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Tallgrass Adds REX, Pony Express Assets to MLP in $140M Dropdown

Tallgrass Energy Partners LP (TEP) has purchased two entities from Tallgrass Development, its privately held affiliate, in a $140 million dropdown, the company announced Tuesday.

The Leawood, KS-based master limited partnership said it is acquiring Tallgrass Terminals LLC and Tallgrass NatGas Operator LLC -- its fifth dropdown from Tallgrass Development -- in a cash deal funded through TEP's revolving credit facility.

Tallgrass NatGas Operator operates the 1,713-mile Rockies Express Pipeline LLC (REX) in exchange for an annual fee of 1% of REX's earnings before interest, taxes, depreciation and amortization.

The Tallgrass Terminal acquisition will bring in a number of operational assets related to the crude oil Tallgrass Pony Express Pipeline LLC that runs from Wyoming to Cushing, OK. These include the Sterling Terminal near Sterling, CO; the Buckingham Terminal in northeast Colorado; and a 20% stake in the Deeprock Development Terminal in Cushing.

Tallgrass Terminals is also currently developing a proposed 5.5 million bbl terminal storage facility on 550 acres in south Cushing, as well as a 2.1 million bbl storage facility on 250 acres in Guernsey, WY.

Tallgrass CEO David Dehaemers said the dropdown is expected to be immediately accretive to TEP's unitholders. "While we expect to provide financial guidance for calendar year 2017 in February, this transaction is supportive of our previously issued distribution growth guidance that includes 2017,” he said. “However, as we continue to grow Tallgrass Terminals, we expect it to be a more significant contributor to the long-term Tallgrass growth story."

Since changing course to offer east-to-west flows on its Zone 3 segment, REX has become an in-demand takeaway route for constrained Appalachian Basin producers.

As the calendar flips to 2017, REX has been in the process of starting up its 800 MMcf/d Zone 3 capacity enhancement project, which will see total designed east-to-west capacity reach 2.6 Bcf/d. Last month, REX added 450 MMcf/d to bring total Zone 3 east-to-west capacity to 2.25 Bcf/d. As of Tuesday's flows, capacity remained at 2.25 Bcf/d, according to NGI's REX Zone 3 Tracker.

Asked about the timing of the remaining capacity additions to REX’s Zone 3, Tallgrass spokeswoman Phyllis Hammond told NGIvia email Tuesday that the company will announce further updates via the pipeline's electronic bulletin board.

Tallgrass owns a combined 75% interest in REX through its affiliated companies, with Phillips 66 owning the remaining 25%.

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