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Tallgrass Energy Announces Strong Third Quarter 2016 Results and Operational Updates

Company Release - 11/02/2016 04:05:00

LEAWOOD, Kan.--(BUSINESS WIRE)-- Tallgrass Energy Partners, LP (NYSE: TEP) ("TEP") and Tallgrass Energy GP, LP (NYSE: TEGP) ("TEGP"), collectively referred to as Tallgrass Energy, today reported financial and operating results for the third quarter of 2016.

“Tallgrass Energy delivered another excellent quarter underpinned by stable performance in our segments and a full quarter of a 25 percent interest in REX at TEP. All contributed to another consecutive increase in distributions at TEP and TEGP," said Tallgrass Energy President and CEO David G. Dehaemers, Jr. "TEP's inaugural senior notes offering marks another milestone towards achieving an investment grade capital structure. Moving forward we look ahead to the in-service of REX's Capacity Enhancement Project. TEP is well-positioned to conclude an outstanding 2016 and to continue delivering top-tier distribution growth in 2017."

Third Quarter Distributions

Tallgrass Energy Partners, LP

As previously announced, the board of directors of TEP's general partner declared a quarterly cash distribution of $0.795 per common unit for the third quarter of 2016. This quarterly distribution represents $3.18 on an annualized basis, a sequential increase of 5.3 percent from the second quarter 2016 distribution and an increase of 32.5 percent from the third quarter 2015 distribution. The quarterly distribution will be paid on Monday, Nov. 14, 2016, to unitholders of record as of the close of business on Monday, Oct. 31, 2016.

Tallgrass Energy GP, LP

Also, as previously announced, the board of directors of TEGP's general partner declared a quarterly cash distribution of $0.2625 per Class A share for the third quarter of 2016. This quarterly distribution represents $1.05 per Class A share on an annualized basis, a sequential increase of 7.1 percent from the second quarter 2016 distribution and an increase of 82.3 percent from the third quarter 2015 distribution. The quarterly distribution will be paid on Monday, Nov. 14, 2016, to Class A shareholders of record as of the close of business on Monday, Oct. 31, 2016.

TEP Senior Notes Offering

On Sept. 1, 2016, TEP along with Tallgrass Energy Finance Corp., a subsidiary of TEP, closed an offering of $400 million in aggregate principal amount of 5.50 percent senior unsecured notes due 2024. TEP used the net proceeds of the offering to repay outstanding borrowings under its existing senior secured revolving credit facility, which will provide additional liquidity and flexibility as TEP continues to execute its business plan. As of Nov. 2, 2016, TEP has approximately $750 million of availability under its revolving credit facility.

REX Commercial and Operational Updates

During the third quarter Rockies Express Pipeline LLC ("REX") signed a precedent agreement with Citizens Gas, a local distribution company in Indianapolis, Ind., for 20 million cubic feet a day on its Zone 3 Capacity Enhancement Project. The agreement is for 15 years 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 completely sold out for 15 years at an average rate of approximately $0.50. With this important milestone complete, REX’s commercial team has turned its efforts to additional demand and west-end opportunities.

In addition to these positive contractual developments, REX averaged 1.3 billion cubic feet a day of west-to-east flows and 1.8 billion cubic feet a day of east-to-west flows during the third quarter for total average flows of 3.1 billion cubic feet a day. These data points illustrate the strong demand for takeaway capacity in the Marcellus/Utica and the continuing demand for Rockies takeaway capacity.

REX continues to pursue breach of contract claims against Ultra Petroleum and Berry Petroleum, two former REX customers currently 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 to TEP unitholders or debt repayment.

Organizational Enhancements

To concentrate Tallgrass Energy’s commercial development efforts and continue to focus on developing relationships with, and solutions for, our customers across all of our assets, Matthew Sheehy has been named Senior Vice President and Chief Commercial Officer at Tallgrass Energy, reporting to William R. Moler, our Chief Operating Officer. Mr. Sheehy has been instrumental in executing Tallgrass Energy's vision to transform REX into a bi-directional header system through the Seneca Lateral, East-to-West and Capacity Enhancement projects and valuable customer contracts. As part of the transition, Crystal Heter will serve as the Vice President and General Manager of REX. Ms. Heter, a chemical engineer, started her career as an engineering intern with predecessor companies and moved up through both the technical and commercial sides of the business. She is an accomplished leader at Tallgrass Energy and possesses a deep knowledge of REX, its customers and the markets it serves.

Tallgrass Energy Partners, LP Summary Financial Information(1)

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

(in thousands, except coverage and per unit data) 2016     2015 2016     2015
 
Net income attributable to partners $ 60,734 $ 42,679 $ 196,852 $ 119,897
Add:
Interest expense(2) 10,907 3,872 27,639 11,205
Depreciation and amortization expense(2) 21,102 18,826 64,909 57,661
Distributions from unconsolidated investment 21,804 51,460
Non-cash loss (gain) related to derivative instruments(2) 4,410 (259 ) (5,391 ) (218 )
Non-cash compensation expense 1,635 734 4,270 3,988
Non-cash loss from disposal of assets 1,849 4,483
Less:
Equity in earnings of unconsolidated investment (12,066 ) (35,387 )
Non-cash loss allocated to noncontrolling interest       (9,377 )
Adjusted EBITDA $ 108,526   $ 65,852   $ 306,201   $ 187,639  
Add:
Deficiency payments received, net 9,114 8,342 24,892 12,050
Less:
Cash interest cost (9,950 ) (3,518 ) (25,183 ) (10,031 )
Maintenance capital expenditures, net (2,828 ) (4,659 ) (7,085 ) (9,237 )
Distributions to noncontrolling interest in excess of earnings   (11,520 )   (22,517 )
Distributable Cash Flow 104,862 54,497 298,825 157,904
Less:
Distributions (85,295 ) (48,574 ) (233,794 ) (133,540 )
Amounts in excess of distributions(3) $ 19,567   $ 5,923   $ 65,031   $ 24,364  
Distribution coverage 1.23 x 1.12 x 1.28 x 1.18 x
 
Common units outstanding(4) 72,115 60,578 72,115 60,578
Distribution per common unit $ 0.7950 $ 0.6000 $ 2.2550 $ 1.7000
(1)  

The acquisitions of an additional 33.3 percent and 31.3 percent membership interest in Tallgrass Pony Express Pipeline, LLC (“Pony Express”) effective March 1, 2015, and January 1, 2016, respectively, are presented prospectively from the dates of acquisition, and as a result, financial information for periods prior to March 1, 2015, and January 1, 2016, have not been recast to reflect the additional 33.3 percent and 31.3 percent membership interests.

(2)

Net of noncontrolling interest.

(3)

Cumulative distribution coverage from TEP's IPO in May 2013 through September 30, 2016, is $110.8 million and the cumulative distribution coverage ratio is 1.20x.

(4)

Common units represent the number of units as of the date of record for the third quarter distributions in both 2016 and 2015.

 

Tallgrass Energy Partners, LP Alternative Reconciliations

Adjusted EBITDA and/or Distributable Cash Flow, as defined in "Non-GAAP Measures" below, may be impacted by the timing of cash payments received as a result of shipper deficiency payments received or utilized during the period or incremental barrels shipped during the period. As such, we have also provided alternative reconciliations of Adjusted EBITDA and Distributable Cash Flow that illustrate the impact of these items. Management believes this information provides investors useful information regarding the impact of these items on our current results as well as the potential impact on future results.

Alternative Reconciliation of Adjusted EBITDA

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

(in thousands) 2016 2016
 
Adjusted EBITDA $ 108,526 $ 306,201
Add:
Deficiency payments received, net(1) 9,114   24,892
Alternative Adjusted EBITDA(2) $ 117,640   $ 331,093
(1)  

Cumulative net deficiency balance at September 30, 2016, is $51.9 million.

(2)

Alternative Adjusted EBITDA shows what TEP's Adjusted EBITDA would have been for the periods presented if TEP included net deficiency payments from shippers' firm, take-or-pay contracts in calculating Adjusted EBITDA. TEP's reported distributable cash flow and distribution coverage would remain unchanged.

 

Alternative Reconciliation of Distributable Cash Flow and Distribution Coverage

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

(in thousands, except coverage) 2016 2016
 
Distributable Cash Flow $ 104,862 $ 298,825
Less:
Cash flow from incremental barrels shipped(1) (2,723 ) (18,033 )
Alternative Distributable Cash Flow(2) 102,139 280,792
Less:
Distributions (85,295 ) (233,794 )
Amounts in excess of distributions $ 16,844   $ 46,998  
Alternative distribution coverage(2) 1.20 x 1.20 x
(1)  

Cumulative shipper incremental balance at September 30, 2016, is $20.3 million.

(2)

Alternative distributable cash flow and alternative distribution coverage shown excludes the impact of cash flows from incremental barrels shipped on the Pony Express system, as incremental barrels shipped during current periods may reduce the shippers' firm commitment in future periods under their firm, take-or-pay contracts, thereby potentially reducing cash flows in those corresponding future periods. Under this alternative calculation, the cash flows received from incremental barrel shipments would be shown in the future periods in which the incremental barrels are utilized to reduce the shippers' firm commitment.

 

Tallgrass Energy Partners, LP Segment Overview(1)

The third quarter 2016 comparative results by segment are summarized below:

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

2016     2015 2016     2015
(in thousands)
Crude Oil Transportation & Logistics
Operating income $ 53,227 $ 44,069 $ 159,619 $ 103,857
Add:
Depreciation and amortization expense(2) 13,112 10,323 39,276 30,752
Adjusted EBITDA attributable to noncontrolling interests (1,060 ) (6,866 ) (3,170 ) (5,880 )
Non-cash loss related to derivative instruments(2) 152 7
Less:
Non-cash loss allocated to noncontrolling interest       (9,377 )
Segment Adjusted EBITDA $ 65,431   $ 47,526   $ 195,732   $ 119,352  
 
Average daily throughput (BBls/d)(3) 276,138 252,540 284,512 218,697
 

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016 2015   2016 2015
(in thousands)
Natural Gas Transportation & Logistics
Operating income $ 14,254 $ 10,499 $ 35,018 $ 32,989
Add:
Depreciation and amortization expense 4,876 5,241 16,233 17,066
Distributions from unconsolidated investment(4) 21,804 51,460
Non-cash (gain) loss related to derivative instruments (161 ) (259 ) 190 (218 )
Other income, net 480   502   1,267   1,983  
Segment Adjusted EBITDA $ 41,253   $ 15,983   $ 104,168   $ 51,820  
 
TIGT and Trailblazer average firm contracted volumes (MMcf/d) 1,440 1,506 1,464 1,543
 

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016 2015   2016 2015
(in thousands)
Processing & Logistics
Operating income (loss) $ 120 $ (212 ) $ (1,074 ) $ 4,508
Add:
Depreciation and amortization expense(2) 3,114 3,262 9,400 9,843
Non-cash loss from disposal of assets 1,849 4,483
Adjusted EBITDA attributable to noncontrolling interests (24 ) (4 ) (65 ) 7  
Segment Adjusted EBITDA $ 3,210   $ 3,046   $ 10,110   $ 18,841  
 
Natural gas processing inlet volumes (MMcf/d) 103 110 102 128
(1)  

Segment reporting does not include corporate general and administrative costs or intersegment eliminations.

(2)

Net of noncontrolling interest.

(3)

Approximate average daily throughput for the three and nine months ended September 30, 2015 is reflective of the volumetric ramp up due to commercial in-service of the Pony Express System beginning in October 2014 and delays in the construction and expansion efforts of third-party pipelines with which Pony Express shares joint tariffs.

(4)

Represents the distributions TEP received from REX for the third quarter of 2016 and from May 6, 2016, the date of TEP's acquisition, through September 30, 2016, respectively.

 

TEP acquired a 25 percent interest in REX effective May 6, 2016. TEP's consolidated Adjusted EBITDA, as shown above, includes TEP's 25 percent membership interest in REX. The table below is a reconciliation of REX's Adjusted EBITDA and Distributable Cash Flow for the three and nine months ended September 30, 2016 and 2015, presented to provide additional information on REX's financial results.

       

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016     2015 2016     2015
(in thousands)
Net income $ 34,184 $ 78,626 $ 226,847 $ 170,779
Add:
Interest expense 39,309 41,143 119,694 129,030
Depreciation and amortization expense 50,332   49,972   150,831   149,057  
Adjusted EBITDA 123,825   169,741   497,372   448,866  
Less:
Cash interest cost (38,304 ) (40,212 ) (117,192 ) (126,476 )
Maintenance capital expenditures (1,601 ) (3,246 ) (5,878 ) (7,063 )
Distributable Cash Flow $ 83,920   $ 126,283   $ 374,302   $ 315,327  
 
Distributions to Members $ (87,219 ) $ (126,035 ) $ (373,888 ) $ (320,186 )
Contributions from Members $ 84,260 $ 85,697 $ 246,755 $ 668,357
 
Average firm contracted volumes (MMcf/d) 3,324 3,140 3,376 2,591
 

Tallgrass Energy GP, LP Summary Financial Information

Information on distributions to Tallgrass Equity, LLC ("Tallgrass Equity"), TEGP and TEGP's Class A shareholders is shown below (in thousands, except coverage and per share data):

           

Nine Months
Ended
September
30, 2016

   

Period from
May 12, 2015
(IPO) through
September
30, 2015

Three Months Ended
September 30,

2016 2015
 
TEP distributions to Tallgrass Equity(1)
General partner interest $ 976 $ 660 $ 2,717 $ 1,287
Incentive Distribution Rights 26,987 11,567 71,065 21,985
TEP common units owned by Tallgrass Equity 15,900   12,000   45,100   23,600  
Total TEP distributions to Tallgrass Equity 43,863 24,227 118,882 46,872
Less:
Cash interest expense attributable to Tallgrass Equity (1,132 ) (1,020 ) (3,322 ) (1,565 )
Cash general and administrative expenses attributable to Tallgrass Equity (500 ) (500 ) (1,500 ) (750 )
Cash available for distribution by Tallgrass Equity 42,231 22,707 114,060 44,557
Distributions to predecessor owners of pre-IPO available cash(2) 10,202
Distributions to Class A (TEGP) 12,528 6,872 34,243 10,356
Distributions to Class B (Exchange Right Holders) 28,745   15,769   78,570   23,763  
Total cash distributions by Tallgrass Equity $ 41,273   $ 22,641   $ 112,813   $ 44,321  
TEGP
Distributions from Tallgrass Equity $ 12,528 $ 6,872 $ 34,243 $ 10,356
Less:
Distributions to Class A shareholders (12,528 ) (6,872 ) (34,243 ) (10,356 )
Amounts in excess of distributions     $   $  
Distribution coverage 1.00 x 1.00 x 1.00 x 1.00 x
 
Class A shares outstanding 47,725 47,725 47,725 47,725
Distribution per Class A share $ 0.2625 $ 0.1440 $ 0.7175 $ 0.2170
(1)  

Represents distributions expected to be received by Tallgrass Equity from TEP on or about November 14, 2016, in connection with TEP's distribution for the quarter ended September 30, 2016.

(2)

Represents distributions received by Tallgrass Equity from TEP and Tallgrass MLP GP, LLC related to periods prior to the closing of TEGP’s initial public offering on May 12, 2015, which were paid to Tallgrass Development and the predecessor owners of Tallgrass Equity.

 

Conference Call

Please join Tallgrass Energy for a conference call and webcast to discuss third quarter 2016 results at 3:30 p.m. Central Time on Wednesday, November 2, 2016. Interested parties may listen via a link posted on the Investor Relations section of our website and the replay will be available on our website for at least seven days following the live call.

TEP's Non-GAAP Measures

Adjusted EBITDA and Distributable Cash Flow are non-GAAP supplemental financial measures that TEP management and external users of our consolidated financial statements and financial statements of our subsidiaries and unconsolidated investments, such as industry analysts, investors, lenders and rating agencies, may use to assess:

  • our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;
  • the ability of our assets to generate sufficient cash flow to make distributions to our unitholders;
  • our ability to incur and service debt and fund capital expenditures; and
  • the viability of acquisitions and other capital expenditure projects and the returns on investment of various expansion and growth opportunities.

We believe that the presentation of Adjusted EBITDA and Distributable Cash Flow provides useful information to investors in assessing our financial condition and results of operations. Adjusted EBITDA and Distributable Cash Flow should not be considered alternatives to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP, nor should Adjusted EBITDA and Distributable Cash Flow be considered alternatives to available cash, operating surplus, distributions of available cash from operating surplus or other definitions in our partnership agreement. Adjusted EBITDA and Distributable Cash Flow have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. Additionally, because Adjusted EBITDA and Distributable Cash Flow may be defined differently by other companies in our industry, our definition of Adjusted EBITDA and Distributable Cash Flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

We generally define Adjusted EBITDA as net income excluding the impact of interest, income taxes, depreciation and amortization, non-cash income or loss related to derivative instruments, non-cash long-term compensation expense, impairment losses, gains or losses on asset or business disposals or acquisitions, gains or losses on the repurchase, redemption or early retirement of debt, and earnings from unconsolidated investments, but including the impact of distributions from unconsolidated investments. We also use Distributable Cash Flow, which we generally define as Adjusted EBITDA, plus deficiency payments received from or utilized by our customers and preferred distributions received from Pony Express in excess of its distributable cash flow attributable to our net interest, less cash interest expense, maintenance capital expenditures, distributions to noncontrolling interests in excess of earnings allocated to noncontrolling interests, and certain cash reserves permitted by our partnership agreement. For a reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, please see "Summary Financial Information" above.

Cautionary Note Concerning Forward-Looking Statements

Disclosures in this press release contain “forward-looking statements.” All statements, other than statements of historical facts, included in this press release that address activities, events or developments that management expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include TEP’s and TEGP’s expected performance into year-end 2016 and for 2017, the execution by REX of a precedent agreement for 50 million cubic feet a day and any potential breach of contract recoveries from Ultra Petroleum and Berry Petroleum. Forward looking statements may also include the expectations of plans, strategies, objectives and growth and anticipated financial and operational performance of TEP, TEGP and their subsidiaries, including: the ability to pursue expansions and other opportunities for incremental volumes; natural gas and crude oil production growth in TEP's operating areas; expected future benefits of acquisitions or expansion projects; timing of anticipated spending on planned expenses and maintenance capital projects; and distribution rate and growth, including variability of quarterly distribution coverage. These statements are based on certain assumptions made by TEP and TEGP based on management’s experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of TEP and TEGP, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to TEP and TEGP’s financial performance and results, availability of sufficient cash flow to pay distributions and execute their business plans, the demand for natural gas storage, processing and transportation services and for crude oil transportation services, operating hazards, the effects of government regulation, tax position and other risks incidental to transporting, storing and processing natural gas or transporting crude oil and other important factors that could cause actual results to differ materially from those projected, including those set forth in reports filed by TEP and TEGP with the Securities and Exchange Commission. Any forward-looking statement applies only as of the date on which such statement is made and TEP and TEGP do not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

Tallgrass Energy Partners, LP Financial Statements

       

TALLGRASS ENERGY PARTNERS, LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
September 30, 2016 December 31, 2015
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 417 $ 1,611
Accounts receivable, net 53,085 57,757
Gas imbalances 890 1,227
Inventories 13,375 13,793
Derivative assets at fair value 25,690
Prepayments and other current assets 3,838   2,835  
Total Current Assets 97,295 77,223
Property, plant and equipment, net 2,003,532 2,025,018
Goodwill 343,288 343,288
Intangible asset, net 94,280 96,546
Unconsolidated investment 455,401
Deferred financing costs, net 5,676 5,105
Deferred charges and other assets 10,816   14,894  
Total Assets $ 3,010,288   $ 2,562,074  
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 17,046 $ 22,218
Accounts payable to related parties 6,207 7,852
Gas imbalances 1,117 1,605
Derivative liabilities at fair value 197
Accrued taxes 20,676 13,844
Accrued liabilities 10,214 10,019
Deferred revenue 52,138 26,511
Other current liabilities 6,725   6,880  
Total Current Liabilities 114,320 88,929
Long-term debt, net 1,398,003 753,000
Other long-term liabilities and deferred credits 7,341   5,143  
Total Long-term Liabilities 1,405,344 758,143
Commitments and Contingencies
Equity:

Common unitholders (72,738,251 and 60,644,232 units issued and
outstanding at September 30, 2016 and December 31, 2015, respectively)

2,094,821 1,618,766

General partner (834,391 units issued and outstanding at September 30, 2016
and December 31, 2015)

(637,945 ) (348,841 )
Total Partners' Equity 1,456,876 1,269,925
Noncontrolling interests $ 33,748   $ 445,077  
Total Equity $ 1,490,624   $ 1,715,002  
Total Liabilities and Equity $ 3,010,288   $ 2,562,074  
 
       

TALLGRASS ENERGY PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016     2015 2016     2015
(in thousands, except per unit amounts)
Revenues:
Crude oil transportation services $ 91,387 $ 81,928 $ 279,281 $ 206,331
Natural gas transportation services 31,444 29,431 89,406 90,620
Sales of natural gas, NGLs, and crude oil 20,758 20,252 51,514 62,132
Processing and other revenues 8,536   6,557   24,260   26,730  
Total Revenues 152,125   138,168   444,461   385,813  
Operating Costs and Expenses:
Cost of sales (exclusive of depreciation and amortization shown below) 18,590 18,186 48,116 54,959
Cost of transportation services (exclusive of depreciation and amortization shown below) 13,528 14,862 43,924 39,069
Operations and maintenance 14,714 14,071 41,055 36,054
Depreciation and amortization 20,831 20,802 64,099 61,762
General and administrative 13,147 11,807 40,072 37,947
Taxes, other than income taxes 6,717 5,521 19,862 16,547
Loss on disposal of assets     1,849   4,483  
Total Operating Costs and Expenses 87,527   85,249   258,977   250,821  
Operating Income 64,598   52,919   185,484   134,992  
Other Income (Expense):
Interest expense, net (10,907 ) (3,871 ) (27,639 ) (11,204 )
Unrealized (loss) gain on derivative instrument (4,419 ) 5,588
Equity in earnings of unconsolidated investment 12,066 35,387
Other income, net 480   502   1,267   1,983  
Total Other (Expense) Income (2,780 ) (3,369 ) 14,603   (9,221 )
Net income 61,818 49,550 200,087 125,771
Net income attributable to noncontrolling interests (1,084 ) (6,871 ) (3,235 ) (5,874 )
Net income attributable to partners $ 60,734   $ 42,679   $ 196,852   $ 119,897  
Allocation of income to the limited partners:
Net income attributable to partners $ 60,734 $ 42,679 $ 196,852 $ 119,897
General partner interest in net income (27,674 ) (12,146 ) (73,347 ) (30,614 )
Common and subordinated unitholders' interest in net income 33,060   30,533   123,505   89,283  
Basic net income per common and subordinated unit $ 0.45   $ 0.50   $ 1.75   $ 1.54  
Diluted net income per common and subordinated unit $ 0.45   $ 0.50   $ 1.73   $ 1.52  
Basic average number of common and subordinated units outstanding 73,089 60,576 70,686 57,917
Diluted average number of common and subordinated units outstanding 74,063 61,536 71,590 58,884
 
   

TALLGRASS ENERGY PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
Nine Months Ended September 30,
2016     2015
(in thousands)
Cash Flows from Operating Activities:
Net income $ 200,087 $ 125,771
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization 68,693 64,624
Equity in earnings of unconsolidated investment (35,387 )
Distributions from unconsolidated investment 35,387
Noncash compensation expense 4,270 3,988
Noncash change in fair value of derivative financial instruments (5,391 ) (218 )
Loss on disposal of assets 1,849 4,483
Changes in components of working capital:
Accounts receivable and other 7,924 (11,538 )
Inventories (867 ) (5,265 )
Accounts payable and accrued liabilities 4,827 6,786
Deferred revenue 25,303 13,995
Other operating, net (779 ) (5,142 )
Net Cash Provided by Operating Activities 305,916   197,484  
Cash Flows from Investing Activities:
Capital expenditures (45,252 ) (65,146 )
Acquisition of unconsolidated affiliate (436,022 )
Acquisition of Pony Express membership interest (49,118 ) (700,000 )
Contributions to unconsolidated investment (35,452 )
Distributions from unconsolidated investment in excess of cumulative earnings 16,073
Other investing, net 205   (4,625 )
Net Cash Used in Investing Activities (549,566 ) (769,771 )
Cash Flows from Financing Activities:
Acquisition of Pony Express membership interest (425,882 )
Proceeds from issuance of long-term debt 400,000
Proceeds from public offering, net of offering costs 290,474 551,243
Borrowings under revolving credit facility, net 252,000 137,000
Distributions to unitholders (207,539 ) (113,260 )
Partial exercise of call option (151,434 )
Proceeds from private placement, net of offering costs 90,009
Contributions from noncontrolling interests 8,700 19,303
Other financing, net (13,872 ) (4,161 )
Net Cash Provided by Financing Activities 242,456   590,125  
Net Change in Cash and Cash Equivalents (1,194 ) 17,838
Cash and Cash Equivalents, beginning of period 1,611   867  
Cash and Cash Equivalents, end of period $ 417   $ 18,705  
 

Tallgrass Energy GP, LP Financial Statements

TALLGRASS ENERGY GP, LP

CONDENSED CONSOLIDATING BALANCE SHEETS

(UNAUDITED)

       
September 30, 2016 December 31, 2015
TEP    

Consolidating
Adjustments (1)

    TEGP TEP    

Consolidating
Adjustments (1)

    TEGP
(in thousands) (in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 417 $ 942 $ 1,359 $ 1,611 $ 623 $ 2,234
Accounts receivable, net 53,085 53,085 57,757 57,757
Gas imbalances 890 890 1,227 1,227
Inventories 13,375 13,375 13,793 13,793
Derivative asset at fair value 25,690 25,690
Prepayments and other current assets 3,838     3,838   2,835     2,835
Total Current Assets 97,295 942 98,237 77,223 623 77,846
Property, plant and equipment, net 2,003,532 2,003,532 2,025,018 2,025,018
Goodwill 343,288 343,288 343,288 343,288
Intangible asset, net 94,280 94,280 96,546 96,546
Unconsolidated investment 455,401 455,401
Deferred tax asset 439,638 439,638 452,430 452,430
Deferred financing costs, net 5,676 1,338 7,014 5,105 1,533 6,638
Deferred charges and other assets 10,816     10,816   14,894     14,894
Total Assets $ 3,010,288   $ 441,918   $ 3,452,206   $ 2,562,074   $ 454,586   $ 3,016,660
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 17,046 $ $ 17,046 $ 22,218 $ $ 22,218
Accounts payable to related parties 6,207 (110 ) 6,097 7,852 (97 ) 7,755
Gas imbalances 1,117 1,117 1,605 1,605
Derivative liabilities at fair value 197 197
Accrued taxes 20,676 20,676 13,844 13,844
Accrued liabilities 10,214 59 10,273 10,019 187 10,206
Deferred revenue 52,138 52,138 26,511 26,511
Other current liabilities 6,725     6,725   6,880     6,880
Total Current Liabilities 114,320 (51 ) 114,269 88,929 90 89,019
Long-term debt, net 1,398,003 148,000 1,546,003 753,000 148,000 901,000

Other long-term liabilities and
deferred credits

7,341     7,341   5,143     5,143
Total Long-term Liabilities 1,405,344 148,000 1,553,344 758,143 148,000 906,143
Equity:
Total Partners' Equity 1,456,876 (1,288,818 ) 168,058 1,269,925 (847,615 ) 422,310
Noncontrolling interests 33,748   1,582,787   1,616,535   445,077   1,154,111   1,599,188
Total Equity $ 1,490,624   $ 293,969   $ 1,784,593   $ 1,715,002   $ 306,496   $ 2,021,498
Total Liabilities and Equity $ 3,010,288   $ 441,918   $ 3,452,206   $ 2,562,074   $ 454,586   $ 3,016,660

(1)Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for TEGP.

       
 

TALLGRASS ENERGY GP, LP

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

(UNAUDITED)

 

Three Months Ended September 30, 2016

Three Months Ended September 30, 2015
TEP    

Consolidating
Adjustments (1)

    TEGP TEP    

Consolidating
Adjustments (1)

    TEGP
(in thousands) (in thousands)
Revenues:
Crude oil transportation services $ 91,387 $ $ 91,387 $ 81,928 $ $ 81,928
Natural gas transportation services 31,444 31,444 29,431 29,431
Sales of natural gas, NGLs, and crude oil 20,758 20,758 20,252 20,252
Processing and other revenues 8,536     8,536   6,557     6,557  
Total Revenues 152,125     152,125   138,168     138,168  
Operating Costs and Expenses:

Cost of sales (exclusive of
depreciation and amortization
shown below)

18,590 18,590 18,186 18,186

Cost of transportation services
(exclusive of depreciation and
amortization shown below)

13,528 13,528 14,862 14,862
Operations and maintenance 14,714 14,714 14,071 14,071
Depreciation and amortization 20,831 20,831 20,802 20,802
General and administrative 13,147 568 13,715 11,807 514 12,321
Taxes, other than income taxes 6,717     6,717   5,521     5,521  
Total Operating Costs and Expenses 87,527   568   88,095   85,249   514   85,763  
Operating Income 64,598   (568 ) 64,030   52,919   (514 ) 52,405  
Other Income (Expense):
Interest expense, net (10,907 ) (1,250 ) (12,157 ) (3,871 ) (1,111 ) (4,982 )

Unrealized (loss) gain on
derivative instrument

(4,419 ) (4,419 )

Equity in earnings of
unconsolidated investment

12,066 12,066
Other income, net 480     480   502     502  
Total Other (Expense) Income (2,780 ) (1,250 ) (4,030 ) (3,369 ) (1,111 ) (4,480 )
Net income before tax 61,818 (1,818 ) 60,000 49,550 (1,625 ) 47,925
Current income tax expense
Deferred income tax expense   (3,209 ) (3,209 )   (1,828 ) (1,828 )
Net income 61,818 (5,027 ) 56,791 49,550 (3,453 ) 46,097

Net income attributable to
noncontrolling interests

(1,084 ) (48,666 ) (49,750 ) (6,871 ) (34,803 ) (41,674 )
Net income attributable to TEGP $ 60,734   $ (53,693 ) $ 7,041   $ 42,679   $ (38,256 ) $ 4,423  
Basic net income per Class A share $ 0.15   $ 0.09  
Diluted net income per Class A share $ 0.15   $ 0.09  

Basic average number of Class A
shares outstanding

47,725 47,725

Diluted average number of Class A
shares outstanding

47,775 47,808

(1)Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for TEGP.

       
 
Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2015
TEP    

Consolidating
Adjustments (1)

    TEGP TEP    

Consolidating
Adjustments (1)

    TEGP
(in thousands) (in thousands)
Revenues:
Crude oil transportation services $ 279,281 $ $ 279,281 $ 206,331 $ $ 206,331
Natural gas transportation services 89,406 89,406 90,620 90,620

Sales of natural gas, NGLs, and
crude oil

51,514 51,514 62,132 62,132
Processing and other revenues 24,260     24,260   26,730     26,730  
Total Revenues 444,461     444,461   385,813     385,813  
Operating Costs and Expenses:

Cost of sales (exclusive of
depreciation and amortization
shown below)

48,116 48,116 54,959 54,959

Cost of transportation services
(exclusive of depreciation and
amortization shown below)

43,924 43,924 39,069 39,069
Operations and maintenance 41,055 41,055 36,054 36,054
Depreciation and amortization 64,099 64,099 61,762 61,762
General and administrative 40,072 1,638 41,710 37,947 764 38,711
Taxes, other than income taxes 19,862 19,862 16,547 16,547
Loss on disposal of assets 1,849     1,849   4,483     4,483  
Total Operating Costs and Expenses 258,977   1,638   260,615   250,821   764   251,585  
Operating Income 185,484   (1,638 ) 183,846   134,992   (764 ) 134,228  
Other Income (Expense):
Interest expense, net (27,639 ) (3,636 ) (31,275 ) (11,204 ) (1,697 ) (12,901 )

Unrealized (loss) gain on
derivative instrument

5,588 5,588

Equity in earnings of
unconsolidated investment

35,387 35,387
Other income, net 1,267     1,267   1,983     1,983  
Total Other (Expense) Income 14,603   (3,636 ) 10,967   (9,221 ) (1,697 ) (10,918 )
Net income before tax 200,087 (5,274 ) 194,813 125,771 (2,461 ) 123,310
Deferred income tax expense   (12,792 ) (12,792 )   (3,600 ) (3,600 )
Net income 200,087 (18,066 ) 182,021 125,771 (6,061 ) 119,710

Net income attributable to
noncontrolling interests

(3,235 ) (160,708 ) (163,943 ) (5,874 ) (99,557 ) (105,431 )
Net income attributable to TEGP $ 196,852   $ (178,774 ) $ 18,078   $ 119,897   $ (105,618 ) $ 14,279  

Allocation of income for the six
months ended September 30, 2015:

Net income attributable to TEGP
from the beginning of the period to
May 11, 2015

$ 7,393  

Net income attributable to TEGP
from May 12, 2015 to September
30, 2015

6,886  
Basic net income per Class A share $ 0.38   $ 0.14  
Diluted net income per Class A share $ 0.38   $ 0.14  

Basic average number of Class A
shares outstanding

47,725 47,725

Diluted average number of Class A
shares outstanding

47,740 47,812

(1)Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for TEGP.

About Tallgrass Energy

Tallgrass Energy is a family of companies that includes publicly traded partnerships Tallgrass Energy Partners, LP (NYSE: TEP) and Tallgrass Energy GP, LP (NYSE: TEGP), and privately held Tallgrass Development, LP. Operating across 10 states, Tallgrass is a growth-oriented midstream energy operator with transportation, storage, terminal and processing assets that serve some of the nation’s most prolific crude oil and natural gas basins.

To learn more, please visit our website at www.tallgrassenergy.com.

Tallgrass Energy
Investor and Financial Inquiries
Nate Lien, 913-928-6012
investor.relations@tallgrassenergylp.com
or
Media and Trade Inquiries
Phyllis Hammond, 913-928-6014
media.relations@tallgrassenergylp.com

Source: Tallgrass Energy