10-QPeriod: Q1 FY2007

ONEOK INC /NEW/ Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 2, 2007For Securities:OKE

Summary

ONEOK, Inc. (OKE) reported solid financial results for the first quarter of 2007, demonstrating a year-over-year increase in diluted earnings per share (EPS) from continuing operations to $1.36, up from $1.17 in the prior year. This growth was driven by a 21% increase in operating income to $328.3 million, fueled by strong performance across its Distribution, Energy Services, and ONEOK Partners segments. The company highlighted key growth drivers including new rate schedules in its Distribution segment (Kansas and Texas), improved storage and marketing margins in Energy Services, and favorable NGL price spreads within its ONEOK Partners segment. These positive operational trends, coupled with strategic capital projects and a healthy balance sheet, position ONEOK for continued operational strength. The company also continued its commitment to shareholder returns by increasing its quarterly dividend and seeing positive distributions from ONEOK Partners.

Key Highlights

  • 1Diluted EPS from continuing operations increased to $1.36, up from $1.17 in Q1 2006.
  • 2Operating income grew 21% to $328.3 million, driven by strong performance in Distribution, Energy Services, and ONEOK Partners segments.
  • 3The Distribution segment benefited from new rate schedules in Kansas and Texas and improved weather normalization.
  • 4Energy Services saw improved storage and marketing margins, partially offset by decreased transportation and financial trading margins.
  • 5ONEOK Partners experienced higher NGL-related margins due to favorable product price spreads and increased natural gasoline sales.
  • 6The company increased its quarterly dividend to $0.34 per share.
  • 7Significant capital project investments are underway, including the Overland Pass Pipeline and Arbuckle Pipeline, signaling future growth potential.

Frequently Asked Questions

ONEOK's revenue and income growth were primarily driven by improved performance across its key segments. The Distribution segment benefited from new rate schedules in Kansas and Texas and a return to more normal weather patterns. The Energy Services segment saw increased storage and marketing margins, while ONEOK Partners experienced higher NGL-related margins due to favorable product price spreads and increased natural gasoline sales. These factors collectively contributed to a 21% increase in operating income.

ONEOK Partners reported higher NGL-related margins, largely due to wider price spreads between key NGL markets (Mont Belvieu and Conway) and increased sales of natural gasoline. However, its gathering and processing business saw decreased income due to lower realized commodity prices on POP contracts and reduced volumes. Key growth initiatives include significant capital projects such as the Overland Pass Pipeline, Piceance Lateral Pipeline, Arbuckle Pipeline, and expansions in the Williston Basin and Guardian Pipeline, signaling substantial investment in future NGL and natural gas infrastructure.

ONEOK demonstrated a commitment to shareholder returns by increasing its quarterly dividend to $0.34 per share in the first quarter of 2007. Additionally, ONEOK Partners declared an increased cash distribution to its unitholders, signaling strong performance and confidence in future cash flows. The company's financial performance and strategic growth initiatives suggest a positive outlook for continued shareholder distributions.

Key risks highlighted include commodity price volatility impacting liquidity and trading activities, potential for regulatory changes affecting the Distribution segment, execution risks associated with large capital projects, and environmental liabilities. The company also faces competition and is subject to interest rate fluctuations. Its Energy Services segment is particularly sensitive to market conditions and requires careful risk management.