Tallgrass Energy Partners LP (NYSE: TEP) continued its strategy of bolt-on acquisitions on Jan. 3 with the purchase of interests in Pony Express linked crude terminals.
In the Denver-Julesburg basin, Tallgrass Terminals LLC entered an agreement to acquire a 51% membership interest in the Pawnee, Colo. crude oil terminal from Zenith Energy for about $31 million. The terminal is an injection point for the Tallgrass Pony Express Northeast Colorado Lateral (NECL), with 300,000 barrels (bbl) of storage and backed by minimum volume commitments of about 90,000 bbl/d.
Further, Tallgrass said the Pawnee Terminal will provide commercial and operational synergies with Pony Express and offers the potential for incremental sourcing opportunities such as directly connecting nearby producers. The company expects to close the transaction in first-quarter 2018, subject to certain closing conditions.
In addition, Tallgrass Terminals acquired a 38% interest in Deeprock North LLC, which owns a crude oil terminal in North Cushing, Okla., immediately adjacent to the Deeprock Development LLC crude oil terminal facility. The purchase price for the interest was $19.5 million or about eight times current cash flow.
Immediately following the acquisition, Tallgrass said Deeprock North was merged into Deeprock Development.
As a result of the acquisition and merger, Deeprock Development now owns a larger and more diverse terminalling complex with total storage capacity of 4 million bbl. Tallgrass Terminals owns about 60% of the combined entity and retains significant strategic and commercial control.
Tallgrass said it expects the acquisition to enhance and expand Tallgrass Terminals’ commercial offerings for both Pony Express customers and other customers in Cushing.
“Today’s announcements, along with last week’s news of the five-year contract extension with Pony Express’ largest customer, continue to solidify Pony Express’ track record as a reliable and diverse pipeline and strengthens its ability to serve crude oil markets for decades to come,” David G. Dehaemers Jr., Tallgrass Energy’s president and CEO, said in a statement. "With news of increasing crude oil production in basins Pony Express serves, we’re even more confident that utilization of our pipeline will continue to increase in the future.”
Tallgrass also announced several commercial developments related to Pony Express:
- Successful Platteville Extension Open Season: Pony Express recently concluded a successful binding open season to secure committed shipper contracts for crude oil transportation of a new common stream on the Platteville Extension. The open season resulted in additional unaffiliated third-party commitments of 10,000 bbl/d for a total of 37,500 bbl/d of short-haul and long-haul binding transportation commitments. The 55-mile Platteville Extension is about 60% complete and expected to begin operations in April with the associated Grasslands Terminal expected to be in service in fourth-quarter 2018. The initial capacity of the Platteville Extension will be about 40,000 bbl/d, increasing to roughly 80,000 bbl/d once the Grasslands Terminal is in service.
- Record Volume Throughput Expected in January: In late December 2017, Pony Express shippers nominated more than 10 million bbl, or about 325,000 bbl/d for movements in January. If realized, this would constitute the largest per-day average during a single month in Pony Express' history. Tallgrass affiliates account for only about 5% of the nominated volumes.
- January In-Service of Two New Refinery Connections Expected: Construction on the Holly Frontier El Dorado and CHS McPherson, Kan. refinery connections is complete, with line fill and commercial service expected in early January for both. Once the two new refinery connections are in service, Pony Express shippers will be able to deliver more than 300,000 bbl/d to three significant refineries directly connected to Pony Express, including the currently connected refinery in Ponca City, Okla.
- New Supply Connection: As previously announced, Tallgrass Terminals has a signed, 10-year take-or-pay agreement for 8,000 bbl/d from a new customer to support the construction of a terminal in the Central Kansas Uplift. Construction of the terminal is progressing on schedule, with completion and in-service expected by March. Upon completion, the terminalling facilities will have delivery capabilities of approximately 20,000 bbl/d into the Pony Express mainline, providing the opportunity to accommodate incremental volumes from the Central Kansas Uplift. Upon completion of these projects, Pony Express will have six different supply sources and five different crude oil streams capable of being batched on the system.
“We believe the execution of our organically developed commercial projects by Pony Express and Tallgrass Terminals and the expansion of Tallgrass Terminals’ complimentary service offerings through acquisition continue to demonstrate that Pony Express is the most attractive, diverse and capable crude oil transportation and logistics system in the regions in which it operates,” Matt Sheehy, Tallgrass Energy’s chief commercial officer, said in a statement. “Diversity of supply and delivery points, multiple batch shipment capability, readily available expansion capacity and an attractive tariff rate solidify Pony Express as a critical part of the country’s crude oil midstream infrastructure.”
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