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Tallgrass to strengthen and expand its Pony Express pipeline position

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World Pipelines,

Tallgrass Energy Partners, LP (TEP) has announced strategic acquisitions by its Terminals and Water Services businesses and several significant commercial deals that expand and strengthen its Pony Express crude oil pipeline position in the regions it serves. Since the company’s 1Q17 earnings call on 2 May, Tallgrass Energy has now announced or completed acquisitions and growth projects of approximately US$350 million.

“Today’s announcements clearly demonstrate TEP’s expansive footprint and ability to grow through strategic and accretive acquisitions as well as through organic commercial development,” said David G. Dehaemers Jr., Tallgrass Energy President and Chief Executive Officer. “These acquisitions and growth projects enable us to help our customers grow their businesses.”

Strategic acquisitions

Tallgrass Terminals

Tallgrass Terminals, LLC (Tallgrass Terminals) recently acquired an additional 49% interest in the Deeprock Development (Deeprock) crude oil terminal at Cushing (Oklahoma), increasing its total membership interest to 69%, for a purchase price of approximately US$70 million. Deeprock is a 2.3 million bbl crude oil storage facility in which Kinder Morgan, Inc. (11%) and Deeprock Energy Resources (20%) remain joint venture partners. Deeprock will continue to be operated by Deeprock Energy. By increasing its ownership to 69%, Tallgrass Terminals assumes significant strategic and commercial control over Deeprock. In conjunction with the acquisition, Tallgrass Pony Express Pipeline, LLC (Pony Express) signed an amended lease agreement with Deeprock, reducing its recurring lease charges by an estimated US$5 million/y, beginning on 1 July 2017. Tallgrass believes the acquisition will allow it to more effectively pursue the development and growth of its potential crude oil terminal project located on 550 acres in South Cushing, by utilising some of the existing infrastructure of Deeprock to offer many different services between the two terminals.

Water Services

Tallgrass subsidiary BNN Water Solutions, LLC (BNN) recently acquired a 63% interest in an entity that owns freshwater facilities in Weld County (Colorado) for US$7 million, with a commitment to invest up to an additional approximately US$10.5 million in the system over the next few months. We believe these facilities will allow BNN to better serve existing and potential new producer customers in the region.

Organic growth projects

Successful Pony Express Platteville Extension open season

Pony Express recently held a binding open season to secure committed shipper contracts for crude oil transportation of a new common stream on the proposed extension of Pony Express from Tallgrass Terminals’s Buckingham receipt point to a new origin near Platteville (Colorado). Pony Express received new short haul and long haul binding transportation commitments totalling approximately 30 000 bpd from multiple counterparties to support the construction of the Platteville Extension. In conjunction with Pony Express's development of the Platteville Extension, Tallgrass Terminals will upgrade the Buckingham terminal and build a new terminal in Platteville. The approximately 55 mile extension of Pony Express is expected to begin operations in 2Q18. Tallgrass Terminals is also moving forward with the development of the new Grasslands Terminal in Platteville, which is expected to be complete in 4Q18, and will enable Pony Express to batch multiple common streams out of Platteville. Once the Grasslands Terminal is complete, the Platteville Extension is expected to have a capacity of approximately 80 000 bpd. The Platteville Extension and Grasslands Terminal, when complete, will provide Pony Express’s shippers and refinery markets with the interconnectivity to source the abundant pipeline gathered barrels available in the most active drilling region of the DJ basin.

New Pony Express refinery connections

Pony Express signed an agreement with CHS, Inc. to connect the 100 000 bpd CHS McPherson (Kansas) refinery to Pony Express’s mainline. Pony Express has agreed to build connection facilities designed to supply the refinery with multiple common streams of crude oil. Completion of the facilities is expected by the end of the year.

In addition to the CHS connection, construction is progressing on the Holly Frontier El Dorado refinery connection facilities, with completion expected in 4Q17.

Upon completion of the two new refinery connections, shippers on Pony Express will be able to deliver more than 300 000 bpd to three significant refineries directly connected to Pony Express, inclusive of the refinery in Ponca City (Oklahoma) that is already connected to Pony Express.

New Pony Express supply connection

Tallgrass Terminals has a signed, 10 year take-or-pay agreement from a new customer to support the construction of a new terminal in the Central Kansas Uplift. Pony Express, in turn, will establish a new supply connection at the new Kansas terminal and another new common stream of crude oil on its mainline. Tallgrass Terminals will build terminalling facilities designed to receive Kansas crude oil production with delivery capabilities in excess of 20 000 bpd into the Pony Express mainline. Completion of the facilities is expected in 1Q18.

Upon completion of these projects, Pony Express will have six different supply sources and five different streams of crude oil capable of being batched on the system.

Pony Express and Tallgrass Terminals expect to invest approximately US$145 million in total capital for the construction of the Platteville Extension, Grasslands Terminal, upgrades to the Buckingham Terminal, the CHS and Holly Frontier El Dorado refinery connections and the new Kansas terminal and Pony Express receipt point.

“We believe all of this work further positions Pony Express as the most diverse and capable crude oil transportation and logistics system in the regions in which it operates,” said Matt Sheehy, Tallgrass Energy Chief Commercial Officer. “Diversity of supply and delivery points, multiple batch shipment capability, readily available expansion capacity and an attractive tariff rate solidify Pony Express as a critical part of the country’s crude oil midstream infrastructure that will be utilised for decades to come.”

Growing 2017 acquisition and growth capital programme

In addition to the approximately US$350 million in acquisitions and growth projects announced or completed since 2 May 2017, Tallgrass is evaluating and developing an additional US$200 million in potential projects and acquisitions that could be announced later this year.

2Q17 conference call

Tallgrass Energy plans to report second quarter 2017 financial results on Wednesday 2 August 2017, after market close and hold a conference call at 3:30 p.m. Central Time that same day. Tallgrass Energy expects to provide additional details on these and other developments during the conference call on 2 August.

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