ONEOK announces full-year 2012 and fourth-quarter financial results

Tuesday, February 26, 2013
  • Fourth-quarter 2012 net income attributable to ONEOK was $111.5 million, or 53 cents per diluted share, compared with$115.0 million, or 55 cents per diluted share on a split-adjusted basis, for the same period in 2011.
  • ONEOK reduced its 2013 net income guidance range to $350 million to $400 million, compared with the previous guidance range of $405 million to $455 million announced on Sept. 24, 2012.
  • ONEOK's fourth-quarter 2012 operating income was $299.6 million, compared with $365.0 million in the same period in 2011.

ONEOK, Inc. (NYSE: OKE) announced 2012 net income attributable to ONEOK was $360.6 million, or $1.71 per diluted share, compared with $360.6 million, or $1.68 per diluted share on a split-adjusted basis, in 2011.

Fourth-quarter 2012 net income attributable to ONEOK was $111.5 million, or 53 cents per diluted share, compared with$115.0 million, or 55 cents per diluted share on a split-adjusted basis, for the same period in 2011.

"Our ONEOK Partners and natural gas distribution segments performed well in 2012," said John W. Gibson, ONEOK chairman and chief executive officer.

"During the year, our ONEOK Partners segment benefited from the completion of several growth projects that increased natural gas and natural gas liquids volumes, while experiencing less favorable natural gas liquids price differentials and lower natural gas and natural gas liquids prices than in 2011," added Gibson.

"Our natural gas distribution segment reported higher fourth-quarter and full-year results, benefiting from new rates inOklahoma, Kansas and Texas and lower operating expenses, while our energy services segment continues to face a challenging market environment," Gibson said.

2013 REVISED EARNINGS GUIDANCE AND THREE-YEAR GROWTH FORECASTS

ONEOK reduced its 2013 net income guidance range to $350 million to $400 million, compared with the previous guidance range of $405 million to $455 million announced on Sept. 24, 2012. The updated guidance reflects lower expected earnings in the ONEOK Partners (NYSE: OKS) segment.

Half of the reduction in 2013 operating income and equity earnings guidance is due to lower expected natural gas liquids (NGL) volumes as a result of widespread and prolonged ethane rejection. Narrower expected NGL location price differentials and lower expected NGL prices, particularly ethane and propane, also are expected to affect the partnership's 2013 earnings.

"We do not expect prolonged ethane rejection to continue into 2014, although there may be intermittent periods when ethane will be left in the natural gas stream," said Gibson.

ONEOK now expects net income guidance to increase by an average of 15 to 20 percent annually over a three-year period, comparing 2012 results with 2015. Previously, ONEOK estimated a three-year average annual growth rate of 20 to 25 percent, comparing 2012 guidance provided on Sept. 24, 2012, with 2015.

The revision to the three-year growth forecast is due primarily to lower than expected NGL exchange margins in the Rocky Mountain region and lower expected NGL and natural gas prices in the ONEOK Partners segment in 2014 and 2015.

The projected dividend increase for July 2013 has been revised to 2 cents per share, subject to ONEOK board approval, compared with its previous guidance announced on Sept. 24, 2012, of a 3-cent-per-share dividend increase. In January 2013, ONEOK increased its dividend by 3 cents per share to 36 cents per share, a 9 percent increase.

"If industry conditions improve, we will re-evaluate our 2013 earnings guidance and dividend increase," said Gibson. "Although our 2013 earnings guidance has decreased, we remain confident in our ability to increase dividends over the next three years," said Gibson.

ONEOK also revised its expectation to increase dividends by approximately 55 to 65 percent between 2012 and 2015, subject to ONEOK board approval, compared with its previous guidance of a 65 to 70 percent dividend increase. The company affirmed its long-term dividend target payout of 60 to 70 percent of recurring earnings.

The reduced 2013 earnings guidance and three-year growth forecast are not expected to affect current or projected timelines, or project costs in ONEOK Partners' announced $4.7 billion to $5.3 billion capital-growth program.

FOURTH-QUARTER AND FULL-YEAR 2012 FINANCIAL PERFORMANCE

ONEOK's fourth-quarter 2012 operating income was $299.6 million, compared with $365.0 million in the same period in 2011.

Fourth-quarter 2012 results were lower in the ONEOK Partners segment due to lower NGL optimization margins resulting from narrower NGL location price differentials, offset partially by higher NGL volumes gathered and fractionated in its natural gas liquids business. The natural gas gathering and processing business benefited from higher natural gas volumes gathered and processed, offset partially by higher compression costs and less favorable contract terms associated with volume growth in the Williston Basin and lower realized natural gas and NGL prices, particularly ethane and propane.

Fourth-quarter 2012 results for the energy services segment were lower due primarily to decreases in storage and marketing margins, net of hedging activities, and reduced premium-services margins.

2012 operating income was $1.10 billion, compared with $1.16 billion in 2011.

2012 results reflect higher natural gas volumes gathered and processed in the partnership's natural gas gathering and processing business and higher NGL volumes gathered and fractionated, offset by lower optimization margins in the partnership's natural gas liquids business; and higher compression costs and less favorable contract terms associated with volume growth in the Williston Basin and lower net realized natural gas and NGL prices in the natural gas gathering and processing business.

In 2012, the natural gas distribution segment benefited from new rates in all three states and lower operating costs.

2012 results from the energy services segment were significantly lower due to lower storage and marketing margins, net of hedging activities; lower transportation margins, net of hedging activities; lower premium-services margins; and a non-recurring goodwill impairment charge in the first quarter 2012.

Full-year 2012 results also included the February 2012 sale of the company's retail natural gas marketing business, which was accounted for in the natural gas distribution segment, to Constellation Energy Group, Inc. for $32.9 million, including working capital, and resulted in an after-tax gain of $13.5 million. Financial information for this business is reflected as discontinued operations.

Operating costs for the fourth quarter 2012 were $224.5 million, compared with $255.8 million in the same period last year. Operating costs for the full-year 2012 period were $909.0 million, compared with $908.3 million in 2011. The decrease for the fourth-quarter 2012 period was due primarily to lower share-based compensation and other employee-related costs.

Consolidated interest expense was $83.6 million in the fourth quarter 2012, compared with $68.3 million for the same period in 2011. Full-year 2012 interest expense was $302.3 million, compared with $297.0 million in 2011. These increases were driven primarily by ONEOK's January 2012 issuance of $700 million senior notes and ONEOK Partners' September 2012issuance of $1.3 billion senior notes, offset partially by higher capitalized interest and the repayment of ONEOK Partners' $350 million senior notes in April 2012.

2012 SUMMARY AND ADDITIONAL UPDATES:

  • 2012 operating income of $1.10 billion, compared with $1.16 billion in 2011;
  • ONEOK Partners segment operating income of $962.9 million, compared with $939.5 million in 2011;
  • Natural gas distribution segment operating income of $215.7 million, compared with $197.6 million in 2011;
  • Energy services segment operating loss of $77.9 million, compared with an operating income of $23.8 million in 2011;
  • In December 2012, the Kansas Corporation Commission approved an increase in Kansas Gas Service's rates by a net amount of $10.0 million annually, which became effective in January 2013;
  • ONEOK Partners announcing in November 2012 that it will not proceed with the Bakken Crude Express Pipeline due to insufficient long-term transportation commitments during its open season, which concluded Nov. 20, 2012;
  • Distributions declared on the company's general partner interest in ONEOK Partners of $226.5 million and distributions declared on the company's limited partner interest in ONEOK Partners of $249.6 million in 2012;
  • Completing in September 2012 a $150 million accelerated share repurchase agreement that was announced in June 2012; the company has $300 million remaining under its previously approved three-year, $750 million share repurchase program that expires at the end of 2013;
  • ONEOK, on a stand-alone basis, ending the fourth quarter with $817.2 million of commercial paper outstanding, $1.9 million in letters of credit, $46.5 million of cash and cash equivalents, and $380.9 million available under its $1.2 billioncredit facility;
  • ONEOK stand-alone cash flow from continuing operations, before changes in working capital, of $708.6 million for 2012, which exceeded capital expenditures and dividends of $567.6 million by $141.0 million;
  • ONEOK in January 2013 increasing its dividend by 9 percent from the previous quarter to 36 cents per share, or $1.44 per share on an annualized basis, payable on Feb. 14, 2013, to shareholders of record at the close of business Jan. 31, 2013; and
  • ONEOK and ONEOK Partners announcing in December 2012, a reorganization to further enhance its commercial and operating capabilities. Pierce H. Norton II now leads commercial activities; Robert F. Martinovich now leads operating activities; Derek S. Reiners was named chief financial officer and treasurer; and Sheppard F. Miers III was named chief accounting officer.

BUSINESS-UNIT RESULTS:

ONEOK Partners

The ONEOK Partners segment reported fourth-quarter 2012 operating income of $230.5 million, compared with $317.5 millionin the same period last year. Fourth-quarter 2012 results, compared with the same period in 2011, reflect:

  • A $38.4 million increase in the natural gas gathering and processing business due to volume growth in the Williston Basin from the completion of the Garden Creek and Stateline I natural gas processing plants and increased well connections, which resulted in higher natural gas volumes gathered, compressed, processed, transported and sold, and higher fees;
  • A $32.8 million increase in the natural gas liquids business from higher NGL volumes gathered and fractionated, and higher fees from contract renegotiations for its NGL exchange-services activities;
  • A $3.5 million increase in the natural gas liquids business due to higher NGL storage margins as a result of favorable contract renegotiations;
  • A $141.4 million decrease in the natural gas liquids business due primarily to narrower NGL location price differentials;
  • A $7.3 million decrease in the natural gas liquids business from lower isomerization margins resulting from lower isomerization volumes;
  • A $3.1 million decrease in the natural gas liquids business due to the impact of operational measurement losses;
  • A $10.6 million decrease in the natural gas gathering and processing business due primarily to higher compression costs and less favorable contract terms associated with volume growth in the Williston Basin;
  • A $5.1 million decrease in the natural gas gathering and processing business from lower realized natural gas and NGL prices, particularly ethane and propane; and
  • A $1.8 million decrease in the natural gas gathering and processing business from lower natural gas volumes gathered in the Powder River Basin as a result of continued production declines.

Additionally, a $5.7 million pre-tax gain on the sale of a natural gas pipeline lateral in ONEOK Partners' natural gas pipeline business was recorded in the fourth quarter 2012.

For the full-year 2012 period, the ONEOK Partners segment posted operating income of $962.9 million, compared with $939.5 million in 2011. Full-year 2012 results, compared with 2011, reflect:

  • A $131.5 million increase in the natural gas gathering and processing business due to volume growth in the Williston Basin from the completion of the Garden Creek and Stateline I natural gas processing plants and increased well connections, which resulted in higher natural gas volumes gathered, compressed, processed, transported and sold, and higher fees;
  • A $101.5 million increase in the natural gas liquids business from higher NGL volumes gathered and fractionated related to the completion of certain growth projects and higher fees from contract renegotiations for its NGL exchange-services activities;
  • A $13.1 million increase in the natural gas liquids business due to higher NGL storage margins as a result of favorable contract renegotiations;
  • A $91.2 million decrease in the natural gas liquids business from lower optimization and marketing margins due to a$94.6 million decrease from narrower NGL location price differentials and less transportation capacity available for optimization activities; an increasing portion of the partnership's transportation capacity between the Conway, Kan., andMont Belvieu, Texas, NGL market centers now is utilized by its exchange-services activities to produce fee-based earnings. This decrease was offset partially by a $3.5 million increase from its marketing activities, which benefited from higher NGL truck and rail volumes;
  • A $38.1 million decrease in the natural gas gathering and processing business due primarily to higher compression costs and less favorable contract terms associated with volume growth in the Williston Basin;
  • A $31.4 million decrease in the natural gas gathering and processing business from lower net realized natural gas and NGL prices, particularly ethane and propane; and
  • A $5.9 million decrease in the natural gas gathering and processing business from lower natural gas volumes gathered in the Powder River Basin as a result of continued production declines.

Fourth-quarter 2012 operating costs were $122.1 million, compared with $130.7 million in the same period in 2011. Full-year 2012 operating costs were $482.5 million, compared with $459.4 million in 2011. The increase for the full-year 2012 period was due primarily to ONEOK Partners' expanding operations from several growth projects placed in service.

Key Statistics:

  • Natural gas gathered was 1,201 billion British thermal units per day (BBtu/d) in the fourth quarter 2012, up 14 percent compared with the same period last year due to increased well connections in the Williston Basin and in westernOklahoma, and the completion of additional natural gas gathering lines and compression to support the partnership's Garden Creek and Stateline I natural gas processing plants in the Williston Basin; offset partially by continued production declines in the Powder River Basin in Wyoming; and up 5 percent compared with the third quarter 2012;
  • Natural gas processed was 964 BBtu/d in the fourth quarter 2012, up 27 percent compared with the same period last year due to increased well connections in the Williston Basin and western Oklahoma, and the completion of the partnership's Garden Creek and Stateline I natural gas processing plants in the Williston Basin; and up 6 percent compared with the third quarter 2012;
  • The realized composite NGL net sales price was $1.05 per gallon in the fourth quarter 2012, down 1 percent compared with the same period last year; and down 5 percent compared with the third quarter 2012;
  • The realized condensate net sales price was $90.21 per barrel in the fourth quarter 2012, up 6 percent compared with the same period last year; and up 4 percent compared with the third quarter 2012;
  • The realized residue natural gas net sales price was $4.27 per million British thermal units (MMBtu) in the fourth quarter 2012, down 16 percent compared with the same period last year; and up 16 percent compared with the third quarter 2012;
  • The realized gross processing spread was $7.51 per MMBtu in the fourth quarter 2012, down 4 percent compared with the same period last year; and down 8 percent compared with the third quarter 2012;
  • Natural gas transportation capacity contracted was 5,429 thousand dekatherms per day in the fourth quarter 2012, relatively unchanged compared with the same period last year; and up 3 percent compared with the third quarter 2012;
  • Natural gas transportation capacity subscribed was 90 percent in the fourth quarter 2012, unchanged compared with the same period last year; and up 3 percent from the third quarter 2012;
  • The average natural gas price in the Mid-Continent region was $3.29 per MMBtu in the fourth quarter 2012, up 3 percent compared with the same period last year; and up 20 percent compared with the third quarter 2012;
  • NGLs fractionated were 600,000 barrels per day (bpd) in the fourth quarter 2012, up 3 percent compared with the same period last year, due primarily to increased throughput from existing connections and new supply connections in the Mid-Continent and Rocky Mountain regions; and up 3 percent compared with the third quarter 2012;
  • NGLs transported on gathering lines were 531,000 bpd in the fourth quarter 2012, up 12 percent compared with the same period last year, due primarily to increased production through existing supply connections, and new supply connections in the Mid-Continent and Rocky Mountain regions; and relatively unchanged compared with the third quarter 2012;
  • NGLs transported on distribution lines were 507,000 bpd in the fourth quarter 2012, down 1 percent compared with the same period last year; and up 1 percent compared with the third quarter 2012; and
  • The average Conway-to-Mont Belvieu price differential of ethane in ethane/propane mix, based on Oil Price Information Service (OPIS) pricing, was 7 cents per gallon in the fourth quarter 2012, compared with 49 cents per gallon in the same period last year; and 16 cents per gallon in the third quarter 2012.

Total equity volumes in the partnership's natural gas gathering and processing business are increasing, and the composition of the equity NGL barrel continues to change as new natural gas processing plants in the Williston Basin are placed into service. The Garden Creek and Stateline I natural gas processing plants have the capability to recover ethane when economic conditions warrant but will not do so until the Bakken NGL Pipeline is completed, which is expected to occur in the first quarter 2013. As a result, its 2012 equity NGL volumes and realized composite NGL net sales price were weighted more toward the relatively higher priced propane, iso-butane, normal butane and natural gasoline, compared with the prior year. This had the effect of producing a higher realized price for the NGL composite barrel even though most individual NGL product prices were substantially lower in 2012 compared with 2011.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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