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Tallgrass Energy Reports Record Third Quarter 2017 Results

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 2017.

“Tallgrass Energy again delivered exceptional financial results for the third quarter and continued to execute our plan to grow the company through organic projects and third-party acquisitions,” said Tallgrass President and CEO David Dehaemers Jr. “This quarter included a strategic acquisition that represents the first step toward providing Powder River producers direct access to the Pony Express Pipeline system. In addition, we announced binding open seasons supported by signed precedent agreements for a new natural gas pipeline and associated hub near Cheyenne, Wyo., that will provide a much-needed takeaway solution for DJ Basin producers. Our strong business performance and growth resulted in increased distributions at both TEP and TEGP and distribution coverage of approximately two times at TEP.”

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 $0.945 per common unit for the third quarter of 2017. This quarterly distribution represents $3.78 on an annualized basis, a sequential increase of 2.2 percent from the second quarter 2017 distribution and an increase of 18.9 percent from the third quarter 2016 distribution. The quarterly distribution will be paid on Nov. 14, 2017, to unitholders of record as of the close of business on Oct. 31, 2017.

TEP has increased its distribution by a total of $0.11 for the second and third quarters of 2017. This exceeds management’s previously announced plan to recommend increases in TEP's second and third quarter 2017 distributions that aggregate to at least $0.10 per unit (or $0.40 per unit on an annualized basis) over the first quarter 2017 distribution of $0.835.

Tallgrass Energy GP, LP

Also, as previously announced, the board of directors of TEGP's general partner declared a quarterly cash distribution of $0.355 per Class A share for the third quarter of 2017. This quarterly distribution represents $1.42 per Class A share on an annualized basis, a sequential increase of 3.6 percent from the second quarter 2017 distribution and an increase of 35.2 percent from the third quarter 2016 distribution. The quarterly distribution will be paid on Nov. 14, 2017, to Class A shareholders of record as of the close of business on Oct. 31, 2017.

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) 2017 2016

As
Reported
in 2016

2017 2016

As
Reported
in 2016

Net income attributable to partners $ 184,090 $ 64,345 $ 60,734 $ 344,875 $ 200,260 $ 196,852
Add:
Interest expense(2) 22,888 10,907 10,907 57,265 27,639 27,639
Depreciation and amortization expense(2) 23,472 21,648 21,102 67,894 66,484 64,909
Distributions from unconsolidated investments 138,828 22,462 21,804 229,510 53,434 51,460
Non-cash loss (gain) related to derivative instruments(2) 688 4,410 4,410 (1,669 ) (5,391 ) (5,391 )
Non-cash compensation expense (3) 2,135 1,635 1,635 5,087 4,270 4,270
(Gain) loss from disposal of assets (1,319 ) 1,849 1,849
Less:
Equity in earnings of unconsolidated investments (123,642 ) (12,764 ) (12,066 ) (187,121 ) (37,495 ) (35,387 )
Gain on remeasurement of unconsolidated investment (9,728 ) (9,728 )
Adjusted EBITDA(4) $ 238,731 $ 112,643 $ 108,526 $ 504,794 $ 311,050 $ 306,201
Add:
Deficiency payments received, net(2) 2,288 9,114 26,639 24,892
Less:
Cash interest cost (21,814 ) (9,950 ) (53,973 ) (25,183 )
Maintenance capital expenditures, net (3,689 ) (2,828 ) (7,746 ) (7,085 )
Distributable Cash Flow(4) 215,516 104,862 469,714 298,825
Less:
Distributions (108,137 ) (85,295 ) (304,702 ) (233,794 )
Amounts in excess of distributions(5) $ 107,379 $ 19,567 $ 165,012 $ 65,031
Distribution coverage 1.99 x 1.23 x 1.54 x 1.28 x
Common units outstanding(6) 73,200 72,115 73,200 72,115
Distribution per common unit $ 0.9450 $ 0.7950 $ 2.7050 $ 2.2550
(1) The financial results for all periods presented in the table include the applicable results of operations of Tallgrass Terminals, LLC and Tallgrass NatGas Operator, LLC, which were acquired by TEP effective Jan. 1, 2017, except for the period under the column "As Reported in 2016."
(2) Net of noncontrolling interest.
(3) Represents TEP's portion of non-cash compensation expense related to Equity Participation Units, excluding amounts allocated to Tallgrass Development, LP.
(4) Adjusted EBITDA and distributable cash flow are non-GAAP measures. For additional detail see "Non-GAAP Measures" below.
(5) Cumulative distribution coverage from TEP's IPO in May 2013 through September 30, 2017, is $297.4 million and the cumulative distribution coverage ratio is 1.32x.
(6) Common units represent the number of units as of the date of record for the third quarter distributions in both 2017 and 2016.

Strategic Acquisitions, Organic Growth Projects and Financing Transactions

Since TEP’s Q2 2017 earnings call on Aug. 2, Tallgrass Energy has announced or completed the following acquisitions, growth projects and financing transactions.

  • The joint development of the Cheyenne Connector pipeline ("Cheyenne Connector") with Western Gas Partners, LP and DCP Midstream, LP. Cheyenne Connector is an approximately 70-mile natural gas pipeline with an initial capacity of at least 600 million cubic feet a day which will connect Denver-Julesburg Basin natural gas supply with the Rockies Express Pipeline Cheyenne Hub just south of the Colorado-Wyoming border
  • Rockies Express Pipeline LLC ("REX") announced an open season to bring gas into REX at the Cheyenne Hub with the ability to deliver to numerous interconnects providing take-away options with access to markets across the country
  • Acquired an oil gathering system in the Powder River Basin and announced plans to directly connect the system to the Pony Express Pipeline
  • Issued $500 million of 5.5 percent senior unsecured notes with investment-grade style covenants

Conference Call

Please join Tallgrass Energy for a conference call and webcast to discuss third quarter 2017 results at 3:30 p.m. Central Time on Thursday, Nov. 2, 2017. 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.

Tallgrass Energy Partners, LP Alternative Reconciliations

Adjusted EBITDA and Distributable Cash Flow, as defined in "TEP's 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. These alternative reconciliations are also non-GAAP Measures. 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) 2017 2017
Adjusted EBITDA $ 238,731 $ 504,794
Add:
Volumetric deficiency payments received, net(1) 2,288 26,639
Alternative Adjusted EBITDA(2) $ 241,019 $ 531,433
(1) Cumulative net volumetric deficiency balance at September 30, 2017, is $87.8 million.
(2) Alternative Adjusted EBITDA shows what TEP's Adjusted EBITDA would have been for the period presented if TEP included net volumetric 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) 2017 2017
Distributable Cash Flow $ 215,516 $ 469,714
Add:
Cash flow impact of reduction in accumulated incremental volumes(1) 5,740 240
Alternative Distributable Cash Flow(2) 221,256 469,954
Less:
Distributions (108,137 ) (304,702 )
Amounts in excess of distributions $ 113,119 $ 165,252
Alternative distribution coverage(2) 2.05 x 1.54 x
(1) Accumulated incremental volume balance at September 30, 2017, is $14.6 million.
(2) Alternative distributable cash flow and alternative distribution coverage shows the impact of a reduction in accumulated incremental volumes. Incremental volumes (volumes shipped in excess of firm committed volumes) increase distributable cash flow during periods when shipped. Conversely, previously shipped incremental volumes reduce distributable cash flow during periods when they are utilized by a shipper to meet current period firm committed volumes, thereby reducing an accumulated incremental volume balance.

Tallgrass Energy Partners, LP Segment Overview(1)(2)

The third quarter 2017 comparative results by segment are summarized below:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016

As
Reported
in 2016

2017 2016

As
Reported
in 2016

(in thousands)
Natural Gas Transportation
Operating income $ 17,016 $ 15,436 $ 14,254 $ 49,910 $ 39,873 $ 35,018
Add:
Depreciation and amortization expense 4,794 4,876 4,876 14,369 16,233 16,233
Distributions from unconsolidated investment 138,132 21,804 21,804 227,547 51,460 51,460
Other income, net 455 480 480 807 1,267 1,267
Less:
Non-cash (gain) loss related to derivative instruments (161 ) (161 ) (116 ) 190 190
Segment Adjusted EBITDA $ 160,397 $ 42,435 $ 41,253 $ 292,517 $ 109,023 $ 104,168

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
(in thousands)
Crude Oil Transportation
Operating income $ 51,478 $ 53,227 $ 145,462 $ 159,619
Add:
Depreciation and amortization expense(3) 13,027 13,112 39,673 39,276
Less:
Adjusted EBITDA attributable to noncontrolling interests (1,024 ) (1,060 ) (2,895 ) (3,170 )
Non-cash loss (gain) related to derivative instruments(3) 202 152 (432 ) 7
Segment Adjusted EBITDA $ 63,683 $ 65,431 $ 181,808 $ 195,732
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016

As
Reported
in 2016

2017 2016

As
Reported
in 2016

(in thousands)
Gathering, Processing & Terminalling
Operating income (loss) $ 9,045 $ 1,851 $ 120 $ 20,928 $ (4,629 ) $ (1,074 )
Add:
Depreciation and amortization expense(3) 5,651 3,660 3,114 13,852 10,975 9,400
Non-cash loss related to derivative instruments 486 764
Distributions from unconsolidated investment 696 658 1,963 1,974
Other (expense) income, net (1 ) 142
Less:
(Gain) loss on disposal of assets (1,319 ) 1,849 1,849
Adjusted EBITDA attributable to noncontrolling interests (389 ) (24 ) (24 ) (346 ) (65 ) (65 )
Segment Adjusted EBITDA $ 15,488 $ 6,145 $ 3,210 $ 35,984 $ 10,104 $ 10,110
(1) The financial results for the Natural Gas Transportation and Gathering, Processing & Terminalling segments for the three and nine months ended September 30, 2016, have been recast to reflect the results of operations of Terminals and NatGas, respectively, which TEP acquired effective January 1, 2017. The financial results for the Natural Gas Transportation and Gathering, Processing & Terminalling segments for the three and nine months ended September 30, 2016, under the column "As Reported in 2016," does not include Terminals and NatGas's results of operations.
(2) Segment reporting does not include corporate general and administrative costs or intersegment eliminations.
(3) Net of noncontrolling interest.

Supplemental Information

TEP acquired a 25 percent interest in Rockies Express Pipeline, LLC ("REX") effective May 6, 2016, and an additional 24.99 percent interest in REX effective March 31, 2017. TEP's consolidated Adjusted EBITDA, as shown above, includes TEP's 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, 2017 and 2016, presented to provide additional information on REX's financial results. REX’s Adjusted EBITDA and Distributable Cash Flow are non-GAAP measures. For additional detail see "Non-GAAP Measures" below.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
(in thousands)
Rockies Express Pipeline LLC
Net income $ 233,990 $ 34,184 $ 371,185 $ 226,847
Add:
Interest expense 42,102 39,309 125,979 119,694
Depreciation and amortization expense 54,761 50,332 163,560 150,831
Adjusted EBITDA 330,853 123,825 660,724 497,372
Less:
Cash interest cost (41,267 ) (38,304 ) (123,476 ) (117,192 )
Maintenance capital expenditures (2,386 ) (1,601 ) (9,326 ) (5,878 )
Distributable Cash Flow $ 287,200 $ 83,920 $ 527,922 $ 374,302
Distributions to Members $ (276,508 ) $ (87,219 ) $ (515,613 ) $ (373,888 )
Contributions from Members $ 23,334 $ 84,260 $ 72,394 $ 246,755

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):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
TEP distributions to Tallgrass Equity(1)
General partner interest $ 1,219 $ 976 $ 3,445 $ 2,717
Incentive Distribution Rights 37,744 26,987 103,926 71,065
20 million TEP common units owned by Tallgrass Equity 18,900 15,900 54,100 45,100
Total TEP distributions to Tallgrass Equity 57,863 43,863 161,471 118,882
Less:
Cash interest expense attributable to Tallgrass Equity (1,402 ) (1,132 ) (3,919 ) (3,322 )
Cash general and administrative expenses attributable to Tallgrass Equity (500 ) (500 ) (1,500 ) (1,500 )
Cash available for distribution by Tallgrass Equity 55,961 42,231 156,052 114,060
Distributions to Class A (TEGP) 20,617 12,528 57,205 34,243
Distributions to Class B (Exchange Right Holders) 35,200 28,745 97,667 78,570
Total cash distributions by Tallgrass Equity $ 55,817 $ 41,273 $ 154,872 $ 112,813
TEGP
Distributions from Tallgrass Equity $ 20,617 $ 12,528 $ 57,205 $ 34,243
Less:
Distributions to Class A shareholders (20,617 ) (12,528 ) (57,205 ) (34,243 )
Amounts in excess of distributions $ $
Distribution coverage 1.00 x 1.00 x 1.00 x 1.00 x
Class A shares outstanding 58,075 47,725 58,075 47,725
Distribution per Class A share $ 0.3550 $ 0.2625 $ 0.9850 $ 0.7175
(1) Represents distributions expected to be received by Tallgrass Equity from TEP on or about November 14, 2017, in connection with TEP's distribution for the quarter ended September 30, 2017.

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 whether Powder River producers will have direct access to the Pony Express System, either through TEP's new oil gathering system in the Powder River Basin or otherwise, whether the Cheyenne Connector will provide a take-away solution for DJ Basin producers, and the joint development of the Cheyenne Connector, including its expected initial capacity. 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.

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, water, gathering 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 Partners, LP Financial Statements

TALLGRASS ENERGY PARTNERS, LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

September 30, 2017 December 31, 2016
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,998 $ 1,873
Accounts receivable, net 95,629 59,536
Gas imbalances 1,020 1,597
Inventories 10,173 13,093
Derivative assets 10,967
Prepayments and other current assets 3,407 7,628
Total Current Assets 113,227 94,694
Property, plant and equipment, net 2,350,830 2,079,232
Goodwill 404,838 343,288
Intangible assets, net 98,876 93,522
Unconsolidated investments 922,280 475,625
Deferred financing costs, net 12,329 4,815
Deferred charges and other assets 3,016 11,037
Total Assets $ 3,905,396 $ 3,102,213
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 69,620 $ 24,122
Accounts payable to related parties 6,072 5,935
Gas imbalances 1,119 1,239
Derivative liabilities 473 556
Accrued taxes 22,890 16,996
Accrued liabilities 11,154 16,702
Deferred revenue 87,979 60,757
Other current liabilities 6,690 6,446
Total Current Liabilities 205,997 132,753
Long-term debt, net 2,115,086 1,407,981
Other long-term liabilities and deferred credits 18,396 7,063
Total Long-term Liabilities 2,133,482 1,415,044
Commitments and Contingencies
Equity:
Predecessor Equity 82,295

Limited partners (73,176,516 and 72,485,954 common units issued and
outstanding at September 30, 2017 and December 31, 2016, respectively)

2,125,788 2,070,495

General partner (834,391 units issued and outstanding at September 30, 2017
and December 31, 2016)

(626,704 ) (632,339 )
Total Partners' Equity 1,499,084 1,520,451
Noncontrolling interests 66,833 33,965
Total Equity 1,565,917 1,554,416
Total Liabilities and Equity $ 3,905,396 $ 3,102,213

TALLGRASS ENERGY PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
(in thousands, except per unit amounts)
Revenues:
Crude oil transportation services $ 86,180 $ 91,387 $ 260,366 $ 279,281
Natural gas transportation services 30,256 31,444 91,370 89,406
Sales of natural gas, NGLs, and crude oil 32,215 20,487 70,514 51,243
Processing and other revenues 27,218 9,950 58,882 29,521
Total Revenues 175,869 153,268 481,132 449,451
Operating Costs and Expenses:
Cost of sales (exclusive of depreciation and amortization shown below) 26,984 18,319 58,740 47,845
Cost of transportation services (exclusive of depreciation and amortization shown below) 10,538 10,842 38,799 35,946
Operations and maintenance 17,412 15,146 45,569 42,374
Depreciation and amortization 23,782 21,177 67,276 65,074
General and administrative 15,925 13,413 44,362 41,225
Taxes, other than income taxes 6,661 6,860 21,799 20,293
Contract termination 8,061
(Gain) loss on disposal of assets (1,264 ) 1,849
Total Operating Costs and Expenses 101,302 85,757 275,281 262,667
Operating Income 74,567 67,511 205,851 186,784
Other Income (Expense):
Interest expense, net (22,888 ) (10,907 ) (57,265 ) (27,639 )
Unrealized (loss) gain on derivative instrument (4,419 ) 1,885 5,588
Equity in earnings of unconsolidated investments 123,642 12,764 187,121 37,495
Gain on remeasurement of unconsolidated investment 9,728 9,728
Other income, net 454 480 796 1,267
Total Other Income (Expense) 110,936 (2,082 ) 142,265 16,711
Net income 185,503 65,429 348,116 203,495
Net income attributable to noncontrolling interests (1,413 ) (1,084 ) (3,241 ) (3,235 )
Net income attributable to partners $ 184,090 $ 64,345 $ 344,875 $ 200,260
Allocation of income to the limited partners:
Net income attributable to partners $ 184,090 $ 64,345 $ 344,875 $ 200,260
Predecessor operations interest in net income (3,611 ) (3,408 )
General partner interest in net income (39,809 ) (27,674 ) (107,693 ) (73,347 )
Net income available to common unitholders 144,281 33,060 237,182 123,505
Basic net income per common unit $ 1.97 $ 0.45 $ 3.26 $ 1.75
Diluted net income per common unit $ 1.96 $ 0.45 $ 3.23 $ 1.73
Basic average number of common units outstanding 73,138 73,089 72,769 70,686
Diluted average number of common units outstanding 73,638 74,063 73,319 71,590

TALLGRASS ENERGY PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended September 30,
2017 2016
(in thousands)
Cash Flows from Operating Activities:
Net income $ 348,116 $ 203,495
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization 72,732 70,269
Equity in earnings of unconsolidated investments (187,121 ) (37,495 )
Distributions from unconsolidated investments 187,624 37,361
Gain on remeasurement of unconsolidated investment (9,728 )
Changes in components of working capital:
Accounts receivable and other (34,197 ) 8,204
Accounts payable and accrued liabilities 43,037 5,053
Deferred revenue 26,898 25,303
Other current assets and liabilities 5,032 (1,033 )
Other operating, net 3,755 (149 )
Net Cash Provided by Operating Activities 456,148 311,008
Cash Flows from Investing Activities:
Acquisition of Rockies Express membership interest (400,000 ) (436,022 )
Acquisition of Terminals and NatGas (140,000 )
Acquisition of Douglas Gathering System (128,526 )
Capital expenditures (88,050 ) (55,397 )
Acquisition of Deeprock Development (57,202 )
Distributions from unconsolidated investments in excess of cumulative earnings 41,886 16,073
Acquisition of PRB Crude System (36,030 )
Contributions to unconsolidated investments (31,570 ) (35,515 )
Acquisition of Pony Express membership interest (49,118 )
Other investing, net (13,449 ) 205
Net Cash Used in Investing Activities (852,941 ) (559,774 )
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 850,000 400,000
Distributions to unitholders (284,724 ) (207,539 )
(Repayments) borrowings under revolving credit facility, net (134,000 ) 252,000
Proceeds from public offering, net of offering costs 112,393 290,474
Partial exercise of call option (72,381 ) (151,434 )
Repurchase of common units from TD (35,335 )
Acquisition of Pony Express membership interest (425,882 )
Proceeds from private placement, net of offering costs 90,009
Other financing, net (38,035 ) (56 )
Net Cash Provided by Financing Activities 397,918 247,572
Net Change in Cash and Cash Equivalents 1,125 (1,194 )
Cash and Cash Equivalents, beginning of period 1,873 1,611
Cash and Cash Equivalents, end of period $ 2,998 $ 417
Schedule of Noncash Investing and Financing Activities:

Common units issued as partial consideration to acquire additional 9%
membership interest in Deeprock Development

$ 6,617 $
Increase in accrual for payment of property, plant and equipment $ 1,342 $

Tallgrass Energy GP, LP Financial Statements

TALLGRASS ENERGY GP, LP

CONDENSED CONSOLIDATING BALANCE SHEETS

(UNAUDITED)

September 30, 2017 December 31, 2016
TEP

Consolidating
Adjustments (1)

TEGP TEP

Consolidating
Adjustments (1)

TEGP
(in thousands) (in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,998 $ 281 $ 3,279 $ 1,873 $ 586 $ 2,459
Accounts receivable, net 95,629 95,629 59,536 59,536
Gas imbalances 1,020 1,020 1,597 1,597
Inventories 10,173 10,173 13,093 13,093
Derivative assets 10,967 10,967
Prepayments and other current assets 3,407 3,407 7,628 7,628

Total Current Assets

113,227 281 113,508 94,694 586 95,280
Property, plant and equipment, net 2,350,830 2,350,830 2,079,232 2,079,232
Goodwill 404,838 404,838 343,288 343,288
Intangible assets, net 98,876 98,876 93,522 93,522
Unconsolidated investments 922,280 922,280 475,625 475,625
Deferred tax asset 496,472 496,472 521,454 521,454
Deferred financing costs, net 12,329 997 13,326 4,815 1,227 6,042
Deferred charges and other assets 3,016 3,016 11,037 11,037
Total Assets $ 3,905,396 $ 497,750 $ 4,403,146 $ 3,102,213 $ 523,267 $ 3,625,480
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 69,620 $ $ 69,620 $ 24,122 $ 327 $ 24,449
Accounts payable to related parties 6,072 (117 ) 5,955 5,935 (111 ) 5,824
Gas imbalances 1,119 1,119 1,239 1,239
Derivative liabilities 473 473 556 556
Accrued taxes 22,890 22,890 16,996 16,996
Accrued liabilities 11,154 29 11,183 16,702 53 16,755
Deferred revenue 87,979 87,979 60,757 60,757
Other current liabilities 6,690 6,690 6,446 6,446
Total Current Liabilities 205,997 (88 ) 205,909 132,753 269 133,022
Long-term debt, net 2,115,086 146,000 2,261,086 1,407,981 148,000 1,555,981
Other long-term liabilities and deferred credits 18,396 18,396 7,063 7,063
Total Long-term Liabilities 2,133,482 146,000 2,279,482 1,415,044 148,000 1,563,044
Equity:
Total Partners' Equity 1,499,084 (1,264,843 ) 234,241 1,520,451 (1,187,189 ) 333,262
Noncontrolling interests 66,833 1,616,681 1,683,514 33,965 1,562,187 1,596,152
Total Equity 1,565,917 351,838 1,917,755 1,554,416 374,998 1,929,414
Total Liabilities and Equity $ 3,905,396 $ 497,750 $ 4,403,146 $ 3,102,213 $ 523,267 $ 3,625,480
(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, 2017 Three Months Ended September 30, 2016
TEP

Consolidating
Adjustments (1)

TEGP TEP

Consolidating
Adjustments (1)

TEGP
(in thousands) (in thousands)
Revenues:
Crude oil transportation services $ 86,180 $ $ 86,180 $ 91,387 $ $ 91,387
Natural gas transportation services 30,256 30,256 31,444 31,444
Sales of natural gas, NGLs, and crude oil 32,215 32,215 20,487 20,487
Processing and other revenues 27,218 27,218 9,950 9,950
Total Revenues 175,869 175,869 153,268 153,268
Operating Costs and Expenses:
Cost of sales (exclusive of depreciation and amortization shown below) 26,984 26,984 18,319 18,319
Cost of transportation services (exclusive of depreciation and amortization shown below) 10,538 10,538 10,842 10,842
Operations and maintenance 17,412 17,412 15,146 15,146
Depreciation and amortization 23,782 23,782 21,177 21,177
General and administrative 15,925 564 16,489 13,413 568 13,981
Taxes, other than income taxes 6,661 6,661 6,860 6,860
Total Operating Costs and Expenses 101,302 564 101,866 85,757 568 86,325
Operating Income 74,567 (564 ) 74,003 67,511 (568 ) 66,943
Other Income (Expense):
Interest expense, net (22,888 ) (1,520 ) (24,408 ) (10,907 ) (1,250 ) (12,157 )
Unrealized (loss) gain on derivative instrument (4,419 ) (4,419 )
Equity in earnings of unconsolidated investments 123,642 123,642 12,764 12,764
Gain on remeasurement of unconsolidated investment 9,728 9,728
Other income, net 454 454 480 480
Total Other Income (Expense) 110,936 (1,520 ) 109,416 (2,082 ) (1,250 ) (3,332 )
Net income before tax 185,503 (2,084 ) 183,419 65,429 (1,818 ) 63,611
Deferred income tax expense (12,642 ) (12,642 ) (3,209 ) (3,209 )
Net income 185,503 (14,726 ) 170,777 65,429 (5,027 ) 60,402
Net income attributable to noncontrolling interests (1,413 ) (153,498 ) (154,911 ) (1,084 ) (48,666 ) (49,750 )
Net income attributable to TEGP $ 184,090 $ (168,224 ) $ 15,866 $ 64,345 $ (53,693 ) $ 10,652
Allocation of income:
Net income attributable to TEGP $ 15,866 $ 10,652
Predecessor operations interest in net income (3,611 )
Net income attributable to TEGP, excluding predecessor operations interest 15,866 7,041
Basic net income per Class A share $ 0.27 $ 0.15
Diluted net income per Class A share $ 0.27 $ 0.15
Basic average number of Class A shares outstanding 58,075 47,725
Diluted average number of Class A shares outstanding 58,192 47,775
(1) Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for TEGP.

TALLGRASS ENERGY GP, LP

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

(UNAUDITED)

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
TEP

Consolidating
Adjustments (1)

TEGP TEP

Consolidating
Adjustments (1)

TEGP
(in thousands) (in thousands)
Revenues:
Crude oil transportation services $ 260,366 $ $ 260,366 $ 279,281 $ $ 279,281
Natural gas transportation services 91,370 91,370 89,406 89,406
Sales of natural gas, NGLs, and crude oil 70,514 70,514 51,243 51,243
Processing and other revenues 58,882 58,882 29,521 29,521
Total Revenues 481,132 481,132 449,451 449,451
Operating Costs and Expenses:
Cost of sales (exclusive of depreciation and amortization shown below) 58,740 58,740 47,845 47,845
Cost of transportation services (exclusive of depreciation and amortization shown below) 38,799 38,799 35,946 35,946
Operations and maintenance 45,569 45,569 42,374 42,374
Depreciation and amortization 67,276 67,276 65,074 65,074
General and administrative 44,362 1,678 46,040 41,225 1,638 42,863
Taxes, other than income taxes 21,799 21,799 20,293 20,293
Contract termination 8,061 8,061
(Gain) loss on disposal of assets (1,264 ) (1,264 ) 1,849 1,849
Total Operating Costs and Expenses 275,281 1,678 276,959 262,667 1,638 264,305
Operating Income 205,851 (1,678 ) 204,173 186,784 (1,638 ) 185,146
Other Income (Expense):
Interest expense, net (57,265 ) (4,274 ) (61,539 ) (27,639 ) (3,636 ) (31,275 )
Unrealized gain on derivative instrument 1,885 1,885 5,588 5,588
Equity in earnings of unconsolidated investments 187,121 187,121 37,495 37,495
Gain on remeasurement of unconsolidated investment 9,728 9,728
Other income, net 796 796 1,267 1,267
Total Other Income (Expense) 142,265 (4,274 ) 137,991 16,711 (3,636 ) 13,075
Net income before tax 348,116 (5,952 ) 342,164 203,495 (5,274 ) 198,221
Deferred income tax expense (24,982 ) (24,982 ) (12,792 ) (12,792 )
Net income 348,116 (30,934 ) 317,182 203,495 (18,066 ) 185,429
Net income attributable to noncontrolling interests (3,241 ) (277,293 ) (280,534 ) (3,235 ) (160,708 ) (163,943 )
Net income attributable to TEGP $ 344,875 $ (308,227 ) $ 36,648 $ 200,260 $ (178,774 ) $ 21,486
Allocation of income:
Net income attributable to TEGP $ 36,648 $ 21,486
Predecessor operations interest in net income (3,408 )
Net income attributable to TEGP, excluding predecessor operations interest 36,648 18,078
Basic net income per Class A share $ 0.63 $ 0.38
Diluted net income per Class A share $ 0.63 $ 0.38
Basic average number of Class A shares outstanding 58,075 47,725
Diluted average number of Class A shares outstanding 58,193 47,740
(1) Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for TEGP.

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Source: Tallgrass Energy