NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of Business

Tallgrass Energy GP, LP ("TEGP" or the "Partnership") is a limited partnership that has elected to be treated as a corporation for U.S. federal income tax purposes. "We," "us," "our" and similar terms refer to TEGP together with its consolidated subsidiaries. TEGP's sole cash-generating asset as of March 31, 2018 is an approximate 31.43% controlling membership interest in Tallgrass Equity, LLC ("Tallgrass Equity"). Tallgrass Equity's cash-generating assets consist of the direct and indirect partnership interests in Tallgrass Energy Partners, LP ("TEP") and its membership interest in Rockies Express Pipeline LLC ("Rockies Express") as described below:

TEP is a publicly traded, growth-oriented limited partnership formed 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.

Our reportable business segments are:

Natural Gas Transportation. TEP provides natural gas transportation and storage services for customers in the Rocky Mountain, Midwest and Appalachian regions of the United States through: (1) its 49.99% membership interest in Rockies Express, which owns the Rockies Express Pipeline, a FERC-regulated natural gas pipeline system extending from Opal, Wyoming and Meeker, Colorado to Clarington, Ohio (the "Rockies Express Pipeline") and its 100% membership interest in Tallgrass NatGas Operator, LLC ("NatGas"), which operates the Rockies Express Pipeline, (2) the Tallgrass Interstate Gas Transmission system, a FERC-regulated natural gas transportation and storage system located in Colorado, Kansas, Missouri, Nebraska and Wyoming (the "TIGT System"), and (3) the Trailblazer Pipeline system, a FERC-regulated natural gas pipeline system extending from the Colorado and Wyoming border to Beatrice, Nebraska (the "Trailblazer Pipeline"). As discussed in  Note 4  –  Acquisitions and Dispositions , Tallgrass Equity acquired a  25.01%  membership interest in Rockies Express from TD as of February 7, 2018.

Crude Oil Transportation. TEP provides crude oil transportation to customers in Wyoming, Colorado, and the surrounding regions through Tallgrass Pony Express Pipeline, LLC ("Pony Express"), which owns a FERC-regulated crude oil pipeline commencing in Guernsey, Wyoming and terminating in Cushing, Oklahoma, and includes a lateral in Northeast Colorado commencing in Weld County, Colorado that interconnects with the pipeline just east of Sterling, Colorado (the "Pony Express System"). In the second quarter of 2018, Pony Express placed into service an extension of the system from a new origin near Platteville, Colorado to the Buckingham Terminal.

Gathering, Processing & Terminalling. TEP provides natural gas gathering and processing services for customers in Wyoming through: (1) a natural gas gathering system in the Powder River Basin (the "Douglas Gathering System"), (2) the Casper and Douglas natural gas processing facilities, and (3) the West Frenchie Draw natural gas treating facility. TEP also provides NGL transportation services in Northeast Colorado and Wyoming. TEP performs water business services, including freshwater transportation and produced water gathering and disposal, in Colorado, Texas, Wyoming, and North Dakota through BNN Water Solutions, LLC ("Water Solutions"), and crude oil storage and terminalling services through TEP's 100% membership interest in Tallgrass Terminals, LLC ("Terminals"), which owns and operates crude oil terminals in Colorado, Oklahoma, and Kansas . The Gathering, Processing & Terminalling segment also includes Stanchion Energy, LLC ("Stanchion"), which transacts in crude oil.

The term "Terminals Predecessor" refers to Terminals and the term "NatGas Predecessor" refers to NatGas prior to their acquisition by TEP on January 1, 2017. Terminals Predecessor and NatGas Predecessor are collectively referred to as the Predecessor Entities, as further discussed in  Note 2  –  Summary of Significant Accounting Policies . Financial results for all prior periods have been recast to reflect the operations of the Predecessor Entities. Predecessor Equity as presented in the condensed consolidated financial statements represents the capital account activity of Terminals Predecessor and NatGas Predecessor prior to January 1, 2017.

TEGP Merger Agreement

On March 26, 2018, we announced the execution of a definitive Agreement and Plan of Merger (the "Merger Agreement") pursuant to which we will acquire the approximately 47.6 million TEP common units held by the public in a share-for-unit merger transaction that is taxable to TEP unitholders for U.S. federal income tax purposes at a ratio of 2.0 Class A shares for each outstanding TEP common unit. As a result of the proposed transaction, TEP's incentive distribution rights will be cancelled, its common units will no longer be publicly traded, and 100% of its equity interests will be owned by Tallgrass Equity and its subsidiaries. Upon closing of the merger transaction, we will change our name to Tallgrass Energy, LP ("Tallgrass Energy") and will trade on the New York Stock Exchange under the ticker symbol "TGE." Tallgrass Energy will continue to be taxed as a corporation for U.S. federal income tax purposes.

The Merger Agreement has been unanimously approved by the board of directors of our general partner, the conflicts committee of the board of directors of TEP GP, and the board of directors of TEP GP. Subject to customary approvals and conditions, including the approval by holders of a majority of the outstanding TEP common units, the merger is expected to close by the end of the second quarter of 2018.

In connection with the proposed transaction, we filed with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 that included a preliminary proxy statement/prospectus for the TEP unitholders. The registration statement has not yet been declared effective. The description of the proposed transaction above is not a substitute for the proxy statement/prospectus or registration statement or for any other document that TEGP or TEP may file with the SEC and send to TEGP’s and/or TEP’s shareholders or unitholders in connection with the proposed transaction. Investors and security holders of TEGP and TEP are urged to read the proxy statement/prospectus and other documents filed with the SEC carefully and in their entirety when they become available because they will contain important information. Investors and security holders will be able to obtain free copies of the proxy statement/prospectus and other documents filed with the SEC by TEGP or TEP through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by TEGP and TEP will be available free of charge on TEGP’s and TEP’s website at www.tallgrassenergylp.com, in the "Investor Relations" tab near the top of the page.

2. Summary of Significant Accounting Policies

Basis of Presentation

These condensed consolidated financial statements and related notes for the three months ended March 31, 2018 and 2017 were prepared in accordance with the accounting principles contained in the Financial Accounting Standards Board's Accounting Standards Codification, the single source of accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP for annual periods. The condensed consolidated financial statements for the  three months ended March 31, 2018  and 2017 include all normal, recurring adjustments and disclosures that we believe are necessary for a fair statement of the results for the interim periods. In this report, the Financial Accounting Standards Board is referred to as the FASB and the FASB Accounting Standards Codification is referred to as the Codification or ASC. Certain prior period amounts have been reclassified to conform to the current presentation.

Our financial results for the  three months ended March 31, 2018  are not necessarily indicative of the results that may be expected for the full year ending  December 31, 2018 . The accompanying condensed consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017 ("2017 Form 10-K") filed with the SEC on February 13, 2018.

The condensed consolidated financial statements include the accounts of TEGP and its subsidiaries and controlled affiliates. Significant intra-entity items have been eliminated in the presentation. Net income or loss from consolidated subsidiaries that are not wholly-owned by TEGP is attributed to TEGP and noncontrolling interests in accordance with the respective ownership interests.

TEP closed the acquisition of Terminals and NatGas effective January 1, 2017. As the acquisitions of Terminals and NatGas are considered transactions between entities under common control, and a change in reporting entity, the financial information presented has been recast to include Terminals and NatGas for all periods presented.

A variable interest entity ("VIE") is a legal entity that possesses any of the following characteristics: an insufficient amount of equity at risk to finance its activities, equity owners who do not have the power to direct the significant activities of the entity (or have voting rights that are disproportionate to their ownership interest), or equity owners who do not have the obligation to absorb expected losses or the right to receive the expected residual returns of the entity. Companies are required to consolidate a VIE if they are its primary beneficiary, which is the enterprise that has a variable interest that could be significant to the VIE and the power to direct the activities that most significantly impact the entity's economic performance. We have presented separately in our condensed consolidated balance sheets, to the extent material, the liabilities of our consolidated VIEs for which creditors do not have recourse to our general credit. Our consolidated VIEs do not have material assets that can only be used to settle specific obligations of the consolidated VIEs. Tallgrass Equity is considered to be a VIE under the applicable authoritative guidance. Based on a qualitative analysis in accordance with the applicable authoritative guidance, we have determined that we are the primary beneficiary as we have the right to receive benefits of Tallgrass Equity that could potentially be significant to Tallgrass Equity. TEP is also considered to be a VIE under the applicable authoritative guidance. Based on a qualitative analysis, we have determined that TEP GP is the primary beneficiary of TEP and we continue to consolidate TEP accordingly.

Use of Estimates

Certain amounts included in or affecting these condensed consolidated financial statements and related disclosures must be estimated, requiring management to make certain assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues, and expenses during the reporting period, and the disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates these estimates on an ongoing basis, utilizing historical experience, consultation with experts and other methods it considers reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from these estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

Accounting Pronouncement Recently Adopted

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a comprehensive and converged set of principles-based revenue recognition guidelines which supersede the existing industry and transaction-specific standards. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, entities must apply a five-step process to (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 also mandates disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The disclosure requirements include qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.

Management has completed its evaluation and implemented the revised guidance using the modified retrospective method as of January 1, 2018. This approach allows us to apply the new standard to (i) all new contracts entered into after January 1, 2018 and (ii) all existing contracts for which all (or substantially all) of the revenue has not been recognized under legacy revenue guidance as of January 1, 2018 through a cumulative adjustment to members' equity. Consolidated revenues presented in the comparative consolidated financial statements for periods prior to January 1, 2018 will not be revised.

On January 1, 2018, we recorded a cumulative effect adjustment to equity of $44.1 million , increased the carrying amount of our investment in Rockies Express by $42.8 million , and recognized a receivable from Rockies Express of $1.3 million . These adjustments relate to the cumulative effect adjustment recorded by Rockies Express of $125.2 million upon adoption of ASC 606. The cumulative effect adjustment at Rockies Express arose as a result of the allocation of the transaction price to a series of individual performance obligations in certain long-term transportation contracts with tiered-pricing arrangements. The adjustment increases the carrying amount of our investment in Rockies Express to reflect increased equity in earnings and establishes a receivable for the increased management fee revenue that would have been earned by NatGas during the periods prior to implementation.

Through our review process, we also identified the following changes to our revenue recognition policies that did not result in a cumulative effect adjustment on January 1, 2018:

See  Note 12  –  Revenue from Contracts with Customers for revenue disclosures related to both the implementation and the additional requirements prescribed by the standard. These new disclosures include information regarding the significant judgments used in evaluating when and how revenue is (or will be) recognized and data related to contract assets and liabilities.

Accounting Pronouncements Not Yet Adopted

ASU No. 2016-02, "Leases (Topic 842)"

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 provides a comprehensive update to the lease accounting topic in the Codification intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in ASU 2016-02 include a revised definition of a lease as well as certain scope exceptions. The changes primarily impact lessee accounting, while lessor accounting is largely unchanged from previous GAAP.

Management is currently evaluating the impact of our pending adoption of ASC 842. The status of our implementation is as follows:

The amendments in ASU 2016-02 are effective for public entities for annual reporting periods beginning after December 15, 2018, and for interim periods within that reporting period. Early application is permitted. We are currently evaluating the impact of ASU 2016-02.

3. Variable Interest Entities

TEP is a VIE of which TEP GP, our consolidated subsidiary, is the primary beneficiary. We continue to consolidate TEP accordingly. We have not provided any additional financial support other than TEP GP's initial capital contribution to acquire the general partner interest in TEP and have no contractual commitments or obligations to provide additional financial support to TEP.

TEGP, as the managing member of Tallgrass Equity, has voting rights disproportionate to its ownership interest. As a result, we have determined that Tallgrass Equity is a VIE of which we are the primary beneficiary and we consolidate Tallgrass Equity accordingly. We have not provided any additional financial support to Tallgrass Equity other than our initial capital contribution to acquire a portion of our controlling interest in Tallgrass Equity and have no contractual commitments or obligations to provide additional financial support to Tallgrass Equity.

Other than TEGP's deferred tax asset of approximately $306.3 million and $313.0 million at March 31, 2018 and December 31, 2017 , respectively, the assets and liabilities included in our condensed consolidated balance sheets at March 31, 2018 and December 31, 2017 represent the consolidated assets and liabilities of Tallgrass Equity, including the assets and liabilities of TEP.

4. Acquisitions and Dispositions

Acquisition of an Additional 25.01% Membership Interest in Rockies Express and Additional TEP Common Units

In February 2018, TD merged into Tallgrass Development Holdings, a wholly-owned subsidiary of Tallgrass Equity, and as a result of the merger, Tallgrass Equity acquired a 25.01% membership interest in Rockies Express and an additional 5,619,218 TEP common units. As consideration for the acquisition, TEGP and Tallgrass Equity issued 27,554,785 unregistered TEGP Class B shares and Tallgrass Equity units, valued at approximately $644.8 million based on the closing price on February 6, 2018, to the limited partners of TD. Subsequent to the closing of the transaction, our aggregate membership interest in Rockies Express is 75% .

The transfer of the Rockies Express membership interest between TD and Tallgrass Equity is considered a transaction between entities under common control, but does not represent a change in reporting entity. As a result of the common control nature of the transaction, the acquisition resulted in the recognition of a noncash deemed contribution representing the excess carrying value of the 25.01% membership interest in Rockies Express acquired over the fair value of the consideration paid. For further discussion, see Note 11 - Partnership Equity and Distributions . As the aggregate 75% membership interest does not represent a controlling interest in Rockies Express, TEGP's investment in Rockies Express is recorded under the equity method of accounting and is reported as "Unconsolidated investments" on our condensed consolidated balance sheets. As a result of the common control nature of the transaction, the 25.01% membership interest in Rockies Express was transferred to Tallgrass Equity at TD's historical carrying amount, including the remaining unamortized basis difference driven by the difference between the fair value of the investment and the book value of the underlying assets and liabilities on November 13, 2012, the date of acquisition by TD. For additional information, see Note 8 - Investments in Unconsolidated Affiliates .

The acquisition of an additional 5,619,218 TEP common units is considered an acquisition of noncontrolling interest and resulted in the recognition of a noncash deemed distribution representing the excess purchase price over the $53.8 million carrying value of the 5,619,218 TEP units acquired as of February 7, 2018. For further discussion, see Note 11 - Partnership Equity and Distributions .

As of February 7, 2018, the negative basis difference in Rockies Express carried over from TD was approximately $376.5 million . The amount of the basis difference allocated to property, plant and equipment is accreted over  35 years , which equates to the 2.86% composite depreciation rate utilized by Rockies Express to depreciate the underlying property, plant and equipment. The amount allocated to long-term debt is amortized over the remaining life of the various debt facilities. At March 31, 2018 , the basis difference for the membership interests acquired by TEP in May 2016 and March 2017, and by Tallgrass Equity in February 2018 were allocated as follows:

TEP Sale of Tallgrass Crude Gathering

In February 2018, TEP entered into an agreement with an affiliate of Silver Creek Midstream, LLC ("Silver Creek") to sell its 100% membership interest in Tallgrass Crude Gathering, LLC ("TCG"), which owns a 50 -mile crude oil gathering system in the Powder River Basin, for approximately $50.0 million . The sale of TCG closed on February 23, 2018. During the three months ended March 31, 2018 , TEP recognized a gain of $9.4 million on the sale which is presented in the line item "Gain on disposal of assets" in the condensed consolidated statements of income.

Iron Horse Joint Venture

In February 2018, TEP entered into an agreement with Silver Creek to form Iron Horse Pipeline, LLC ("Iron Horse"), a new joint venture pipeline to transport crude oil from the Powder River Basin. During the three months ended March 31, 2018 , TEP contributed an initial $3.5 million and committed to funding its proportionate share of the remaining costs of construction in exchange for a 75% membership interest in Iron Horse. TEP's investment in Iron Horse is accounted for under the equity method of accounting and reported as "Unconsolidated investments" on the condensed consolidated balance sheets.

TEP Acquisition of Additional 2% Membership Interest in Pony Express

In February 2018, TEP acquired the remaining 2% membership interest in Pony Express, along with administrative assets consisting primarily of information technology assets, from TD for cash consideration of approximately $60 million , bringing its aggregate membership interest in Pony Express to 100% . The acquisition of the remaining 2% membership interest in Pony Express represents a transaction between entities under common control and an acquisition of noncontrolling interests. As a result, financial information for periods prior to the transaction has not been recast to reflect the additional  2%  membership interest. The transaction resulted in a deemed distribution of $16.2 million to TEP GP.

TEP Acquisition of BNN North Dakota

In January 2018, TEP acquired 100% of the membership interests in Buckhorn Energy Services, LLC and Buckhorn SWD Solutions, LLC, which were subsequently merged and renamed BNN North Dakota, LLC ("BNN North Dakota"), for approximately $95.0 million , net of cash acquired, subject to working capital adjustments. BNN North Dakota owns a produced water gathering and disposal system in the Bakken basin with approximately 133,000 acres under dedication. The transaction qualifies as an acquisition of a business and is accounted for as a business combination under ASC 805.

The following represents the fair value of assets acquired and liabilities assumed (in thousands):

At March 31, 2018 , the assets acquired and liabilities assumed in the acquisition were recorded at provisional amounts based on the preliminary purchase price allocation. TEP is in the process of identifying and measuring all assets acquired and liabilities assumed in the acquisition within the measurement period. Such provisional amounts will be adjusted if necessary to reflect any new information about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of these amounts. Actual revenue and net income attributable to TEGP from BNN North Dakota of $3.1 million and $0.2 million , respectively, was recognized in the accompanying condensed consolidated statements of income for the period from January 12, 2018 to March 31, 2018 .

Pro Forma Financial Information

Unaudited pro forma revenue and net income attributable to TEGP for the three months ended March 31, 2018 and 2017 is presented below as if the acquisition of BNN North Dakota had been completed on January 1, 2017.

The pro forma financial information is not necessarily indicative of what the actual results of operations or financial position of TEGP would have been if the transaction had in fact occurred on the date or for the period indicated, nor does it purport to project the results of operations or financial position of TEGP for any future periods or as of any date. The pro forma financial information does not give effect to any cost savings, operating synergies, or revenue enhancements expected to result from the transaction or the costs to achieve these cost savings, operating synergies, and revenue enhancements.

Acquisition of Deeprock North and Merger with Deeprock Development

In January 2018, Terminals acquired an approximate  38%  membership interest in Deeprock North, LLC ("Deeprock North") from Kinder Morgan Deeprock North Holdco LLC for cash consideration of  $19.5 million . Immediately following the acquisition, Deeprock North was merged into Deeprock Development, LLC ("Deeprock Development"), and the members of Deeprock North and Deeprock Development received adjusted membership interests in the combined entity. As a result, Terminals recognized additional noncontrolling interests in Deeprock Development of $31.8 million . The acquisition of Deeprock North by Deeprock Development has been accounted for as an asset acquisition, with substantially all of the fair value allocated to the long-lived assets acquired based on their relative fair values. After the acquisition and merger, Terminals owns an approximate 60% membership interest in the combined entity.

5. Related Party Transactions

As a result of our relationship with Tallgrass Energy Holdings, LLC ("Tallgrass Energy Holdings") and its affiliates, we have entered into a number of related party transactions. The following disclosure includes those related party transactions which are not otherwise disclosed in these notes to our condensed consolidated financial statements.

We have no employees. In connection with the closing of the TEP initial public offering on May 17, 2013, TEP and its general partner entered into an Omnibus Agreement with Tallgrass Energy Holdings and certain of its affiliates (the "TEP Omnibus Agreement"). The TEP Omnibus Agreement provides that, among other things, TEP will reimburse Tallgrass Energy Holdings and its affiliates for all expenses they incur and payments they make on TEP's behalf, including the costs of employee and director compensation and benefits as well as the cost of the provision of certain centralized corporate functions performed by Tallgrass Energy Holdings and its affiliates, including legal, accounting, cash management, insurance administration and claims processing, risk management, health, safety and environmental, information technology and human resources in each case to the extent reasonably allocable to TEP. In addition, in connection with the closing of our initial public offering on May 12, 2015 (the "TEGP IPO"), TEGP entered into an Omnibus Agreement (the "TEGP Omnibus Agreement") with TEGP Management, LLC, Tallgrass Equity and Tallgrass Energy Holdings.

Totals of transactions with affiliated companies, excluding transactions disclosed elsewhere in these notes, are as follows:

Details of balances with affiliates included in "Receivable from related parties" and "Accounts payable to related parties" in the condensed consolidated balance sheets are as follows:

Gas imbalances with affiliated shippers are as follows:

6. Inventory

The components of inventory at March 31, 2018 and December 31, 2017 consisted of the following:

7. Property, Plant and Equipment

A summary of net property, plant and equipment by classification is as follows:

8. Investments in Unconsolidated Affiliates

Our investment in Rockies Express is recorded under the equity method of accounting and is reported as "Unconsolidated investments" on our condensed consolidated balance sheets. During the three months ended March 31, 2018 , we recognized equity in earnings associated with our aggregate 75% membership interest in Rockies Express of $67.1 million , inclusive of the amortization of the negative basis difference, and received distributions from and made contributions to Rockies Express of $87.8 million and $3.2 million , respectively. As discussed in Note 4 - Acquisitions and Dispositions , Tallgrass Equity acquired an additional 25.01% membership interest in Rockies Express in February 2018.

Summarized financial information for Rockies Express is as follows:

9. Risk Management

We enter into derivative contracts with third parties for the purpose of hedging exposures that accompany our normal business activities. Our normal business activities directly and indirectly expose us to risks associated with changes in the market price of crude oil and natural gas, among other commodities. For example, the risks associated with changes in the market price of crude oil and natural gas include, among others (i) pre-existing or anticipated physical crude oil and natural gas sales, (ii) natural gas purchases and (iii) natural gas system use and storage. We have elected not to apply hedge accounting and changes in the fair value of all derivative contracts are recorded in earnings in the period in which the change occurs.

Fair Value of Derivative Contracts

The following table summarizes the fair values of our derivative contracts included in the condensed consolidated balance sheets:

Effect of Derivative Contracts in the Statements of Income

The following table summarizes the impact of derivative contracts not designated as hedging contracts for the three months ended March 31, 2018 and 2017 :

Call Option Derivative

As part of TEP's acquisition of an additional 31.3% membership interest in Pony Express effective January 1, 2016, TD granted TEP an 18 month call option at an exercise price of $42.50 per TEP common unit covering the 6,518,000 TEP common units issued to TD as a portion of the consideration. On February 1, 2017 , TEP exercised the remainder of the call option covering an additional 1,703,094 common units for a cash payment of $72.4 million . These common units were deemed canceled upon the exercise of the call option and as of the applicable exercise date were no longer issued and outstanding.

Credit Risk

We have counterparty credit risk as a result of our use of derivative contracts. Counterparties to our commodity derivatives consist of market participants and major financial institutions. This concentration of counterparties may impact our overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. The counterparty to our call option derivative was TD.

Our derivative contracts are entered into with counterparties through central trading organizations such as futures, options or stock exchanges or counterparties outside of central trading organizations. While we typically enter into derivative transactions with investment grade counterparties and actively monitor their credit ratings, it is nevertheless possible that from time to time losses will result from counterparty credit risk in the future. The maximum potential exposure to credit losses on our crude oil derivative contracts at March 31, 2018 was:

As of March 31, 2018 and December 31, 2017 , we had $0.8 million and $3.0 million , respectively, of cash in margin accounts and outstanding letters of credit in support of our commodity derivative contracts.

Fair Value

Derivative assets and liabilities are measured and reported at fair value. Derivative contracts can be exchange-traded or over-the-counter ("OTC"). OTC commodity derivatives are valued using models utilizing a variety of inputs including contractual terms and commodity and interest rate curves. The selection of a particular model and particular inputs to value an OTC derivative contract depends upon the contractual terms of the instrument as well as the availability of pricing information in the market. We use similar models to value similar instruments. For OTC derivative contracts that trade in liquid markets, such as generic forwards and swaps, model inputs can generally be verified and model selection does not involve significant management judgment. Such contracts are typically classified within Level 2 of the fair value hierarchy. The call option granted by TD was valued using a Black-Scholes option pricing model. Key inputs to the valuation model included the term of the option, risk free rate, the exercise price and current market price, expected volatility and expected distribution yield of the underlying units. The call option valuation was classified within Level 2 of the fair value hierarchy as the value was based on significant observable inputs.

The following table summarizes the fair value measurements of our derivative contracts as of March 31, 2018 and December 31, 2017 , based on the fair value hierarchy:

10. Long-term Debt

Long-term debt consisted of the following at March 31, 2018 and December 31, 2017 :