TALLGRASS ENERGY GP 2016 ANNUAL REPORT

Transcription

1 TALLGRASS ENERGY GP 2016 ANNUAL REPORT

2 ABOUT TALLGRASS ENERGY GP, LP Tallgrass Energy GP, LP (NYSE: TEGP) is a limited partnership that has elected to be treated as a corporation for U.S. federal income tax purposes. TEGP owns a controlling membership interest in Tallgrass Equity, LLC through its role as the sole managing member. Tallgrass Equity, LLC owns, both directly and through its ownership of the general partner of TEP, all of TEP s incentive distribution rights, 100 percent of the general partner interest in TEP and 20,000,000 TEP Common Units. Letter to Tallgrass Energy GP, LP (TEGP) Owners AN MLP GP OPPORTUNITY Once again, I am privileged to write this second annual letter to my fellow TEGP owners. In May 2015, we took TEGP public, selling approximately 30 percent of the company through an initial public offering. That was about one year and eight months ago. Since then, we have had no additional primary offerings at TEGP and have no present plans for any. Through its ownership of Tallgrass Equity, TEGP indirectly owns and controls 20 million Tallgrass Energy Partners, LP (TEP) common LP units, a 1.14 percent general partner interest in TEP and the incentive distribution rights of TEP. For the fourth quarter of 2016, TEGP paid a dividend distribution of per Class A share, or 1.11 per Class A share on an annualized basis. This compares to the fourth quarter of 2015 when TEGP paid a dividend distribution of per Class A share, or on an annualized basis. In a one-year period, our annualized dividend distribution grew by an outstanding 60.4 percent. Since our IPO approximately 20 months ago, we have raised our quarterly dividend distributions by 209 percent from to per quarter. TEGP 2017 OUTLOOK We have stated that we believe we can grow TEP distributions at a compounded annual growth rate of about 20 percent for 2017 and We have also stated that TEGP could grow its cash dividend distributions to Class A shareholders at a factor of approximately two times the distribution growth rate of TEP s distributions. This ratio may be higher or somewhat lower depending on a few factors. Those factors include: the number of TEP common units outstanding; the level of debt at Tallgrass Equity that we may repay from time to time; and finally, our view of whether the equity market is appropriately pricing our securities. Clearly, in my opinion, the market has not priced TEGP appropriately given our best in class growth. THE GP/LP MLP MODELA PROPHETIC REPEAT OF A YEAR AGO Many have speculated over the last two years (and more so lately) as to the continued relevance and value of the GP/LP and IDR concepts. In my opinion, these financial incentives remain highly relevant and valuable. Why? Because they help all stakeholders realize their respective objectives. Our General Partner has a progressive incentive with a lot of skin in the game, and as a result, the LPs get a GP that s highly motivated to grow the business and increase distributions on a long-term sustainable basis. I believe a studied history of MLPs over the last 20+ years would clearly show that most long-term successful MLPs are ones whose management teams have significant equity interests in their partnerships and ones that have IDRs. This is exactly the case with TEP/TEGP. TEP has, in a little over three and a half years, raised its quarterly distribution from per quarter to per quartera 283 percent increase. TEP s General Partner has seen its first IDR payment of 63,000 in February 2014 increase to 28,358,000 in February That s quite an increase, but it s fair to both TEP LPs and TEGP as the GP. It s motivational, and at the same time, gives TEGP (the General Partner) both the progressive risk and reward to grow the Tallgrass business appropriately, particularly given how much skin in the game TEGP and its original owners, including management, continue to have. Regarding the recent spate of IDR collapses, eliminations and other economic sharing reset transactions, it seems to us that many of those situations called for that based upon the size, age, performance, creeping debt load or diminishing distribution coverage of those underlying MLPs. But because it may have been appropriate in those instances does not mean it is appropriate for Tallgrass. It s never been our practice to do things just because others in our space are doing them, and we re not going to start doing that now. Although the GP IDR cost could eventually hamper the MLP s ability to stay competitive, Tallgrass is not at that point yet and may never be. For the foreseeable future, we intend to produce outstanding returns to all our partnerslp and GP alike. TEP: OUR OPERATING PARTNERSHIP Because TEGP s financial performance is directly linked to TEP s, we ve included my annual unitholder letter to TEP partners below for you to read. But first, thank you for being our partners and please know that management s, EMG s and Kelso s continued ownership in approximately 63 percent of TEGP and Tallgrass Equity is aligned with your ownership in TEGP and TEP. We look forward to a great 2017 and a prosperous future well beyond. TEGP Distributions per Share % CAGR Q4 '15 Q2 '15 Q3 '15 Q2 '16 Q3 '16 Q4 '16 Q1 ' TEGP Class A shareholders received a prorated distribution from TEGP for the second quarter of 2015 in an amount of for the period from May 12/2015 June 30, For illustrative purposes, the chart to the left shows what the distribution would have been if TEGP had been public for the entire quarter.

3 Letter to TEP Unitholders CHAPTER 4/YEAR 4A TRADITIONAL MIDSTREAM MLP Once again, we turn the page on another year at Tallgrass. And what a year! 2016 was a year of extremes, the kind of year in the energy spaceand the MLP space in particularthat we seem to have every five to seven years. We saw extremes in energy commodity pricing, particularly to the downside, that eventually rippled through the entire energy spaceupstream, midstream and downstream. Even though 2016 was a rough year for much of the industry, Tallgrass never missed a beat and consistently executed our business strategy. We continued to increase distributions and deliver the kind of value our unitholders have come to expect from us. Before I dive into our 2016 performance, I d like to remind everyone who we are. Tallgrass Energy Partners, LP (TEP) is a traditional midstream operator providing long-term sustainable distribution growth to investors fueled by strong customer relationships, a significant geographic footprint, solid growth potential and a flexible capital structure. Again in 2016, I believe we lived up to that reputation. It occurs to me as I write this fourth annual letter to my fellow unitholders that my message may seem repetitive. There s a reason for that: many of our messages at Tallgrass are worth repeating. We have a track record for doing what we say we re going to do. I ll leave it to you to decide if you believe our actions of the past and our facts of the present will translate into our vision and performance of the future for Tallgrass. MORE ON 2016PERFORMANCE AND PRESENT VALUE In February 2016, TEP units hit a 52-week low closing price of 25.87largely due to us being painted with the same brush as our upstream counterparts. In January 2017, we pushed back up to about the per unit mark. On Feb. 12, 2016, TEP paid an annualized distribution of 2.56, which at the time meant that TEP yielded close to 10 percent. Even though our unit price has recovered significantly, I believe TEP remains undervalued. On Feb. 14, 2017, TEP paid an annualized distribution of 3.26 per unit (0.815 quarterly). At a current TEP price of ~49.00, that equates to a yield of nearly 7 percent. Let me lay out my case for why I believe TEP is still undervalued. 1. From February 2016 to February 2017, we raised our distribution by 27.3percent a top 5 annualized growth rate in the MLP space. 2. We have told the market we believe we will have 20 percent annualized distribution growth in At ~7 percent, TEP s current yield is above both the average and median yield of all MLPs. Our view is that on a comparative basis, TEP is significantly better than average (the mean) and deserving of a much lower yield than the middle value (the median). 4. For 2016 we covered our distribution by greater than 1.25x, generating almost 90 million in excess of cash distributed to our unitholders. Since going public in May 2013, we have generated more than 130 million of excess distribution coverage that we have used to repay debt and reinvest in our business. In 2017 we believe we will cover our distributions by ~1.40x, generating almost 175 million in excess of anticipated distributions, while still growing our distributions at a 20 percent annualized rate. 5. TEP has an investment grade balance sheet by almost any measure and maintains a best-in-class Debt to EBITDA ratio of approximately three times. 6. In 2016, as in prior years, we have done what we said we were going to do. We intend to keep on doing the same. 2016ANOTHER YEAR OF EXECUTIONA YEAR OF ~2.0+ BILLION IN ACQUISITIONS AND EXPANSIONS Pony ExpressOn Jan. 1, 2016, we bought our final interest in the Pony Express crude oil pipeline for million, bringing our total ownership to 98 percent. At the time, the SellerTDEVtook back million TEP common units valued at a share. In addition, TEP retained the right to repurchase (or call ) the shares back at a price of We are pleased to report that from that time, TEP was able to raise equity at an average price of and buy back all million unitsnetting TEP a retained difference of approximately 31 million, thus reducing the transaction price by that much as well as reducing the multiple paid down to an 8.7x multiple of cash flow. To our knowledge, this is the first time a call strategy has been used when issuing equity to a related party and further shows on a historical basis TEP s creativity and TDEV s continuing commitment to the ongoing success of TEP. Rockies Express Pipeline (REX)In May 2016, we purchased a 25 percent equity interest in REX from a subsidiary of Sempra U.S. Gas and Power for 436 million. The overall enterprise value of the transaction exceeded 1.0 billion. This was TEP s first acquisition of an interest in REX. Our private affiliate, TDEV, still owns 50 percent of REX and we expect sometime over the next two years to acquire TDEV s 50 percent interest in REX, continuing our growth at TEP. At REX, we constructed our Zone 3 Capacity Enhancement project. This project added an additional 0.8 Bcf/day of east-to-west capacity in Zone 3 by adding additional horsepower at three new compressor stations and enhancing two existing stations. This project was placed in full service in early January We and our partners at REX spent approximately 525 million on this project, which is fully contracted for 15 years. We also restructured REX s largest legacy contract (0.5 Bcf/d) with Encana. The contract was extended to 2024, giving Encana shortterm rate relief in exchange for a longer-term contract with REX. It was NPV positive at a nice discount rate and was a win/win for both REX and its customer. REX reached an agreement to settle its 303 million breach of contract claim against Ultra Resources, a legacy customer. REX will receive 150 million in cash during 2017 and a new seven-year contract for 0.2 Bcf/d commencing in 2019 for ~27 million per year. This settlement essentially keeps us whole on our original contract, takes capacity out of the marketplace and allows us to have a healthy, solvent customer for the long term at REX. TALLGRASS ENERGY GP, LP 1

4 With two contracts that extend beyond 2019, we now have nearly 40 percent (0.7 Bcf/d) of the west-end volumes contracted at average rates of 0.67 with a weighted average life of more than five years (post-2019). Combined with the fully contracted zone 3 volumes of 2.6 Bcf/d, we have now re-contracted greater than 85 percent of REX s original cashflow on a long-term basis. With more than two and one half years remaining before the rest of the west-end contracts expire, we are confident in our ability to secure additional transportation volumes on REX, whether they come from our current customers or potential new customers. TIGTAt TIGT, we successfully settled a rate case with agreement from our customers and approval from the FERC on all issues including modernizing our tariff, establishing new reservation rates, implementing fuel and power cost trackers, and simplifying our zoned rate structure from five zones to two, all resulting in a 13 million increase in annual revenues. Senior Notes OfferingOn Sept. 1, 2016, we closed our inaugural offering of 400 million of senior unsecured notes at one of the lowest historical initial yields (5.50 percent) in the high yield energy space. This offering added another arrow to our quiver and created additional available capacity on our revolving credit facility which ultimately gives us more flexibility for future dropdowns and potential M&A. We expect to be an investment grade debt issuer in the near future. 2017MUCH TO LOOK FORWARD TO Moving into 2017, we believe things are looking up with respect to the energy industry as a whole. From what we see and hear, our customers, shippers, drillers and end-users are more positive and looking optimistically toward the future. On Jan. 3, 2017, TEP purchased Tallgrass Terminalsinclusive of two organic development projectsand the operator of REX from TDEV for 140 million. These two businesses bring about 17 million of cash flow to the table for TEP. The following are a few of the things we have to look forward to in 2017 and beyond: Pony Express o We are working to add additional refineries to create additional demand pull on the system. o We are working on new joint tariffs to allow our shipper customers to ship competitively to the Gulf Coast should they choose to do so. o We expect to have more capacity utilized (up to 100k+/bpd) on top of our existing contracted capacity as drilling resumes and oil prices recover to healthier levels. o We remind everyone that we are the lowest-cost alternative to Cushing from the Bakken, the DJ/Niobrara and the Powder River basins. o We expect to add a lighter stream of condensate to our mix of products being shipped. REX o We believe our recent Zone 3 Capacity Enhancement project may allow for even more volumes to become available to our shippers due to its well-engineered design. Stay tuned. o Look for us to start modifying REX zones 1 and 2 to allow them to ship bi-directionally post-2019, along with zone 3 this will allow for many more revenue possibilities. o Although still more than two and one half years away, look for our re-contracting in zones 1 and 2 to take shape with a newly modified system. o Finally, if the market warrants itand we believe it doeslook for us to optimize looping opportunities on REX in zone 3over the next five years. The seven interconnects we have with others in zone 3 are well in excess of zone 3 s current capacity of 2.6 Bcf/day. TIGT and Trailblazer o We remind everyone that Trailblazer remains the least expensive route out of the Rockies; this is a clear competitive advantage. o We are seeing many natural gas electric generation plants being co-located on our systemstigt, Trailblazer and REXand we believe we will get our fair share of these demand-pull load plants in the future. In fact, our first large plant hook-up is underway. NGL and Water Businesses o NGL pricing was destroyed along with oil prices in late 2015 and Now that oil is recovering, we re optimistic that our processing business will be resilient as well. We are capable of more ethane recovery than anyone in the Powder River Basin with our cryogenic plant capabilities. o Organic growth in our water business will continue. We will continue to look for opportunities to acquire systems that complement our existing assets, and the strong relationships we have with our customers will allow us to organically grow into the foreseeable future. M&AEmphasis on Acquisitions o As of right now, we have over 500 million of dry powder available to us for acquisitions. We are conservatively levered at ~3.0x debt to EBITDA at year-end We have no current need to access the equity markets. As always, this could change for the right opportunity. o Our management team has a rich history of successfully completing deals that benefit Tallgrass. In fact, we have completed more than 6.5 billion of acquisitions and growth projects over the last four and one half years. As always, we will be prudent in the acquisitions we pursue, and I m confidentknowing my teamthat we will continue our success in this area too. WE HAVE ONLY JUST BEGUN At Tallgrass, we play long ball. We re steady in the face of shortterm movements in both the stock and commodities markets. We have our eye on the horizon, which means we re constantly looking to create long-term value for our unitholders. We maintain an unwavering focus on the things we can control, and we manage our business for longterm success. Going forward, Tallgrass has the right assets, the right contracts with the right counterparties, the right balance sheet and ample liquidity to move our company forward and to meet our objectives and your expectations. Once again, in 2016 Tallgrass Energy delivered. I hope that each owner of TEP will join me in sincerely thanking the Tallgrass employees for their continued outstanding effort. In addition to our employees, we again thank our supporters, our unitholders, our customers and our suppliers. All of you are our partners too. You all make our future possible, and you make our future bright. On this date in 2017, we at TEP renew our commitment to you, our partners, to putting forth an outstanding effort to steward our business; to grow that business; to expand our services; and most importantly, to translate all of that into outstanding and sustainable investment returns. Sincere regards, David G. Dehaemers, Jr. President and Chief Executive Officer 2

5 TALLGRASS ENERGY GP FORM 10-K

6 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2016 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number Tallgrass Energy GP, LP (Exact name of registrant as specified in its charter) Delaware (State or other Jurisdiction of Incorporation or Organization) (IRS Employer Identification Number) 4200 W. 115th Street, Suite 350 Leawood, Kansas (Address of Principal Executive Offices) (Zip Code) (913) (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class A Shares Representing Limited Partner Interests New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer (Check one): Non-accelerated filer Accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of voting and non-voting common equity held by non-affiliates on June 30, 2016, the last business day of the Registrant's most recently completed second fiscal quarter (based on the closing sale price of of the Registrant's Class A shares, as reported by the New York Stock Exchange on such date) was approximately 1,057.7 million. On February 15, 2017, the Registrant had 58,075,000 Class A shares and 99,154,440 Class B shares outstanding.

7 TALLGRASS ENERGY GP, LP TABLE OF CONTENTS PART I 1 Item 1. Business 2 Item 1A. Risk Factors 20 Item 1B. Unresolved Staff Comments 57 Item 2. Properties 57 Item 3. Legal Proceedings 57 Item 4. Mine Safety Disclosures 57 PART II 58 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME 87 CONSOLIDATED STATEMENTS OF EQUITY 88 CONSOLIDATED STATEMENTS OF CASH FLOWS 90 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 92 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures 134 Item 9A. Controls and Procedures 134 Item 9B. Other Information 134 Part III 135 Item 10. Directors, Executive Officers and Corporate Governance 135 Item 11. Executive Compensation 141 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 152 Item 13. Certain Relationships and Related Transactions, and Director Independence 156 Item 14. Principal Accounting Fees and Services 163 Part IV 164 Item 15. Exhibits, Financial Statement Schedules 164 Item 16. Form 10-K Summary 186 SIGNATURES 188

8 Glossary of Common Industry and Measurement Terms Bakken oil production area: Montana and North Dakota in the United States and Saskatchewan and Manitoba in Canada. Barrel (or bbl): forty-two U.S. gallons. Base Gas (or Cushion Gas): the volume of gas that is intended as permanent inventory in a storage reservoir to maintain adequate pressure and deliverability rates. BBtu: one billion British Thermal Units. Bcf: one billion cubic feet. British Thermal Units or Btus: the amount of heat energy needed to raise the temperature of one pound of water by one degree Fahrenheit. Commodity sensitive contracts or arrangements: contracts or other arrangements, including tariff provisions, that are directly tied to increases and decreases in the price of commodities such as crude oil, natural gas and NGLs. Examples are Keep Whole Processing Contracts and Percent of Proceeds Processing Contracts, as well as pipeline loss allowances on our pipelines. Condensate: an NGL with a low vapor pressure, mainly composed of propane, butane, pentane and heavier hydrocarbon fractions. Contract barrels: barrels of crude oil that our customers have contractually agreed to ship in exchange for firm service assurance of capacity and deliverability to delivery points. Delivery point: any point at which product in a pipeline is delivered to or for the account of a customer. Dry gas: a gas primarily composed of methane and ethane where heavy hydrocarbons and water either do not exist or have been removed through processing. Dth: a dekatherm, which is a unit of energy equal to 10 therms or one million British thermal units. End-user markets: the ultimate users and consumers of transported energy products. EPA: the United States Environmental Protection Agency. FERC: Federal Energy Regulatory Commission. Firm fee contracts: contracts or other arrangements, including tariff provisions, that generally obligate our customers to pay a fixed recurring charge to reserve an agreed upon amount of capacity and/or deliverability on our assets, regardless if the contracted capacity is actually used by the customer. Such contracts are also commonly known as "take-or-pay" contracts. Firm services: services pursuant to which customers receive firm assurances regarding the availability of capacity and/or deliverability of natural gas, crude oil or other hydrocarbons or water on our assets up to a contracted amount. Fractionation: the process by which NGLs are further separated into individual, typically more valuable components including ethane, propane, butane, isobutane and natural gasoline. GAAP: generally accepted accounting principles in the United States of America. GHGs: greenhouse gases. Header system: networks of medium-to-large-diameter high pressure pipelines that connect local gathering systems to large diameter high pressure long-haul transportation pipelines. Interruptible services: services pursuant to which customers receive limited, or no, assurances regarding the availability of capacity and deliverability in our assets. Keep Whole Processing Contracts: natural gas processing contracts in which we are required to replace the Btu content of the NGLs extracted from inlet wet gas processed with purchased dry natural gas. Line fill: the volume of oil, in barrels, in the pipeline from the origin to the destination. Liquefied natural gas or LNG: natural gas that has been cooled to minus 161 degrees Celsius for transportation, typically by ship. The cooling process reduces the volume of natural gas by 600 times.

9 Local distribution company or LDC: LDCs are involved in the delivery of natural gas to end users within a specific geographic area. Long-term: with respect to any contract, a contract with an initial duration greater than one year. MMBtu: one million British Thermal Units. Mcf: one thousand cubic feet. MDth: one thousand dekatherms. MMcf: one million cubic feet. Natural gas liquids or NGLs: those hydrocarbons in natural gas that are separated from the natural gas as liquids through the process of absorption, condensation, adsorption or other methods in natural gas processing or cycling plants. Generally, such liquids consist of propane and heavier hydrocarbons and are commonly referred to as lease condensate, natural gasoline and liquefied petroleum gases. Natural gas liquids include natural gas plant liquids (primarily ethane, propane, butane and isobutane) and lease condensate (primarily pentanes produced from natural gas at lease separators and field facilities). Natural Gas Processing: the separation of natural gas into pipeline-quality natural gas and a mixed NGL stream. Non-contract barrels (or walk-up barrels): barrels of crude oil that our customers ship based solely on availability of capacity and deliverability with no assurance of future capacity. No-notice service: those services pursuant to which customers receive the right to transport or store natural gas on assets outside of the daily nomination cycle without incurring penalties. NYMEX: New York Mercantile Exchange. Park and loan services: those services pursuant to which customers receive the right to store natural gas in (park), or borrow gas from (loan), our facilities. Percent of Proceeds Processing Contracts: natural gas processing contracts in which we process our customer's natural gas, sell the resulting NGLs and residue gas and divide the proceeds of those sales between us and the customer. Some percent of proceeds contracts may also require our customers to pay a monthly reservation fee for processing capacity. PHMSA: the United States Department of Transportation's Pipeline and Hazardous Materials Safety Administration. Play: a proven geological formation that contains commercial amounts of hydrocarbons. Produced water: all water removed from a well as a byproduct of the production of hydrocarbons and water removed from a well in connection with operations being conducted on the well, including naturally occurring water in the recovery formation, flow back water recovered during completion and fracturing operations and water entering the recovery formation through water flooding techniques. Receipt point: the point where a product is received by or into a gathering system, processing facility, or transportation pipeline. Reservoir: a porous and permeable underground formation containing an individual and separate natural accumulation of producible hydrocarbons (such as crude oil and/or natural gas) which is confined by impermeable rock or water barriers and is characterized by a single natural pressure system. Residue gas: the natural gas remaining after being processed or treated. Shale gas: natural gas produced from organic (black) shale formations. Tailgate: the point at which processed natural gas and NGLs leave a processing facility for transportation to end-user markets. TBtu: one trillion British Thermal Units. Tcf: one trillion cubic feet. Throughput: the volume of products, such as crude oil, natural gas or water, transported or passing through a pipeline, plant, terminal or other facility during a particular period.

10 Uncommitted shippers (or walk-up shippers): customers that have not signed long-term shipper contracts and have rights under the FERC tariff as to rates and capacity allocation that are different than long-term committed shippers. Volumetric fee contracts: contracts or other arrangements, including tariff provisions, that generally obligate a customer to pay fees based upon the extent to which such customer utilizes our assets for midstream energy services. Unlike firm fee contracts, under volumetric fee contracts our customers are not generally required to pay a charge to reserve an agreed upon amount of capacity and/or deliverability. Wellhead: the equipment at the surface of a well that is used to control the well's pressure; also, the point at which the hydrocarbons and water exit the ground. Working gas: the volume of gas in the storage reservoir that is in addition to the cushion or base gas. It may or may not be completely withdrawn during any particular withdrawal season. Conditions permitting, the total working capacity could be used more than once during any season. Working gas storage capacity: the maximum volume of natural gas that can be cost-effectively injected into a storage facility and extracted during the normal operation of the storage facility. Effective working gas storage capacity excludes base gas and non-cycling working gas. X/d: the applicable measurement metric per day. For example, MMcf/d means one million cubic feet per day.

11 PART I As used in this Annual Report, unless the context otherwise requires, "we," "us," "our," the "Partnership," "TEGP" and similar terms refer to Tallgrass Energy GP, LP, in its individual capacity or to Tallgrass Energy GP, LP and its consolidated subsidiaries collectively (including Tallgrass Equity, TEP and their respective subsidiaries), as the context requires. References to "Tallgrass Equity" refer to Tallgrass Equity, LLC. References to "TEP" refer to Tallgrass Energy Partners, LP. The term our "general partner" refers to TEGP Management, LLC. References to "Tallgrass Development" or "TD" refer to Tallgrass Development, LP. References to "Kelso" are to Kelso & Company and its affiliated investment funds and, as the context may require, other entities under its control, and references to "EMG" are to The Energy & Minerals Group, its affiliated investment funds and, as the context may require, other entities under its control. A reference to a "Note" herein refers to the accompanying Notes to Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data. In addition, please read "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" for information regarding certain risks inherent in our business. Cautionary Statement Regarding Forward-Looking Statements This Annual Report and the documents incorporated by reference herein contain forward-looking statements concerning our operations, economic performance and financial condition. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as "could," "will," "may," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential," or "continue," and similar expressions are used to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this Annual Report include our expectations of plans, strategies, objectives, growth and anticipated financial and operational performance, including guidance regarding our and Tallgrass Development's infrastructure programs, revenue projections, capital expenditures and tax position. Forward-looking statements can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, when considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Annual Report. Actual results may vary materially. You are cautioned not to place undue reliance on any forwardlooking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include: our ability to pay distributions to our Class A shareholders; our receipt of, and amount of, distributions from Tallgrass Equity; TEP's ability to complete and integrate acquisitions from Tallgrass Development or from third parties, including its acquisition of a 100% membership interest in Tallgrass NatGas Operator, LLC and Tallgrass Terminals, LLC that was completed in January 2017, and its acquisition of a 25% membership interest in Rockies Express Pipeline LLC from a unit of Sempra U.S. Gas and Power that was completed in May 2016; the demand for TEP's services, including crude oil transportation, storage and terminalling services, natural gas transportation, storage and processing services and water business services; large or multiple customer defaults, including defaults resulting from actual or potential insolvencies; our ability to successfully implement our business plan; changes in general economic conditions; competitive conditions in our industry; the effects of existing and future laws and governmental regulations; actions taken by third-party operators, processors and transporters; our ability to complete internal growth projects on time and on budget; the price and availability of debt and equity financing; the level of production of crude oil, natural gas and other hydrocarbons and the resultant market prices of crude oil, natural gas, natural gas liquids, and other hydrocarbons; 1

12 the availability and price of natural gas and crude oil, and fuels derived from both, to the consumer compared to the price of alternative and competing fuels; competition from the same and alternative energy sources; energy efficiency and technology trends; operating hazards and other risks incidental to transporting, storing and terminalling crude oil, transporting, storing and processing natural gas, and transporting, gathering and disposing of water produced in connection with hydrocarbon exploration and production activities; environmental liabilities or events that are not covered by an indemnity, insurance or existing reserves; natural disasters, weather-related delays, casualty losses and other matters beyond our control; interest rates; labor relations; changes in tax status; the effects of future litigation; and certain factors discussed elsewhere in this Annual Report. Forward-looking statements speak only as of the date on which they are made. While we may update these statements from time to time, we are not required to do so other than pursuant to the securities laws. Item 1. Business Overview TEGP is a limited partnership formed in 2015 that has elected to be treated as a corporation for U.S. federal income tax purposes. We were formed as part of a reorganization involving entities that were previously controlled by Tallgrass Equity to effect the initial public offering of our Class A shares of TEGP (the "TEGP IPO"), which was completed on May 12, Our sole cash-generating asset is an approximate 36.94% controlling membership interest in Tallgrass Equity. Tallgrass Equity's sole cash-generating assets consist of the direct and indirect partnership interests in TEP as described below: Tallgrass Equity owns 100% of the outstanding membership interests in Tallgrass MLP GP, LLC ("TEP GP"), which owns all of the general partner interest in TEP as well as all of the TEP incentive distribution rights ("IDRs"). The general partner interest in TEP is represented by 834,391 general partner units, representing an approximate 1.14% general partner interest in TEP at February 15, Tallgrass Equity owns 20,000,000 TEP common units, representing an approximately 27.41% limited partner interest in TEP at February 15, TEP is a publicly traded, growth-oriented limited partnership formed in 2013 to own, operate, acquire and develop midstream energy assets in North America. TEP's operations are located in and provide services to certain key United States hydrocarbon basins, including the Denver-Julesburg, Powder River, Wind River, Permian and Hugoton-Anadarko Basins and the Niobrara, Mississippi Lime, Eagle Ford, Bakken, Marcellus, and Utica shale formations. TEP intends to continue to leverage its relationship with Tallgrass Development and utilize the significant experience of its management team to execute its growth strategy of acquiring midstream assets from Tallgrass Development and third parties, increasing utilization of its existing assets and expanding its systems through construction of additional assets. For more information, see "Tallgrass Development" below. TEP's reportable business segments are: Crude Oil Transportation & Logisticsthe ownership and operation of a FERC-regulated crude oil pipeline system and crude oil storage and terminalling facilities; Natural Gas Transportation & Logisticsthe ownership and operation of FERC-regulated interstate natural gas pipelines and integrated natural gas storage facilities; and Processing & Logisticsthe ownership and operation of natural gas processing, treating and fractionation facilities, the provision of water business services primarily to the oil and gas exploration and production industry, and the transportation of NGLs. 2

13 Additional segment and financial information is contained in TEP's segment results included in Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations and the notes to our consolidated financial statements included in Item 8.Financial Statements and Supplementary Data of this Annual Report. TEP's Assets The following map shows TEP's primary assets, which consist of crude oil transportation, storage and terminalling assets, natural gas transportation, storage and processing assets and water business services assets, excluding TEP's West Texas water business services assets. Each of these assets are described in more detail below. Crude Oil Transportation & Logistics Segment Pony Express. TEP currently provides crude oil transportation to customers in Wyoming, Colorado, and the surrounding regions through its 98% membership interest in Tallgrass Pony Express Pipeline, LLC ("Pony Express"). Pony Express owns an approximately 764-mile crude oil pipeline commencing in Guernsey, Wyoming, and terminating in Cushing, Oklahoma, with delivery points at the Ponca City Refinery and in Cushing, Oklahoma, and a lateral in Northeast Colorado that commences in Weld County, Colorado, and interconnects with the pipeline just east of Sterling, Colorado (the "Pony Express System"). TEP believes the Pony Express System is positioned as a low-cost, competitive "base load" transportation system with access to Bakken Shale, DJ Basin and Powder River Basin production. The table below sets forth certain information regarding the Pony Express System as of December 31, 2016 and for the periods indicated: Approximate Design Capacity (bbls/d) (1) 320,000 (1) Approximate Contractible Capacity Under Contract (1)(2) Weighted Average Remaining Firm Contract Life (3) 100% 3 years Approximate Average Daily Throughput (bbls/d) Year Ended December 31, , ,256 Excludes additional capacity related to the Pony Express System's ability to inject drag reducing agent, which is an additive that increases pipeline flow efficiency. 3 (4)

14 (2) TEP is required to make no less than 10% of design capacity available for non-contract, or "walk-up", shippers. Approximately 100% of the remaining design capacity (or available contractible capacity) is committed under contract. (3) Based on the average annual reservation capacity for each such contract's remaining life. (4) Approximate average daily throughput for the three months ended December 31, 2015 was 288,362 bbls/d. Approximate average daily throughput for the year ended December 31, 2015 reflects the volumetric ramp-up during the year due to the construction and expansion efforts of the Pony Express lateral in Northeast Colorado and thirdparty pipelines with which Pony Express shares joint tariffs. Terminals. TEP provides crude oil storage and terminalling services through TEP's 100% membership interest in Tallgrass Terminals, LLC ("Terminals"), which TEP acquired from Tallgrass Development effective January 1, Terminals owns and operates several assets providing storage capacity and additional injection points for the Pony Express System, including the crude oil terminal near Sterling, Colorado with approximately 1.3 million bbls of storage capacity (the "Sterling Terminal") and the crude oil terminal in Weld County, Colorado with four truck unloading skids capable of receiving up to 16,000 bbls per day (the "Buckingham Terminal"). Terminals also owns a 20% interest in Deeprock Development, LLC ("Deeprock Development"), which owns a crude oil terminal in Cushing, Oklahoma with approximately 2.3 million bbls of storage capacity (the "Cushing Terminal"). In addition, Terminals owns projects currently under development to provide additional storage capacity and other potential service opportunities, including approximately 550 acres in Cushing, Oklahoma and approximately 250 acres in Guernsey, Wyoming. Natural Gas Transportation & Logistics Segment Rockies Express Pipeline. TEP owns a 25% membership interest in Rockies Express Pipeline, LLC ("Rockies Express") which owns the Rockies Express Pipeline, a FERC-regulated natural gas pipeline system with approximately 1,712 miles of transportation pipelines, including laterals, extending from Opal, Wyoming and Meeker, Colorado to Clarington, Ohio (the "Rockies Express Pipeline") and consists of three zones: Zone miles of mainline pipeline from the Meeker Hub in Northwest Colorado, across Southern Wyoming to the Cheyenne Hub in Weld County, Colorado capable of transporting 2.0 Bcf/d of natural gas from west-to-east; Zone miles of mainline pipeline from the Cheyenne Hub to an interconnect in Audrain County, Missouri capable of transporting 1.8 Bcf/d of natural gas from west-to-east; and Zone miles of mainline pipeline from Audrain County, Missouri to Clarington, Ohio, which is bi-directional and capable of transporting 1.8 Bcf/d of natural gas from west-to-east and 2.6 Bcf/d of natural gas from east-to-west. For the year ended December 31, 2016, approximately 98% of Rockies Express' revenues were generated under firm fee contracts. The following tables provide information regarding the Rockies Express Pipeline as of December 31, 2016 and for the years ended December 31, 2016, 2015, and 2014: 2016 Approximate average daily deliveries (Bcf/d) (1)... Total Firm Contracted Capacity (2) Approximate Capacity West-to-east... East-to-west Bcf/d 2.6 Bcf/d Year Ended December 31, (4) 1.5 Bcf/d 2.6 Bcf/d Approximate % of Capacity Subscribed under Firm Contracts 75% 100% Weighted Average Remaining Firm Contract Life (3) 4 years 16 years (1) Reflects average total daily deliveries for the Rockies Express Pipeline, regardless of flow direction or distance traveled. (2) Reflects total capacity reserved under long-term firm fee contracts as of December 31, West-to-east firm contracted capacity excludes the 0.2 Bcf/d to be contracted with Ultra as part of the settlement agreement discussed in "Recent Developments" in Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations. 4

15 (3) Weighted by contracted capacity as of December 31, Weighted average remaining firm contract life of west-toeast contracts excludes the 0.2 Bcf/d contract with Ultra beginning December 1, 2019 as discussed under "Recent Developments" in Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations. After giving effect to the Ultra contract agreement reached in January 2017, the weighted average life of the west-toeast contract lives would be approximately 5 years. (4) East-to-west capacity of 2.6 Bcf/d is inclusive of the Rockies Express Zone 3 Capacity Enhancement Project completed in January 2017 that added an incremental 0.8 Bcf/d of east-to-west capacity within Zone 3. TIGT System. TEP owns a 100% membership interest in Tallgrass Interstate Gas Transmission, LLC ("TIGT"), which owns the Tallgrass Interstate Gas Transmission system, a FERC-regulated natural gas transportation and storage system with approximately 4,655 miles of varying diameter transportation pipelines serving Wyoming, Colorado, Kansas, Missouri and Nebraska (the "TIGT System"). The TIGT System includes the Huntsman natural gas storage facility located in Cheyenne County, Nebraska. The TIGT System primarily provides transportation and storage services to on-system customers such as local distribution companies and industrial users, including ethanol plants, and irrigation and grain drying operations, which depend on the TIGT System's interconnections to their facilities to meet their demand for natural gas and a majority of whom pay FERC-approved recourse rates. For the year ended December 31, 2016, approximately 88% of the TIGT System's transportation revenue was generated from contracts with on-system customers. Trailblazer Pipeline. TEP owns a 100% membership interest in Trailblazer Pipeline Company LLC ("Trailblazer"), which owns the Trailblazer Pipeline system, a FERC-regulated natural gas pipeline system with approximately 454 miles of transportation pipelines, including laterals, that begins along the border of Wyoming and Colorado and extends to Beatrice, Nebraska (the "Trailblazer Pipeline"). During the year ended December 31, 2016, substantially all of Trailblazer Pipeline's operationally available long-haul capacity was contracted under firm transportation contracts. The following tables provide information regarding the TIGT System and Trailblazer Pipeline as of December 31, 2016 and for the years ended December 31, 2016, 2015, and 2014: 2016 Approximate average daily deliveries (Bcf/d) (1)... Approximate Number of Miles Transportation... 5,109 Storage... n/a Approximate Capacity 2.0 Bcf/d Bcf (3) Year Ended December 31, Total Firm Contracted Capacity (1) 1.6 Bcf/d 11 Bcf Approximate % of Capacity Weighted Subscribed Average under Firm Remaining Firm Contracts Contract Life (2) 79% 3 years 69% 5 years (1) Reflects total capacity reserved under long-term firm fee contracts, including backhaul service, as of December 31, (2) Weighted by contracted capacity as of December 31, (3) The FERC certificated working gas storage capacity. NatGas. Effective January 1, 2017, TEP acquired 100% of the issued and outstanding membership interests in Tallgrass NatGas Operator, LLC ("NatGas") from Tallgrass Development. NatGas is the operator of the Rockies Express Pipeline and receives a fee from Rockies Express as compensation for its services. 5

16 Processing & Logistics Segment Midstream Facilities. TEP owns a 100% membership interest in Tallgrass Midstream, LLC ("TMID"), which owns and operates natural gas processing plants in Casper and Douglas, Wyoming and a natural gas treating facility at West Frenchie Draw, Wyoming (collectively, the "Midstream Facilities"). The Casper and Douglas plants currently have combined processing capacity of approximately 190 MMcf/d. The Casper plant also has an NGL fractionator with a capacity of approximately 3,500 barrels per day. The natural gas processed and treated at these facilities primarily comes from the Wind River Basin and the Powder River Basin, both in central Wyoming. TMID also owns and operates an NGL pipeline with an approximate capacity of 19,500 barrels per day that transports NGLs from a processing plant in Northeast Colorado to an interconnect with Overland Pass Pipeline, and TMID owns an NGL pipeline which was placed into service on January 1, 2017 that originates at our Douglas facility and interconnects with ONEOK's Bakken NGL Pipeline. As of December 31, 2016, approximately 99% of TEP's reserved processing capacity was subject to firm or volumetric fee contracts, with the majority of fee revenue based on the volumes actually processed. The remaining 1% was subject to commodity sensitive contracts. Each of TEP's NGL pipelines are supported by 10-year leases for 100% of their respective pipeline capacity, with the lease for the NGL pipeline in Northeast Colorado having commenced in October 2015, and the lease for the NGL pipeline from our Douglas facility having commenced on January 1, The table below sets forth certain information regarding the Midstream Facilities as of December 31, 2016 and for the years ended December 31, 2016, 2015, and 2014: Approximate Plant Capacity (MMcf/d) (1) 190 Approximate Capacity Under Contract Approximate Average Inlet Volumes (MMcf/d) Year Ended December 31, Weighted Average Remaining Contract Life (2) 79% 2 years (1) The West Frenchie Draw natural gas treating facility treats natural gas before it flows into the Casper and Douglas plants and therefore does not result in additional inlet capacity. (2) Based on the average annual reservation capacity for each such contract's remaining life. 152 Water Solutions. TEP provides water business services through its 100% membership interest in BNN Water Solutions, LLC ("Water Solutions"). Water Solutions owns and operates a freshwater delivery and storage system and a produced water gathering and disposal system in Weld County, Colorado. Water Solutions is also the sole voting member and owns a 70% membership interest in BNN West Texas, LLC ("West Texas"), which owns a produced water gathering and disposal system in Reeves and Reagan County, Texas that is operated by Water Solutions. These systems are used to support third party exploration, development, and production of oil and natural gas. Water Solutions also sources treated wastewater from municipalities in Texas and recycles flowback water and other water produced in association with the production of oil and gas in Colorado. The table below sets forth certain information regarding the Water Solutions assets as of December 31, 2016 and for the years ended December 31, 2016, 2015, and 2014: Approximate Capacity Under Contract Freshwater... Gathering and Disposal... (1) 56% 63% Approximate Current Design Capacity (bbls/d) 30,863 45,000 Remaining Contract Life (1) 4 years 8 years Approximate Average Volumes (bbls/d) Year Ended December 31, ,201 14,579 16,433 11,307 7,951 Represents the combined daily disposal well injection capacity for the BNN Western, LLC ("Western") produced water gathering and disposal system acquired in December 2015 and the West Texas produced water gathering and disposal system which commenced operations by Water Solutions in March Major Customers For the year ended December 31, 2016, Continental Resources, Inc. ("Continental Resources") and Shell Trading (US) Company ("Shell") accounted for approximately 16% and 13% of our revenues on a consolidated basis, respectively. The loss of these customers could have a material adverse effect on our financial results. 6