Generation Essentials Group

Thank you, [Kentaria]. Good afternoon, everyone.

We appreciate you joining us as we discuss, among other things, our results from the First Quarter of 2015, which were released through our press release and 10-Q 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 May 11, 2015. Please refer to our filings with the SEC which are available on our website, including our 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, everyone and thank you for joining TEP’s first quarter earnings call. Before we dive into the quarter results I want to briefly touch on the topic that I'm sure is of interest to many of you as you know we will close the IPO for Tallgrass Energy GP that’s TEGP tomorrow we are very pleased with the successful execution of that transaction over the last couple weeks and last couple months and we’ll briefly touch on it near the end of the call.

But the focus today is on TEP Tallgrass Energy Partners, which had another strong quarter. First quarter was very successful both commercially and financially for TEP we completed the acquisition of an additional 33% in Pony Express effective March 1.

We completed a follow-on equity offering of 11.2 million units and we recently placed the lateral in Northeast Colorado, that’s our NECL Lateral on Pony into service another important milestone for Pony Express. In addition the first quarter was a record one in terms of adjusted EBITDA and DCF for TEP these record results were the driver behind our seventh consecutive quarterly distribution increase the most recent increase of $0.035 per quarter to $0.52 per quarter or $2.08 annualized represents an increase of 7% sequentially from the fourth quarter of 2014 and 60% year-over-year growth and total growth since our IPO of nearly 81%, which puts TEP near the top of its high growth peers.

As a reminder TEP acquired Trailblazer and a 33.3% interest in Pony Express from Tallgrass Development April 1, 2014 and September 1, 2014 respectively. As I just mentioned TEP also acquired an additional 33% in March 1 of this year.

The consolidated TEP net income and adjusted EBITDA results for the 3 months of 2014 include the results of Trailblazer and the initial membership interest in Pony Express, as if they were owned by TEP for all periods presented. In other words recast is required by GAAP.

The acquisition of the additional 33% membership interest in Pony Express is presented prospectively from our acquisition on March 1, 2015 in a result financial informations for periods prior to March 1, 2015 had not been recast to reflect the additional 33.3% for 2015. In addition, in order to more clearly depict the actual growth of the MLP we have presented the “as reported columns,” which show the results achieved by TEP corresponding to the periods we actually own these assets.

As you recall, the first Pony Express drop transaction provides TEP a minimum quarterly preference payment of $16.65 million. The second drop transaction includes an additional minimum quarterly preference payment of $20 million for a total of $36.65 million through the quarter ending December 31, 2015 that’s this year.

The first quarter Pony Express generated sufficient distributable cash flow to cover the prorated preference payment of approximately $23.5 million such that no contributions were made from Tallgrass Development to fund the minimum preference payment. The volume ramp at Pony Express is continuing nicely and we continue and we will continue as NECL and one of the upstream pipelines were placed into service in April.

Our first quarter adjusted EBITDA was $52.8 million, DCF was $46.5 million and coverage was 1.2 times representing strong asset performance. The accretive acquisition of Pony Express and solid distribution coverage.

I’ll let Gary go through the numbers in greater detail, but as I previously mentioned we increased our quarterly distribution by $0.035 to $0.52 per unit, which was due in part to the Pony Express acquisition. As we previously announced we expect the second quarter distribution to increase by at least another 8%.

The distribution for this quarter will be paid for – for the first quarter will be paid is coming Thursday the 14 to unitholders of record as of April 24. At this point, I’ll turn the call over to Gary to provide additional detail on the financials and then I will be back to talk about developments of each of the assets.

Thanks, Dave and good afternoon to everyone appreciate you joining us. While David highlighted some of the consolidated metrics for the quarter, I will now talk a little bit about our balance sheet and the segment performance for the quarter.

As of quarter end we had $698 million drawn on our $850 million revolver which is $139 million higher than our balance at year end to 12/31/2014. This is due to funding a portion of the Pony Express acquisition on the revolver in addition to using the proceeds of the equity issuance that Dave referenced to and so the combination of those two finance the PXP drop to.

But we are very comfortable with our current liquidity position at TEP we are considering a bond offering later this year to turn on a portion of that revolver debt and also to provide additional efficient capital access to further position TEP for growth. As with prior quarters our leverage is comfortably within our guidance of three to four turns of debt-to-EBITDA at 3.3 turns currently based on Q1 annualized EBITDA.

Now let’s move on to our segment performance for Q1. The Natural Gas Transportation and Logistics segment produced adjusted EBITDA of $19.2 million down slightly from the recast figures for Q1 of 2014, but importantly $3.7 million higher than Q4 of 2014.

The Q1 increased over Q4 was due to higher transportation volumes related to the cold winter weather, lower O&M expenses in Q1 of 2015 and lower cost of sale. For these reasons and the fact the Q1 is typically our best quarter of the year in this segment I would caution you against annualizing this figure to arrive at your guidance or an estimate for the full-year.

Firm contracted capacity of 1609 million cubic feet a day was in line with the 1604 million cubic feet a day for Q1 of 2014 and you can see how that demonstrates the stability in the firm contracted capacity at its height. Overall we are very pleased with the segments performance for the first quarter.

Now turning to the Crude Oil Transportation and Logistics segment or Pony Express we all know it adjusted EBITDA was $25.5 million for the quarter included in TEP's Q1 results is a prorated preference payment of $23.5 million which as David reminded you represents the full quarter of the payment for the first drop of $16.65 million and one month or approximately $6.85 million of the $20 million minimum quarterly preference payment for the second drop. As Dave mentioned earlier the preference payment going forward will be $36.65 million per quarter through the end of this year.

Average throughput for Q1 was 165,000 barrels a day which is the significant increase from the 85,000 barrels a day average in Q4, but it's safe to say at this point that recent volumetric flows are substantially more than the average for Q1. For your information we recently had one four-day stretch where we delivered approximately 1 million barrels of oil this is indicative of the pipeline’s ability to transport in excess of the stated design capacity even without the use of drag reducing agents and this is all primarily due to the viscosity of the crude that our customers are delivering into the pipeline.

Once the DRA’s are installed and fully operational we do anticipate the ability to transport even higher volumes. We expect volumes to continue increasing into the PXP Mainline at Guernsey and Sterling with the recent in-service of one to two join tariff upstream pipelines in the lateral in Northeast Colorado or NECL as Dave described to you earlier.

At the Processing & Logistics segment adjusted EBITDA was $8.7 billion which is down approximately $0.9 million compared to Q1 of 2014. The decrease is primarily due to lower commodity prices in the first quarter of 2015, average inlet volumes for Q1 of 2015 of 145 million cubic feet a day were comparable to the 151 million cubic feet a day for Q1 of 2014, but they were down from the 168 million cubic feet a day for Q4 2014 as we expected.

We would not be surprised to see an additional decrease in inlet volumes based on the current commodity environment reduced drilling activity in the region and other factors at play also in that region. However we have been and will continue to work to minimize any impact of those.

With the financial overview complete, Dave will now take you through some additional comments on the remaining assets in TEGP.

Thanks Gary. And as we do each quarter I’ll now provide a brief update on the Tallgrass assets that are not owned by TEP with regard to that let me first say that you know when we did drop Pony in last quarter this first quarter we did flag kind of what we thought would be some around a 15% distribution increase over two quarters you know we paid out about 7% of that we've already told you about another 8% left over would not be surprised if it actually did we do a little bit better than that, but I think you guys can feel from the tone how things are going around here.

With regard to TEGP just as I mentioned earlier in the call we’re very pleased with that successful launch you know we price it, it’s trading and basically TEGP just to remind everybody owns principally three assets, owns a $20 million, TEP units owns our 1.37% interest in the general partner and then also owns the IDR's that are attenuate to TEP. Transaction is scheduled to close tomorrow and it is expected that a prorated distribution will be paid for the second quarter in August on TEGP and that will actually be a dividend.

Next up is REX, remind you the Tallgrass Development holds our 50% ownership in REX and operates the pipeline, Tallgrass Development again being our private partnership. Many of you saw our press release on March 2, detailing the important commercial and financial developments at REX.

So instead of regurgitating those details I’ll just provide you a summary you can ask questions if you need further detail. Since we acquired our interest in REX in November of 2012 our teams worked extremely hard to reposition REX both financially and commercially.

This hard works culminated in the following developments. We repaid $450 million in senior unsecured notes on April 15 at REX.

The full commercial and service for the Seneca Lateral went into service at the end of last year and it's flowing at the currently available capacity at 0.6 Bcf a day there in Ohio. We received our approval from FERC for 7(c) certificate application and notice to proceed on the East-West project which will add an incremental 1.2 Bcf a day of capacity in Zone 3 in addition to the 0.6 Bcf that’s already flowing through Seneca we’re currently working on those compressors and expect to have it in-service shortly.

We held a successful binding open season for the Zone 3 capacity enhancement project that’s code for additional compression with the binding Precedent Agreements for 0.7 Bcf a day of capacity for 15 years. We have also made an application to FERC to allow us to add that compression expect to hear from them kind of a normal standard time.

And then finally, when we pay down the debt last month or so we did – for those that you didn't notice we did get a credit upgrade from S&P and were put on positive outlook from Moody’s and we expect actually Moody’s to give us an upgrade later in the year. With regard to Prairie State Pipeline as we mentioned last quarter we continue to work to commercialize Prairie State with AGL Resources our partner progress - the process is taking longer than we would typically expect due to the current commodity environment and potential customers taking kind of a wait-and-see approach.

However, we do this as a commercially viable project and well its not - it may not take the exact shape and form as previously described we are confident that this project will eventually be completed in some form or fashion. Our teams are working to create a solution that will meet the demands of the market.

Finally, Tallgrass terminals, while terminals are not yet a significant piece of our business, we have recently placed the Sterling terminal on PXP into service and begun receiving distributions from our interest in Deeprock terminal at Cushing. We expected annual cash flow from these two assets to be approximately $12 million.

Sterling and Deeprock both service Pony Express Pipeline and have capacity for 1 million and 2.3 million barrels of storage respectively. Terminals segment of our business where we see potential for nice steady organic growth over time and we are working hard to develop those opportunities.

In closing, the past few months we’ve seen a number of exciting developments at the Tallgrass family of companies and further demonstrate our ability to grow and create long-term value for our unitholders. However, I can assure you that our work is not complete it's only just begun, our team will continue its laser focus on identifying opportunities and executing on those opportunities in order to maximize unitholder value.

With regard to guidance I think – I am just going to repeat what we said before we know we don't refresh guidance we kind of give it a once a year and then if we meet – if we expect to miss our guidance in a material way we will update you at that time and I would say that having no update on that that is a good thing at this point. And again just to remind everybody we don't run our company for 90-day periods, our business isn’t linear, but having said all that, we still expect 2015 to be a strong excellent year.

So with that as always we thank all of you and our partners for their confidence investing in Tallgrass and thank you everyone for your interest in our company and enough to call and participate or listen to this call later. With that operator, we turn the call back to you for the Q&A portion of our call.

Well operator as usual take that as a extreme vote of confidence that we are transparent as it can be that the market has a great deal of confidence in us. So with that again I'll thank everybody for your interest in Tallgrass and we will see on the backside of next quarter.

Everybody have a good night.