Generation Essentials Group

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

As we discussed our recent announcements as well as the TEP and TEGP results for the second quarter of 2017, all of its released through our joint press release and 10-Qs this afternoon. Joining me on the call are David Dehaemers, President and Chief Executive Officer; Bill Moler, Executive Vice President and Chief Operating Officer; Gary Brauchle, Executive Vice President and Chief Financial Officer; and Matt Sheehy, Senior Vice President and Chief Commercial 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 August 2, 2017. 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.

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 the non-GAAP financial measures referenced in this presentation and the most comparable financial measure or 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, everyone, and thank you to everyone for joining our Tallgrass Energy second quarter earnings call. Given our recent announcements of strategic acquisitions organic growth projects and other positive commercial developments, we’re going to adjust the format of this call this quarter to be a bit shorter on the historical financials, but in turn allow for increase Q&A time and more fulsome discussion of our recent business announcements.

In fact, we have included in a number of our topic what you holders in the Q&A portion of the call this time. As you may – as many of you saw in our earnings release, the second quarter was another outstanding quarter for TEP, with the acquisition of approximately 25% interest in REX on March 31.

The strategic acquisition of the natural gas gathering system in the powder basin in early June and continued strong performance in our operating segments all of which contributed to our 16th consecutive quarterly distribution increase. Note, and I guess I would just note for you just to bring everybody back to where we started from this endeavor four years ago in TEP.

If you recall our first distribution was $1.15 annualized and where we’re at today, we’re at $3.70. We’re also have TEGP’s eighth consecutive quarterly distribution increase and again just kind of taking you back to where it was a little over two years ago, our first on a annualized distribution was $53.02 three today we’re at $1.37 annualized.

As I alluded to on our last conference call in May, as you – those of you who follow us our team’s been very busy and over the past few months closing on or announcing approximately $350 million in acquisitions and growth projects, in addition to a number of other positive commercial developments. There’s a brief rundown of that list.

This is the acquisition or purchase of the natural gas gathering system in the PRB, which is the transaction we announced where we bought that system from DCP, additional 49% interest in Deeprock terminal that we bought just a week ago or so from Kinder Morgan and Deeprock Energy, taking us from 20% to 69%, 63% interest in a fresh water facilities in the DJ. And then Clarkelen water disposal system that we bought in the PRB.

With regard to organic growth projects listing those out, we had a successful open season for the Pony Express, Platteville Extension and associated terminaling facilities. We entered into an agreement to connect the CHS Refinery, McPherson, Kansas to Pony Express.

We took on a 10- year take or pay agreement for a new supply connection and terminal in the Central Kansas uplift, where we’ll be putting Kansas barrels going to our Pony Express system to take them to either refineries or Cushing. In the commercial development/updates portion here the items are we received a proportionate distribution from Ultra’s settlement payment to REX.

So that we concluded that well, we did receive the $150 million TEP got its share of that. We completed the north Sterling water infrastructure project that we announced some time ago and is now commissioned and moving a lot of water, more to come on that in our Q&A session.

We commissioned the Fortigen demand lateral on Trailblazer, so in other words an end user of Delta Trailblazer. And then we had successful open seasons for 240,000 dekatherms of incremental capacity on the east in the REX.

We’re happy to get into more detail about these transactions and developments during the Q&A session. Before we review our second quarter financial results, I’d just like to say that I realize that some of you may characterize Q2 is generally in line with consensus, core consensus estimates or your own estimates.

I’ll just share with you a couple of my thoughts relative to that. First of all on the sell side, we’re covered by 19 people, some of the people kind of get our story and get it really right on some those outliers always screw – skew, not screw but skew consensus estimates one way or another.

There are – buyer account there is at least four different sets of consensus estimates, those are Bloomberg, Reuters, Factset and CapIQ. So I don’t know what any of that is, but I guess I would just tell you that my – our conclusion around here with 1.30 coverage raising our distribution as much as we have and the results that we have achieved here second quarter is by any measure and outstanding quarter for TEP.

I would tell you also that I think one result is some of the sell side who does – who cover us do a really good job at listening and taking on what we’re telling them we’re doing. So I think another reason for it is I think our companies very transparent and how we report and give guidance particularly with as an example our deficiency in incremental payments on Pony and see our business is highly stable and continues to consistently perform.

So I don’t know whether people would rather a sandbag and beat the heck out of stuff all the time or not, but I think we’ve been very transparent and will continue to do so. That means that we just need consensus and so the results will speak for themselves.

We do expect the third quarter to be an excellent quarter. In fact, we expect the rest of the year to produce outstanding results.

Now let’s review the second quarter financial results driving our distribution increases. Adjusted EBITDA for TEP was $151 million or if you were to include the quarter’s net deficiency payments adjusted EBITDA would have been $159.2 million.

You will see that we again alternatively detail that out in our press release. TEP’s DCF for the second quarter was $136.6 million and coverage for Q2 was a very strong 1.30 times.

TEP increases distribution by $0.09 per unit or by 10.8% to $0.925 or $3.70 annualized and TEGP increased quarterly distribution by $5.5 per share or 19.1% to $0.3425 per quarter or $1.37 on the annualized basis. I think year–over-year those distribution increases were something like 20% or 22% for TEP and closed to 40% for TEGP.

So now I’ll just turn the call over to Gary to provide a few financial comments and then I’ll wrap it up and we’ll give right to the Q&A.

Thanks, Dave. Good afternoon, everyone.

And like Dave, I’ll be also this quarter more brief, the highlights and provide a lot of time for Q&A and more discussion on our commercial announcements. So I jump in right to the segments, our Crude Oil Transportation & Logistics segment generated distributable cash flows of TEP as $71.4 million, driven by another solid quarter from Pony Express in our Terminals business.

Pony Express and Terminals are two of the assets on which we have seen commercial development activities of a very high level of the recent. Average daily throughput at Pony Express for the second quarter was approximately 274,000 barrels per day, up 12,000 barrels per day as compared to Q1’s average of approximately 262,000 barrels per day.

As a reminder, Pony Express is contracted at just over 300,000 barrels per day and we continue to collect monthly payments based on contracted, but not throughput volumes. The Natural Gas Transportation & Logistics segment, which included approximately 50% ownership interest in REX this quarter for the first time produced adjusted EBITDA of $79.1 million.

We have again included in our press release summary financial data on REX as a whole for your reference and information. The Processing & Logistics segment, another segment where we saw commercial development activities that are very high level, generated adjusted EBITDA of $9.3 million also growing nicely, as compared to Q1 as a result of the contractually ramping take or pay volumes in our water business and one month of results from the Powder River Gathering System that was acquired in early June.

Now on to our capital structure and let’s talk for a moment about our balance sheet. And this May, TEP issued an additional $350 million of our 2024 senior unsecured notes, the proceeds of which paydown of revolver borrowings.

In addition in June, we announced an extension of our revolver maturity to June 2022 along with a pricing reduction and a number of other contractual enhancements including certain fall away provisions when we achieve our targeted investment grade status. At the end of the second quarter, TEP have just over $400 million of liquidity available on our revolver.

Importantly, TEP’s leverage as of quarter was approximately 3.6 times based on the trailing 12 months adjusted EBITDA as calculated in accordance with our credit agreement provisions and calculations. I would point out for you that our leverage is near the midpoint of our conservative 3 times to 4 times long-term leverage target even after we financed of our dropdowns Powder River Gathering acquisition with only that and no equity issuances.

So next on to 2017 financial guidance. And finally for me, as it relates to that guidance, you may recall that we don’t have a habit of revising our guidance, unless there is a material change.

However, when we consider the continued performance of our business, our outlook for the rest of the year and the impact of our recent acquisitions and capital projects, we expect that we will deliver the high end of the ranges for 2017 full year adjusted EBITDA DCF and distribution coverage. And with that, I’ll turn the call back to David for his concluding remarks.

So as we conclude our brief prepared remarks, this quarter I’ll mention one additional item. Last quarter, I mentioned that we will be disappointed if we didn’t announce a couple of hundred million dollars of acquisitions and growth projects in the next 90 to 100 days of followed, we’ve already announced approximately $350 million in the last 90 days, and have preview that there is more to come by year-end we believe.

From day one, our team is delivered and what we’ve said, we would do and then most cases delivered even more and even faster. And this is just another example of the results that our outstanding management team is produced.

I can assure you that we plan to continue that outstanding team effort and continue to deliver even more as we move forward. Again, as always thank you for – to all of our partners, shareholders for their confidence investing in TEP and TEGP.

And thank you for everyone on this call and your interest in our companies. With that operator, we will start the Q&A portion of the call, so if you would take over the call and ask for people to get in the queue that would be great.

Good afternoon, guys. So I guess the first question just to jump in here.

So Dave you mentioned, the M&A strategy, so of the two larger deals with Douglas Gathering and Deeprock Terminal. As both assets that we’re highly integrate to the existing system in the case Deeprock actually had an equity stake there.

So I guess and you think about just through the back half of the year and maybe longer term. Are those the type of acquisitions you’re targeting?

Or would you consider an asset or system that doesn’t necessarily fit with the portfolio that you have today.

Yes, I mean, look that’s a good question. And I mean those ones are obviously only made sense, because the opportunity presented itself to us and those are – I wouldn’t call and layoffs but those make a lot of sense to us.

But also naturally, we would think about doing other acquisitions too. In fact the – I’m hoping that we have one here in the next couple of days to actually that we announced that is not kind of part and parcel of our existing system directly.

It’s kind of within our footprint. But I think if we get it done people will understand that it kind of makes a lot of strategic sense for us.

Notwithstanding that, sure we would consider other assets. It’s just, not knowing exactly what you have on in your mind.

Thank you. You probably want to see us – it is an example going on to the Permian and compete, one of the major systems down there like Medallion that’s been marketed right now, et cetera.

Okay, that’s helpful. And then I guess is the – maybe a little bit smaller one here, you guys mentioned the Powder River water disposal.

So our understanding was that the Powder didn’t necessarily produce a whole lot of formation water. Is that the right way to think about it?

And this is more of a kind of a flow back disposal system. Or how you guys looking at the system over time?

I’ll let Bill, kind of fill that one.

It is not comparable in terms of produced water to what is going on in the Delaware, by no means, but there is produced water. It also is a flow back process.

And I’m happy to say that since we acquired the Clarkelen facilities we have term contracted three or four producers for all of their flowback as well as their produced water. We’re looking at expansion of that facility.

It’s just turned out to be homerun acquisition.

Okay, got it. And then in terms of permitting there, do you guys mean to file for additional wells or you have a few of those in hand already.

It’s a good question. But I don’t have the specific answer for it, but I know that we have plans to drill a disposal well.

Okay, got it.

Just for the record, the disposal facility at current is a very large evaporation pit. So most of the water goes into the evap pit and mother nature does what it’s going to do.

But in order to continue expanding that facility, which the market is growing for, we will do that through either additional pits or drilling wells.

Okay, that’s good clarification. I appreciate that.

Thank you.

Hey, Andrew.

Hi, good afternoon guys. My first question is on Pony, you had a lot of good updates in the last few weeks and months.

My question is, can you remind us about the expiring contracts in 2019 and if you could you have that stand in your slide deck that for REX about 85% of historical revenues have been, re-contracted at the 2019. Will you be able to provide a comparable state for Pony?

We, again, I’ll let Bill and Matt kind of pick this up, but, I mean all of our contracts expire kind of end of 2019. So we’re only about halfway through, I think we’ve got, we burned off of 16 months, we burned off maybe 33 on the max and then even less than that on the short end.

So some of it we actually have almost three years to run. But there’s nothing extended beyond that and reminding you of what expires in 2019.

It all expires, all right. But I think, you keep in mind again is that Pony is a liquids line, it’s important for shippers to maintain history.

And so for example, if you went NASH, Colonial Pipeline is the largest liquids line in the country that moves about 2 million barrels a day of refined products up from Louisiana to Washington, D.C., and maybe even up into New York Harbor. What the term of their contracts would be?

The answer would be, we don’t have any term contracts, we just have shippers that have shipping history and show up day to day. And so I’m not – that’s not necessarily commentary on what’s going to happen, when we start getting some realistic conversations going on about our shippers, but having a contract – having history are important and the reason that they’re important or a couple fold one is typical, if you have a contract you’re going to get a better rate.

If you don’t have a contract and you’re going to pay a higher rate. Notwithstanding that you still have a history here – history that you be in the queue, so that you can move your pipe volumes through the pipelines.

So, Bill, do you want to add anything to that.

Yes. A couple things that I would add is this, we have supply diversity on the pipe as we’ve spelled out the number of times both in press releases and on these calls.

A portion of our contracts expire in 2019, another large portion of those expire in 2020 and 2021, 2022. Those are the ones associated with the Northeast Colorado lateral, of which we’re attaching this Platteville Extension to the Northeast Colorado lateral.

So we suspect that whether there is re-contracting or not, we’ve positioned ourselves from a supply standpoint to best access every possible barrel in the basin. In addition to that, we talk to our customers every day.

And we have entertained conversations with some about extending their contracts. We continue to have those conversations will those happen near-term, I don’t know, but I will tell you that there is interest in staying on Pony due to its rate structure, due to its market diversity and due to its supply diversity.

Thank you. That’s very helpful.

Then my next question is regarding spending opportunities between CapEx and acquisitions. Last quarter you talked about target of about $1.5 billion over three years that still seem like a good number or might there be upside given a busy in since that May call.

Appreciate the question, but how much would you like as to increase like its…

Let me refer you then has the pace been consistent with what you’d expected three months ago.

Yes. So I mean – so let’s just take the math, right.

I mean three months ago, we didn’t have anything. We’ve done – we’ve announced $350 million that’s going to happen and so we’re already afford for the way there to the $1.5 billion and that’s only in three months.

So the pace, we’re very happy with I – like I said, we’re looking at foreseeably another $200 million here that might – some of which might even happen in the next few days. That we think will happen this year for sure and that, that doesn’t even feel back the stuff that we don’t know about so.

And look, let me tell you, I mean we have a lot of interesting parties on this call, some believer, some not believers. The fact of mayor is if you look at the sell side, the people that write on this and try to study as you know we’ve got a number of people who are giving as zero credit past 2018.

I mean we’ve got people’s models of insured with this. We have as at 1% perpetual growth rate.

I mean first of all, that’s laughable, particularly laughable since we’re now showing you what this is capable of doing. I’ll give you another example, we’ve got one guy that models us with $50 million a year of growth CapEx.

Well, we just – if that’s true then we just blew away seven years. So that’s kind of the answer to your question.

Sounds good. Appreciate the disclosures and on projects.

Yes, thank you.

Good afternoon. Keeping the Pony seeing – going, if you talk about the recent open season, the logic and maybe just flush that out a little bit, help us understand what’s going there?

Yes, I’m going to – I’ll let’s Dave, I’m going to pass it on to Bill and maybe Matt too. But let me just started out by saying when we built Pony if you really kind of go back to five years ago when we bought the assets, Pony was a project with contracts and 400 mile pipe there was a natural gas service, kind of originally was bought under the idea was going to be 160,000 barrel a day pipeline, et cetera, et cetera.

Well, as we got more involved and then we build some new pipe from still line of down to Cushing make and close to 700 miles. We found out that there was a demand and the DJ, et cetera, and that’s why we ended up build in the nickel piece kind of simultaneously and within service some more between three months to six months after the original coming out of Guernsey did.

So the way I think we’re thinking about this stuff around here is that had we – I just give you a good and bad here, had we had perfect knowledge and we built Pony, we would have build this 24 in – what we’ve built 20-inch, 24-inch over to…

As a 12.

12, we’re going to – and we had perfect knowledge over – at the time we would have built over a class for 2.5 years ago Platteville. And we would have built the terminal, et cetera.

So we’re doing what – I kind of wish we had done, then it would have been an incremental capital spend of give or take $100 million for everything we’re doing. We didn’t, but we’re catching up for last time.

The bad example, I’ll give you is that we let somebody else build the terminal of Pony, it’s a time and there’s, there were reasons for that. As a reasons up again if we had perfect knowledge, we probably wouldn’t, it were anybody else build that terminal.

But it is what it is, and Pony even though it is owned by somebody else puts 50,000 barrels a day – every day, day in day out into your nickel Pony system. So one very long one that answer, Ethan, but that gives you the idea of that – we are extending the nature of illusion of what is a mainline system to as Bill said, what will eventually carry very clean products in batches all the way through Cushing, all the way to the refineries, as much as six different streams.

So you want to supplement, I mean I know I would probably don’t want to…

The only supplement I give you Ethan is this. I hope that you and others recognize that our main goal here is to position us as best as possible to get as many barrels into our pipeline at current and for 2019 and beyond.

And how you do that, it is by accessing every possible supply point within reach of our system. We’re building these facilities over to Platteville with a capability of 80,000 barrels a day.

You saw the results of the open season at 27.5 to 30. We fully expect – there’s a lot of barrels in and around the western part of the DJ that need to find a home.

You’ve heard us previously talk about the DJ growing in a gas fashion as much as 1.5 Bcf a day by 2020, that can’t happen without condensate volumes increasing significantly. And we’re going to go head to head and compete with the other pipelines in the area.

And you did a nice piece and on us that explain to the world that we have the lowest tariff, we have the best service, we’re connected now to or will be connected now to three refineries, which give direct takeaway after of the pipe improved markets, Cushing, liquidity, we’ve got six common streams and if – I don’t know how you can looked at it any other way that that we are positioning ourselves for current and continued success on this pipeline.

Okay. Well, I guess, it’s just incremental and will come up every quarter.

Appreciate those answers. Just one other sequential volume number that caught my attention was about 40,000 barrel a day increase on your fresh water volumes delivered.

And how should we think about modeling now in terms of contribution and where is that number going to head, lets say by year-end.

Ethan, it’s – we haven’t gotten all that granular relative to that I mean that is a small part of our business. Number one, it is only one aspect of the system that we acquired.

It will continue to the MVCs will continue to ramp throughout the back half of the year. I wouldn’t model anything substantially in access in terms of cash flow impact, but increasing nonetheless is our expectation today.

I mean, macro picture again. I know we’d all love to have perfect models.

Every one I’ve ever run has been wrong, hopefully, you’ve been for my sake luckily, it was underestimated, but the truth is that, when the pressure – you guys and I was drilling up there, who’s drilling out who is producers stuff. And the reason the freshwater went up is because we had contract and contracts where guys are completing their wells and they’re fracking.

And so that’s a good thing and at some point that’ll kind of roll over a little bit, and maybe even continue to grow some, when it rolls over, we’ll get the water disposal/recycle. And so I just wouldn’t read into, okay, where we can do another 40,000 every quarter for the next six quarters, it just didn’t going to happen.

Got it. That’s helpful.

Thanks, gentlemen.

Okay.

Hi guys. Just a small question about Deeprock facility.

I know you still get two other JV partners on that. Is there a chance that this ends up as a wholly-owned asset?

Is that something that’s kind of on the radar? Is it a low hanging fruit?

Or is money better spend elsewhere right now?

So, I mean, I think that can happen. We went from owning 20% in being kind of the lowest owner to now owning 69%, and really kind of being able to control our commercial destiny there.

We have good partners, but we had another partner who really just wasn’t kind of getting after like we want to get after it. I doubt that we’ll ever be a wholly-owned facility, the Deeprock guys who actually operate the facility day-to-day, not commercially, but just the control room, et cetera, owned 20%.

I think they’re happy with that. We bought them down from 29% to 20%.

I can’t speak for Kendra, I just know that we’re able to acquire it. And, well, you brought up the Deeprock thing, just to put a little layer of clarity over this is, we did amend and extend Pony’s contract there, and so we have – Pony that’s got amend its contract, we’re not going to tell you the exact length or tenure.

All I would tell you is is that it is a cost savings to Pony of significant amount of money, and so that’s part of the economics there. Pony is a regulated entity, the terminal is not.

And then obviously, now we also own 69% of the economics that are there instead of just 20%. So you factor that all in.

We ended up putting I think – spending – what did we spend – $70 million give or take. If you factor that all in, not counting what I’m going to tell you about here real quick, I’m telling you more than you want to know just because we’re trying to share some of the thinking and rationale that’s going on here.

But you probably got an asset that – right now the shoot they want is kind of a $7 million to $9 million cash flow multiple. One of the things that we got that is really attractive about being able to do the Deeprock thing is when that got built as part of – Deeprock really got built because of Pony Express.

But when it got built, our partners and us put in two 10-mile 24 inch lines that are out bounded Pony, and that’s were Cushing – Deeprock Cushing has all the accessibility to – like, Seaway into all the other terminals et cetera, I think there’s eight interconnects with these or other pipelines or other terminals. And so you all know because we talked about that we’ve bought 550 acres to the South and we head started.

We’ve done some civil engineering on that. We’re in discussions with people about doing things down there with that.

But one of the big attractive drivers for us now being in the control position at the Deeprock North, let’s just call it Deeprock North, is that we have without costs unfettered access to those 1024s. And so if we do a deal in the South with somebody, we can just – all we have to do is build a header system 1.5 mile and we’re connected into and can use with no incremental cost or pump over fees, the one or both of those 2024s which is very attractive.

Your base question was do we ever think we’re going to own all of it. And I just want to clarify that Glenn Collum and his team at Deeprock built that facility, they operate that facility, they do a wonderful job.

We’re very happy to have them as operator and to have them as operator before an extended period if they should so desire. So very happy with what’s going on down there and continue to be happy and expect that will go for many years to come.

That’s great, thank you. I appreciate it.

Thanks.

How are you doing, Michael?

How are you doing?

Good.

I guess, first, my questions are really, I guess, two-fold. One is, are there any details you can provide and there is a whole bunch of deals you’ve done here.

But just in terms of any contractor reasons you have, whether it’s the gathering systems, underwater systems, just give us a flavour for how much of this is contracted versus just kind of spot or acreage allocation?

It really depends on which asset you’re talking about and the answer is multi-dimensional. And what I mean by that is on the Powder River gathering system that we just acquired, there are both term contracts and volume commitments, as well as acreage dedications.

And for me to bifurcate that for you would be a math problem that I haven’t done exactly as of yet.

I’m sorry; then I’ll toss it back to you. Mike, I would answer at this.

I mean, we’re not building any spec homes here, right? And so everything we’ve done, whether it’s an acquisition or announcing a project that’s going to be built in the next 6 months to 18 months, none of this is spec stuff, fill the dreams, build it, and they’ll come.

So may Bill is right in detail like the Powder River system, we have a conglomeration of things. But some of the smaller stuff, the water stuff et cetera, we have contracts that are very lucrative, they pay out very quickly, and they have high rates of returns.

But even though we might get paid back in two years, we think that those assets will be used for 5 years or 10 years. And so, do we have them contracted for 5 years or 10 years?

No, but it’s like anything, you ask some of your bigger MLPs, maybe they’re not MLPs anymore, but you know what I’m talking about. When they built new set of tanks at XYZ terminal, now they don’t build them on 15-year agreements, they build them on five-year agreements knowing that they’ll be used after that so.

Just to conclude what Dave said. One thing I would point out and I think you guys are getting used to us doing is, as Dave mentioned when we bought Pony, we bought it assuming it was a bullet line from Guernsey to Cushing for 160,000 barrels a day, we ended up building it for 300; the hydraulics pumps, the additional drag reducing agent lets us have an ability to move up to 400,000 barrels a day.

In the press release you probably saw where we talked about REX and the 240 million a day open season that we have successfully contracted incremental capacity to the 800 million a day that was anticipated on the power up project. We put that project into service and had 800 million a day.

We found some ways with paving and other hydraulic things to just squeeze more out of it. And we’ve been making that capacity available on the market and putting it out for sale, and it’s been received greatly thus far.

And I’ll toss it to Matt and see if he wants to add anything relative to that. But the point is we may build for a specified contracted amount of term contracts, but so far knock on wood we’ve been very successful in finding more.

Yes. Michael, I’d point back to the cynical lateral project that we did were we secured a customer who underwrote the initial bill, but we overbuilt that knowing that it was going to be a prolific supply point down the road, it’ll be a import for REX, and we were successful in commercializing an incremental volume to that system just like Bill had indicated with the capacity enhancement project, initially contracted at and designed at 800,000 million a day.

Once you get into service then you start to see how it rungs, and you see how the gas – where the gas is going and where it’s coming from and how the turbines are behaving. We’ve consistently made available incremental capacity both long-term and operation available shorter-term capacity on that project.

And I think as you continue to walk REX back towards the West, Rex is continuing to see incremental opportunities at West. You’ve heard earlier from Bill around – the 1.5 Bcf of incremental production out of the DJ expected, and there’s obviously a lot happening under DJ, the Powder is seeing a tremendous amount of activity.

And if you follow some of the private transactions in the [indiscernible] things are starting to move there and I don’t think those folks are buying acreage, so they aren’t going to drill it down the road. So, we fill REX with a lot of our assets particularly at West that just given the activity that’s happening, the projects that we are constructing, and the moves that we’re making and we’re going to continue to see both short-term and long-term contracts options available and we’re doing everything we can to maximize what we have within our footprint.

Yes. So Mike, just I’ll conclude with trying to be a little bit more pointed to answer your question.

So for example, the flats built thing that we’re doing, we’re doing on approximately 30,000 a day, its economic and that is accretive of course. Hello?

Anyway it is accretive for us at 30,000 barrels a day for varying degrees of contracts, okay. I think our ongoing assumptions are very conservative, we’re not going to tell about those for competitive reasons, but let me put it to just way.

The pipeline, Anadarko is capable of 150,000 or 200,000 a day.

Combined we can go as high as 250,000.

Yes. So, Anadarko was built existing for 250,000 what we’re going to build going over to Platteville is going to be built to do 80,000 a day, that it is accretive to us at 30,000 a day.

Okay, terminal that we’ve built over in Platteville, Grasslands that hooks into Platteville is going to be built day one to handle 80,000 barrels a day out bound from that terminal. And so that should give you some idea that may it’s accretive at 30,000 we’re building in for 80,000.

There is a lot of scalability to what we’re trying to do and how we are trying to manage our financials.

Great. Thank you for all the details.

You bet.

Good evening everyone. I just had one question.

Are you guys, is there – are you starting to have discussions right now with any producers or utilities, potentially the next sort of wave of opportunity expansions on REX. I know we’re in little bit early days but just understand sort of when the talk is heading and where the moment is right now?

Yes. I’ll toss that one out to Matt there.

Yes. We’ve been having conversations all across the REX footprint with all the utilities and the producers in the area.

We have, as you know the St. Louis utilities are constructing – Spire Energy is constructing at St.

Louis lateral that will pull gas off of REX, we have current connections were tight in the Kansas City. So we’re working to hook up all the connectivity of both power plants and utilities all along the REX right away.

REX is seeing a tremendous amount of flows right now, I don’t know if you are following the ebb’s at all but we’ve got for the quarter ended June 30, we had 1.5 contracted on the pipeline but our average flows were over 1.7. So I think you’re seeing the benefit of…

Matt that was running in which direction?

Yes, from west to east, so from west to east, you are seeing a tremendous number of customers and producers and utilities buying gas and transacting off of the pipe. So it’s a long winded answer of saying we’re obviously having conversations with everybody but I think the flows speak for themselves, the connectivity speaks for itself and we’re going to continue to do everything we can, with both the utilities and the power plants and the industrial load to merry up as much burn it of access as possible with the production both on the east end and the west end.

Particularly, what we’ve found in the middle of the system is that you’re seeing supply optionality is becoming a focus point for a lot of those folks. And so the utilities are looking at connection with REX and the power plants and industrial customers are looking at a connection with REX that allows them to access both the west end supply points the bases I outlined earlier.

As well as the Utica Marcellus gas coming from the east. So we’re continuing to move that along and I think you’ll see some incremental announcements in connectivity over the next one to two years.

And the timeframe for that stuff can be a little bit slower just given lot of its utility and PUC regulated and there’s just a process that those customers have to go through.

And a little bit on the producer side, flowing east to west, I mean I know there is a large slug of new capacity coming online over the next 18 months. Just wondering if you’ve started the conversations with for the next phase and what has to happen out of the east into the west.

Matt, I know you’re going to take this but, just to be a little clear, you are assuming its coming on, and most likely will, how much of it will come on and win, I think they’re still yet to be determined, right. I mean you have for – they got a number of pipelines they really think things are going to be done et cetera.

You got a major pipeline that isn’t getting off the ground et cetera, et cetera. In fact the matter is – we’ve got steel on the ground and it’s great.

I think I would like Matt to give you more fulsome answer. But it is suffice to say, we found out that we have 280 more data we didn’t think we had and not sold – it’s not sold for 15 or 16 years like the original sold but it sold even better rates frankly.

So Matt, you want to finish it off?

Yes. I mean from east to west we’re contracted for the better part of 2017 here.

So I think those conversations probably are quite a ways into the future for the larger project that we talked about earlier the 2.4 Bcf and as Dave pointed out on the operation available – we made available recently some of that done for shorter-term, some of that done for longer-term. But we’re seeing all that flow out rate.

In our mind there’s no conversation there to be had in east, the conversation that we’ll be focused on will be in the west as those producers and those customers continue to focus on their next stage of transport post 2019.

Okay. Thanks.

And just to put a cap on it. Dave and Matt both talked about how we’re contracted for that capacity for 16 or 17 years.

But equally as important is we’re flowing that much. I mean we’re actually moving 100% load factor of our available capacity.

And we do it every single day.

Okay. One is with the fuel expanses again it’s fairly low if I remember right?

The fuel expense to us is reimbursed through a tracking mechanism by our shippers. So I could go and look it up and tell you what the percentages but relative to our financials it’s meaningless.

Yes. I just thought it was – the low fuel cost obviously incentivizes customers to use the line.

So I was just remembering what it was?

Yes. The fuel rates are on the original capacity are – approaching 1% and on the power up capacity it’s anywhere in the high one to low two depending on flow, but those are posted to ebb.

But you hit the nail on the head Rockies Express is a high pressure new line that’s efficient from a fuel perspective and as customers out there have the option to flow on some on various contracts. We tend to see 100% load factor day in and day out and I think a lot of that has to do with the costs – the fuel costs but more importantly with the connectivity downstream that a lot of other pipelines don’t offer for the same cost.

Got it.

And just – to pause just off a little bit for everybody what Bill said about actual flows I mean four or five years ago it was REX’s at 1.8 Bcf pipeline. I’ll just tell you all that there been a number of days this last quarter were REX has been a 4.7 Bcf a day pipeline.

Think about that. Anyway any other questions?

No, I appreciate the time guys. Thanks a lot.

You bet. Thank you.

Okay. Hi, Selman.

Good afternoon. So I realize water is small and you guys have made a couple of investments.

But if you were to look out say five years from now, what your desire to grow how much capital is it just really going to be opportunistic as you go along or do you have more of a larger plan behind it and maybe talk a little bit about what you see going on in Colorado?

Yes. I’ll pass this to Bill.

We do see the DJ and the Powder becoming much more active I mean they’re not talked about nearly like the Permian even for that matter Williston on the oil side. But both gas and oil – look we’re if you kind of check through everything we’ve done – we’ve probably done somewhere between $75 million and $100 million worth of water deals over the last 30 months.

We think the opportunity – if we can do those same type of deals over the next three, four or five years and we could spend $0.5 billion in this area we would be willing to do it as long as they look kind of what we feel like we’ve done already. So I would say that’s maybe the opportunities out there.

Just that happened we have to see I mean, we have to – this is all a little bit depend on oil prices et cetera. Do you want to add to that?

What I would add and remind you guys sort of couple of things, in our press release on commercial activities we also announced a winter acquisition and the DJ Basin where we’re providing freshwater to a number of producers just south and east Platteville that’s going to be a very lucrative deal for everyone involved. The Powder, you heard us talk about we have lots of expansion plans for the water systems in the Powder River Basin.

We’re over – we’re at the point where we need to do expansions out there. But we also have facilities in the Permian and just this week we completed drilling an Ellenburger, disposal well around our footprint in the Permian.

It’s not a big footprint, but it is growing consistently and we expect to put capital to work in the Permian. In the Permian in the Delaware side of the Permian you have 3:1 water to oil ratio.

And that’s produced water, so that’s a long-term cash flow associated with those water asset. We have participated in a number of RFPs with very large capital opportunities for the water group and I think we’ll continue to participate in those.

And just lastly, I’ll tell you, I think obviously, jaded that we have the best water infrastructure guys in the space. And they are all over it and actively and aggressively are pursuing growth opportunity.

All right, thank you.

Hi, Elvira.

Hey, good afternoon. I kind of want to circle back on a comment made earlier.

You talk about $1.5 billion or so if visible growth opportunity, you’ve done $350 million so far, I think it’s sound like expect another couple $100 million before year-end. But how do we think about that ratably kind of going forward.

And then I guess a bigger question, since you touched on it. Is how do we think about distribution growth going forward when some of the CapEx of either lumpy or its M&A and would you kind of try to get to a sustainable level of distribution growth that you can maintain over time or would you grow the distribution based on some acquisition that you’ve done?

If that makes sense.

Yes. It does make sense.

I mean, I think the first one is how you – $1.5 billion that we gave you or remind you our actual numbers $4 billion. But we have a couple of large projects in there that’s our proprietary – if you have to think about I’m right now, the low price value.

So we took those out of equations doesn’t mean under the right macro economic circumstances for gas or oil that those might not come to fruition, those might be like the Pony Express project or the REX project or some of the other things that some of the other guys are doing figure capital projects. With regard to $1.5 billion, they’re very specific, but what I guess, I would encourage you to do as think about 2017.

If we get the $200 million more than here we’re at kind of that $550 million level you can kind of go back and feel back the you and yourself about how much is been really kind of acquisition motivated and how much has been built out of our existing systems, which obviously take a time to bring online. Some take three months, some take six, some take 18 months.

And so we’ve detailed that out for you. I guess, I would probably simply think about it going forward is, if you’re left with a billion dollars and that happens over the next two to three years, you kind of think about breaking it out the same way both in terms of how it stands and how it comes online.

I think relative to the distribution growth thing, our guidance is through I think 2018 and so we told everybody, again, just to remind everybody TEP, we think there’s a 20% a year even in 2018. And then we think it’s a TEGP again here in the right circumstances within what the market does or doesn’t give us small like the cash is going to disappear could be twice that in terms of the growth rate.

I think beyond that, we clearly if we can fill from the cynical view that we don’t believe our professional growth rate is simply 1% or they were willing to spent $50 million a year growth CapEx. But I guess, I would answer it this way.

We have a longer term model, we think that our growth for everything that you put your button into our model after 2018 is kind of a – it kind of high single-digit growth rate. We – and I think that’s accomplishable and doable is that a guarantee.

No absolutely not, I think, if we did an acquisition of size say we had a lumpiness of $500 million to $1 billion or even greater acquisition. When we do that transaction, we’re going to pay it out – we’re not going kind of Safe Harbor and leach it out and do like go for the next five years, we can grow just because of this one acquisition 5% a year.

I mean our partners are expecting and I think rightfully. So they would be expecting that we give them everything we’ve got.

Again, within reason making sure that we can maintain our balance sheet and leverage et cetera, and so what – so when I say kind of a mid to high single-digit growth rate kind of post that being accomplishable, I would say that’s kind of the plan X large transactions that may allow you to kind of take that to a double-digit growth rate for any particular transaction of the year.

Okay, great. Now that’s very helpful.

And just in terms of your long-term distribution coverage targets, can you just remind us what that is?

Yes. I mean – help me over guidance and we could guide on a…

For the year and I think you’re looking for something longer than that just as remainder here is $130 million to $150 million and we’ve now said that we should be at the high end of that range but…

And yes, in that I think in 2018, you’re going to see us have high coverage again the reason I’ll remind everybody for that is – that we’re enjoying huge benefits of REX having tremendous cash flow our intention is to control our balance sheet. And we’ll have high coverage, so that we’re paying down debt on a short-term basis.

So that when the REX notes do, here comes dealers an example, we’re able to cover those off from kind of past operations et cetera. And still maintain a very healthy debt EBITDA coverage ratio.

I do that – you’d not ask about, we’re going volunteered it anyway. So I have to tell you it is a little frustrating where there is – we are still in place don’t compare yourself to each other or don’t compare your salary, your rages or your bonuses or whatever but – the answer to your question is post kind of the REX debt coming due on our planned do that.

Only answer is probably kind of a $110 million to $115 million long-term coverage ratio, we think our business is built for that. So we’re as heading is if the MLPs land is a beauty contest and there’s 50 states but let’s say there are 70 MLPs and it’s a beauty contest.

I do have to tell you, it’s a little frustrating to be a 3.6 times debt-to-EBITDA covering at 1.3 maybe as high as 1.5 by the end of the year, saying we’re going to have similar metric next year, hitting on all cylinders having gone from $1.15, four years ago to $3.70 now. And then you have other people on the beauty and we rate it like we are on the debt side of the equation, which is almost investment grade rated by one which is the BB+ but the B1 on the other and then – and yet on the other hand, you’ve got other people in the beauty contest who are investment grade rated that are run above five action haven’t raise their distributions for a couple years.

This is a little bit of unasked for indicative of that bogglesmy mind and it’s very – it’s mildly frustrating. Because we work really hard around here and try and give everybody our best effort and – it’s just a little disconcerting sometimes.

Yes. That’s make sense.

Thanks for proper clarification.

You bet. Do we have anybody else in the queue?

We’re almost an hour, but why don’t we go ahead and give one more opportunity to enter and then we’ll clear those if they do and if they don’t then we will end it at this.

Right, operator. We thank you everybody that participated in the call, both questions as well as those just interested in our company, again our partners.

Thank you very much for your interest and I hope you all have awesome evening. Thank you, good bye.