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Tallgrass Seeking to Expand Wyoming Natural Gas Processing, Citing PRB Growth

Tallgrass Energy Partners LP (TEP) is looking to add a 120 MMcf/d processing train to its Douglass natural gas processing plant in Wyoming in anticipation of growth the midstream operator is expecting in the Powder River Basin (PRB), COO Bill Moler said Thursday.

Speaking on a call to discuss quarterly earnings, Moler said Tallgrass has connected or contracted about 30 additional natural gas wells to its midstream gathering assets in the PRB, increasing its gathered production by around 38% since April 2017. “We have promising proposals” in response to producer requests for proposals “that represent significant acreage dedications and potential additional connections,” he said.

TEP over the last year has grown its processing volumes by 20%, and the company expects its processing capacity to be fully subscribed by year-end. In addition, TEP has seen a “substantial increase” in fractionator use at its Casper, WY, facility, and the company is “aggressively” utilizing its stabilizer capacity for condensate produced in the basin, Moler noted.

In addition, TEP subsidiary BNN’s recent acquisition of North Dakota water disposal facilities from Buckhorn SWD Solutions LLC and Buckhorn Energy Services LLC is performing as expected, and its water gathering system project is under construction. TEP is also in discussions with as many as six producers in North Dakota seeking both gathering and water disposal services, Moler said.

“These recent developments combined with the approximately $650 million of commercially developed projects and third-party acquisitions we announced last year, and the additional projects we are working to prosecute demonstrate our continued ability to grow and further diversify the Tallgrass asset base.

“While individually, they may not be flashy, attention-grabbing projects and acquisitions, these are solid projects done at attractive multiples with strong standalone economics,” Moler said.

Potential Pony Express Enhancements

On the crude oil side, throughput volumes for the first quarter increased by 22,000 b/d to about 290,000 b/d, with 97% of the barrels from third-party unaffiliated volumes. “We believe this or a higher figure may be a more normalized run rate in 2018 if crude oil production continues to increase, and prices show continued stability in the mid to high $60s/bbl,” CFO Gary Brauchle said.

For example, April throughput on TEP’s Pony Express was about 335,000 b/d, and preliminary May nominations are well in excess of that at around 350,000 b/d, although some of that can be attributed to some refineries in Salt Lake City being down. TEP owns a 98% stake in the Pony Express Pipeline,

“We've got more volumes going to a third-party connected refineries than we've ever had, and it's starting to prove out our thesis about making this more of a market-driven pipeline than a supply-driven pipeline,” Moler said.

Brauchle also touted TEP’s success with its Platteville Extension of the Pony Express and said management is also having “a lot of meaningful conversations” with partner Silver Creek Midstream LLC on the Iron Horse crude oil pipeline. “We think that's going to be a home run, a triple, maybe be a home run for volumes coming out of the Powder. We're starting to have kind of ‘dip-your-toe-in’ conversations with some of our existing shippers on Pony.”

The 100,000 b/d Iron Horse Pipeline, which is expected to enter service in 1Q2019, would connect Silver Creek's newly constructed gathering system and Midway terminal in Converse County, WY, to a Tallgrass terminal and other pipelines at Guernsey, WY, in neighboring Platte County. Iron Horse would also connect to the Tallgrass Pony Express crude oil pipeline system at Guernsey. Both terminals are under construction.

As for getting Canadian crude oil on the Pony Express, Moler said that while there is a very healthy price spread for Canadian barrels versus West Texas Intermediate, “it’s a little bit like putting a puzzle together to get that barrel from Canada down to Guernsey, down to Cushing.” The midstream company hopes to ship its first Canadian barrels this year, “but there's a lot of parts and pieces that have to fall together to make that happen.”

For the first quarter of 2018, TEP reported net income attributable to partners of $107.9 million (97.5 cents/share) versus $71 million (83.5 cents) in the first quarter of 2017. Distributable cash flow for 1Q2018 was $146.2 million, up from $117.6 million in 1Q2017.

In March, Tallgrass Energy GP announced its intent to acquire TEP. A unitholder meeting is set for May 18, with voting scheduled for June 26. Barring any unforeseen delays, the company expects the transaction to close by the end of June.

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