10-QPeriod: Q2 FY2013

ONEOK INC /NEW/ Quarterly Report for Q2 Ended Jun 30, 2013

Filed July 31, 2013For Securities:OKE

Summary

ONEOK Inc. reported a significant decline in net income attributable to ONEOK for the six months ended June 30, 2013, compared to the same period in 2012. This decrease was primarily driven by substantial non-cash charges related to the wind-down of its Energy Services segment, which incurred a $113.8 million charge. Additionally, narrower NGL price differentials and the impact of ethane rejection in ONEOK Partners' natural gas liquids business negatively affected profitability. Despite these headwinds, the company announced a significant strategic move: the planned separation of its natural gas distribution business into a new, standalone publicly traded company, ONE Gas, Inc. This separation is expected to be tax-free to shareholders and aims to streamline operations. ONEOK Partners continues to invest heavily in growth projects, particularly in NGL infrastructure, with significant capital expenditures planned, signaling a focus on fee-based earnings. Investors should monitor the progress of the ONE Gas separation and the ongoing capital investments in ONEOK Partners, while remaining aware of the headwinds impacting the Energy Services segment and the associated financial charges.

Financial Highlights

51 data points
Beta

Revenue

$2.77B

14.9% Gross Margin

Net Income

$919K

0.0% Net Margin

EPS (Diluted)

$0.00

Total Assets

$15.84B

Cash & Equivalents

$29.89M

Free Cash Flow

-$242.49M

Financial Statements
Beta
Revenue$2.77B
Cost of Revenue$2.36B
Gross Profit$412.76M
Operating Expenses$184.65M
Operating Income$228.39M
Interest Expense$66.12M
Net Income$919K
Shares Outstanding (Basic)206.14M
Shares Outstanding (Diluted)208.87M

Key Highlights

  • 1Net income attributable to ONEOK decreased significantly by 38% to $113.4 million for the six months ended June 30, 2013, compared to $183.9 million in the prior year, impacted by substantial charges from the Energy Services segment wind-down.
  • 2The company announced plans to separate its Natural Gas Distribution segment into a new publicly traded entity, ONE Gas, Inc., expected to be a tax-free transaction for shareholders.
  • 3ONEOK Partners continues significant capital investment in growth projects, with $1,060.3 million in capital expenditures for the first six months of 2013, primarily in its natural gas gathering, processing, and NGL businesses.
  • 4The Energy Services segment incurred a significant non-cash charge of $113.8 million due to an accelerated wind-down process, with further charges expected.
  • 5Revenues increased by 16% to $6,890.7 million for the six months ended June 30, 2013, driven by higher volumes from ONEOK Partners' completed projects, though offset by narrower NGL price differentials and ethane rejection.
  • 6Operating income decreased by 28% to $402.0 million for the six months ended June 30, 2013, primarily due to Energy Services wind-down charges, narrower NGL price differentials, and ethane rejection impacts.
  • 7The company declared a quarterly dividend of $0.38 per share, indicating a commitment to shareholder returns despite the financial pressures.

Frequently Asked Questions

The primary reason for the significant decrease in net income attributable to ONEOK was a substantial non-cash charge of $113.8 million recorded in the second quarter of 2013 related to the accelerated wind-down of the Energy Services segment. This, combined with narrower NGL price differentials and the impact of ethane rejection in ONEOK Partners' business, led to lower overall profitability.

The separation of the Natural Gas Distribution segment into a standalone company, ONE Gas, Inc., is a strategic move to streamline operations and potentially unlock value. This transaction is expected to be tax-free to ONEOK shareholders. ONEOK, Inc. will continue to focus on its ONEOK Partners L.P. stake and its Energy Services segment (during its wind-down).

ONEOK Partners is continuing to invest heavily in growth projects, particularly in natural gas gathering, processing, and NGL infrastructure, with significant capital expenditures. While revenues increased due to higher volumes, net margin was impacted by narrower NGL price differentials and ethane rejection, although exchange-services margins and volume growth in the Williston Basin provided some offset. Equity earnings from investments decreased due to ethane rejection and lower transportation rates on Northern Border Pipeline.

Key risks and uncertainties include the ongoing wind-down of the Energy Services segment and associated charges, the impact of volatile commodity prices (natural gas and NGLs), potential impairments related to investments like Bighorn Gas Gathering, the regulatory environment, and ongoing litigation such as the Gas Index Pricing Litigation. The planned separation of the Natural Gas Distribution segment also introduces execution risk and potential impacts on credit ratings.