Tallgrass Energy Partners, LP (TEP)

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Tallgrass Energy Partners LP (TEP)

Q4 2013 Earnings Conference Call

February 26, 2014 5:00 PM ET


Nate Lien - IR

David Dehaemers - President and CEO

Bill Moler - EVP and COO

Gary Brauchle - EVP, CFO and Treasurer


Christine Cho - Barclays Capital

John Edwards - Bank of America Merrill Lynch

Selman Akyol - Stifel Nicolaus

Michael Gaiden - Robert W. Baird



Welcome to the Tallgrass Energy Quarterly Investor Conference Call. My name is Holly and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. A question-and-answer session will be conducted after the presentation. Please note that this conference is being recorded.

I will now turn the call over to Nate Lien. Sir, you may begin.

Nate Lien

Thank you, Holly. Good afternoon, everyone. We appreciate you joining us as we discuss among other things our results from the fourth quarter of 2013, which released through our press release today.

Joining me on the call this afternoon are David Dehaemers, Tallgrass’s President and Chief Executive Officer; Bill Moler, Tallgrass’s Executive Vice President and Chief Operating Officer; and Gary Brauchle, Tallgrass’s Executive Vice President and Chief Financial Officer and Treasurer.

Before turning the call over to David, let me remind you that this event is being recorded and a replay will be available for a limited time on our website. Additionally, our comments today will include forward-looking statements and estimates. These forward-looking comments are subject to various risks and uncertainties and reflect management’s views as of February 26, 2014.

Please refer to our filings with the SEC which are available on our website including our registration statement on Form S-1 which provide a discussion of factors that may cause actual results to differ from management’s projections, forecast, estimates and expectations. And please note that except to the extent required by law, Tallgrass undertakes no obligation to update any forward-looking statement.

With that, let me now turn the call over to David for his opening remarks.

David Dehaemers

Good afternoon everybody. Thanks for joining us today. We’ve got a number of positive items that we’re going to talk to you about today and so I’m going to jump right into a few comments on the fourth quarter, our best quarter yet as a public company. As we’ve typically have done in the past I’ll talk for a little bit, Gary will take you through some of the numbers and then I’ll come back and finish up with some of the other items that we talked about in our press release as well as some of our TDEV assets which we’re developing.

As you know we’re pleased to have increased our distribution for the second consecutive quarter which was a 5.9% increase over the third quarter and an increase of 9.6% over the MQD for when we IPOed last May. Increase was driven in part by the strong performance in the fourth quarter in which TEP produced net income of $13.8 million and adjusted EBITDA of 22.8 million.

Our gas transportation and storage segment were TIGT as we call it produced adjusted EBITDA of 15.9 million in the fourth quarter which was the strongest quarter of the year for a number of reasons which we’ll talk to you about. TIGT received additional revenues for the buyout of a transportation contract with TMID. This was done in part to eliminate TMID’s status as a market affiliate of TIGT for regulatory purposes. That’s another technical way of saying that we continue to explore and implement ideas to enhance TIGT and TMID working together, their market presence, synergies and service offerings that was limited before when they were market affiliates and when TMID helped transportation capacity on TIGT.

This contract buyout payment amounted to approximately $1.3 million which benefited the TIGT segment, but to the contrary was an expense at TMID. This is kind of a onetime thing, the income would have shown up in either place had we not known this, so it’s not, when I say it’s a onetime thing, it’s a onetime between the two entities.

Going forward, during the fourth quarter TIGT also had average firm contracted capacity of 719 MMcf a day which was up from the prior quarter in Q4 2012. That increase in addition to other factors both of which resulted in additional gas recoveries during the quarter are primary reasons for the Q4 improvement. While we’re pleased with these quarterly results at TIGT you should know that we did not expect this TIGT performance to be at the same level in 2014, and we’ll talk about that a little bit as we go through the call here.

Turning now to the processing segment, TMID generated adjusted EBITDA of $7.5 million which is up approximately 3.9 as compared to Q3 of the same year. You may recall that we talked a fair amount on our last earnings call, about our expectation for TMID’s third and fourth quarters and the timing of the expansion projects that we undertook and completed at Casper and Douglas. Just as our third quarter results in TMID were in line with our expectations considering the extended plant downtime our fourth quarter result was about just as positive as we expected due to our expanded plants being in service and receiving additional processing volumes during the fourth quarter.

Another positive development to report at TMID is that we achieved additional reduction of our commodity exposure going forward. We converted a sizeable contract that was primarily popped to a fee-based contract beginning February 1, 2014. So as we look ahead for TMID with our expansion efficiency upgrades complete, the expansion capacity fully contracted and our commodity exposure significantly reduced from where we were nine months ago, we believe our processing segment is well positioned for a strong year in 2014.

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