Generation Essentials Group

Thank you, Lisa. Good afternoon, everyone.

We appreciate you joining us as we discuss, among other things, the Tallgrass Energy Partners and Tallgrass Energy GP results from the third quarter of 2015, which were released through our joint press release and respective 10-Qs 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 November 4, 2015. Please refer to our filings with the SEC which are available on our website, including TEP’s 10-K/A and TEGP’s 10-Q for the first quarter, which will provide discussions 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 and thanks for joining our third quarter Tallgrass Energy earnings call. As we did last quarter and pretty much have done every quarter, we will briefly touch on the financial results of TEGP, sorry, we’ll briefly touch on the financial results of TEGP but our focus is going to be on the financial and operational results of TEP as it is the driver behind TEGP’s performance.

One of the younger members of my management staff here, pointed out to me that there is a blog or website out there that says something to the effect of “stuff management says” I don’t think it’s actually stuff but another word, but we’ll just go with stuff for now. Having said that, we’ll endeavor to give you a lot of good information here, if we say something that seem a little silly then so be it, we take all this very seriously and try and make a very good habit of saying what we think is important, doing what we say we’re going to do.

Having said that, fall was always a favorite time of mine. And as usual, another 90 days has runoff the calendar.

I’ll just politely remind everybody that I and we at Tallgrass, TEP, TEGP, don’t run our lives on 90-day increments. We’re here to run this company for the long-term.

And the long-term includes making outstanding results for all of our partners over the long-haul. So, with that, we did have another successful quarter commercially, financially and all around it TEP.

One of the best areas of our performance as you might expect was the performance in the crude oil transportation logistic segment or Pony Express. For the first time, quarterly results, example, the third quarter include a full quarter of operations from the lateral in Northeast Colorado, the impact of incremental 10,000 barrels a day of firm transportation that were activated engine and the impact of the “annual index adjustment” that we filed with the FERC.

That all went into effect July 1. These results as well as solid performance in the natural gas transportation logistics segment led to our ninth consecutive quarterly distribution increase since TEP’s IPO in May 2013.

As you recall the first Pony Express drop transaction provides TEP a minimum quarterly preference payment of $16.5 million and was done at approximately at 9x multiple. Second drop transaction was also done at an approximately 9x multiple and included an additional minimum quarterly preference payment of $20 million or $36.7 million on an aggregate basis for two thirds of Pony through the quarter ending December 31, 2015, that’s the end of this year.

For the third quarter, Pony Express generated distributable cash flow to TEP of $43.7 million for its two-thirds or 66.7% interest. This DCF to TEP is well in excess of the minimum quarterly preference payment of $36.7 million.

I’ll provide a little additional color later in the call but the financial and operational performance results of Pony Express continue to be outstanding. Why do I tell you all this?

It’s simply to demonstrate that based on these figures annualized, the multiple paid for TEP for the first two drops of Pony would now average up to less than 7.5%. What does this show?

It shows that we have very aligned group of ownership and that we’re all rowing the boat in the same direction. And that T-Dow [ph] is very motivated, it’s the private company that we still own, every one of our Tallgrass entities are still very motivated to both growth TEP and TEGP.

The third quarter adjusted EBITDA for TEP was $65.9 million, DCF was $54.5 million and coverage was a healthy 1.12. At this point, I’d like to point out that TEP’s year-to-date coverage at the end of September is 1.18 times resulting in cash in excess of distributions of over $24 million through the nine months of 2015, September 30.

Just to remind everyone, our cumulative cash in excess of distributions is just under $50 million since our IPO in May of 2013. Basically we produced almost $11 million in 2013, $13 million in 2014 and close to $25 million so far this year, that’s about $48 million when you add it all up.

This is one example as to how we have grown and we’ll continue to grow our business and distributions in a prudent and healthy manner. We believe our ability to do that sets us apart from many other MLPs and provides us with financial flexibility even in tough capital market environments.

Said another way, we have flexibility. Gary is going to talk to you about our debt to EBITDA ratios and our debt load etcetera.

We are solid we have a set team of solid managers and stewards of our assets. And probably most importantly in my view, we’ve got a significant amount of skin in the game.

So we’re very, very much aligned with all of our partners. Before I kind of leave, the overall performance, let me just say that it seems to me we’ve discussed this before people put out notes around we beat or we miss consensus.

I’m not sure I exactly know what consensus is because if you look at companies like FactSet, Bloomberg, Reuters, Cap IQ, they all have a different consensus. And if you peel back the onion, none of them really know exactly what the real consensus is and none of them, really do it right.

We’re the ones on the ground running the company. And I would say by every metrics so far, we’ve far exceeded what we told people we were going to do at the beginning of the year.

And frankly, we’re going to continue to do that through the rest of the year and into next year and the year after that. As it relates to our distribution, our strong performance supported TEP increasing its quarterly distributions by $0.02 per quarter to $0.60 or $2.40 annualized.

This represents an increase of 3.4% from the second quarter of 2015, 46.3% year-over-year growth and approximately 24% growth for the 2015 year of three quarters - 24% through three quarters. I think we told everybody when we gave guidance earlier in the year that we expect that to grow 20% a year for the next three years in terms of DPU CAGR.

And we’ve exceeded that this year. We did tell everybody it may not be linear, I’m not here to change any of that.

But I’m just telling you, we’re beating what we said we were going to do. As a result of the $0.60 distribution at TEP, TEGP will receive distributions from Tallgrass equity of approximately $6.9 million.

And based on that amount, TEGP declared a distribution of Class-A shareholders of $0.144 or $0.576 on an annualized basis. The distributions for both TEP and TEGP will be paid on Friday, November 13 to unit holders and shareholders of record as of Friday, October 30.

At this point, I’ll turn the call over to Gary to provide some additional details on the financials and business segments. And then we’ll come back and talk about our other assets as we normally do at the end.

Thanks, David and good afternoon, everyone. While David took you through the EBITDA, DCF and coverage figures for TEP, I’ll provide some detail on the balance sheet and our segment performance.

As of quarter end, we had $696 million drawn on our $850 million revolver, providing us with just over $150 million of liquidity available to us. Our leverage continues to be below our guidance of three to four times debt to EBITDA at approximately 2.6 turns based on Q3 annualized EBITDA.

And just to reiterate that metric, our leverage is currently 2.6 times, clearly a very healthy metric for the company. We remain ready for a bond offering but will only do so at attractive prices which we have not seen in the market for a number of months now.

Nevertheless, we feel confident that our little leverage and other factors that are healthy within TEP provide us ample debt flexibility. So, now let’s move on to our segments for the third quarter.

The natural gas transportation and logistics segment which is TIGT and Trailblazer, produced adjust EBITDA of $16 million, down slightly as compared to either Q3 2014 or Q2 of 2015. The decreases are primarily related to the timing of certain activities and costs within that segment.

Firm contracted capacity for the third quarter at 1.5 billion cubic feet a day was comparable and looking at the sequential and prior year quarters. Overall, as it relates to this segment, it continues to perform in-line with our expectations.

Now turning to the crude oil transportation and logistics segment. Adjusted EBITDA was $47.5 million for Q3 which is $1.2 million higher than the $46.3 million reported last quarter or for Q2 of 2015.

This increase which would have been more notable if you were to exclude the favorable property tax adjustment included and clearly explained in the Q2 numbers was due to higher transportation revenues in Q3, as a result of the factors that David mentioned at the beginning of the call. One other item of note before I move into Pony Express’ operational metrics, and that note would be on shipper deficiencies.

Shipper deficiencies on a net basis is a cash amount included in our DCF which increased by a net of $8.3 million in the quarter. Like last quarter, we believe a number of factors contributed to this increase and we will continue to monitor these balances.

But I can tell you that we remain very confident that we have the operational capacity available to us to deliver these barrels. And we would remind you that these are short-term two-quarter movements in the broader context of five-year take-or-pay shipper contracts.

Now onto throughput volumes. Average daily throughput on Pony Express during Q3 was approximately 253,000 barrels a day, up from Q2s average of approximately 237,000 barrels a day.

Our October estimates show us that throughput for that month was about 264,000 barrels a day and November nominations which we just received not too many days ago would predict about 297,000 to 300,000 barrels per day of flow on Pony Express in November. Again, these are short-term data points but they’re certainly trending positively and favorably for Pony Express and Tallgrass.

The processing and logistics segment generated adjusted EBITDA of $3 million for the third quarter of 2015 representing a decrease of $5.6 million and a decrease of $4.1 million as compared to the third quarter of 2014 and the second quarter of ‘15 respectively. The decrease was primarily due to higher costs associated with planned plant downtime for annual maintenance during the third quarter of this year, lower commodity prices and lower average inlet volumes.

Approximate average inlet volumes at the processing facilities were 110 million cubic feet a day for the third quarter of this year as compared to 153 million cubic feet a day for the third quarter of 2014. A portion of that decrease is attributable to the plant downtime in the third quarter of this year, most of which occurred in the previous years’ second quarter.

As we have previously mentioned and I would reiterate for you now, we did foresee these volume declines and it is not a surprise to us. Before David updates you on some recent business developments within our assets, I’ll wrap up with a comment or two about our 2015 guidance which we issued in February of this year.

As a matter of practice, I think we have mentioned before that we don’t revise our guidance as we move throughout the year except in the case of extraordinary changes. But I will tell you that we do have three quarters of solid results behind us and we’re a month into the fourth quarter.

So, if one were to assume a reasonable estimate of Q4 performance at TEP, the aggregate results would nicely exceed our adjusted EBITDA, DCF and coverage guidance for the full-year 2015. In addition, with respect to distribution growth and importantly, I would remind you that we have already exceeded our 20% distribution growth guidance for 2015 by delivering already 23.7% distribution growth at TEP through the third quarter, and we still have a fourth quarter declaration on our distribution ahead of us.

So, just as a reminder, Dave said, I’ll reiterate, the 20% distribution growth guidance is an annual average for the period of 2015 through 2017 based on year-end exit rates. And we may not deliver that growth in a linear fashion from year-to-year within that timeframe.

So, by any of those measures that I just mentioned to you, with the results that we’ve produced so far this year as well as those that we expect to deliver for the fourth quarter of 2015, the year should shape up to a very nice performance. And with that overview complete, I’ll turn it back over to David for some additional asset comments.

Thanks Gary. As we do every quarter, I’ll talk now about, a brief update on Pony Express as well as recent development of TIGT and the other Tallgrass assets that aren’t necessarily owned by TEP aka REX.

Before I do that though, just let me tell everybody that, I’ll remind everybody kind of what our message is here at Tallgrass. And what our message is that Tallgrass Energy is a midstream operator providing long-term sustainable distribution growth to investors fueled by strong customer relationships, a significant geographic footprint and solid growth potential.

That is what we are. And we have a little thing around here that we call the message-house which I think was, it’s not unique but it was developed by a very smart lady that works with us.

And there are five pillars to that message-house. And those pillars are safety first; our people are our greatest asset; long term customer relationships which we work very hard to maintain and improve constantly; financial strength and stability, which I think we have demonstrated over the three years that we’ve owned these assets; and the 2.5 that TEP has been public, and then growth potential which again we have constantly demonstrated to everybody that we are executing on and continue to.

So, with that, I’ll talk a little bit about Pony. As it relates to the expansion for at least an additional 100,000 barrels per day of capacity, the installation of the drag reducing agent or DRA skids is near completion.

We’ve installed a total 15 skids downstream of our pump station and 12 of these installations are complete as of today. In addition to providing the ability to increase throughput on the pipeline of both the nameplate capacity, the DRA, also allows us to decrease the run-time of our pump stations which provide savings on electrical cost, and ultimately the maintenance of our pump stations.

The cost savings we have experienced to date are more than offset the cost of the DRA facilities and the DRA itself, and a potential revenue enhancements are outstanding, if you can just imagine what that looks like on a 100,000 barrels. As a matter of fact, we experienced 24-hour shipment of barrels just this week of more than 330,000 barrels on one given day, reminding everybody that we have give or take about 300,000 barrels a day under contract.

As an aside, before I leave Pony or kind of a little vignette, three years ago November 13, we closed our acquisition of our assets. At that time Pony was just an idea, it was a FERC filing.

Today, we have a project with, and at the time, when it was just an idea and just a FERC filing, we thought we had a pipeline with 160,000 barrels of contracted, of contracts per day. Today it’s built, running as contracts at nearly 300,000 barrels a day, it has exceptional scalability and growth potential for all the services not only that it renders but that we expect to do other business along it.

So, we’ve tried to talk to you all about that as we go along. And we’re just reiterating what the potentialities there are for Pony.

Moving on to TIGT, the TIGT rate case, as many of you may have seen, maybe you hadn’t. Last Friday, TIGT filed a rate case with proposed changes to its rate structure, updates to its tariff and to implement a system-wide rate increase for its firm and interruptible transportation storage services.

While it’s too early in the process to provide specific details on the timing of potential impacts to cash flows, I would tell you that it’s been 17 years since TIGT last proposed an increase in its rigs. Since then, costs have increased, system usage has changed and many of you know, TIGT has been one of the lowest, if not the lowest cost to service recovering pipelines in the country.

We believe our proposal and our rate case is fair to our shippers, we’ll simplify our rate structure, modernize our tariff and ultimately have a positive financial impact to TIGT. Stay tuned for additional updates on it.

REX, I remind you that Tallgrass development holds our 50% interest in REX and operates the pipeline. As I mentioned on last quarter’s call, REX is 1.2 billion cubic feet a day east-to-west project, went into service on August 1.

And shippers are now moving appellation production to markets in the Midwest and Gulf Coast region. There have been many days already as it’s completely full out there in zone three.

With this important milestone accomplished, we have fully shifted our focus to the third piece of the transformation at REX which is 800 million cubic feet a day zone-three capacity enhancement project. We recently signed a turnkey construction contract with a reliable and well capitalized contract before this project and continue to spend capital on the longer lead items and civil engineering work.

We expect in what that is essentially adding three compressor stations out there in zone-three, three brand new compressor stations. We expect in-service by the end of 2016 when that occurs, REX will be capable of moving 2.6 billion cubic feet a day eastbound in zone-three.

Commercially, we have recently sold subject to regulatory approvals another 60 million cubic feet a day of the remaining 100 million cubic feet a day of zone-three east to west capacity. So, said another way, of the 2.6 billion cubic feet a day of zone-three east to west capacity, 2.56 billion cubic feet a day, I can’t do that math in my head.

But I’m guessing it’s probably somewhere around 98% or 99% is sold firm for weighted average of about 17 years. In summary, developments at REX continue to be very positive both commercially and financially.

Finally, Tallgrass terminals which, is owned by [indiscernible], we continue to do business there. As we mentioned last quarter the development of the Buckingham Truck Terminal, truck and loading terminal is underway and we’ve made good progress on it within service currently expected in Q2 of 2016.

We’ve also made good progress on a couple of other opportunities we mentioned on this Q2 call but it’s still too early to provide additional details at this time. Our terminals team is pursuing a number of opportunities which we believe will develop into executable projects or acquisitions within the coming months.

We continue to be very positive about terminals and the opportunities it presents for organic and other future growth. In closing, while the capital markets continue to paint energy companies and particularly MLPs with a broad negative brush, we’re very proud of our operational performance, our distribution growth, the strength of our balance sheet and the execution we continue to deliver.

None of that’s changed, if anything, it’s getting better and we’ll continue to get better. We believe our focus on our customers’ assets and building a business model primarily with long-term take-or-pay contracts will allow us to continue to grow our distributions and execute our strategic plan even in these choppy markets.

Once again, as we say around here, our work is not complete, it’s only just begun. As always, thank you all our partners and shareholders for their confidence investing in TEP and TEGP.

Thank you everyone on this call for your interest in giving us some of your time to listen to what we have to say. With that, we’ll turn it back to the operator and open the Q&A portion of our call.

Hi Brandon.

Good afternoon gentlemen. Let’s see, I guess, just to follow-up on the last comments there.

REX, any updates on demand driven lateral, something Prairie State in particular, but anything else that is of interest or has changed quarter-over-quarter?

Brandon, good question. The Prairie State project as mentioned by both ourselves and our partners of AGL, continues to be a project that is being worked and modified as necessary as the markets indicate a desire to go to that asset and feed the Chicago market.

We’re working on it it’s just taking a little longer than what we had anticipated. We have hooked up a couple of other demand points David talked about one of them in the opening remarks which was 60 million a day of the remaining 100 million a day.

So, we are supply rich and we’re starting to get markets to recognize that and connect to us and take advantage of the lower commodity prices in the Utica and Marcellus.

Hi Brandon, just for clarity that was Bill Moler responding to that question for you.

Thanks Bill for that color. And then, I guess, shifting over to Pony, any incremental color on kind of the volatility of volumes and the quick ramp at least an armed basis for November?

Yes, I don’t think the volumes are all that volatile. I mean, if you go back and if you look at, again, it’s a pretty simple accounting convention that, we have take-or-pay contracts.

People pay us for shipping on the pipeline whether they ship or not. And we disclosed perfect clarity there as to what our deferred revenue is, which means we got the cash-in, it is cash flow yet it’s unearned revenue from an accounting convention standpoint, you see all that.

If you kind of do the cumulative math for the different through the third quarter for our pipelines, basically we have about 25,000 barrels a day, it isn’t shipping on our pipeline so in other words are for contracted, 300,000 that people have been shipped - for the third quarter they shipped roughly on average about 275,000 barrels a day. I don’t view that as extremely volatile, I mean, it’s very understandable when you have people that are getting $40 for their barrel of oil that they may not want to ship it to markets and may want to keep it in the ground.

And so, they know that they have the right later on and that’s the great thing about Pony and its scalability, they have the right to ship those volumes later, even though they’ve paid $4 million in advance. And so, we have the ability to meet those goals at anytime.

If you just shipped another, I think 25,000 barrels a day for 50 days, so in other words, our contracted volumes go to, from 300,000 and people actually shipped the 325,000 performance, we would burn it all off in 50 days. So, I hope that provides some color to you and at least what you know how we think about it and how we don’t really view the volumes as being that volatile.

Okay, fair enough. Thank you.

And I’ll leave it at that.

Great.

Hi John.

Yes, good afternoon. Just following on your remarks where you said you’ve already exceeded your promises to date.

And so I was just wondering in terms of updating the outlook, how are you thinking on your distribution growth going forward? Are you still looking at that sort of 20% compounded at TEP and obviously full-year ‘15, you’re running ahead of that?

So, I guess that was one question. And then, you were indicating earlier that you had expected some of the volume changes and so maybe it’s kind of a tack on to Brandon’s question earlier, so maybe any additional insight you can give us on that would also be helpful.

Yes. With regard to the first year, our guidance was 2015 through ‘17, 20% CAGR, we’re already at 24% through this year, through three months.

I wouldn’t bet against this as to continuing to improve that in the fourth quarter. And so that leaves 2016 and ‘17 as to what we earlier said, nothing has changed.

I mean, I would fully expect that just like last year, when we do, at the same time as we did prior in early 2016, we give our view of what EBITDA DCF and coverage looks like for 2016. I think you should have some expectation that that’ll be very consistent with what we said earlier for 2016.

With regard to the Pony volumes and additional color you’re looking for.

Yes John, maybe I can jump in Dave. John, the piece that you heard me say or me remark on in my prepared comments was we expected the volume declines that we experienced in the processing of logistics segment.

With regard to Pony Express, we have been watching those carefully, month-in, month-out. Again, we’re not overly concerned by it but we share all of that volume metric data because we understand it is a question and information people want.

And I would say the October and November results trending near capacity is really good information and data points for us.

Operationally speaking, John, this is Bill Moler. The beauty of crude oil is people have alternatives and options.

It can move by truck, it can move by train, it can move by pipeline, it can move by a number of different means and methodologies. During the summer months, crude stayed to serve the local refining market because they were buying the crude at a price better than Cushing and better than Cushing plus the transport.

So to the extent that people have optionalities, part of that optionality might be that they’re willing to pay the deficiency payment and sell a barrel locally and know that they can ship that barrel again under the deficiency at some point in the future. So, how the refiners make their decisions, how the marketers make their decisions and the producers make their decisions, you’d have to ask them.

But we do see some barrels staying in the market locally when refining margins are better in the local market. And I think that’s what drove some of our barrel counts down in the summer which on a net-average basis drove it all the way down.

Those don’t exist in November, so we’re going to be moving right at contractive levels for the month of November. And market swings will impact volume.

They just do.

Okay, that’s helpful. And I mean, in terms of the volumes that you are seeing, I mean, is there - are you starting to see some of the volume declines that we’re seeing industry-wide, are you seeing evidence of that on your systems at this point?

Or I mean, from your comments we’re seeing that’s full, it sounds like maybe you’re not seeing that. But anything that you can offer there would also be helpful.

This is Bill again, John. And everybody hates it when I use this colloquialism but I’m going to do it anyway.

This is not a one-trick pony. And as such, we’re not - we have four points of supply.

We can get crude oil from the Powder River Basin, we can get oil from the DJ Basin, we can get oil from the Bakken, and we can get oil from local Guernsey barrels. We intentionally set up an oil transportation system, it’s not a bullet line moving condensate, it’s a four-stream multi-supplied diverse pipeline that transports to end-use markets and the largest crude oil in the world.

And as such, we haven’t seen any indications of decline at all. Have we seen people make different decisions about where to take their crude and what method to move the crude?

The answer is yes. But from a producer standpoint, there are still numerous wells uncompleted and flowing in the Bakken drilled but uncompleted.

There the production in the Bakken continues to flow and come to us through Hiland and through the Belle Fourche pipelines. And then the DJ, it’s doing everything it’s supposed to be doing.

And we just aren’t seeing it yet but I think it’s partly because we’re diverse and have four streams to supply our transportation.

Okay. And then just, if I could ask one more.

You had indicated during the IPO discussions, at least with respect to TEGP, that there were still some issues on contract roll-offs with respect REX. But it sounds like at least with respect to the - I mean, you’ve got things fully contracted on your phase three or what’s the right term for it, your section three.

Now, so does that mitigate now any contract roll-off concerns at this point? How should we be thinking about REX here going forward in that regard?

Yes, I mean, nothing has really changed, John. I think that just to be as clear as we can about it.

REX today is contractually full. We’re going to add another 800 0.8 BCF a day, 800 million cubic feet a day capacity with this power up in Zone 3 online by the end of next year.

It is full. It’s contractually full.

We’re getting paid for all that. It is not owned by TEP.

And I continue to appreciate everybody’s interest in it, because I do expected that someday it will be. But I remind everybody, it’s not owned by TEP.

It’s contractually full. The next contracts that roll-off are 2019, period.

That’s four years from now. And nothing is going to change for the next four years other than we’re going to start working our ass off like we’ve been doing for the last three years.

We’re going to continue to do that every day. And when people are interested in talking to us about renewing their contracts, and again that’s mostly on the west end and Zones 1 and 2 which I suspect will be somewhere around 2018.

We’re going to do it then. And I have some suspicion that the pipeline will continue to be contracted and full.

The only question then is what is the rate? And my crystal ball is pretty cloudy with respect to that.

All I will tell you is, is that, when we bought REX three years ago we had $4.4 billion more of contracts and having a 17-year life than we did three years ago, today. And I suspect that if we work hard we will produce - again outstanding results when those 2019 contracts come up for renewal, but I can’t tell you exactly what those are going to look like.

Okay. That’s great.

Thank you for your time.

Great. Thanks, John.

Hey, guys, nice job today.

Thank you very much.

Thanks, Kristina.

Just can you give me a quick update here? Given just what’s going on in the capital markets and I know you touched on it earlier in your opening remarks and relate to a bond offering.

But just, how should we be thinking about timing and financing on the next dropdown?

Yes, timing, we told everybody all along we were thinking about the final piece of Pony being in the end of this year, the beginning of the next. I think that really hasn’t changed.

We’re monitoring that. I would say that it’s probably kind of the very beginning of next year is when look to do it.

Obviously, that begs a little bit of the question of how do you finance that, et cetera. I think it’s pretty simple.

We got a ton of flexibility. Gary told you we got 2.6 times debt to EBITDA.

I think we have debt capabilities both with regard to our revolving credit facility, which we probably can easily upsize. We have the ability to go out into the public debt market and do an initial offering of that.

We’ve been working on that. We’re ready to go.

We’re not happy with the rates that people would try to extract from us today. So we’re somewhat hesitant to do that until the market becomes more receptive to it.

But that certainly is available to us. You won’t see us doing anything real exotic.

We’ve been fielding inbounds for, believe it or not, people that are interested in earning more of our equity at these prices. I think they believe our story and our growth profile.

So we will do something perhaps in that regard. And again, frankly, we’ve got a private company that has no debt.

And we got sponsors who have already gotten their capital back. And again, we have some equity that we could issue to ourselves and our private company that, frankly, we like the price of right now.

So I think we feel like we got a lot of flexibility. What exactly that looks like, I can’t tell you.

All I can tell you is that it won’t be very exotic and it won’t be very confusing.

I appreciate the clarity on the exotic part. But given the, I mean, you’re highlighting the flexibility you got.

And I totally I agree with you there. How do I just weigh out also the thoughts on M&A?

We’ve always talked about that being one of the likes for potential throws, valuations are down, but capital markets are little tougher. But you guys do have a lot of capacity.

Just walk me through your stuff there.

Yes, it’s a good question. I mean, look, we’re always - look, we are in the flow of everything.

I mean, we’ve had some conversations about large M&A. But like you kind of just alluded to, the buy-sell and the side-sell, sell-side don’t need to kind of come to the middle.

And frankly, the sell-side hasn’t gotten a dose of reality yet. I think there are some things that would make some sense for us that our management team could do a lot of things with that are on the large side of things, but nothing foreseeable or imminent.

We continue to have those conversations. I do think we’re probably nearing a time now where smaller acquisitions, the A part of M&A, are things where you might see us starting to execute on, where we go out and buy some assets that are - they’re not the billions of dollars or hundreds of millions of dollars.

But kind of that smaller appetite thing that we’ve always talked about that we could do. And I think very hopeful of announcing some of those things here in the next quarter or two.

And I think those will fit nicely with what we think our flexibility is to raise the capital to do those things.

Perfect. That’s helpful.

So, nice job on the capacity enhancement announcements and Pony announcements as well. Well, that’s it for me.

Okay. Thanks, guys.

Hey. Thanks a lot.

Hey, Christine.

Hi, everyone. So I have a couple of big picture questions.

I have heard rumblings about shippers on some of the oil pipes, who may have excess capacity on their take-or-pay agreements, given slowdown in volume growth and has been reselling their capacity at materially lower rates to offset some of the take-or-pay payment that they’re going to have to make anyway. Are you guys seeing this on your system?

And I realize that your cash flow is protected from the take-or-pay contracts. But I’m just trying to get a sense of the market dynamics that are going on right now.

Hey, Christine. This is Bill Moler.

The answer, I would simply be rehashing one of the prior answers. We’re flowing at capacity and expect to flow at capacity in the month of November.

We have roughly 300,000 barrels a day of contracts. We’re going to be doing 300,000 barrels a day of actual flow.

Again to the extent we have not been flowing at capacity in times past, it’s because oil is a diverse market that can be accessed by any number of means of transportation than when spreads blowout one way or the other west, east, south or north. Guys might take an alternative route.

So it’s not happening on crude oil. Are you talking about REX and…

There are no - I mean, correct me if I’m wrong. There are no capacity release systems on crude oil pipelines.

I mean, they can do a deal.

Yes, it would be invisible to us.

It would be transparent to us. That’s correct.

Right.

I see, okay. So even if that was taking place on the oil pipelines you wouldn’t know.

Yes, there are contracted shippers. It would be the shipper of record there if they would be who pays us and it would be invisible to us if they work to deal with somebody else who wasn’t directly contracted with us.

I see.

I think the more likely case is we have marketers on the Pony system that will go out and aggregate barrels. And to the extent the transport don’t just buy the barrels cheaper than what they would otherwise and transport it to a liquid point.

So they have the ability of the bought barrel to make up any basis upside-down. But that we’re just aren’t seeing it if that’s your question.

Okay. And then, can you guys remind us how your processing contracts are shared?

I couldn’t remember if you had minimum volume coming in or if it was acreage dedications and whether or not some of the customers are captives to your systems? And then, if you could also just kind of give us a flavor for the impact on the downturn of volumes like, the shortfall, was it half of it was due to the downtime, was it most with it not that much.

Any color would be helpful?

Yes, Christine, it’s Gary. I think one way to think about the commodity exposure that you may be asking about relative to the processing segment is, if you just look at kind of the 12 months - next 12 months or so give or take a quarter in terms of EBITDA.

There is only 2% of our EBITDA, that is directly commodity exposed vis-à-vis these processing contracts. You may remember that in 2013, and maybe the very beginning of 2014, a lot of the percent of proceeds and people contracts we did convert to fee but that 2% that I just mentioned would indicate that we maybe have one or two left, which is just fine with us for now.

Well, I wasn’t asking the commodity exposure, I was trying to get kind of the impact on the volume. So like you guys are so collecting a fee, but if the volumes are not there you’re not going to collect the fee.

Yes. We ran about in the quarter about 110 million cubic feet a day and if that level give or take 10 million cubic feet a day of inlet volumes translate into about $1 million of margin or EBITDA to the processing facilities.

So you can do your math based on that, of course when volumes go down or if they were to go down materially below that we do have a fair amount of fixed cost that would have to cover that.

Big reservation.

Yes. But like - this is Bill, a good chunk of our contracts if not all of them currently our one part demand fee and one part commodity fee.

So if we’re charging somebody $0.30 for example, $0.15 of that is a demand fee that holds that space available for that shipper and they pay that $0.15 whether they’re moving volume or not and the other $0.15 is when they actually flow volume through the plant. So in our fixed costs are pretty well covered with demand fees and probably more than covered by the demand fees.

And then the commodity fees is where it’s tied to up volumes.

Okay. Yes, that answer is my question.

And then, lastly just kind of on my heels are here talk about M&A. I mean, TEP has really outperformed year-to-date, when I think about M&A for you guys.

Is the preference for just the MLP to buy another MLP or is GP, LP combination on the table. And by that I mean your GP buying another GP and then merging the underlying LPs.

I just wasn’t sure if that was on the table because I don’t know what the owners of the general partner thinking I mean, are they okay with their interest in the GP getting diluted that down.

I think when it comes to mergers, mostly in acquisitions everything would be on the table. I think anything we do has to make sense for all of our constituencies in all of our partners and that’s TEGP Class A partners, TEGP Class B partners or T-Dev private partners or TEP partners, all of them.

So I think if we take something where we think we can make take five and five and make 12 out of it. We’re thinking about that and analyzing at all the time.

So I wouldn’t say that there’s anything off the table. I certainly think that as you put it in LP GP to LPGP merger of some sort implies that you get diluted down control all of that et cetera.

I think that calculus for us is that I think we demonstrated that we are very good managers of these types of businesses we know what we’re doing. We’ve got we’ve assembled a great team and I would be pretty hard pressed to think that we would not want to at least kind of control our own destiny, with respect to creating value for everybody.

So I - that has to enter into the equation.

What if you had operational control, but economically you are diluted down. Is that okay?

I am not going to get that go out and - if I get economically diluted down as long as I’ll make more money that would probably be okay.

Okay, great. Thank you for all the color.

Okay.

Hey, Chuck.

Hey, good afternoon, everyone. So a couple of quick questions for me, I believe I saw recent FERC filing for an update for nickel rates.

Can you talk about that a little bit?

That’s problem is that the tariff increase…

Yes, I mean, that’s exactly right.

…rate adjustment.

Yes. We have the just as all FERC-regulated, like what pipelines to do, we have a right to increase our rates by the FERC index on an annual basis, and that’s all that was.

Okay. Got it.

And then, I guess just with respect to the property tax adjustment in the crude oil transportation segment, I mean how should we think about that going forward, because it some relative lumpiness in terms of bottom line adjusted EBITDA. Something that we can continue for the foreseeable future.

How should we think about that?

Chuck, I think in terms of property taxes of Pony Express, I think this year in 2015 it might be a little bit lower than 2016. 2016, I think in the neighborhood of $25 million or so, it’s probably a reasonable number.

The big picture here is, Pony, if you think about it, today November. We only had mainline Pony now running for bad year.

We only had NECL running for. Well, like I said in our remarks, this is the first quarter where we’ve had, every third quarters where we’ve had everything running.

So as you could imaging during startup and ramp up the taxing authority is don’t see as much revenue. And so they tax at a lower rate.

I would say generally the accounting rules are good and serve a purpose. I think the 90-day reporting sometimes is a little ridiculous, but we report stuff as it happens to us.

So the good news is in 2015, where our property taxes are nice and low. And as we produced more and make more money, which we believe we’re going to in 2016.

They’re probably going to go up. And we’ve taken that all into accounting our budgeting and it will be taken into account, when we give everyone our 2016 guidance early in the year.

Got it. I appreciate the color there.

And then just, one last one for me, with regards to your revolver, can you remind us, is there an accordion feature on the $850 million?

Yes, Chuck. This is Gary.

There is the $850 million is obviously syndicated and available to us. The facility provides for $250 million accordion going up to $1.1 billion.

I would say though that that $250 million accordion is not syndicated. So if you were to exercise that we would need to go do that.

I think following along the comments that Dave made earlier, though we do feel like given our debt capacity today, or leverage today and some of the strengths of our story vis-à-vis perhaps others, there is probably some leverage capability out there that we have broadly speaking into debt markets, whether they will be bank or bond.

Okay. That’s it for me.

Thanks guys.

Thanks.

Thanks. All my questions have been answered.

I appreciate it.

Hey, Selman, thanks.

Hey, James.

Hi. Thanks for the line.

I didn’t quite get you. What was it that the sell-side needed a dose of reality on?

I missed the comment before that?

Well, we have conversation is from time-to-time with other companies, who maybe - the point being very straight forward about it is, who in the stress or haven’t quite, don’t quite understand how much in the stress they are, and I think the companies work a lot more than what we think it is.

So it’s a kind of like a - kind of a reference maybe to the bid that spread on the asset values?

Yes. You can lead a thirsty horse to water, but you can’t necessarily make them drink.

And if they don’t realize how thirsty they are, what are you going to do about it.

Okay. I appreciate that.

And then I was wondering you can provide some color on those and we see deficiency payments for Pony on the quarter. Are those would you classify more related to the Bakken shipments or more related to the new DJ Basin lateral?

We’re not - because of our contracts and our customers et cetera in the areas, we’re not going to delineate that for you. I would just say, look at it like, Bill said, as a multi-tiered system where we have four different streams.

And for competitive reasons not only for ourselves but others I just not - I don’t think that’s a detail that’s appropriate for us to get into.

Fair enough. Then maybe if I asked it in a different way, did you have any appetite for spot shipments then either as related to the NECL lateral or the Guernsey Interconnect?

We always have appetite for spot shipments. I will tell you across the system, not a lot of it showing up.

But with the scalability that we’ve talked to you about, because of the DRA et cetera, we’ve got plenty of capacity. And we’ll take them anytime they show up.

Right, I guess, I’m just kind of asking to what extent did they show up in Q3?

I would add to that that we have marketers on the system who are aggregating barrels. So us going out and doing lot of walk up business, we’ll take it when it shows up.

But for current it’s going to the marketers who are aggregating the barrels and using their firm capacity on the pipeline.

Okay. Yeah, I appreciate that.

And then, last question for me as you guys talked about, how kind of really related to the Pony Express drops, they really outperformed expectations, given evaluation made at the time of the drop. Is that going to affect how you guys think about the pricing maybe for the final third, whenever it is?

I think my point was more a demonstration that I don’t think anything has changed for us. I mean, the performance is there.

I think it is more demonstration of - the multiple that we did was a good multiple. It’s proving to be a better deal for TEP.

And if we stay with the same multiple, notwithstanding that the results are better, that will result in a higher price for the third remaining. But again, I think it’s all very fair.

And my point was more that - just that, we got a lot of skin in the game all the way around. And we are extremely motivated to make sure that TEP is successful and succeeds.

And we don’t have a lot of hogs at the trough here. So we recognize that we need to do fair deals and lucrative deals for TEP.

James, thanks for bringing that up. And Dave’s color is very good.

Let me just ground some folks in the numbers, in case anybody thinks that Pony Express missed this quarter or is underperforming. The one thing I would tell you, if look at the preference payments on the first two drops and do the math and determine what the 100% Pony cash flows were associated with those preference payments and then you compare it to what we actually delivered this quarter.

So let’s just take them one-by-one. The first preference payment was $16.65 million.

That would equate to somewhere in the neighborhood on an eight-eights basis of Pony of $200 million of cash flow. Then next one was $20 million and so on an aggregate basis, as Dave said, $36 million.

That would kind of be - the second one would be kind of in the neighborhood of $240 million. We said in our prepared remarks that in the third quarter PXP delivered to TEP, which only owns two thirds of it, $43.7 million.

So that’s two-thirds of the pipelines’ cash flow. If you were to gross that up to a 100% basis it is $65.6 million.

And if you annualize that that’s $262 million and some change. So there is clear evidence in the actual results relative to the economics on which the drops were done.

The Pony Express is clearly exceeding our estimates and over-performing.

Yes, actually 260 - or what did you say it was…?

262 and some change.

262, I thought you said 162. 262, exactly right.

So my only point there was if you go with the consistent multiple we’ve been very fair. TEP’s gotten very good deals and although the price on the third may be proportionally higher the multiple remains the same.

Everybody’s done well.

Understand that and that was kind of what I was getting to, not necessarily that Pony Express was underperforming just looking at implications for future pricing. That’s all.

Just a minute. Let me make one point.

I mean, there’s a universe out there of a 140 MLPs. You guys know the other dropdown candidate.

You go look at them closely and you look for the guys doing dropdown at 12, 13, 14, 15 times, okay. That’s on a relative basis, make your comparisons.

If I could squeeze in one more, I guess, any color as to magnitude or timing of maybe rate increases on Tallgrass Interstate?

Relative to the rate case file?

Yes, yes, I mean, when would you see a benefit to what extent would that percentage-wise?

All I can answer for you is what a typical rate case procedural schedule might look like. And we filed on Friday.

FERC set the notice period for, I think, November 14, which is the time period in which people have to intervene and comment. Assuming FERC accepts the filing and doesn’t kick it out, which we think they will.

It’s fully compliant and in line with policy, they will set it for procedural schedule and for discovery. During that five month period, there will be a five-month period where discovery will take place and then interrogatories will occur.

And then, typically and I’m not saying that that’s going to be in this case, but typically FERC would then put the rates and rate structures, and put the tariff changes into effect six months after filing subject to refund as the case gets litigated. That’s how it would typically happen.

Do we think if that’s going to be the case here? We’d like to settle with our shippers, but if it does go the full litigation path it will be along that procedural schedule.

So, maybe a 2017-ish type, not super-near-term then?

Well, again, the rates, assuming we don’t settle before, the rates will be placed into effect subject to refund six months from the date of file.

Yes, so maybe even more simply, next May-June that we would expect the rates to be - we would start collecting those rates. It’s just based upon the outcome of litigation we may or may not have to refund some of that.

I mean, obviously, we’re going to work the rate case, we’re going to talk to our customer and see if we can still settle with quite a long drawn out procedure, in which case we’ll have perfect clarity. Absent that, we’ll have higher rates that we just have to make some judgment call on as to how much of it is exposed in the future, notwithstanding that we’re collecting it.

Got it. Thank you very much.

Okay.

Hey, Ryan.

Hey, guys. Just wanting to get - most of my questions have been answered, just wanted to get some clarification around REX dropdown timing.

Given the counterparty exposure and the weakening of both the equity markets and production markets are you - do you still view your prior guidance as reasonable or could that be pushed out satisfy the motivations of all key constituents?

You mean might the drop-down be accelerated?

Well, potentially accelerated or delayed to try and gain more visibility in terms of demand for the system.

Yes, I think our customers on REX are really, really financially excellent stable customers. In fact, most of our stuff is investment grade rated customers.

I don’t feel like anything has changed relative to kind of our prospective timing as to what we told people they might think about in terms of REX being a dropdown candidate to get in the future kind of 2017, 2018. But there’s nothing that’s changed in our minds.

And in fact, it’s gotten nothing but better. I mean, we’ve got outstanding customers and that are very strong.

We got interconnects that are being used all day every day when we’re full. So…

The difference is getting $1.50 for your gas or $2.50 in Chicago, right? So the transport that we’ve sold especially in Zone 3 is getting the producers higher netbacks, which should make them all the stronger and it’s a symbiotic relationship.

Okay. Thank you.

Hey, Ted.

Hey, guys. Thanks for taking my question here late.

As we look out a little - a couple of years from now on the crude side, whether it’s the Bakken, you’ve got Dakota access, and Sandpiper coming online, the Rockies. You’ve got Grand Mesa and Saddlehorn.

It just feels like there might be a little bit of an overcapacity situation. I wonder if you could just talk about the risks to Pony in that world.

Yes. I’ll get - I’ll let Bill follow-up to me.

Just real quickly, I mean, with regard to the condensate market it’s in DJ, Niobrara I would kind of agree with you that, if everything that they are talking about, which is I think it’s the Grand Mesa, and what’s the other one?

Saddlehorn.

Saddlehorn - get built perhaps those guys will be pecking off each other, we don’t really move condensate today. Are we interested in moving condensate, absolutely.

With respect to every other market, I mean you want to comment on any of that, or…

I think, we said at last quarter, I’ll say again this quarter that pipe in the ground is better than pipe on the table. And we’re in the ground, we’re moving 300,000 barrels a day today.

I don’t know, how many barrels Saddlehorn or Grand Mesa moving, but I am guessing since they aren’t in the ground, it’s a lot less than 300,000 barrels. What diverse on the supply side, if a pipe comes into the DJ Basin, fine, we have contracts, we’re building history with good quality counterparties.

If a pipe comes into the Bakken, we’re building history with good quality counterparties, and we’re flowing volumes today, so do I think a brand new pipe laid in the ground is being beat our economies. The answer is no, it’s not.

We converted a system and laid 240 miles of pipe. Those pipes are brand new builds, and I can tell you exactly what it costs to put pipe in the ground out there, because we just finished it.

So we now with their economics are in, wish them to best of luck, but we’re diverse and have an ability to get crude from all different supply sources, and I think we’re going to turn out to be just fine at the end of the day.

Fair enough, I appreciate that. And then probably a question for Gary, just on the - you mentioned the bond pricing, you’re not happy with it.

Does that tie in at all to sort of the discussions with the ratings agencies around potentially getting investment grade here or not? And they have the good metrics there.

But, I’m not sure if there’s other sort of qualitative factors on size or diversification that might impact that?

No, I don’t think it really has a lot on the margins to do with ratings or whether you’re going to be investment grade when we come out or not, I mean it just, we’re watching the market very carefully and the indicative rates we’re seeing and believe are out there, we’re not happy with. So, I don’t think it’s really anything to do with ratings in particular just market conditions in general.

And Ted, I’ll just follow that up a little bit 10 year - 12 years ago we would have been investment grade and think - I mean we are the middle of the road MLP pipeline, midstream, like the old ones, the old days are. And we’ve got great assets, it’s probably a function or size if we are high yield, but I would say we’re pretty high grade, high yield.

Having said that it really as just spread and if the markets are close and you’re trying to go out and the guys are going to take advantage of you, as we kind of talk around here about like, ripping your face off. It’s just something that we’re not going to be dealing with, we’ll deal with it when things are appropriately price in your opinion.

All right. I’ll leave it at that.

Thank you.

Yes. I think, operator, we’ll take one more question, if you have anybody to grab anything out there.