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REX Zone 3 East-to-West Sold Out, On Schedule For Year-End Start-Up

Space on the 800 MMcf/d Zone 3 capacity enhancement for the Rockies Express Pipeline LLC (REX) is officially sold out, management for operator Tallgrass Energy said during a conference call late Wednesday to discuss 3Q2016 results.

A representative from Tallgrass Energy Partners LP said during a conference in September that 50 MMcf/d of space on REX’s east-to-west expansion was still on the market (see Shale Daily, Sep. 14).

COO Bill Moler said Wednesday the REX enhancement, which will bring total east-to-west flows out of the Appalachian Basin to 2.6 Bcf/d, is now fully booked based on deals reached during the third quarter. The project is on schedule to begin service around the end of 2016.

“The project’s designed capacity of 800 MMcf/d is now completely sold out for 15 years at an average rate of approximately 50 cents. With this important milestone complete, REX’s commercial team continues to focus its efforts on additional demand and west-end opportunities,” Moler said.

After reaching an agreement earlier this year with Sempra Energy, Tallgrass now owns a 75% interest in REX through its affiliated entities, including a 25% stake held by Tallgrass Energy Partners LP and a 50% stake held by the private Tallgrass Development LP (see Shale Daily, March 30).

Total flows on REX for the quarter averaged about 3.1 Bcf/d, management said, including 1.8 Bcf/d east-to-west out of Appalachia and about 1.3 Bcf/d west-to-east out of the Rockies. NGI’s Rockies Express Zone 3 Tracker publishes daily flow and pricing data for east-to-west flows on REX. The Tracker will be updated with the latest flow data as the capacity enhancement comes online.

CEO David Dehaemers said he “would not be surprised if in the near future we have some pleasant upside surprises” in regards to REX. “We’re able to do things with REX where perhaps it gives us more than the designed capacity, so we’re always looking to optimize our assets, and we feel really good about our opportunities there.”

When asked to provide more detail, Moler said that “because the Btus that are coming into REX are higher...you can get additional dekatherms through that facility, and so there is some thought that we have the horsepower availability and some thought that we have some Btu growth, and that’s what that’s coming from.”

Tallgrass management also confirmed Wednesday that FERC has approved a settlement filed for a proposed rate increase on its Tallgrass Interstate Gas Transmission (TIGT) system (see Daily GPI, Nov. 2, 2015). In the order filed Wednesday [RP-16-137], Moler said, the Federal Energy Regulatory Commission “has instructed us to make the necessary tariff filings enacting the settlement as soon as possible.”

Outlining a list of “unrealized upsides in our business,” Dehaemers hinted that the Leawood, KS-based midstream company may be looking to make some acquisitions soon.

“We have $700-750 million of instantaneous dry powder right now. We are looking at a lot of things, and I would say I feel as good about a few of them as I have felt about anything,” he said. “We are now four years into this, three and a half years since we’ve been a public company, and we’ve had a lot to say grace over...and I think we’re doing a good job of managing our existing business, but I think we really are turning our focus to the acquisition part.”

When pressed to provide more detail, Dehaemers added that “I would say there are probably one or two” possibilities “that have risen to the top where we feel like we’re in the final throes of maybe getting something done, and they would be of a nice size and move the needle for us.”

Tallgrass’s crude oil segment, which includes its Rockies-takeaway Pony Express Pipeline, averaged 276,138 b/d of throughput for the third quarter, up from 252,540 b/d in the year-ago quarter. Operating income totaled $53.2 million, up from $44.1 million in 3Q2015.

TIGT and Trailblazer Pipeline Co. LLC saw firm contracted volumes averaging 1.44 Bcf/d for the quarter, compared with 1.5 Bcf/d in the year-ago period. Operating income for the segment totaled $14.3 million, up from $10.5 million in the year-ago.

The processing and logistics segment saw average inlet volumes of 103 MMcf/d, compared with 110 MMcf/d in the year-ago quarter. Operating income totaled $120 million, compared with a loss of $212 million in 3Q2015.

Tallgrass Energy Partners declared $104.9 million in distributable cash flow (DCF) for the quarter (79.5 cent/unit), compared with DCF of $54.5 million (60 cents/unit) in 3Q2015.

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