10-QPeriod: Q3 FY2008

ONEOK INC /NEW/ Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 6, 2008For Securities:OKE

Summary

ONEOK Inc. (OKE) reported a strong third quarter and first nine months of 2008, driven by robust performance in its ONEOK Partners segment. This segment benefited from wider NGL product price differentials, increased NGL gathering and fractionation volumes, and higher realized commodity prices, along with contributions from recently acquired assets. The company also saw positive impacts from new rate schedules in its regulated Distribution segment. Despite an increase in operating costs and depreciation and amortization, largely due to acquisitions and capital projects, the company's net margin and operating income significantly increased year-over-year. While the Energy Services segment experienced a decrease in net margin due to lower financial trading and retail margins, this was partially offset by gains in storage and marketing. The company also highlighted substantial investments in capital projects within the ONEOK Partners segment, aimed at expanding its NGL infrastructure.

Financial Highlights

31 data points
Beta

Revenue

$4.24B

10.7% Gross Margin

Net Income

$58.03M

1.4% Net Margin

EPS (Diluted)

$0.28

Cash & Equivalents

$72.94M

Free Cash Flow

-$1.73B

Financial Statements
Beta
Revenue$4.24B
Cost of Revenue$3.78B
Gross Profit$455.03M
Operating Expenses$264.16M
Operating Income$192.18M
Interest Expense$61.18M
Net Income$58.03M
EPS (Basic)$0.28
EPS (Diluted)$0.28
Shares Outstanding (Basic)208.89M
Shares Outstanding (Diluted)211.27M

Key Highlights

  • 1Net income for the three months ended September 30, 2008, was $58.0 million, a significant increase from $13.9 million in the prior year's period, translating to diluted EPS of $0.55 compared to $0.13.
  • 2For the nine months ended September 30, 2008, net income was $243.7 million, up from $201.9 million in the same period of 2007, with diluted EPS rising to $2.30 from $1.83.
  • 3Total revenues for the nine months increased to $13.3 billion from $9.5 billion in the prior year, driven by higher commodity prices and volumes across segments.
  • 4The ONEOK Partners segment was the primary driver of growth, with net margin increasing by $111.5 million and $238.0 million for the three and nine-month periods, respectively, due to wider NGL differentials and higher commodity prices.
  • 5Significant capital expenditures were made, totaling $1.03 billion for the nine months ended September 30, 2008, primarily for expansion projects in the ONEOK Partners segment, including the Overland Pass Pipeline and Arbuckle Pipeline.
  • 6The company declared a quarterly dividend of $0.40 per share, an 11% increase year-over-year, and ONEOK Partners increased its cash distribution to $1.08 per unit.
  • 7Liquidity remains strong, with significant credit facilities available, although the company noted increased borrowing under credit agreements in October 2008 due to tightening commercial paper market conditions.

Frequently Asked Questions

ONEOK's increased profitability was primarily driven by strong performance in its ONEOK Partners segment, which benefited from wider NGL product price differentials, increased NGL gathering and fractionation volumes, and higher realized commodity prices. The acquisition of assets from Kinder Morgan also contributed positively. Additionally, the regulated Distribution segment saw improved results due to new rate schedules.

ONEOK continued to invest heavily in capital projects, with total expenditures of $1.03 billion for the first nine months of 2008. Major projects in the ONEOK Partners segment, such as the Overland Pass Pipeline and Arbuckle Pipeline, are progressing, with some beginning partial operations or construction. These investments are aimed at expanding the company's NGL infrastructure.

ONEOK emphasized strong liquidity, supported by substantial credit facilities and operating cash flows. While acknowledging market volatility and tightening credit conditions in the commercial paper market, the company took steps to ensure access to capital by increasing borrowings under its credit agreements. Management believes its existing capital resources and financing capabilities are sufficient to meet operational and capital expenditure needs through 2009.

ONEOK employs a combination of derivative instruments (futures, swaps, options) for hedging purposes, particularly within its ONEOK Partners and Energy Services segments, to mitigate exposure to fluctuations in natural gas, NGL, and crude oil prices. The company also utilizes cash flow and fair value hedge accounting where applicable. The Value-at-Risk (VAR) for market risk was $12.5 million at September 30, 2008, reflecting its ongoing risk management efforts.