10-QPeriod: Q3 FY2015

ONEOK INC /NEW/ Quarterly Report for Q3 Ended Sep 30, 2015

Filed November 5, 2015For Securities:OKE

Summary

ONEOK Inc. reported its financial results for the third quarter and nine months ended September 30, 2015. The company experienced a significant year-over-year decline in revenues, largely due to lower commodity prices for crude oil, natural gas, and NGLs, which were down considerably compared to the same periods in 2014. Despite the revenue drop, net income attributable to ONEOK saw an increase of 27% for the nine-month period, driven by factors including a substantial reduction in equity in net loss from investments and favorable contract adjustments. The company's operations, particularly through its majority-owned subsidiary ONEOK Partners, are heavily influenced by the volatile energy commodity price environment. Management highlighted ongoing efforts to increase the fee-based component of contracts within the Natural Gas Gathering and Processing segment and to mitigate the impact of lower commodity prices through hedging. Significant capital growth projects were completed in 2014 and early 2015, with more projects in progress, aimed at expanding infrastructure and capturing increasing volumes, particularly in key basins like the Williston and Permian. The company also provided an update on its financial outlook, anticipating continued lower commodity prices through the remainder of 2015 but a modest recovery in 2016.

Financial Statements
Beta
Revenue$1.90B
Cost of Revenue$1.36B
Gross Profit$538.14M
Operating Expenses$252.48M
Operating Income$284.94M
Interest Expense$106.92M
Net Income$82.16M
EPS (Basic)$0.39
EPS (Diluted)$0.39
Shares Outstanding (Basic)210.30M
Shares Outstanding (Diluted)210.52M

Key Highlights

  • 1Total revenues decreased by 38% to $5.83 billion for the nine months ended September 30, 2015, compared to $9.35 billion in the prior year, primarily due to lower commodity sales.
  • 2Net income attributable to ONEOK remained relatively flat at $219.5 million for the nine months ended September 30, 2015, compared to $219.6 million in the prior year, despite lower revenues.
  • 3The company continues to invest in growth projects, with capital expenditures totaling $930.3 million for the nine months ended September 30, 2015, down from $1.2 billion in the prior year, reflecting project completions and timing.
  • 4ONEOK Partners, the master limited partnership subsidiary, saw its credit rating outlook revised to negative by Moody's and S&P due to the depressed commodity price environment.
  • 5The company is actively seeking to increase fee-based revenues and renegotiate contracts to mitigate the impact of commodity price volatility, with a focus on the Natural Gas Gathering and Processing segment.
  • 6Despite lower commodity prices and reduced drilling activity, the company anticipates continued growth from its infrastructure projects and expects improved financial results in Q4 2015 and into 2016.

Frequently Asked Questions

The primary driver for the significant decrease in revenue was the sharp decline in commodity prices for crude oil, NGLs, and natural gas experienced from the fourth quarter of 2014 through the first nine months of 2015, compared to the higher prices in the prior year.

ONEOK is managing the impact of lower commodity prices by increasing the fee-based component of its contracts, particularly in the Natural Gas Gathering and Processing segment, renegotiating existing contracts, and utilizing hedging strategies to mitigate near-term price volatility. Additionally, the company is aligning its operating costs and capital growth projects with customer needs, including suspending certain projects.

ONEOK Partners has completed several key growth projects in 2014 and early 2015, and has others in various stages of construction, aimed at expanding its gathering, processing, and transportation infrastructure, especially in key basins like the Williston and Permian. However, due to the commodity price environment, some capital expenditures for certain natural gas processing plants and related infrastructure have been suspended, with plans to resume them when market conditions improve.

While total revenues for the nine months ended September 30, 2015, decreased by 38% year-over-year due to lower commodity prices, net income attributable to ONEOK remained relatively flat. This resilience was partly due to a significant reduction in equity in net loss from investments and improvements in fee-based revenues and contract structures.