10-QPeriod: Q2 FY2010

ONEOK INC /NEW/ Quarterly Report for Q2 Ended May 26, 2010

Filed August 4, 2010For Securities:OKE

Summary

ONEOK Inc.'s second quarter 2010 results show a notable increase in revenues and net margin compared to the prior year's period, driven by strong performance across its segments, particularly ONEOK Partners and Distribution. Revenues grew significantly, reflecting higher commodity prices and increased volumes in natural gas liquids (NGLs) gathering, processing, and transportation. The company's strategic investments in growth projects, such as those in the Bakken Shale and Woodford Shale, are beginning to contribute to results, with planned expansions further bolstering future capacity. ONEOK Partners demonstrated robust operational improvements, with higher NGL volumes and increased natural gas transportation capacity being key drivers. The Distribution segment benefited from new Oklahoma rates that reduce volumetric sensitivity and improve revenue consistency. While the Energy Services segment saw a decrease in net margin due to lower transportation and storage differentials, the overall financial health of ONEOK appears positive, supported by growth initiatives and a strong liquidity position.

Financial Highlights

51 data points
Beta

Revenue

$2.74B

16.6% Gross Margin

Net Income

$41.72M

1.5% Net Margin

EPS (Diluted)

$0.20

Total Assets

$12.12B

Cash & Equivalents

$103.25M

Free Cash Flow

-$79.02M

Financial Statements
Beta
Revenue$2.74B
Cost of Revenue$2.35B
Gross Profit$455.56M
Operating Expenses$279.09M
Operating Income$178.71M
Interest Expense$75.36M
Net Income$41.72M
EPS (Basic)$0.20
EPS (Diluted)$0.20
Shares Outstanding (Basic)213K
Shares Outstanding (Diluted)216K

Key Highlights

  • 1ONEOK Inc. reported increased revenues and net margin for the three and six months ended June 30, 2010, compared to the prior year, driven by growth in its ONEOK Partners and Distribution segments.
  • 2The company is actively investing in significant growth projects, including new natural gas processing facilities and NGL pipelines in the Bakken Shale and Woodford Shale, with substantial capital expenditures planned.
  • 3ONEOK Partners experienced higher NGL volumes and increased contracted natural gas transportation capacity, contributing to segment growth, despite lower optimization margins.
  • 4The Distribution segment benefited from new rate structures in Oklahoma, leading to reduced volumetric sensitivity and more consistent revenue streams.
  • 5ONEOK Partners successfully established a commercial paper program and repaid significant portions of its credit facility debt, enhancing its liquidity.
  • 6The company declared a quarterly dividend of $0.46 per share, a 10% increase year-over-year, and ONEOK Partners declared a distribution of $1.12 per unit, a 4% increase year-over-year, indicating confidence in future performance.
  • 7ONEOK's financial markets legislation impact is being evaluated, with potential implications for hedging costs and compliance, while the company maintains investment-grade credit ratings.

Frequently Asked Questions

ONEOK's revenue and net income growth were primarily driven by increased net margin in its ONEOK Partners and Distribution segments. For ONEOK Partners, this was due to higher NGL volumes gathered, fractionated, and transported, as well as increased natural gas transportation capacity. The Distribution segment benefited from new rates in Oklahoma which lowered volumetric sensitivity.

ONEOK, primarily through ONEOK Partners, is investing in significant growth projects. These include constructing a new 100 MMcf/d natural gas processing facility in North Dakota (Garden Creek plant), expanding NGL gathering infrastructure in the Bakken Shale, investing in new well connections and infrastructure in the Woodford Shale, building a new NGL pipeline from the Bakken Shale, expanding fractionation capacity at Bushton, Kansas, and adding pump stations to the Sterling I pipeline.

ONEOK and ONEOK Partners rely on operating cash flow, bank credit facilities, and debt and equity issuances for liquidity. ONEOK Partners established a commercial paper program for up to $1.0 billion and used proceeds to repay borrowings under its credit agreement. Both entities maintain investment-grade credit ratings, which are crucial for accessing capital markets and managing borrowing costs. ONEOK's debt-to-capital ratio was well within its credit agreement limits.

ONEOK anticipates a slow economic recovery to continue through 2010. They expect an improving commodity price environment compared to 2009. The company is evaluating the potential impacts of the Dodd-Frank Act on financial markets and hedging costs. Environmental regulations, such as the EPA's 'Tailoring Rule' and RICE NESHAP, are being monitored for potential capital expenditure needs, though current impacts are expected to be minimal.