10-QPeriod: Q1 FY2016

ONEOK INC /NEW/ Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 4, 2016For Securities:OKE

Summary

ONEOK Inc. (OKE) reported its first quarter 2016 financial results, showcasing a significant increase in Net Income attributable to ONEOK, rising from $60.8 million in Q1 2015 to $83.4 million in Q1 2016. This growth was driven by higher natural gas and NGL volumes, partly due to completed capital projects, and an increase in fee-based revenues stemming from contract restructurings in the Natural Gas Gathering and Processing segment. While total revenues saw a slight decrease of 2% to $1.77 billion, the company effectively managed costs, leading to a substantial 38% increase in Adjusted EBITDA to $441.6 million. Capital expenditures were significantly reduced by 43% to $196.4 million as projects neared completion. The company's deleveraging efforts are evident in its debt-to-EBITDA ratios, which remain within covenant limits. ONEOK Partners also extended its credit facilities, ensuring continued liquidity. Despite the challenging commodity price environment, ONEOK Inc. demonstrated resilience through strategic contract modifications and operational efficiencies, positioning itself for continued performance. Investors should note the ongoing shift towards a more fee-based revenue model, which enhances earnings stability.

Financial Highlights

48 data points
Beta

Revenue

$1.77B

32.6% Gross Margin

Net Income

$83.45M

4.7% Net Margin

EPS (Diluted)

$0.40

Total Assets

$15.50B

Cash & Equivalents

$137.22M

Free Cash Flow

$34.26M

Financial Statements
Beta
Revenue$1.77B
Cost of Revenue$1.20B
Gross Profit$578.72M
Operating Income$311.43M
Interest Expense$118.25M
Net Income$83.45M
EPS (Basic)$0.40
EPS (Diluted)$0.40
Shares Outstanding (Basic)210.78M
Shares Outstanding (Diluted)211.07M

Key Highlights

  • 1Net income attributable to ONEOK increased by 37.2% to $83.4 million in Q1 2016 from $60.8 million in Q1 2015.
  • 2Total revenues slightly decreased by 2% to $1.77 billion, primarily due to lower commodity sales.
  • 3Adjusted EBITDA saw a substantial increase of 37.8% to $441.6 million, driven by higher volumes and restructured contracts.
  • 4Capital expenditures decreased significantly by 42.7% to $196.4 million, reflecting project completions.
  • 5The Natural Gas Gathering and Processing segment experienced a 65% increase in Adjusted EBITDA due to contract restructurings and volume growth.
  • 6The Natural Gas Liquids segment's Adjusted EBITDA increased by 39.8%, driven by higher exchange service revenues and reduced ethane rejection.
  • 7ONEOK Partners extended its credit agreement terms to January 2020, ensuring continued access to liquidity with ample capacity.

Frequently Asked Questions

The primary driver of the increase in Net Income attributable to ONEOK was higher natural gas and NGL volumes, resulting from completed capital projects in the Natural Gas Gathering and Processing and Natural Gas Liquids segments. Additionally, restructured contracts in the Natural Gas Gathering and Processing segment led to higher fees and a greater proportion of fee-based revenue, contributing to improved earnings.

ONEOK has strategically reduced its commodity price exposure through contract restructurings, particularly in the Natural Gas Gathering and Processing segment, which increased the fee-based component of its revenues. The company also utilizes commodity derivative instruments and physical-forward contracts to hedge a significant portion of its commodity price risk for upcoming periods.

Capital expenditures decreased significantly in Q1 2016 compared to Q1 2015, by 42.7% to $196.4 million. This reduction is attributed to the completion of major projects and a strategic alignment of spending with customer needs. ONEOK Partners projects lower capital spending for the full year 2016 compared to 2014 and 2015.

ONEOK maintains a strong liquidity position, supported by cash on hand and its credit facilities. ONEOK Partners has extended its credit agreement terms to January 2020, ensuring continued access to significant borrowing capacity. The company's debt-to-EBITDA ratios remain within covenant limits, reflecting a focus on prudent debt management. ONEOK Partners is also actively managing its debt maturities and accessing capital markets as needed for growth projects and refinancing.