On April 28, 2016, Tallgrass Energy Partners (NYSE:TEP) announced it was acquiring a 25 percent interest in Rockies Express Pipeline LLC (REX) from a unit of Sempra U.S. Gas and Power. On May 6, after approval from the Tallgrass Conflict Committee, TEP closed the acquisition for a total consideration of ~$1.08 billion (cash + assumption of REX debt). During the quarterly earnings conference call, Tallgrass management was noticeably upbeat, stating the pipeline would provide “tremendous cash flow for the next 3.5 years.” However, questions remain about REX’s earnings power beyond 2019 when a number of highly profitable west-to-east contracts begin rolling off. The fate of these contracts and the future growth prospects of east-to-west capacity are the key to determining REX’s long-term earnings potential.
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