... Tallgrass Expected to Pay Sempra $440 Million for REX Stake  

Tallgrass Expected to Pay Sempra $440 Million for REX Stake

While announcing a record first quarter, Tallgrass Energy announced plans to acquire an additional 25 percent interest in the Rockies Express Pipeline for $440 million.

Tallgrass Development LP previously announced a purchase agreement with a unit of Sempra U.S. Gas and Power to acquire a 25 percent interest in the Rockies Express Pipeline (REX). Since the announcement, a subsidiary of Phillips 66 has elected not to exercise its right of first refusal in connection with such a sale. In exchange, Tallgrass Development and Sempra have agreed to amend the REX limited liability company agreement.

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Tallgrass Development has offered to assign its rights and obligations under the purchase agreement to a subsidiary of Tallgrass Energy Partners LP. A conflicts committee of the board of directors of Tallgrass Energy Partners’ general partner, consisting solely of independent directors, has been formed and is evaluating the offer with assistance from external advisors.

RELATED: Tallgrass Development Acquiring Additional Interest in REX

No definitive transaction agreement has been executed yet, and the proposed transaction remains subject to review, negotiations and approval by the committee and board of directors. If consummated, it is currently expected that Tallgrass Energy Partners would assume the right to purchase the 25 percent interest in REX from Sempra on the terms set forth in Tallgrass Development’s purchase agreement for total consideration of approximately $440 million (subject to adjustment under the purchase agreement).

The agreement was announced April 28 when the company revealed recording earnings during the first quarter 2016. Tallgrass Energy Partners posted $83.7 million adjusted EBITDA, marking the 11th consecutive quarterly distribution increase since the company went public last May, according to Tallgrass Energy president and CEO David Dehaemers Jr.

“Tallgrass Energy produced an outstanding first quarter,” Dehaemers said. “Pony Express’s exceptional performance, as well as the acquisition of an additional Pony Express membership interest by Tallgrass Energy Partners contributed to significant distribution increases for our Tallgrass Energy Partners and [Tallgrass Energy GP] partners. We also believe the potential acquisition by Tallgrass Energy Partners of a 25 percent interest in REX, a significant natural gas asset, will further strengthen, diversify and grow Tallgrass Energy Partners.”

Tallgrass acquired an additional 31.3 percent interest in the Pony Express pipeline in January.

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