative word here is commit.

I will come back to that in just a minute. That said, we did secure an incremental commitment for 10,000 barrels a day, which is not insignificant when you start taking that times the tariff rate.

Now with regard to that word commit and some thoughts on Pony’s capabilities. In the open season, we stated an ability to accommodate up to 100,000 incremental barrels per day of capacity or transportation capacity simply with the use of drag reducing agents and minimal capital spending.

Further depending on the type of oil move, for example, lighter Bakken production, we are able to move more barrels than the current contracted volumes without any DRE. So what does that mean?

It means that we have every possibility of moving incremental barrels in Pony above our contracted commitments, which includes this new 10,000 barrels a day on a walk-up basis. Pony is still the safest, cheapest transport out of the production areas to Cushing.

We continue to have constructive conversations with potential expansion shippers of possible future commitments, but understandably they are just saying just not yet. So when commodity prices firm up to a more economic level, we are extremely well positioned to meet incremental demand for the market with our cheap -- relatively cheap and easy expansion capabilities.

Finally, as it relates to an operational date on Pony Express, we are currently delivering approximately 160,000 barrels per day through our local tariff and activation of only one of our two upstream joint tariff pipelines in service. Once the additional upstream joint tariff is activated, we expect to be moving close to the design capacity from Guernsey, Wyoming to Cushing.

And just let me make a couple comments on that. We have moved on certain days upwards of 180,000 to 190,000 barrels a day.

And in fact for couple hours, we have tested out the pipeline and moved somewhere I think around 24-hour rate of somewhere around 250,000 barrels a day. So, that’s good news.

And frankly as good or better than what we had expected. Incremental barrels from NECL will come on line once it’s in service.

NECL again is progressing very well with the entire pipeline being laid welded and backfilled already. Hydrotesting of the line has already been completed successfully.

And in fact, we are just now starting to dewater the line. Once that’s all occurred, we will send some cleaning pigs through it and begin filling it with oil.

We continue to expect an in-service date sometime in the second quarter of this year, which again will further increase the volumetric throughput of Pony. Now on to REX.

We always get a lot of questions about REX and hope this will be informative. In fact, I hope at the end of this, we are very hopeful that we will have a number of questions that we can talk to you about stuff that everybody is interested in.

With regard to REX, I remind you that we own our 50% interest in operating REX. It’s held by Tallgrass Development.

Our team continues to work very hard to execute on our strategy of turning REX into the nation’s northernmost bidirectional header system with supply diversity servicing the major demand markets in the United States. I am pleased to announce we have accomplished one of the major milestones in that strategy as Seneca Lateral has recently achieved its full capacity of approximately 600 Mmcf a day.

Additionally, we continue to expect approval of our 7(c) certificateapplication with the FERC for bidirectional flows within Zone 3 any day. And in the meantime, we are working on additional expansion opportunities within Zone 3.

We hope to provide additional detail on these projects as well as other significant developments in the near future. I guess I would tell you we have been waiting -- again just frankly, we have been waiting on that certificate any day now and we have already ordered a lot of the plumping necessary to make all that happen.

On to the Prairie State Pipeline project, as you’ve seen in our joint press release from last Thursday, Tallgrass Development has closed the successful nonbinding open season for the Prairie State Pipeline, which it is jointly developing with AGL Resources. Pipeline is expected to have a total capacity of 1.2 to 1.5 Bcf a day moving gas from supply connections in central Illinois to the Chicago market center and points in between.

Project received solid expressions of interest and Tallgrass Development will continue to work with AGL to finalize shipper commitments via Precedent Agreements. I would remind you that with any development project there is still a significant amount of work to do and it still needs to be completed in order for it to happen and be commercialized.

I guess the final thing that we will touch on before we turn it onto Q&A is just some comments on our potential GP transaction that we put out a brief announcement on earlier this month. As evidenced by the number of calls we have received, I know many of you are interested in this.

We expect the registration statement to be filed in the near future, which will provide copious amounts of detail, but at this time we have nothing more to say on this subject. We appreciate your understanding and ask that you refrain from asking questions on it, because simply, we just can’t talk about it.

We feel like we’re in a quite period with respect to that. With all these specific updates completed, I’ll just give you a few overall comments.

Things that have been kind of on our minds around here, in three months TEP will celebrate its second anniversary and while we may not have a long history, I think, you can agree that over the first two years we have consistent delivered on the strategies, objectives and growth we have put forth. In fact, I seem to recall when we were on the road show we had a lot of people ask us, what is your distribution CAGR going to be and I think, my -- our answer was, we hope that over three to five years we might be able to deliver kind of 10% to 15% distribution CAGR and I -- if my calculations are right, we probably delivered that in about 18 months.

I think you can tell that we’ve done all this on a pace that is far exceeded the market expectations. If you follow us and know much about our management team, we aren’t much for talking about all this and blathering all about it, but rather just getting it done.

We’re much more focused on going out and doing it, and letting out actions speak louder than necessarily our words. Notwithstanding that, we’ve felt compel to give everybody kind of some ideas about what we see over the next few years and are working hard to -- are going to work hard to make that happen.

With that, I guess, I will just commit to you as always that, TEP is going to work really hard to execute on our -- all of our programs and produce outstanding results for our unitholders and appreciate everybody’s joining us on this call. So, with that, Operator, we’ll turn the call over to you to allow for a Q&A portion.

Hey, guys. Good afternoon.

Few questions here, one, in terms of the guidance, what’s baked into the guidance in terms of the timing for the dropdown?

I mean, the drop of Pony too?

Yeah.

Yeah. I would expect that we -- we’ll have it done somewhere in the first half of the year.

I mean, today, we’re practically at March 1st. So, again, we’re working on it.

I can’t tell you whether it’s going to be March 1st or May 1st. But we feel like any numbers that we’ve given you in terms of guidance are achievable whether it’s anytime between now and June 30th.

Okay. And then just on -- couple of questions on the growth rate and the coverage?

The 20% growth for 2015 is that Q4 over Q4? Is that the right way to think about that?

I think that’s the right way to think about it.

Okay. Good.

And then, in terms of the longer term 20% CAGR through 2017? Should we assume that you’re now going to be running the business at more like a 1.05 to 1.11 coverage like you said -- like you’re guiding for ’15 or will that also be…

Yeah. I think that’s fair to assume.

I mean, I -- and I think that’s fair to us too.

Okay. And then, last question from me, just any other update on the REX reversal.

I think you’re up to 2.1 Bcf of commitments? Is that the final number or is there still potentially, could that go higher?

Yeah. Just to be clear, we filed an application with the FERC to make the line bidirectional and that will take three pumps.

Making three pumps bidirectional, we are waiting for that. That basically with Seneca, at 600, adds another 1.2, so that adds another 1.8 Bcf coming from the East and back in Zone 3 to points back to the West, so that’s that.

We also have gone out and have been working on signing President agreements with shippers for a powering up of the REX line, which we really can’t tell you a lot more about until we get these FERC 7C out of the way. But suffice it to say, we do have an expansion project behind that, which would add hundreds of thousands a day on top of the 1.8.

And I would suspect that numbers higher than what you’re thinking.

Okay. And what do you think the timing is of that?

If we had found out, today, we got the 7C -- you would probably know all this right now.

Okay. Thank you.

Okay.

Operator, let’s just give another 30 seconds here. We are either really, really good or really boring.

So, we are here and willing to talk. So what were those instructions again, operator?

Okay. Well, we are just going to….

Hi. It’s Faisal from Citi.

I want to ask a question. Just going back to some of the volumes you talked about on Pony, so you said you guided up to 250 a day at some point of time but it sounds like you said, you were averaging about just under 200, is that right?

That’s right. But, again, keep in mind that we’ve only have the mainline on in one of our upstream, Joint Tariffs hasn’t even been activated.

And so we are doing everything we can do contractually for what’s being put into us. We wait -- I mean, the bottom line is we are waiting for Hiland to come on.

Kinder just closed their transaction and that we were expecting Hiland to come on at any day now.

Right. That’s what we are going to see and then that will get you up to.

When Hiland does come on line, will you expect the volumes to sort of ramp up?

Yeah. If you remember, our contracts are for 206 a day with Hiland and Belle Fourche on.

And then we had expected 10% walk up, so that’s a total of 230. So, we’ll just have to wait and see what if the walk-ups really show up in this environment that we are ready, willing and able to move all that.

So, I would suspect that given where differentials are in that, you probably -- walk-up shippers and want to move more crude by pipe versus by rails. So, I mean what’s the total sort of -- is 250 the maximum capacity or can you get more walk up, I mean, beyond that?

Hi. This is Bill Moler.

We have a range of crude types that Pony was designed for.

Yes.

At the latest crude type, we can move more volume at the heaviest crude type, we can move less volume. The design capacity is 230 which is tied closer to the heavier crude.

So depending upon the types of crude that we get into the system, we maybe able to move more at times. I wouldn’t say that is going to happen all the time.

But there are periods of time, where we could move more because of the viscosity being less.

Okay.

And NECL coming on and later this year that’ll add another 90,000 barrels a day of capacity to the pipeline. So total design capacity all in 320,000 barrels from Rocky Mount production regions to Cushing.

Okay. Got you.

And then did you guys talk about what the Prairie State Pipeline would cost or what the total for the capital cost of the pipeline would be?

Yeah we didn’t and that’s because we are still working on scoping it relative to what we might end up with binding agreements. So we had a good non-binding open season and on the back of that, we are working to commercialize the contracts.

But it’s too early to kind of throw out a number in terms of cost.

Okay. And then on the REX reversal, it sounds like you were talking about getting up to 1.8 BCF a day on the reversal, once what you get the required permits from the FERC.

But just going back to what you could do above and beyond that with additional compression capacity and the powering up of the line. Did you guys already put out a number or did Sempra put out a number that talked about something closer to 4 BCF a day total reversed capacity or something like that.

I don’t think there was a number already out there. And I just wondered -- wanted to understand sort of why you guys are holding back that number?

Yeah, I don’t know what -- we are not holding that from anything and I am not sure what Sempra did or didn’t talk. Just to be clear, we have 1.8 BCF of contracts that go from Wyoming to Ohio.

When we get the pipe by directional we will have another 1.8 BCF of contracts that go from Ohio back to the Missouri border in zone three.

Sure.

That’s 3.6 BCF and then if we do a power up that is lets just say a half would be additional by adding compression on the east end that would add basically 500 to 3.6 would be 4.2.

Okay. That’s what I was looking for.

Okay, that makes sense. Okay great.

Thanks guys appreciate the time.

Thanks Faisal.

We are just going to take that as an indication that we are really good. So thank you everybody for having attended the call and appreciate everybody’s support with Tallgrass Energy Partners.

Have a great evening.