10-QPeriod: Q3 FY2016

ONEOK INC /NEW/ Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 2, 2016For Securities:OKE

Summary

ONEOK Inc. reported a strong third quarter in 2016, with net income attributable to ONEOK increasing to $92.1 million, or $0.43 per diluted share, compared to $82.2 million, or $0.39 per diluted share, in the same period of 2015. For the nine months ended September 30, 2016, net income attributable to ONEOK was $261.5 million, or $1.23 per diluted share, up from $219.5 million, or $1.04 per diluted share, in the prior year period. The company saw revenue growth driven by increased commodity sales and services, reflecting higher volumes from completed capital projects and contract restructurings, particularly within the Natural Gas Gathering and Processing and Natural Gas Liquids segments. Operationally, the company highlighted significant growth in its Natural Gas Gathering and Processing segment, with Adjusted EBITDA increasing by 33% year-over-year for the quarter, driven by higher natural gas volumes and improved fee rates from contract restructurings. The Natural Gas Liquids segment also demonstrated robust performance, with Adjusted EBITDA up 9% for the quarter, benefiting from increased exchange volumes and ethane recovery. Capital expenditures were reduced significantly compared to the previous year, reflecting the completion of major growth projects and alignment with customer needs, which supports a positive outlook for fee-based earnings and cash flow generation.

Financial Highlights

48 data points
Beta

Revenue

$2.36B

25.7% Gross Margin

Net Income

$92.14M

3.9% Net Margin

EPS (Diluted)

$0.43

Total Assets

$15.98B

Cash & Equivalents

$237.41M

Free Cash Flow

$232.15M

Financial Statements
Beta
Revenue$2.36B
Cost of Revenue$1.75B
Gross Profit$606.31M
Operating Income$329.36M
Interest Expense$118.24M
Net Income$92.14M
EPS (Basic)$0.44
EPS (Diluted)$0.43
Shares Outstanding (Basic)211.31M
Shares Outstanding (Diluted)212.87M

Key Highlights

  • 1Net income attributable to ONEOK increased to $92.1 million in Q3 2016 ($0.43/share) from $82.2 million in Q3 2015 ($0.39/share).
  • 2Nine-month net income attributable to ONEOK rose to $261.5 million ($1.23/share) from $219.5 million ($1.04/share) in the comparable 2015 period.
  • 3Total revenues increased by 24% to $2.4 billion for the quarter and 7% to $6.3 billion for the nine months, driven by higher commodity sales and services.
  • 4Adjusted EBITDA saw a significant increase of 15% for the quarter ($465.3M vs. $405.9M) and 22% for the nine months ($1.36B vs. $1.11B), indicating strong operational performance.
  • 5Capital expenditures decreased substantially by 47% for the quarter ($158.3M vs. $300.9M) and 47% for the nine months ($491.5M vs. $930.3M), reflecting project completion and adjusted spending.
  • 6The company maintains a strong focus on fee-based earnings, with the Natural Gas Gathering and Processing segment seeing improved fee rates and volume growth, and the Natural Gas Liquids segment benefiting from increased ethane recovery and new connections.
  • 7ONEOK Partners' credit ratings remain investment-grade, with Moody's affirming ONEOK Partners' ratings and revising its outlook to stable, citing reduced commodity price risk and growth opportunities.

Frequently Asked Questions

ONEOK Inc. demonstrated improved financial performance in the third quarter of 2016. Net income attributable to ONEOK rose to $92.1 million, or $0.43 per diluted share, from $82.2 million, or $0.39 per diluted share, in the third quarter of 2015. This growth was supported by a 24% increase in total revenues to $2.4 billion, driven by higher commodity sales and services volumes. Adjusted EBITDA also saw a significant 15% increase, highlighting strong operational efficiency.

The company's segments showed positive performance, with a strategic shift towards fee-based revenue. The Natural Gas Gathering and Processing segment benefited from contract restructurings and increased natural gas volumes, leading to a 33% year-over-year increase in its Adjusted EBITDA for the quarter. The Natural Gas Liquids segment's Adjusted EBITDA grew by 9% due to increased exchange service volumes and ethane recovery. Capital expenditures were significantly reduced compared to the prior year, indicating successful completion of major growth projects and a focus on maximizing existing infrastructure for fee-based earnings.

ONEOK anticipates that the current low commodity price environment is likely to persist through 2016 and into 2017. While this could impact volumes and revenue growth, the company's strategy of increasing fee-based contracts in its Natural Gas Gathering and Processing and Natural Gas Liquids segments, along with hedging activities, is designed to mitigate this commodity price exposure. The company expects future ethane demand growth in 2017 from petrochemical and export markets to further support its NGL business.

ONEOK Inc. holds a 41.2% ownership interest in ONEOK Partners, a publicly traded master limited partnership. ONEOK consolidates ONEOK Partners' financial results because it is deemed the primary beneficiary of a variable interest entity. ONEOK's primary source of cash inflows comes from distributions received from ONEOK Partners. While ONEOK does not guarantee ONEOK Partners' debt, the performance of ONEOK Partners significantly impacts ONEOK's overall financial health and cash flows. ONEOK Partners continues to focus on growth projects and managing its capital structure, with investment-grade credit ratings providing access to capital markets.