01—Abstract
Summary
Summary of the 10-K filed February 23, 2016. Cited figures are marked; the original filing is the authoritative source.
ONEOK, Inc.'s (OKE) 2015 10-K filing reflects a company navigating a challenging commodity price environment, with significant declines in crude oil, natural gas, and NGL prices experienced throughout the year and into early 2016.
To mitigate the impact of these lower prices, ONEOK's primary operating subsidiary, ONEOK Partners, has focused on increasing its fee-based business. The Natural Gas Gathering and Processing segment has restructured contracts to boost fee-based revenues, aiming for over 75%a fee-based earnings in 2016. Despite reduced drilling activity by producers, ONEOK Partners expects continued volume growth in key areas like the Williston Basin due to producers focusing on the most productive acreage and utilizing more efficient techniques.
However, the company acknowledges that prolonged low commodity prices could slow or reverse volume growth. ONEOK's strategy also includes disciplined capital allocation, with a focus on completing existing projects while suspending some capital expenditures to align with customer needs and market conditions. The company maintained its commitment to shareholders by increasing its dividend by 14%b in 2015.
Liquidity remains strong, supported by ONEOK Partners' credit facilities and operating cash flows. Investors should note the significant non-cash impairment charges recorded by ONEOK Partners in the Powder River Basin and the ongoing impact of ethane rejection on financial results through 2017.
02—Key points
Key Highlights
- Significant decline in commodity prices (WTI crude oil, natural gas, NGLs) in 2015 impacted revenues and producer activity.
- ONEOK Partners is increasing its fee-based business to mitigate commodity price volatility, aiming for approximately 85% fee-based earnings across its segments in 2016.
- Despite reduced drilling, ONEOK Partners expects volume growth in certain regions (e.g., Williston Basin) due to producer efficiency gains and infrastructure expansion capturing flared gas.
- ONEOK increased its quarterly dividend by 14% in 2015, demonstrating a commitment to shareholder returns.
- ONEOK Partners recorded $264.3 million in non-cash impairment charges primarily related to assets in the dry natural gas area of the Powder River Basin.
- Ethane rejection continues to impact NGL volumes and financial results, expected to persist through 2017, though ONEOK Partners is implementing strategies to mitigate this.
- Capital expenditures were reduced in 2015 compared to prior years to align with market conditions, with further reductions planned for 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, ONEOK Inc kept $0.03.
- Revenue$7.76B100.0%
- Cost of revenue−$5.64B72.7%
- Gross profit$2.12B27.3%
- Operating costs−$1.13B14.5%
- Operating income$996.2M12.8%
- Interest, other & tax−$751.2M9.7%
- Net income$245.0M3.2%
Where FY2015 revenue went
$7.76B- Cost of revenue: $5.64B, 73% of revenue
- Operating costs: $1.13B, 15% of revenue
- Net income: $245.0M, 3.2% of revenue
- Interest, other & tax: $751.2M, 9.7% of revenue
Kept 3.2% as net incomeNet income $245.0M · 3.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 23, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $7.76B$12.20B | −36.3% |
| Cost of Revenue | $5.64B$10.09B | −44.1% |
| Gross Profit | $2.12B$2.11B | +0.7% |
| Operating Income | $996.16M$1.14B | −12.9% |
| Interest Expense | $416.79M$356.16M | +17.0% |
| Net Income | $244.98M$314.11M | −22.0% |
| EPS (Basic) | $1.17$1.50 | −22.0% |
| EPS (Diluted) | $1.16$1.49 | −22.1% |
| Shares Outstanding (Basic) | 210.21M209.39M | +0.4% |
| Shares Outstanding (Diluted) | 210.54M210.43M | +0.1% |
05—Questions
Frequently Asked Questions
What is the main challenge facing ONEOK and ONEOK Partners as of the end of 2015?
The primary challenge is the significant decline in commodity prices for crude oil, natural gas, and NGLs, which began in late 2014 and persisted throughout 2015. This has reduced producer activity and created financial pressure on customers.
How is ONEOK Partners mitigating the impact of lower commodity prices?
ONEOK Partners is increasing its reliance on fee-based services across its segments, restructuring contracts to favor fees over commodity price participation, and hedging a significant portion of its expected volumes for 2016 and 2017 to reduce commodity price exposure.
What is the outlook for ONEOK's dividend?
ONEOK increased its quarterly dividend by approximately 14% in 2015. Management expects to continue growing its dividend while maintaining prudent financial strength, funded by distributions from ONEOK Partners.
Are there any significant non-cash charges impacting the financial results?
Yes, ONEOK Partners recorded $264.3 million in non-cash impairment charges in the fourth quarter of 2015, primarily related to long-lived assets and equity investments in the dry natural gas area of the Powder River Basin, due to reduced producer activity and declining volumes in that region.
06—Continue