MIDSTREAM NEWS

TALLGRASS ACQUIRES ADDITIONAL PONY EXPRESS PIPELINE INTEREST

Tallgrass Energy Partners LP will acquire an additional 31.3% interest in Tallgrass Pony Express Pipeline LLC for cash consideration of $475 million and 6.518 million TEP common units issued to Tallgrass Development. Based on TEP's December 31st closing price of $41.21, the total consideration of approximately $743.6 million represents a multiple of approximately 9.0x incremental cash flow to TEP as a result of the acquisition. The acquisition increases TEP's membership interest in Pony Express to 98%.

The cash consideration of $475 million is being funded through borrowings under TEP's revolving credit facility, which is increased from $1.1 billion to $1.5 billion in connection with the transaction.

As part of the transaction, Tallgrass Development is granting TEP an 18-month call option to repurchase the newly issued 6.518 million common units at a price of $42.50. Thus, the acquisition could become more accretive to TEP if it issues equity for net cash proceeds in excess of $42.50 per common unit and exercises its option. Pro forma for this transaction, TEP's debt to cash flow ratio is approximately 3.7x and its available liquidity under its revolving credit facility is approximately $272 million. TEP expects that Tallgrass Development will maintain its minority ownership interest in Pony Express for the foreseeable future.

TEP liquidity remains strong, said Deutche Bank analysts after the announcement. "Outside of additional drop-downs (we expect another this year in 4Q), we expect revolver borrowings and / or senior debt raises to be adequate to cover 2016 funding needs without stressing leverage materially north of 4.0x or raising equity," the analysts noted.

MAGELLAN, TRANSCANADA TO BUILD HOUSTON PIPELINE CONNECTION

Magellan Midstream Partners LP and TransCanada Corp. plan to connect TransCanada's Houston tank terminal to Magellan's East Houston terminal. HoustonLink Pipeline Company LLC, a new company owned 50/50 by Magellan and TransCanada, will construct, own and operate a nine-mile, 24-inch diameter crude oil pipeline connecting the terminals. The new pipeline is expected to provide TransCanada's Keystone and Marketlink customers access to Magellan's Houston and Texas City crude oil distribution system.

The joint project, first announced in April 2015, is estimated to cost approximately US$50 million. In addition, Magellan and TransCanada plan to develop additional infrastructure at their respective Houston-area terminals to accommodate shipments from the new pipeline. Magellan will serve as construction manager and operator for HoustonLink, which is expected to be operational during the first half of 2017, subject to rights-of-way, permits and regulatory approvals.

ARB MIDSTREAM ACQUIRES INCORR

Denver, CO-based ARB Midstream LLC has acquired Denver, CO-based InCorr Energy Group LLC. InCorr markets crude oil from producing regions throughout the inland corridor of the US including the Bakken, Powder River Basin, Uinta, and DJ Basins and provides marketing, storage, and pipeline solutions to producers, refiners, and midstream companies. The companies expect the entire InCorr commercial team to be retained by ARB Midstream to oversee the regional commercial activities of the company. ARB Midstream LLC is funded by its equity member, BV Natural Resources LLC.

KMI POSTS EARNINGS

In late January, Kinder Morgan updated its 2016 budget to reflect current commodity price and foreign exchange rate expectations as well as its high-graded investment plan. "Kinder Morgan earnings were in-line with expectations, with EBITDA growth in its midstream business segments, including: natural gas pipelines, terminals and product pipelines," said Brian Kessens, managing director and portfolio manager at Tortoise Capital Advisors LLC, noting the expectation that other companies in similar business segments are likely to post modest growth.

Kinder Morgan reduced its 2016 capital budget by 21% (from $4.2B to $3.3B), deferring certain projects while maintaining focus on projects with the highest returns, Kessens continued. "Given more limited access to capital, we expect other midstream companies will high-grade their project suite and / or defer projects."

"Finally, Kinder Morgan lowered estimated 2016 distributable cash flow from previous December guidance by a marginal 2%. We would not be surprised if others adjust their 2016 outlook marginally to the downside given energy market uncertainty, yet expect most to maintain a 2016 outlook consistent with consensus or prior statements."

2015 MIDSTREAM DEAL REVIEW

In a year-end report on mergers and acquisitions in the oil and gas space for 2015, Deloitte noted that the number of transactions in the midstream sector "remained fairly constant" with 2014 at roughly 50 deals, while deal value ran slightly higher at about $96 billion. North America held the top spot geographically, with nearly 90% of midstream transactions occurring in the region in 2015. Natural gas and oil storage facilities, as well as the gathering and processing business, saw the most activity in 2015, while MLPs were less attractive "due to the evolution of market conditions, which depress returns and growth opportunities," the report detailed.