10-QPeriod: Q2 FY2014

ONEOK INC /NEW/ Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 6, 2014For Securities:OKE

Summary

ONEOK Inc. reported improved financial performance for the six months ended June 30, 2014, compared to the same period in 2013, primarily driven by strategic divestitures and growth in its core midstream infrastructure businesses. The company successfully completed the separation of its natural gas distribution business (ONE Gas) and the wind-down of its energy services business, significantly reshaping its operational focus. Following these divestitures, ONEOK's primary income source is its investment in ONEOK Partners, which operates three key segments: Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines. The company experienced revenue growth across its segments, with total revenues increasing by 18% year-over-year for the first six months. Net income attributable to ONEOK also saw a substantial increase of 37%. Capital expenditures remained significant, reflecting ongoing investments in growth projects within ONEOK Partners, although consolidated capital expenditures decreased year-over-year due to the timing of these projects and the completed separation of ONE Gas. ONEOK Inc. also maintained compliance with its debt covenants and demonstrated adequate liquidity.

Financial Statements
Beta
Revenue$3.07B
Cost of Revenue$2.57B
Gross Profit$495.48M
Operating Expenses$244.15M
Operating Income$251.31M
Interest Expense$88.75M
Net Income$61.59M
EPS (Basic)$0.29
EPS (Diluted)$0.29
Shares Outstanding (Basic)209.40M
Shares Outstanding (Diluted)210.52M

Key Highlights

  • 1Total revenues increased by 18% to $6.23 billion for the six months ended June 30, 2014, compared to $5.29 billion in the prior year period.
  • 2Net income attributable to ONEOK rose by 37% to $155.1 million for the six months ended June 30, 2014, compared to $113.4 million in the prior year period.
  • 3ONEOK completed the separation of its natural gas distribution business (ONE Gas) on January 31, 2014, and the wind-down of its energy services business on March 31, 2014, reclassifying these as discontinued operations.
  • 4The company's primary income source is now its 38.5% ownership interest in ONEOK Partners, which operates in Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines segments.
  • 5Consolidated capital expenditures decreased by 22% to $822.2 million for the six months ended June 30, 2014, reflecting project timing and the ONE Gas separation.
  • 6ONEOK Inc. maintained compliance with its debt covenants, with a ratio of indebtedness to Consolidated EBITDA of 1.7 to 1 at June 30, 2014.
  • 7ONEOK Partners' Natural Gas Gathering and Processing segment saw significant net margin growth of 32% for the six months ended June 30, 2014, driven by volume growth and new plant operations.

Frequently Asked Questions

The most significant strategic changes were the separation of ONEOK's natural gas distribution business into a standalone company called ONE Gas, completed on January 31, 2014, and the accelerated wind-down of its energy services business, completed on March 31, 2014. These actions allowed ONEOK to focus its resources and operations on its midstream infrastructure business, primarily through its investment in ONEOK Partners.

The divestitures of ONE Gas and the energy services business resulted in a significant increase in net income attributable to ONEOK for the six months ended June 30, 2014, to $155.1 million from $113.4 million in the prior year. While these businesses were classified as discontinued operations, the overall financial picture improved due to the strategic realignment and the growth in the remaining core midstream operations of ONEOK Partners.

Following the divestitures, ONEOK's primary focus is its investment in ONEOK Partners, a master limited partnership. ONEOK Partners operates three key segments: Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines. These segments are involved in gathering, processing, transporting, and fractionating natural gas and natural gas liquids.

ONEOK Partners showed strong performance, particularly in its Natural Gas Gathering and Processing segment, which saw a 32% increase in net margin for the first six months of 2014. The company is actively investing in growth projects across all its segments, with approximately $2.1 billion projected capital expenditures for ONEOK Partners in 2014, focused on expanding infrastructure to meet the growing production of natural gas and NGLs in key regions.