Generation Essentials Group

Thank you, Jessica. Good afternoon, everyone, and thank you for joining the Tallgrass Energy quarterly earnings call.

As we discussed among things, that TEP and TEGP results for the third quarter of 2016, which were released through our joint press release and 10-Q this afternoon. Joining me on the call 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 02, 2016. Please refer to our filings with the SEC, which are available on our website, including our 10-Ks and 10-Qs which provide discussions of factors that may cause actual results to differ from management’s projections, forecasts, estimates and expectations.

Please note that except to the extent required by law, Tallgrass undertakes no obligation to update any forward-looking statements. Please also refer to our earnings release for reconciliations between our non-GAAP financial measures referenced in this presentation and the most comparable financial measures calculated and presented in accordance with GAAP.

With that, let me now turn the call over to David for his opening remarks.

Good afternoon, everybody and thank you for everyone joining our Tallgrass Energy third quarter earnings call. Third quarter was another strong quarter of financial and operational performance for TEP, Tallgrass marked by our inaugural senior notes offering, the first with a 25% interest of REX in for the entire quarter and TEP and additional contracted capacity on REX’s capacity enhancement project which we will discuss later in the call with some more detail and specificity.

Strong performance and continued execution resulted in TEP’s 13th consecutive quarterly distribution increase and TEGP’s fifth consecutive quarterly distribution increase both from the time of our IPOs in May of 2013 and 2015. So let’s review the third quarter financial results driving the increases.

Adjusted EBITDA for TEP was $108.5 million not including any of our fully collected net deficiency payments under our take or pay contracts and including three months of distributions from REX. If you include the quarter’s net deficiency payments and adjusted EBITDA, the amount would have been $117.6 million.

We’ve included - we’ve again included a table in our press release showing the impact of the deficiency payment if we were to have included them in adjusted EBITDA. We’ve also included a table illustrating the impact that incremental barrels shipped on Pony Express at on our current results as well as a description of how they could impact our future results.

TEP’s Tcf for the third quarter which does include deficiency payments to where it works in the county was $104.9 million call it a $105 million and coverage was a healthy 1.23 x times with approximately $19.6 million of cash generated in excess of distributions. Since TEP’s IPO in May of 2013, our cumulative coverage is $110.8 million call it a $111 million in excess of our actual cash distribution and our cumulative coverage ratio is 1.2 times.

The quarter’s strong financial metrics supported TEP’s increase its quarterly distribution by $0.04 per unit to $0.795 per quarter or $3.18 annualized. This represents an increase of 5.3% from the second quarter of 2016, 32.5% year-over-year growth and approximately 177% growth from our annualized minimum quarterly distribution of a $1.15 when we took the company public in May of 2013.

The increase is in line with our previously states plan to increase the second and third quarter distributions by an aggregate of $0.09. As a result of this 79.5% distribution at TEP Tallgrass equity, we’ll receive distributions of 43.9 million on its 20 million TEP common units GP interest and IDRs in turn.

And in turn, TEGP will receive $12.5 million from Tallgrass equity. Based on that amount, TEGP declared a distribution of Class A shareholders of $0.2625 or $1.05 on an annualized basis which represents a 7.1% increase from the second quarter quarter-over-quarter and 82.3% year-over-year and approximately 97% from the annualized quarterly distribution of $0.532 at our May of 2015 IPO.

I’ll turn the call over to Gary now to provide initial financial details, Bill will talk to you some about some of our operations and then I’ll come back to you to wrap up the call and turn it over to Q&A. Gary.

Thanks Dave, and good afternoon, everyone. Let’s jump right into the segments and then I’ll update you on our balance sheet, leverage and the progress that we have made on the call option related to the TDev owned unites of TEP.

The crude oil segment which is Pony Express generated distributable cash flow to TEP of $73.9 million for its 98% ownership interest during the third quarter of 2016. As we expected just represents a slight decrease that’s compared to the second quarter of 2016 which is primarily attributable to lower incremental barrel shipments during the third quarter.

With respect to volumes of Pony Express, average daily throughput during Q3 was approximately 276.000 barrels a day as compared to Q2’s average of approximately 286,000 barrels a day. Preliminary October’s figures show throughput of approximately 283,000 barrels a day and an early look at November shipper nomination would predict that we will move in excess of 295,000 barrels per day this month.

So we continue to see good volumes and strong operational performance at Pony Express which we’re obviously proud of. During - excuse me, turning to the natural gas segment which includes TIGT, Trailblazer and a 25% interest in REX, it produced adjusted EBITDA 41.3 million for the quarter, down approximately 4.5 million as compared to Q2 of 2016 and up approximately 25.3 million as compared to Q3 of 2015.

The decrease from Q2 is related to the legal settlement that REX received and distributed to its partners in Q2. And the increase as compared to Q3 of 2015 is driven by two factors; first, the inclusion of distributions from REX for the 25% interest that TEP acquired from Sempra in May of this year and the increased rates from the settlement of TIGT’s rate case.

Fire contracted volumes for TIGT and Trailblazer averaged 1.44 billion cubic feet a day during the third quarter which was similar to the 1.48 billion cubic feet a day reported for the second quarter. REX’s averaged in excess of 1.3 billion cubic feet a day of west to east flows and nearly 1.8 billion cubic feet a day east to west flows excluding plant downtime during the third quarter.

So the total average flows of approximately 3.1 billion cubic feet of day we are experienced during the quarter on REX. These data points illustrate the strong demand for takeaway capacity in the Marcellus and Utica region or on Appalachian and the continuing demand for Rockies takeaway capacity.

Now on to the processing segment, it generated adjusted EBITDA of 3.2 million for the third quarter of 2016 representing a slight decrease as compared to the second quarter of 2016 and a small increase as compared to the third quarter of 2015. We continued to expect processing volumes to remain low through the end of 2016 but expect additional contributions late this year and for full year 2017 from our water business where contractual volumes increase.

Now turning to the balance sheet. At the end of the third quarter, TEP had approximately $1 billion drew on its revolver and 400 million of new senior notes outstanding.

The decrease in revolver borrowings from June 30 is obviously - primarily a result of TEP’s inaugural issuance of eight year 5.5% senior notes which closed on September 1st. We are pleased with the execution of this offering and also pleased that we achieved yet another important milestone as we continue to build an investment grade capital structure at TEP.

As of October 31st, we still had approximately $1 million drawn on the revolver leaving ample liquidity of about $750 million which will provide financing flexibility as TEP continues to execute its growth strategy. Now our leverage metric.

TEP’s leverage as of quarter end was just under its returns based on the trailing 12 month adjusted EBITDA inclusive of the actual distributions associated with the 25% interest in REX across those 12 month. This figure continues to be conservative and on a low end of our investment grade target range of three to four times debt-to-adjusted EBITDA.

And last from me is an update for you all on the call option. As a reminder TDev granted TEP a call option on the roughly 6.5 million units it was issued as part of the consideration for the Pony Express dropdown in January of this year.

As you may recall, last quarter, we disclosed the TEP had issued on its ATM and subsequently in July, purchased from TDev and retired approximately 3.6 million units. This quarter’s update to that program is that from August through October, TEP issued an additional 1.3 million units at net average issuance prices of $47.24 almost exactly equivalent to last quarter’s net average issuance price.

And this quarter, received a total net proceeds of $59.1 million. On October 31st, TEP made a payment of $53.2 million the TDev covering that same number of unit.

In aggregate, TEP has now generated a total of 22.8 million of proceeds through equity sales at prices in excess of the $42.5 strike price of the call option unit and this has reduced TEP’s debt and effectively lowered the purchase price for the third Pony Express dropdown. In turn, the transaction multiple has also been lowered from 9 times to approximately 8.8 times.

And that multiple could be further reduced to the extend TEP is able to issue additional common unit at net prices above $42.5 and redeem any of the remaining approximate 1.7 million units that are subject to the call option. And with those comments complete, Bill will now discuss recent developments and our assets.

Thanks Gary. Good afternoon, everyone.

Before I jump into the update on our asset, I want to address the topic that is likely to come up during the Q&A portion of the call and that is the current regulatory environment and its impact on our business and more broadly the energy industry as a whole. We have all seen increased environmental, political and regulatory hurdles for new Greenfield infrastructure projects which can decrease project economics, cause permitting and construction delays and potentially cancel other projects altogether.

The current environment creates uncertainty for the industry but I can tell you that these hurdles make the pipe that we have currently in the ground that much more valuable. As it relates to our current growth projects are those on the horizon, we see very little risk as it relates environment or regulatory challenges due to the nature of those project.

We work very hard to form alliances with all of our impacted stakeholders including state and federal agencies, landowners, local authorities and county officials to assure any and all risk as mitigated. Now on to our assets and first one up is Pony Express, which continuous to exceed both our expectations financially and operationally.

Last quarter, we discussed the open season for our four common condensate stream on Pony Express. That open season has come to a close.

Although we received interest from a number of parties that interest however did not convert into foreign commitments. We are however in the process of determining whether or not to construct the necessary facilities at our Buckingham terminal in order to accept condensate barrels on a walkup basis and provide additional optionality for our existing and future customers.

No final determination has been made at this point, so stay tuned for further updates on upcoming calls. We also mentioned last quarter that our commercial team is working to commercialize an additional demand connection in the Pony Express from a local refiner near our pipeline.

Talks are ongoing and continue to be positive but slower than we would prefer. To illustrate the impact that another refinery connection can have to Pony Express.

For the month of November, we expect to deliver nearly 70,000 barrels per day into a local refinery. Similar demand from another refinery could further increase demand pull on Pony Express which already has a nice supply push and demand pull dynamic.

With very competitive rates in fact the best in the region, supply diversity from the Bakken, Powder River Basin and DJ Niobrara well had connectivity through our two joined upstream tariff pipelines Belle Fourche and Highland, multiple common back stream system, refinery connectivity and additional Tallgrass terminals injection site at Buckingham and our expansion capacity of at least 100,000 barrels a day, Pony Express is well positioned to compete for barrels both now and well into the future. As for Rockies express pipeline, as a reminder, Tallgrass development has a 50% ownership interest in REX and operates the pipeline, and TEP owns a 25% interest in REX.

As mentioned on prior calls, REX’s capacity enhancement project is approaching completion with in excess of 75% of the projected capital spend through September 30th. We are still on schedule for an in-service around year-end of 2016.

In addition to the progress on the construction, during the third quarter, REX’s commercial team signed a precedent agreement with Citizens Gas, a local distribution company in Indianapolis for 20 million cubic feet a day on Capacity Enhancement Project. The agreement is for 15 years term at a rate comparable to other precedent agreements REX has signed on the project.

In addition, REX has recently signed a precedent agreement for the remaining 50 million cubic feet a day. The project's design capacity of 800 million cubic feet a day is now a day is now completely sold out for 15 years at an average rate of approximately $0.50.

With this important milestone complete, REX’s commercial team continues to focus its efforts on additional demand and west-end opportunities. Before moving to Tallgrass terminals, I’ll provide a brief update on the Ultra and Berry Petroleum breach of contract proceedings.

REX continues to aggressively pursue breach of contract claims against both former customers who are undergoing restructuring via bankruptcy. While the amount and timing of any potential recovery on these claims remains unclear, any recovery, if realized, would provide additional cash available for distribution and or debt repayment.

At Tallgrass terminals - as a reminder Tallgrass terminals is owned by T-Dev our private company. We reported last quarter that the Buckingham truck unloading terminal is in service and performing well operationally and receiving trucks on a daily basis.

The feedback from our customers and trucking companies who use the terminal has been very positive and we look forward to its increased utilization over the coming months. In addition to putting Buckingham in service in August, we began civil work on a portion of the 550 acre property that terminals owns and South Cushing, Oklahoma and have made significant progress today.

We have begun the permitting work for our development plan and are working to establish a targeted completion date. We are excited about this project and other early stage opportunities our terminals team is pursuing.

Finally, I want to update you on the Tallgrass Interstate Gas Transmission rate case settlement that we've talked about over the last two quarters. Finally, we received today final approval of the previously mentioned rate case settlement at Tallgrass Interstate Gas Transmission from the Federal Energy Regulatory Commission.

In that order the FERC has instructed us to make the necessary tariff filings and acting the settlement as soon as possible. It's really good news and we're happy to have received that today.

And be able to let you know about it. With that I'll turn it back to Dave for his closing remarks.

Very good, thanks, Bill. Before we wrap up the call, I’d like to share a couple of organizational developments that you may have read about in our earnings release and that we are pleased to announce in an effort to further focus our commercial development efforts and continue to focus on developing relationships with and solutions for our customers across all of our assets.

Matt Sheehy has been named Senior Vice President and Chief Commercial Officer. Many of you that follow us closely know that Matt has been instrumentally in our executing our vision to transform REX into a bi-directional header system, he and his team commercialized the Seneca Lateral, the East-to-West bi-directional project and then finally this enhanced capacity Enhance Capacity project signing valuable very, very valuable customer contracts over the last year and a half.

As part of Matt’s transition into his new role and responsibility we also have Crystal Heter who will serve as the Vice President and General Manager of REX, Crystal is a chemical engineer and started her career as started her career as an engineering intern with Tallgrass predecessor companies. She moved up through both to technical and commercial sides of the business and is an accomplished leader at Tallgrass possessing a deep knowledge of REX its customers and the markets it serves.

With these changes and the other very talented people we have at all levels of the organization I’m excited for what the future holds for Tallgrass, our partners and shareholders and our employees. As I say each quarter our work is not complete, it is only just begun.

Before I totally turn this over to Q&A here very shortly I just wanted to run through a number of what I view as kind of the - we say these things, but I think perhaps sometimes they get lost, and I just want to tick down through a list of what I think are the very positive things we have going on a Tallgrass. I mean clearly it's not always all positive, last few days in the markets been pretty sloppy with crude trading back down a little bit and everything feeling like it's attached to it.

But not having said that those are necessarily things that we can control. Things I’m going to talk to you about are things that we are working on that we feel like we cannot - well not completely control can certainly have a great deal of influence on and so I wanted to just give everybody the benefit of those things.

And so this is a simply a list of unrealized upsides in our business and not in any particular order; First of all we see the attitudes of our customers, shippers, users, drillers all seem to be improving relative to moving forward in the business. We have people talking about completing ducks drilling new wells, et cetera and it's just feels like more of an environment now we're - people are looking positively toward the future people that we deal with that again one of the pillars of our company, which is a long term customer relationships.

The Pony expansion just to hit it home again. We're running at 90% of original design capacity.

We have another 100,000 barrels a day of capacity available to us and which is really an increase of over 33% over the design capacity. That can be used at any time.

Obviously when crude has been at $30, $35 even at $40 and people have some expectation that it's heading in the right direction going up. People are not you know shipping that right today, but we think as crude prices continue to improve over the next year or two we will see some of that underutilized capacity be taken.

Our pipes in the ground and running, we have the most as Bill alluded to earlier, we have the most competitive tariff in the neighborhood read low cost out there. We can pump it all weights and all API gravity's and others cannot.

So that's that. With respect to the REX 800 a day capacity program again kind of repeating what Bill said, but as of now we are fully sold out on that I think last time we’ve talked to you, we maybe had 100 and maybe 50 a day left, we told you we were working on it.

It's now sold out for 15 years. And while we expect that to be up and running somewhere near the end of the year here.

I would not be surprised if in the near future, we have some pleasant upside surprises. We're able to do things with REX where perhaps it gives us more than the design capacity.

So we're always looking to optimize our assets and we feel real good about our opportunities there. The next thing for is 50% of REX is still going into TEP set differently TEP is still has a significant drop down of dowry of drop downs.

Well we're still on REX, Bill talked to you about the Ultra recovery in a little bit more detail again remind everybody when we bought our interest from Sempra we did not factor in any revenues from Ultra nor any recovery of that we did extremely conservative and probably somewhat in unrealistic, but we did that relative to when we were agreeing to buy the interest from Sempra. Having said that that claim is for $303 million of notional value.

So far it's looking like and you can read this on your own things put out by Ultra and others that most creditors are expecting to get 100% recovery. Now it's not say our 303 is going to be a 100% cash on the barrel hit, but I think we will with a little bit of discounting there relative to time value of money and perhaps some mitigation we’ll receive a great deal of that we have not factored any of that into our 2017 budget which I'll talk about here in a minute.

Six, we have other drop downs those include our terminals business or we have a natural gas operator from REX where we are the operator and we get 1% of the EBITDA every year as an operating fee. And so you know that turns out to be somewhere around $5 million, $6 million, $7 million here this year in the next couple of years.

And then we do still own a 2% interest in Pony Express. Seven, natural gas electric conversions and other industrials are looking up for us on tight and Trailblazer a lot of the things we've talked about on our REX where we've had these healthy see interconnects we’re haven’t similar types of things with those where we're actually we have I think it was on one of our systems we have our first electrical plant connection going and starting up next week.

Eight, team at Casper, with regard to our smallest segment of business team, I don't think we can - I think we view 2016 is having seen the worst it can be and we really think we have nothing, but upside from there just to put a peg in that, we’ve got the only cryogenic recovery system in the area, is one of mass and to the extent that people out there are giving some of our other companies in our space big credit for future ethane recoveries and rejection, we should be entitled for the same type of thing and people ought to be aware of that for us. Nine, we’re building our own term Tallgrass crude terminal in Cushing, Oklahoma, and we are working on joint tariffs to get barrels from there to the Gulf Coast.

And those tariffs all of the way from our upstream partners Highland and Belle Fourche all the way down to the Gulf Coast should be more than competitive with anybody else and cost effective. Ten, we have other upside - a significant upside in some of our assets that we are working on.

We think they will materialize, it’s too early to talk to you about them, but I will tell you, I wouldn’t be talking to you about if they were simply $5 million opportunities. So when I say $5 million, I am talking about annual revenue EBITDA, I am not talking about capital expenditures.

So we feel really good about those. There are things that come up from time to time and we feel fortunate to have the ability to be looking at those things and we hope that in the near future, we’ve been roll some of that for you in more detail.

Just a couple more there. We’re working on 2017 detailed budgets.

They are almost complete. Our guidance will be the same time as it was last year which is essentially our earnings for the end of the year sometime in February, we are not but what I can’t tell you is we’re not seeing anything that changes our view on 2017 and so keeping with what we’ve told you in the past, there is no change through our guidance as of this point, not seeing anything right now that changes it for 2017, but we will refresh that at that time.

Number 12, TEGP, you know there is old, when I went to school years ago, there was a whole rule in the counting and finance, we’re called the rule of 72s and basically it went like this. If you take your number of periods, think of years and multiply it by your rate of return, so think of an annual return of x or in other words 12 years at 6% would get you a doubling.

So if you paid a dollar and you paid a 6% increase for 12 years, you would have $2 at the end of 12 years. But I just want to point out everybody that we’ve talked about as much as 40% growth rate in TEGP and we have more than hit that.

We have talked a bit that even going forward. Currently, there is no way say perform the TEP is getting credit for that but notwithstanding that.

If we it that, and we’ve talked to you about how that works with our company TEP and then what that means for TEGP. If we hit that over the next two years and we are paying a dollar out, you current rate of a $1.5 this year.

Then two years from now, we’d be paying out somewhere around $2 maybe a little bit more. So by anyway say perform, that’s an incredible payout and growth and distribution and that was very foreseeable TEGP does not have an assets on its own and that should speak for itself.

And then finally 13, with regard to M&A, and I guess I would put the emphasis on A in terms of acquisitions. We have $700 million to $750 million of instantaneous dry powder right now.

We are looking at lot of things and I would say I feel as good about few of them as I have felt about anything. We are now four year into this 3.5 since we’ve been a public company and we’ve had a lot to say grace over, some of that - a lot of that is behind us.

And I think we are doing a good job of managing our existing business. But I think we really are turning our focus to the acquisition part.

And I guess I would ask all of you, I am asking for any credit for that other than for those of you that know us, I’d ask you think about our history, think about my history and what we’ve achieved in the past relative to M&A. And I guess I would make the case that I would bet with us that we will be successful in fact brining some risk-weighted factoring that we’ll be a player in that space and that we will get some things done.

I don’t know whether it’s going to be next quarter this coming year or you know the year after that. But all I can tell you is you know again I repeated this before that our acquisition of these assets alone was a multibillion dollar acquisition.

We are very capable of doing that. We got a good track record.

And we’re not even asking everybody give us credit for rather to the extent that you think we’re capable of doing that in particularly with the position that we put ourselves and now with an investment grade style balance sheet and having the dry powder having the dry powder we have having debt, public debt available to is going forward also. So I’ll conclude with that.

It lasted about half hour. I think that’s pretty efficient.

As always, thank you to all of our partners and shareholders for their confidence and investing in TEP and TEGP. Thank you to everyone in this call for you interest in our company.

With that we’ll turn it over to the operator and continue on with the Q&A portion of our call. So operation, will you take it?

Hi Brandon.

Hello. Well, David a lot of in tweaking that’s there in the potential items that the last part of that, but fair comment.

Again I have a couple of them; one, acquisitions you gave plenty of color there but I am going to push for a little bit more. Are you thinking transformative or build-on, or both just depending on the opportunity that comes along?

I mean I think we would transformative is not what I was thinking about, I mean I think those are the type of things that you know kind of come out of the blue and we don’t have anything thing that is it out of the blue right now but we have a handful, we look at a lot of stuff, we probably look as much as everybody. And I would say there is probably one or two that we have risen to the top where we feel like we’re in the final thrown of maybe getting something done.

And they would have a nice size and move the needle for us.

Okay, fair enough. Let I stand by and see what happens.

On REX, you’ve mentioned some potential incremental capacity being well above design capacity, is that specifically an east to west the incremental compression type thought process or is there something else there?

I’ll let Bill answer it more detail. Let me just put it this way, you know we’re - today is November 2nd and probably you know let’s just say December 31st give or take, we are in service on that project.

And by the way I meant to say this in my comment as in a side on our website, we have three rotating pictures of the three brand new compressor stations that were taken above with our drown, they are interesting, very big, in fact one of them looks like it’s a truck - new truck dealership, it has about 400 trucks around it. They are in the middle of van build, so those are worth saying.

But where I was heading with that is that the - that project will be in service and be moving gas here the next 60 to 75, let’s call 50 to 75 days. You know you build it based on a design and we’re hopeful that we have some upside surprises relative to what it can really you know run at.

What is kind of like putting a little bit of a gear here I suppose but it’s kind of a putting a drag car on the dyno you know sometimes you build the engine, you think it’s going to put out 500 horsepower, you put it on the dyno and it puts out 600. You want to add to that Bill?

The one thing I would add to that is being a recovering pipeline engineer, we design things based on cubic feet of gas and we self-capacity based on deck of terms. So in appropriate world, you have a 1,000 Btu gas and you build something to move one Mcf of gas and you have equivalent.

So in our world today because of the Btus that are coming into REX are higher than a 1,000 Btu of big content, you can get additional deck of terms through that facility. And so there is some prop that we have horsepower, availability and some thought that we have some Btu grow and that’s what that’s coming from.

Okay. Understood.

Thank you, Bill. That’s all for me.

Thanks.

Hey, guys.

Hey, Kristina.

Starting off with two quick ones on Pony today, can you help me understand what's driving nominations up so much in November you’ve mentioned a number that was a bit of ahead of where we work with the third quarter number. And then just maybe can give a little color to on the condensate batching and what makes this put the project on hold versus deciding to go forward with it?

Yes, I'll take the first one and let Bill answer the second one although you probably will clarify a few things that I say. The nominations are just you know month-to-month I think for November is an example I think we set 295 and we move to 287 or 283 in October.

You know it’s just a month-to-month we have a particular customer that has been an incremental shipper in other words some months they've shipped their contractual amounts in other months they have shipped more than their contractual amounts of just so happens that in November. They probably have some contracting where they sold at good prices and feel good about shipping another 10,000 barrels a day.

And so I don't think it's much more than that with regard to the second question.

I can’t remember the second question. On the condensate?

Yes.

Let me add a little a little color to what Dave said on the nominations. We did have Grand Mesa go into service in Q3 and they did have a line fill requirement.

So some of the barrels that under normal conditions that would be coming to us were going to serve or line fill purposes on that other project. So that's part of it.

I do think that the marketers are finding more barrels and bringing down from the Bakken and we're volume to increase there. On the condensate we healthy open season, and but we have the capability of moving condensate.

We can do it today. The question is do we put in the tankage to be able to batch and spend capital.

But in the facilities to batch condensate into the Northeast Colorado lateral. There is interest in condensate coming to us.

We’ve had people ask us about it. But at this point in time there are very few people signing up term MBC based contracts, so the question really becomes do we go out and spend X millions of dollars to put in the appropriate size tankage in order to allow that fourth stream to flow as a clean batch and without contracts underwrite.

In other words are we going to speculate on condensate barrels, and I'm not saying we won't, because I think there's enough there to be had. But we're still trying to fair it up those economics in that project.

Got it. And the last one from me, and I don't mean to get ahead of my keys here, but now that we've got you now you see in your notes out there, can you guys talk a little bit about the path to get into the natural IG rating?

Gary?

Yeah Kristina, I mean it is going to be something we continue to focus on and make the case for I think with additional size and scale that that will be one of the contributing factors that we that we will highlight to the rating agencies, I think all of the other boxes have been effectively take relative to the firm fee lack of direct commodity exposure, take or pay contracts all of that kind of things. So difficult for me to predict when, but you can be sure if that not only for TEP, but also Rockies Express we will continue to focus on that going forward.

Perfect. Thanks guys.

You bet.

Hey Ethan.

Hello gentlemen. My congrats.

Simple question on bankruptcy recovery, where you do - maybe it's not simple, where do you guys sit in the cleans deck on Ultra and LINN are you behind all the debt holders or fighting for a piece of the first place of the pie?

Yes, well I'm not going to talk about LINN, but relative to Ultra, they're all unsecured creditors, so we are the single largest. But for the unsecured bank and other kind of institutional that they have, but rather than that we're the single largest creditor, but it's all fungible everybody stands on the stack in the same place.

Okay. And then just digging into Pony a little bit more, is there any you mention both supply push demand pull and obviously we contracting and Pony has been one of the auctioneer.

I'm curious if there's any specific point of either supplier delivery where you're either particularly optimistic about new volumes and in longer term contracts were you’re particularly worried about things rolling over for you?

I mean again I’ll let Bill jump in after me. But it's still continues to be humorous for me just like it was with REX that we’ve got two and half, three years left on our contracts were in the oil environment we are in that continues to be a knock on our story about re-contract I mean, I don't know who in the right mine is going to expect us to get people re-contracted two and half years in advance when crude has been as both as low and as volatile as it is.

Having said that, if you think about today as having contracted volumes on Pony have been more or less 300,000 barrels a day and we already said we have one customer on the Kansas, Oklahoma border of drops off 70,000 barrels a day. We've only got 230,000 going to Cushing.

So if somewhere in kind of the Kansas, Oklahoma areas another refinery or two that we can get another call at 50,000 or 70,000 barrels a day dropping off to. Hedges reduces that first of all those guys take it day in day out regardless, they reduces the amount to Cushing and there's nothing wrong with going to Cushing is just that you know that you have a demand pole in that area.

Relative to supply, I don't think we're frankly too concerned about any of it, I mean I think we just need a more stable kind of 50ish dollar oil price. I did say in my comments that people are looking feeling much more opportunistic you know feeling much better about the environment going forward.

And so if people start drilling more don't producing their ducks et cetera will get a lot more activity on that. If you want to at any there?

I think of the supply side Ethane the one thing that we are working on that Dave mentioned in some of his points at the end there are joint tariffs. I think we can optimize how we get barrels is the pipeline for example outer barrels come to us today by truck and a little by pipeline.

There are joint tariff opportunities coming out of the powder to come into us at Guernsey, we've had discussions with some opportunities as far north as Canada and Canadian volumes are joint tariffs we talked about working with other pipes to have a joint tariff to get down to the ball, so that we have a seamless nomination and scheduling process, which shippers and producers appreciate. I do think the demand pull is something that is extremely unique to our pipeline.

We are not a bullet line. I've said it a hundred times we're not a one trick Pony.

We do have a demand pull refineries fix their slate and they hold that slate for a number of years. We have gotten one demand pull on the pipeline pulling 70,000 barrels who is addicted to the Niobrara crude.

We're trying to get to others hoped up, so if we get all the refineries that are within reach of us hoped up it's as much as 210,000 barrels. Cushing is a great place to go, but having that demand pull eliminate the conversation that everybody always has when they say well the Guernsey to Cushing basis has crushed.

If we have 210,000 barrels hooked up refining demand the net basis equation becomes less material. And so that's why we try to apply our gas expertise to our crude oil pipeline and balance supply and demand and that's what we're trying to do.

That’s really helpful guys. I appreciate that.

And then just circling back to M&A real quickly just to be clear would you guys do as third party M&A deal hypothetically at TEP or would that be at the parent and then you do some tweaks or additional work and then drop it in when it's matured up to the MOP?

Yes so we really have three places we could do it, just to be some very specific, TEP and I would say that's where most of our thinking is we have a size and that's where we have all the dry powder I was talking to I expected that's kind of the first choice. Having said, that that doesn't mean that for any particular opportunity we might not do it at T-Dev the private entity, which again is where REX is 50% of REX is owned in our terminals business et cetera.

If it made sense to do it there with our partners, we could do that, we're not really looking to do that. And the final is TEGP were I also said we have no operating assets today again if it only made sense and kind of hit us in the face and said wow this is the most - this makes the most sense than we would certainly be open to doing that, but that's not the way we're thinking about things today.

All right, thanks very much guys. Appreciated.

You bet, thank you.

Yes, good afternoon everybody. And thanks for taking my question.

I just - how much - you’re talking about how on REX you're sold out on the expansion project going east, I’m just then you're focusing on the west end opportunities, I'm just curious now where do you stand in terms of how much available opportunities are on the west end of REX?

Yes, good afternoon John by the way. Just to clarify a few things.

We have one point eight on the east end that we've been running chock blocks full, we have 1.8 coming from the west for which we have been running anywhere from 1.3 to 1.8 down any given day. So just before this power project goes into effect we've had days where we're running let's say at a minimum of three Bcf in our pipeline which was originally designed for 1.8 Bcf clear up to 3.6.

And when 800 comes on line on those given days that could be as much as 4.4 Bcf so just to be clear that way. So we've got 2.6 fully contracted coming out of the east, when the capacity enhancement comes on line, we have the 1.8 original I think that we have this is all in our materials we've put out in the past.

But I think we have about 1.5 contracted through 1.4 or 1.5 contracted through 2019 and then we did that Encana contract where we extended that out for half be a day through 2024. And again the same commentary ahead on re-contracting period is that we that's the stuff we're going to be working on here in the next three year or so.

Okay. That's helpful.

I just obviously congrats on getting the east side completely sold out there. And then I guess turning to Pony, I just - I hate to have to raise this question, but I've got like I have to ask it is, just with the situation with Dakota access, I mean how do you think about that in terms of how that impacts the situation with Pony Express, I mean how do you guys think about that, how do you think the dynamics work there, I mean obviously we're thinking Dakota access goes forward and it’ll end up starting up at the end of the first quarter, but obviously it's a volatile situation so I'm just curious your thoughts there?

Yes, well I mean hey it’s your job to ask it. So I don't have any problem with that.

I don't know that we're in a unique position to provide any insight that anybody else doesn't have relative do to Dakota access and the things that are going on there between the builder and the tribes the people that are not in favor of it et cetera, I think it's more kind of pivoting to what that means to us and our company is, I guess I would just to be highlight that the pipelines that touch the Bakken that we have joint tariffs with our kind of the through build through system the butte pipeline and then Highland and then Pony. And I just reemphasize what Bill said, pipeline in the ground, it's almost like a royal flush beats two of a kind I mean pipeline in the ground is going to become more valuable because of all the stuff.

I don't wish ill on anybody relative to ETP situation and et cetera. And I think it's going to just make it difficult for everybody, I guess what I would tell you is, I would immolate our comments last quarter and I think you could go look those up where again we never really viewed Dakota pipeline as being necessarily a direct competitor of ours.

We have barrels and sure we could access barrels that they can and vice versa, but it's designed for a whole different situation to take barrels to Patoka and then on down to Nederland they have a cost structure that is higher than ours. They have a cost structures that is either than ours they have situation were getting barrels into their line makes it even more expensive.

And then from Nederland and you have a whole another tariff, and so it's just kind of a little bit like comparing apples and cranberry you put them together and get brand apples, but it's kind of apples and oranges. So I mean we feel good about Pony Express, if they - if they have to take some time, I guess I would just reemphasize to you that we get that extra 100,000 barrels a day and to the extent people want to get the barrels to Cushing the crude oil terminal of the world and get them out from different places to there even to get Patoka we're ready and willing and able to move forward.

Okay that's helpful. And just a last thing is just more of an accounting situation just in your release you’ve indicated sort of an alternative way of looking at the EBITDA if you look at the deficiency payments I mean you reported the adjusted EBITD as 1085 if you could view it is 1176 depending on how you view the efficiency payment.

And this was that extra $9 million was that's actually amount that you receive, but you’ve not book to this EBITDA is the right way to think about it?

Yeah I'll turn that question over to our accounting expert Bill Mole - I'm sorry Gary Brauchle.

Yes, John I mean that's really it is just the way we have elected to present that, we could change our definitions that we really wanted to put it up in adjusted EBITD or whatever. I think we kind of just link with this methodology and we're presenting this alternative reconciliation that makes sure that anyone who has developed estimate is able to compare our results tor theirs on an apples to apples basis whether they put those deficiency payment in adjusted EBITDA or DCF.

So it is cash that we receive and they are collected historically and currently, and so therefore it is available for distribution. To that is the answer relative do adjusted EBITD on DCF.

Those deficiency payments are cash that we have received, but have not provided a transportation service for us so therefore under GAAP there not earned revenues or in net income that maybe more than you wanted to know.

Actually that's perfect. That's very helpful.

Thank you so much. That’s it from me.

Thanks John.

Thank you. Good afternoon.

Hi Selman.

Yeah, so we're trying to permit a project that would be bigger than one on one about to describe to you, but we currently at Pony we're contracted through our deep rock terminals that we owned 20% of with deep rock in Kinder Morgan and I think that runs for another two and a half or three years. We have some renewal rights on that et cetera.

We only own 20% of it. And there are some additional commercial things that we're interested in doing.

And so therefore at a minimum, we would eventually be looking to perhaps replace our existing terminal that we use, that we've basically lease tanks from with our own to move the Pony volumes, which again are 225,000 barrels a day through how much storage is at Pony deep rock, how may barrels. So we have - so there’s called two and a half million barrels of storage at deep rock today.

So that's probably the minimum size footprint that we would be looking to put there and then I would be looking to permit it more because we are in discussions with other folks about stuff where the timing threshold meets up to do that appropriately. I think if we were just replacing the deep rock terminal, I think we would be spent and somewhere around $75 million if it's more - it's more tanks and that be somewhere around $100 million.

All right, thank you so much.

You bet.

Hey Chuck.

Hey good afternoon guys. Just two quick ones from me, trying to reconcile distributions received from REX quarter-over-quarter and understanding that this quarter didn't have that settlement payment, but is that is delta between the few quarters is it mostly because of that non-receded that payment this year versus - I’m sorry this quarter versus last or were there any other significant drivers for that quarterly decline?

Yes, there's two things. There you need to be sure to consider, first as last quarter there was that litigation settlement at REX for which TEP received its 25% share.

Also last quarter the acquisition was done at the beginning of May, so it is only two months’ worth of distributions from REX and TEP last quarter. And so then you compare that to this quarter there were three months’ worth of distributions Chuck and TEPs result to this quarter and no litigation settlement this quarter.

Okay, got it. And then just last one from me.

On the additional $50 million a day that you've singed up recently, can you provide any color on the counterparty there is at another LDC is that a producer customer any details would be helpful?

They are end users.

Okay. That’s it from me guys.

Thank you.

You bet.

Hi Ted.

Yes, stand on fracs trying to understand the third quarter EBITDA looks like a put down a lot year-over-year $124 million versus the $170 of 3Q of 2015, is that all just sort of the Ultra non-recovery or was anything operational or whatnot that we should be looking out for there?

Yes the two things to be cognizant, one of them you named directly which was the non-payment or lack of revenues from Ultra that really kind of began this year. The other one is the Encana contract amendment and extension into the revenues this year, as you compare those against last year would be lower obviously because of that.

Right.

Yes, I mean if you recall Ted, we even though look at our presentation back in that timeframe April, May we did tell all that out for you.

Ted, I would just make sure that you as you look ahead you look at these results that we have published around REX and think about the power of going in service for a full year's worth of contribution next year and beyond.

Yeah, understood. And then to that point you get the $84 million contribution this quarter about thinking about run about $80 million a quarter, is that should we say there's one more quarter that left, and then we're kind of done and what’s our sort of run rate contribution fill and maybe go in direct?

Yes, and just for clarity for everyone. Those are related to the capital spend on the power of project.

We anticipate will do north of $300 million for the calendar year this year on 100% basis at REX. Coming into this year we have done - we had done more than 100% so that put you north of $400 million the total project is give or take $500 million to $550 million so that would leave you $75 million to $100 that would burn off in Q2 and give or take of 2017.

Okay. And then run rate after that is.

Yes I mean - that’s in on expansion CapEx unless we determine, we have other projects that we can deal with, and want to deal with and then of course you get a factor in the maintenance CapEx right.

And then just on following up on the even better than the on the east to west portion of the REX, I mean how hot can you actually run the pipe in you? Also get to a 1100 Btu or what could we get that too and then with that all just be IT call it $0.50 in MMBtu?

Ted what I would tell you is relative to the Btu its always the lowest common denominator. So we have interconnected pipes to REX, those pipes have differing maximums of heating content, high gas they're willing to accept.

So depending upon any given day and associated tariff of those interconnected pipelines that can vary widely. So I’ll answer that question that way.

And then your question or whether it's IT or in the rate we want to get the facilities up and running. We want to test them make sure that the package does what it's supposed to do.

And test it and make sure it can do more and if it can do more, it might start out as an IT deal that might start out as a short term deal, might turn into a one year deal, and then my term up into a long term deal or we may do basis deals with customers. At this point we just don't know we're just excited that there's a possibility of some additional dues there.

I’d add a just a little bit to that. One is we have the - I mean there are a lot of things we can do, I mean we could put at many facility and prior to those interconnection perhaps for strip outs and Btus and turn it into liquids, so I mean that's one possibility, the other thing is that what's our Max rate on $73 - $0.88 you know, so I mean we could get Max rate deals done at $0.88 on an IT basis.

I mean you know it's a balancing act like Bill said you know once we’ve really figure out what it is can do our goal will be to optimize I mean whether that's of AFT contract that’s maybe not 15 years, but a shorter term deal at a good rate or if it's IT depending on what the season is, and how much we can get for it. I mean like Bill said, it's just nothing but good news and upsides.

Okay that's great. That’s all from me.

Thanks.

You bet. Thank you.

Hi Christine.

Hi, how are you?

Feeling good.

I just have one question. You’ve talked M&A in your prepared remarks and how you guys have looked at things that could potentially move needle, when I think about your track record if you alluded to - I find that you guys like assets with value right fix you upper let’s call it.

So I'm curious to know your views on whether or not the M&A was to some sort of partnership, and I know that you've had partnerships with like REX and things like that, but you guys had operational control. So I'm curious it's a partnership on the table as long as you get to control or is it just something that you would like to completely stay away from?

No I wouldn't say we completely stay away from that I mean I think our view is we are good operators, I mean we've all seen and been in situations where partnerships work really well and which I think REX is an excellent example of that on our watch in particular with P66 and Sempra, I think you see situations where partnerships don't necessarily work out very well and sometimes it's a little bit of everybody's causation. But no we wouldn't foreclose it, I guess when I think of acquisitions, I think of things where we are working with our customers as an example to do things that they want to do that aren't necessarily caught of our current system, but they don't want to necessarily be in the Midstream business, and we're there to help them do that and put capital in, and have them be good assets, there isn't necessarily really an acquisition it's kind of a build relative to an acquisition.

We've been in a couple of processes where we've been whittled down to the last two or three parties where we feel like we have a good chance to bring it over the finish line or bunch it in the end zone. Yes we think we can take something that we have to bear certain price for and make it into a better asset and therefore a better returning assets and necessarily the time we buy it.

I think the next one would be a more sizable asset where we would ask somebody to take it's not a merger, but it's an acquisition where we would ask somebody to take not only cash, but a decent chunk of our limited partner units as an example. So in that regard you might say there are a significant partner, but a partner in our overall situation where we continue to - we have managerial control et cetera.

So I mean that's kind of how we think about it. I hope that's kind of response of what you were asking about.

Yes so it’s very helpful, thank you.

Yes, let me set the record straight. I just got a note from somebody forget who it was maybe it was Ethane or about the - we sold the capacity on REX I said they're end users they're not all exactly end users some of that capacity that last hundred that we did sell is to a shipper, but it’s not the significant portion of it that I want to correct the record that not every one of them or to end users.

All right, thanks everybody for joining us this quarter and we look forward to talking to everybody again on the Q4 call sometime in February. Have a great day.

Thank you.