Tallgrass Energy GP (TGE) CEO David Dehaemers On Q2 2018 Results - Earnings Call Transcript
Tallgrass Energy GP (USA) (NYSE:TGE) Q2 2018 Earnings Conference Call August 2, 2018 4:32 PM ET
Nate Lien – Treasurer
David Dehaemers – President and Chief Executive Officer
Gary Brauchle – Executive Vice President and Chief Financial Officer
Bill Moler – Executive Vice President and Chief Operating Officer
Colton Bean – Tudor, Pickering, Holt & Company
Barrett Blaschke – MUFG Securities
Good day, and welcome to the Tallgrass Energy Q2 2018 Earnings Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Mr. Nate Lien, Treasurer. Please go ahead, sir.
Thank you, Ash. Good afternoon, and thank you for joining the Tallgrass Energy Quarterly Earnings Call as we discuss TGE results from the second quarter of 2018, which were released through our press release this morning and 10-Q this afternoon.
Joining me on the call this afternoon are: David Dehaemers, President and Chief Executive Officer; Bill Moler, Executive Vice President and Chief Operating Officer; and Gary Brauchle, Executive Vice President and Chief Financial Officer.
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 August 2, 2018. Please refer to our filings with the SEC, which are available on our website, including our 10-K and 10-Q, which provide discussions of factors that may cause actual results to differ from management’s projections, forecasts, estimates and expectations.
Note that except to the extent required by law, Tallgrass undertakes no obligation to update any forward-looking statement. Please also refer to our earnings release and website for reconciliations between the non-GAAP financial measures referenced in this presentation and the most comparable financial measure or measures calculated and presented in accordance with GAAP.
With that, let me now turn the call over to David for his opening remarks.
Thanks, Nate. Good afternoon, everyone, and thanks to everyone for joining Tallgrass Energy’s Second Quarter Earnings Call. As I think all of you know, the second quarter was a transformative one for Tallgrass, as we opened a new chapter in our story with the closing of the merger of TEGP and TEP effective June 30. In conjunction with the closing, we changed our name to Tallgrass Energy LP and the ticker to TGE effective July 2.
5 key attributes coming out of the merger served to strengthen our position is one of the countries leading core infrastructure companies. Those five are as follows: a, a simplified structure; tax is a corporation with no expected corporate level income taxes for 10-plus years; no incentive distribution rights and improved cost of capital; a broader investor base; and a well-diversified portfolio of strategic midstream assets.
In addition to our positive corporate developments, it was another strong quarter of financial performance and growth for Tallgrass Energy, driven by our highest-ever average daily throughput on Pony Express and strong performance in both the Natural Gas Transportation and the Gathering, Processing and Terminalling segments. All of this contributed to TGE’s 12 consecutive quarterly dividend increase.
Again, I’ve generally noted this point, we started our IPO May of 2015 at $0.53 annualized distribution. And today, we’re at $1.99. I would note that that’s a quadrupling in about three years. And at IPO, our price was $29, 2.5% yield; today, it’s $23.75. And at least in my opinion, it’s interesting. Maybe more comments on this later. It’s nice to be able to express my opinion every once in a while, kind of a very ridiculous 8.75% yield today.
Now let’s review the second quarter financial results with which were the catalyst for the increases. Adjusted EBITDA for the combined entity was $202.7 million. Cash available for dividends was $165.1 million, producing coverage of 1.18 times for the second quarter. When excluding the transaction-related costs and that transaction was the merger of TEP and TEGP, adjusted EBITDA and cash available for dividends would have been approximately $208 million and $170 million, respectively.
While we view the second quarter results as another solid quarter that was in line with our expectations, I would remind you that historical results have shown that the second quarter of the year can be the low point across our financial year. While we don’t see significant seasonality in our business, like others, however, the warmer months of the year are less conducive to incremental gas transportation to meet severe cold weather needs, for example. In addition, the warmer months are most conducive for our field maintenance activities, like executing our annual integrity programs and planned turnarounds, et cetera.
So in short, for 2018, we expect our Q2 results to be the lowest of the year after adjusting for drop-down timing in Q1. Importantly, we expect Q3 and Q4 to produce excellent financial results, perhaps the best of the year. And as a result, we now expect to deliver 2018 adjusted EBITDA at the high end of our $755 million to $835 million guidance that we issued earlier this year. That midpoint was $795 million. So I guess, another way of saying that is we believe we’ll be on the high end of that entire range, midpoint being $795 million, the high range being $835 million.
TGE increased its quarterly dividend to $0.4975 per unit or $1.99 annualized, which is a sequential increase of 2.1% for the first quarter of 2018 and an increase of 45.3% over the second quarter of our 2017 dividend.
Before I turn the call over to Gary, I’d like to mention that our format will be slightly different this quarter. Gary will be providing additional details on the financial results in a moment. Bill will provide an update on recent commercial developments. Following Bill’s comments, we’ll run through a few slides that were included in our recent investor presentation that we did last week, and then we’ll open it up for Q&A. I’ll now turn the call over to Gary.
Thanks, David, and good afternoon, everyone. Before I discuss the segment results, I thought it might be important for me to mention a couple of housekeeping items, as it relates to our financial presentation this quarter. The results that Dave mentioned in his opening remarks and those that I will reference are pro forma merger-adjusted results, meaning that they demonstrate the results as if the merger had occurred on January 1, not on June 30 or July 1. In other words, the results we are going through with you today assume the two entities were combined for the full three-month period.
The other housekeeping item to mention is with respect to deficiency payments. Since Pony Express went into service in late 2014 and since we’ve also seen smaller deficiency payments in some of our other assets, the location of deficiency payments in calculating some of our performance metrics have caused inconsistencies between our results and how investors and analysts project and report on those results. While deficiencies were very small this quarter, in fact, the net usage, not the deficiency payment this quarter, of $71,000, we have decided to move the location of that line item above the line into adjusted EBITDA. Said another way, we are including it as an adjustment to arrive at adjusted EBITDA. You will see this in our second quarter reporting, and we’ll continue to displacement moving forward.
Now moving onto the segment performance for the quarter. The Natural Gas Transportation segment produced adjusted EBITDA of $114.3 million in the second quarter of 2018, which is an increase of nearly $24 million from the first quarter of 2018. The primary driver of the increase is the distributions from the additional approximate 25% interest in REX.
For the crude oil transportation segment, adjusted EBITDA was $78.3 million for the second quarter compared to adjusted EBITDA of $67.5 million for the first quarter of 2018. The increase was primarily driven by higher revenue from committed shippers and increased walk-up volumes, both of which were evidenced by the average daily throughput of approximately 348,000 barrels per day for the quarter. Based on shipper nominations to Pony Express, this number would have been higher, but we were in proration for two of the three months of the quarter. To alleviate this issue, we have spent modest capital and are enhancing a number of pumps to take the capacity up to nearly 400,000 barrels per day by the end of the year approximately.
Pony Express throughput volumes continue to be strong in Q3 with actual throughput in July above our contracted capacity, and we expect to move approximately 350,000 barrels per day, again, in August, once again in proration.
The Gathering, Processing and Terminalling segment generated adjusted EBITDA of $16.9 million for the second quarter. We expect to see notable growth in Q3 and Q4 over Q2 results, primarily as a result of the terminals and water assets that we continue to invest in through both acquisition and highly attractive organic growth projects.
Before I get into leverage metrics for the quarter, some of you may have seen our recent 8-K filed last Friday announcing the amendment upsize and repricing of our existing revolving credit facility. The availability was increased from $1.75 billion to $2.25 billion. This increase provides additional liquidity and flexibility and enabled us to repay Tallgrass Equity’s outstanding borrowings of a modest $126 million and extinguished the commitments on that revolving credit facility. In addition, pricing was reduced across the grid, and we made a few minor adjustments to reflect our financial strength and the growth of our business. Once again, I want to thank our very supportive bank group. We appreciate their continued confidence from 2013 onward in the Tallgrass credit story.
At the end of the second quarter, our combined leverage was approximately 2.7 times based on the trailing 12-month adjusted EBITDA, as calculated according to our credit agreements. Not surprisingly, our leverage will increase in Q3, in part, due to our financial contribution of approximately $413 million to REX to repay its 2018 July bond maturity of $550 million. However, as we look towards the second half of 2018 and even considering our share of the REX debt repayment, continued capital spending on our announced projects and assuming no equity issuance, which we absolutely assume not to do at these prices, we continue to live within our investment-grade leverage metric that we set for ourselves over five years ago. As for liquidity, considering the recent capital contribution for REX debt repayment and the upsize of our facility, we currently have over $670 million of liquidity available to us as of approximately the end of July.
Before I turn over the call to Bill, I should also mention and remind two additional positive developments as it relates to the Tallgrass credit story. Standard and Poor’s recently placed Tallgrass on positive watch for upgrade to investment-grade credit rating. And with the repayment of REX’s July 2018, they also upgraded REX to BBB- or investment grade. These two events speak to our continued commitment to conservatively managing our balance sheets and running our companies with investment-grade financial metrics.
With that, I’ll turn the call over to Bill for commercial updates. And if I did say liquidity at $670 million, I meant liquidity of $760 million at the end of July.
Thanks, Gary. Good afternoon, everyone. Our commercial and operational teams were very busy this quarter integrating the recent acquisitions of the 51% interest in the Pony terminal and the North Dakota water assets as well as continuing the construction and development of organic growth projects that were announced in previous quarters.
In the gas transportation segment, we continue to see very strong volume on both ends of the Rockies Express pipeline, with peak throughput being 4.9 billion cubic feet per day on a combined bidirectional basis. The west end averaged approximately 1.7 billion cubic feet per day, and the east end averaged approximately 2.5 billion cubic feet per day during the quarter for a total of approximately 4.2 billion cubic feet per day on a bidirectional systemwide basis. All of this shows the continued need for REX takeaway on both ends of the pipeline.
Recontracting discussions with our west end shippers continue in earnest. While we cannot disclose terms of those efforts at this point, we are very satisfied with the status of the negotiations with a large group of potential shippers made up of both current and new customers.
In addition to the discussions with existing customers, we believe the development of the Cheyenne Connector Project will have a positive impact related to future volumes on the west end of REX and has opened the door for discussions with other interested parties. The project continues to progress on schedule, and the 7(c) certificate application has been filed with the FERC.
In the crude oil transportation segment, the buildout of the Iron Horse Pipeline and the Guernsey Terminal continues on schedule, and we are in the middle of an open season, seeking additional commitments above the anchor commitment of 15,000 barrels per day. In addition, as we mentioned on the first quarter call, the Platteville Extension was placed into service in April, allowing us to deliver approximately 40,000 barrels today – per day to the Buckingham Terminal and onto Pony Express’ Northeast Colorado lateral.
We continue the construction of the Grasslands Terminal, and once that is placed in service later this year, we will have the capacity to ship up to 80,000 barrels per day on this Platteville Extension. As Gary mentioned earlier, in Q2, Pony Express had the highest quarterly average daily throughput in its history at 348,000 barrels per day, and preliminary indications show strong volumes will continue during quarter three.
At Tallgrass midstream, our average quarterly volumes continued to trend positively at just under 120 million cubic feet per day, and we are currently averaging 130 million to 135 million cubic feet per day. During the quarter, we signed contracts to connect an additional eight wells to our Gathering Systems, and we expect volumes to continue increasing during the third quarter. In addition, progress is being made on the permit applications for up to an additional 200 million cubic feet per day cryogenic processing train at the Douglas facility.
Turning to BNN Water Solutions. We continue our integration work on the recent acquisition of the North Dakota water disposal assets, which are performing nicely, and we are nearing completion of the water gathering system that was associated with this acquisition. We’re seeing very strong acquisition and organic growth opportunities within this business unit and have already underwritten numerous additional expansion opportunities from the system that were not considered as part of the original acquisition.
Finally, as many of you saw on our press release yesterday, we are developing a Cushing to Gulf Coast crude oil pipeline and export terminal. The approximate 700 miles Seahorse Pipeline will connect to a new build Plaquemines Liquids Terminal in Louisiana to transport and export crude from the largest oil basins in the country. We’ll be launching an open season on August 15 to solidify initial shipper interest in the project and look forward to providing additional estimates and color on the project for you following our open season.
With that, I’ll turn the call back over to David and Gary to run through the slide deck.
Okay. So we’re going to go through slide deck. I think it’s about 14 pages long. We’ll do it fairly quickly. If you go, I think, Nate’s flipping them as we talk, but there’s the title sheet and then the first two sheets are our disclosures around forward-looking statements, et cetera. I’d encourage you to read those. They essentially don’t change from time-to-time, but they are important for our fellow shareholders to look at. So with that, I’ll let Gary start in talking about Slide number 4.
Thanks, Dave. So beginning on Slide number 4, a summary of our investment highlights and those that are most important to Tallgrass. Number one, we’re a midstream infrastructure company with a simple and very tax-efficient investment structure. We benefit from very stable cash flows that are generated from firm, fee-based contracts. We have a history of delivering outstanding results on significant organically identified and invested capital projects, and historically, that has been a 5.4 times EBITDA multiple on invested capital of about $3 billion. We have and will continue to finance our business with an investment-grade credit metric structure and flexible dividend coverage.
Next, turning to Slide 5. You can see that our much more streamlined organizational structure is in place as of the merger. And I’d point out that management continues to have a significant financial interest that’s fully aligned with our public owners.
On Page 6, we summarize the benefits of our recent simplification transaction, which includes, but are not limited to, reduced complexity, full alignment of our – all of our investors, as I just mentioned; significantly reduced cost of capital and more attractive return on projects and investments; and including a potentially enhanced credit profile. Importantly, David mentioned previously that we expect no cash federal taxes expected to be paid at TGE for at least 10 years, and as it relates to individual investors, less than 10% of the dividends are expected to be taxable to those owners.
All of these characteristics should lead to increased investor appeal and interest in investing in Tallgrass. Dave, Slide 7?
Yes, moving on to Slide 7. And before we go to Slide 7, we’re going to have this presentation for those of you that may just be listening and not be able to see these slide, they’ll be posted on our website today, in fact, they are probably already posted there right now.
Slide 7 here continues to be one of my favorite slides in our slide deck. Not only am I attracted to color, but it really does kind of tell our story in a very synoptic way. Everything that we’ve accomplished since 2013, whether it’s projects in the blue, kind of the [indiscernible] which is third-party acquisitions; our drop down acquisitions, which – we’re not without risk when we bought this business from Kinder Morgan back in 2012; other type major occurrences at the company as well as financings that we have done.
And so if, I guess in leaving this slide, I guess, since we took two companies public in 2013 and 2015, TEP and TEGP, just using this slide alone, I would challenge anybody, frankly, to go back and look at when we went public with either of those companies and come up with us not having achieved something that we talked about achieving, looking forward to have those times. So bottom line is we said what we’re going to do, and I think we went out and did it and have executed.
Slide 8. Turning to that is our consistent infrastructure investment. Gary made this point earlier. We have a five-year history of increasing our EBITDA, being very responsible capital allocators in the space, whether it’s growth CapEx or third-party acquisitions, a total of over $3 billion of invested capital. We currently have, we’ll show you in a minute, open AFEs on our books of somewhere around $650 million, it says $628 million here on the slide, but we currently have growth projects of $628 million. Again, open AFEs that will generate $106 million. So when you do all that math, our multiple-owned invested capital is 5.5x, which, again, I think is an outstanding result.
Turning to Slide 9. This is our active growth projects. We’ve given you a fair amount of detail here about what is in our open authorization for expenditure system. So this is our CapEx. Up top there, it’s the stuff under construction; below, it’s the stuff placed in service. It all amounts to $628 million with a underwritten EBITDA contribution of $106 million. Again, you’ll have this to study later but it just shows you the stuff that we have been doing. Again, I refer to earlier comments. We have these calls for our fellow investors and the banks that provide us credit. The investment banks that help us raise capital, be it equity or debt bonds.
We have it for analysts. We even have it for people who don’t like our story and think they want to short our stock. That’s all fine. But the fact of the matter is that we’re dealing in facts here. We’ve had people that are analyst write things about us, only spending $50 million in growth CapEx, going out into the future with 1% perpetual growth rates, and it’s just silliness. And frankly, I would encourage my fellow investors to do your own work. To the extent you have bias and you want confirmation bias, pick out any of the analysts out there that kind of comport with your way of thinking and go ahead and confirm your stuff. But don’t rely on them because we’re dealing in facts, and our facts prove a number of them, frankly, to be wrong.
Slide 10 is a new slide that again, when we were on the road last week and we saw individually about six or seven people, this slide deck, a version of it was put out last week when we did that nondeal roadshow, but we’ve got a lot of feedback about this. We came back and kind of revised it a little bit. But this is a good slide, I think, to tell you exactly where we are today and how we think about this business. On the left, if you take our Q2 2018 annualized, we build up for you our other assets, which is really our GNP businesses and water, our 75% of REX and then Pony.
Pony for the first quarter annualized was $275 million EBITDA run rate. For 2017, it was $300 million. So just to give you those figures. So that’s where we’re at, kind of, run rate for this year, just annualizing 2018. We told you all that we thought Q2 would be our smallest quarter, so you can extrapolate from there. But if you kind of ignore the middle for just a second, if you come over and say, "Illustrative for 2020, where are we going to be?" This is the way it is from our perspective: other assets are going to be kind of flat.
We do think we will grow the water business but we haven’t put a ton of incremental blue growth in there. The growth projects are what we just showed you, the slide before, which is the purple. We presently today REX 8/8ths as $500 million currently contracted. I would say that’s about $400 million of independent stock we would have back four or five years ago when dingdong REX was dead and everybody thought REX was going to go from $700 million of EBITDA to $100 million, but we currently have that contracted for an average life of about 14 years.
The next little green wedge there is – if you look on – we’re not going to flip back and forth here but when we get to Page 11, the next one, we’ve actually done the math now for people relative to west end contracting assumptions. So REX would get another $600 million of 8/8ths EBITDA. That green wedge is our share, 75%. If we recontracted the west end for 1.1 BCF at $0.25 a decatherm. Well, I’m here to tell you that we’re not going to contract it that cheap, and everything that we have done recently has been above that price.
The fact of the matter is just continuing on with the REX story, the light-green patch at the top, which is another $50 million taking REX to $650 million is us contracting that 1.1 for an average of $0.375. I think it’s fair to say that our expectation is, is that between now and when REX does recontract sometime near the end of the year and some of it may be recontracted by the end of this year, our expectation is that $0.40 is a very achievable number. And so the bottom line here for this whole thing, from my perspective, from my opinion, is that everything up through the light-green box in 2020 is a layup.
Going on to the Pony story. We show there – if we just maintain our current dividend, our interest expense and our maintenance CapEx, we drew the dash line across all three columns, we’re paying $1.99 today. We pay out our interest expense. We have about $30 million to $35 million of maintenance CapEx. We could maintain that. And that would be with just REX at $500 million plus the other $100 million at REX at $0.25 a decatherm plus half of the 2017 EBITDA that Pony had.
Now you can pick one, but if you believe this Draconian Street recontracting assumption, "The bear case", it’s pretty simple. Which one do you think is going to go in half? Do you think our volumes are going to grow in half? We’re contracted at $310 million. We just showed you for the last quarter, we ran a $348 million, and we told you that we’re going to replumb the north end of Pony to run to $400 million, and you will see in two slides, what’s happening in the basis that Pony serves.
So it’s doubtful, in my mind, I think any reasonable person’s mind, that Pony’s volumes are going to go in half at the same rates that we are today. Those rates are $450 million walk-up. Our average contracted rate is – people do the reverse math over the last year probably somewhere in the neighborhood of $330 million. So this Pony remained at 310,000 barrels, which is our current contracted. And as our rates get cut in half, well, that ain’t going to happen either. We’ve already renewed one contract that was with Continental. That was not for half. And frankly, that was the best deal that’s going to be out there. I suspect that we are going to be firmly in the camp of our rates being about where they are today for our legacy Pony business, which is coming from the Bakken, coming to Guernsey, to the Powder, on Pony down to Cushing, and also from Colorado into Cushing.
So now I’m going to focus very quickly on the middle column. This was some of the feedback we got from folks. Where are we today? Today, you can see drawing across the line in Q2 2018, we have annualized dividends plus coverage of $2.36. That’s basically 1.2 times covered. I think you can all read between the lines what we said relative to 2Q being annualized. We would expect our coverage to be higher, and we actually expect our – all these numbers to be higher for the end of the year based upon our guidance now of – the high end of our range.
If we just do what I said I felt like it was a layup, which is keep Pony steady, recontract REX for an average of $0.375, we will produce $2.68 by 2020. That represents another 14% or 7% a year for two years’ growth. What will we do with that cash? Well, we can do a number of things with that. That doesn’t include anything else that we’re talking about here. It doesn’t include the other $1.2 billion worth of projects that we have in a book that add up to about 16 different projects, which a number of them we feel like we will execute just like we have on the $628 million I talked about. It does not include Seahorse.
It does not include a couple other large projects that we have. What it would does allow us to do is for that cash that we generate, we can internally fund growth. We can reduce our debt. We can have – grow our dividends, and we can also have share repurchases for that matter. So I hope that helps a lot of people relative to our story, knowing exactly where we’re at, exactly where we think we’re going, and how we’re going to get there.
And Dave, this is Gary. I may just mention one thing here. As it relates to the cash available for dividend of growing up to $2.68 approximately, that would require no changes to our capital structure given that, that EBITDA or cash flow contribution would be on existing assets.
Moving to Slide 11. This just is backup to what I just took you through on Slide 10 for REX. Basically, we have currently contracted $500 million. It builds you up from $500 million to $600 million, and then $600 million to $650 million by simply showing you what we have to do on the west end of REX, and frankly, again, what we are going to do.
Slide 12 is again the same thing, backup relative to Pony on Slide 10. It just shows you – forget about what we say, independently, okay, but just listen to what other companies are saying. The E&P companies are saying, the rest of the Brazil, the worlds are saying, the independent brokers out there, who are evaluating the crude basins out there, the Bakken is setting new records. It’s going to run out of pipeline capacity. The DJ is very hot today.
The PRB, I’m telling you, folks, people aren’t paying attention to it but there’s going to be a lot happening in the PRB. We’re right there with our Iron Horse project. And so what does that tell you? That tells you, combined, we’re serving basins that are not only going to be more prolific over the next few years but are also going to be capacity constrained, and we’re there to serve them. With Slide 13, which will be the last one, I’ll let Bill take that.
Thanks, Dave. I assume most of you have many questions about the announcement we made yesterday concerning the Seahorse Pipeline and Plaquemines Liquids Terminal. Slide 13 gives you a little more visibility into what that project is and what it consists of. First, the project is approximately 700 miles of 30-inch pipeline from Cushing, Oklahoma, to and through areas where there are simple connections to refineries in Northwest Louisiana down to St. James, Louisiana, and to the new Gulf Coast Plaquemines Liquids Terminal.
The initial capacity of the pipeline without powering up is 400,000 barrels per day, which is expandable up to 800,000 barrels per day. The Plaquemines Liquid Terminal itself is a private public partnership with the port of Plaquemines and Plaquemines Parish. It is 20 million barrels per day of storage capable of loading and unloading Suezmax vessels up to 1 million barrels, and we have an extension project that is a bolt-on to this project that will get us to 130 feet of depth of water for loading and unloading VLCCs, which hold up to 2 million barrels. The project provides customers’ access to refining and international markets. That will be an export and import terminal with those kinds of capabilities, and look forward to answering any questions you may have about it in the Q&A session.
So with that, you’ve heard our comments. You’ve seen our – we’ve taken you through our presentation. Tallgrass is fully committed to and engaged in the next chapter of our story. Our team is focused on delivering the financial results you’ve come to expect through the optimization of our existing assets and continued responsible capital deployment at attractive returns. By doing this, we expect to achieve steady growth and a stable dividend, further cementing ourselves as one of the leading core infrastructure providers in the country. As always, I thank you to our employees for what they do every day to keep themselves and our assets safe and for their ongoing contribution to our company’s success. Thank you, as well, to our shareholders for their confidence in investing in us and to everyone on this call for your interest in our company.
With that, operator, we’ll turn it back to you to start the Q&A portion of our call.
Thank you. [Operator Instructions] And we’ll take our first question from Colton Bean from Tudor, Pickering, Holt & Company.
Good afternoon. Appreciate the incremental disclosure there on the Seahorse project and then the export terminal. Just wondering to see if you guys had any preliminary thoughts around capital needs for those facilities? And I guess, as a follow-on, any thoughts on how you might approach financing should those projects proceed?
Yes, really good question, and I’ll let Bill talk you about what they’re going to cost to build. Let me just preface it with saying that Seahorse is an exciting project. I think it’s one that the country, our customers need and can use. I think it will help a lot of folks optimize profitably their stuff. But let me be clear, we got a couple of people. We have an analyst six months ago say, "You guys weigh in, put your stuff out at the end of the day, and then we’ve got 15 or 20 minutes to look at it, and then you have a call." And we thought that, that was a meritorious thing for that particular analyst to point out to us.
So we’ve been trying to do it before them. So we’ve been putting it out in the morning and having the call later. You wonder where I’m going with this. I’ll wrap it up simply by saying, had a number of people put out notes between hearing our call yet today before they hear our comments and yet they see the press release this morning. And we’ve already seen things like – let’s see – let me – I can’t read – my eyes are going bad, but we are so rated on TGE based upon recontracting and financing risk – what is the financing risk?
I think you ask a great question about a project that we hope to commercialize and would be a super project, but we’re not going to do it unless we can finance it profitably. If our fellow shareholders don’t want to give us credit for it then there’s plenty of money out there chasing deals. We’re going to have customers that are probably going to want small pieces of it, et cetera. So we’ll give you a fulsome answer about that, but Seahorse happening or not happening is not a financing risk, okay? So with that, Bill, do you want help with the costs and...
Yes. I mean, our head of engineering always gives me an answer when I ask him questions that starts with the words, ’it depends.’ And so I’m going to steal Jay’s quote and say, ’it depends.’ Right now, if everything were to happen the way we would hope that it happens and we build out all the facilities to capacity, a very rough preliminary look at it would tell you it’s in the $2.5 billion range. If volumes are less, if tankage at PLT is less, it will be less than that. If we get volumes above the 800,000, which we very well may, it might be a little bit north of that. So I know that’s a very wide range of answers, but that’s the best we know at this particular juncture.
Yes, and to add on that, Colton, there are, I mean, two things. One is what Bill’s not telling you is that particular engineer went to Texas Tech, which is also the school that Bill went to for engineering school, so typical engineering answer of ’it depends.’ But that gives you some range on that. We really haven’t thought about the financing of it. Clearly, I mean, everybody talks about self-funding in this space.
We don’t do $2.5 billion projects by "self-funding." I think if we can get it looking right from an economic profile, I’ve had three or four calls already from them. I’m not going to identify who they are and say, "Hey, if you are interested in a partner on that, we’re in, and et cetera, et cetera. So I wish I could give you more clarity on that. We’re just trying to get it to a place where it’s commercially viable and then the economics are made right and then get the – the financing will be the least of our worries, I think.
Got it. I appreciate that. And just to clarify, the $2.5 billion was for both Seahorse and the terminal facility?
That is accurate, give or take, based on volumes.
Got it. Okay. Perfect. And then I guess just switching over to Pony Express here, so very strong volumes in the quarter. Did you see any sort of mix shift in terms of basing contributions there? Or could you break down the actual throughput a bit more for us?
We haven’t typically been doing that, and we just saw a lot of incremental volume coming in at all origin points.
I guess just the last one for me here. So I appreciate what you’re detailing the contributions from CapEx process. Any expectations as to what other reasons on that may be to realizing that? I think you’re noting just over $100 million from those projects.
Colton, you kind of broke up there. Could you repeat that question for us, please?
Yes. Just circling back to Slide 9, I think it’s where you’re highlighting the contributions from the capital projects currently in process. Is that $100 million – or I guess, little north of $100 million, is that something we should expect to see close to in-service or maybe a year or two past or kind of a general time line as to when we should expect to see that?
Yes, on Slide 10, I think it was, you saw the end in 2020. If you look at that slide real carefully after the call when you have time, some of that is already in-service and that is billing that purple wedge on Slide 10. So you already know, some of its already in the stuff that we’re growing into presently. I would say all of that is in-service and earning that EBITDA by the middle of 2019. Does that answer your question?
Yes, I think that’s helpful. So the $106 million that you’re noting relative to the $628 million of capital, kind of looking for that sometime middle of next year?
Yes. Some of that has already happened. So for example, you see on there the – Platteville Extension. That was just placed in service in the last 45 days. So we’re starting to realize revenue and EBITDA for that. So they’re just coming in at various times. I mean, I think, from a modeling standpoint, you can kind of see that may be having started a little bit in the second quarter here, and we’re ramping up into that for the next year.
And Colton, I would just add on things like the Cheyenne Connector, Cheyenne Hub, Iron Horse, Grasslands Terminal, some of those types of things. We’ve talked about the in-service dates and specificity in the project announcements and certain updates we’ve given there. Again, that’s a lot more detail that you can do whenever you have more time with this slide.
Got it. I appreciate the time this afternoon.
You bet. Thank you.
[Operator Instructions] We’ll move next to Barrett Blaschke from MUFG Securities.
Hey guys, how you’re doing? Just wanted to kind of look in – you guys have done kind of a big job of finding things to attach to Pony Express and build off of Pony Express. But I want to shift over just a little bit and ask what you think in terms of REX and sort of being able to lever off of that platform at this point?
I’m going to let – I’m going to do the high-level thing and then Bill will give you the – his version of that. There’s a lot of stuff to be done on REX. We’ve talked at various times before, we’re probably just not getting to that stage, where we spent $30 million replumbing Zone 1 to make it bidirectional. The way things are going right now relative to what we’re seeing in the UNs or the peons, the DJ and the Powder, it’s not inconceivable that sections of REX in the west are even looped.
I would say that Zone 3, not the whole Zone 3 naturally, but certain sections of Zone 3 are prime for looping, depending on our customers and what receipt delivery points they want to have. So there’s a lot of stuff there. I’ll just wrap up with saying, when I refer to two other big projects, at least one of those two is a part of REX. So Bill, do you want to supplement that?
I think you did – you covered most of it. We – if you’re following projections in the Marcellus and the Utica, Rover and us and others with takeaway capacity, we are having discussions with shippers now about incremental capacity on our east to west that might involve small sections of loop and some horsepower. What I’ll tell you is we’re not done yet, and various things are on the table at current.
You bet. Have a good evening. Operator, can we ask for calls questions one more time please?
Yes, sir. [Operator Instructions] And it appears there are no further telephone questions.
Did well. I’m going to leave everybody with a little tidbit. I think I did pretty good this time not using too many metaphors, which I get criticized for as well as that many more things, particularly at home, in my house. But one thing I have here is a little thing I keep up in my office. It says, "Stop worrying about what can go wrong, and get excited about what can go right." And there’s another one that says, "Why should you worry about the future? You don’t even know the present properly?"
And so I think that’s one thing that we’ve endeavored to do all along. I think we’ve taken an expirate amount of endeavoring here lately in this quarter to show you all and give you a better understanding of the present properly and what that really does mean for the future for us. Frankly, we’re excited about it. And again, thanks, everybody, for attending the call and appreciate your interest in Tallgrass. Thank you.
And once again, that does conclude today’s conference. And we thank you all for your participation. You may now disconnect.
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