10-QPeriod: Q1 FY2017

ONEOK INC /NEW/ Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 3, 2017For Securities:OKE

Summary

ONEOK Inc.'s first quarter 2017 results show a solid performance with a notable increase in total revenues, primarily driven by a significant rise in commodity sales. Net income saw a healthy increase of 6% year-over-year, reaching $186.2 million. Adjusted EBITDA also demonstrated growth, up 4% to $459.6 million, indicating strong operational performance across its segments. The company continues to benefit from its predominantly fee-based business model, with approximately 90% of earnings expected to be fee-based in 2017. The most significant strategic development highlighted is the pending acquisition of ONEOK Partners, L.P., announced in January 2017 and expected to close in the latter half of the year. This all-stock transaction aims to simplify the corporate structure and is expected to be accounted for as an equity transaction, with no immediate gain or loss recognized. The company also highlighted continued producer activity in key basins like STACK and SCOOP, which is expected to drive future volume growth.

Financial Highlights

48 data points
Beta

Revenue

$2.75B

22.0% Gross Margin

Net Income

$87.36M

3.2% Net Margin

EPS (Diluted)

$0.41

Total Assets

$16.07B

Cash & Equivalents

$310.81M

Free Cash Flow

$156.35M

Financial Statements
Beta
Revenue$2.75B
Cost of Revenue$2.14B
Gross Profit$605.77M
Operating Income$317.14M
Interest Expense$116.46M
Net Income$87.36M
EPS (Basic)$0.41
EPS (Diluted)$0.41
Shares Outstanding (Basic)211.62M
Shares Outstanding (Diluted)213.60M

Key Highlights

  • 1Total revenues increased by 55% to $2.75 billion compared to the prior year's quarter, largely due to a 73% increase in commodity sales.
  • 2Net income grew by 6% to $186.2 million, and diluted earnings per share remained consistent at $0.41.
  • 3Adjusted EBITDA increased by 4% to $459.6 million, reflecting improved operational performance across segments.
  • 4The company announced a significant merger transaction to acquire all outstanding common units of ONEOK Partners, L.P., expected to close in Q2 or Q3 2017.
  • 5Capital expenditures decreased by 43% to $112.7 million, as major projects were placed in service in the prior year.
  • 6The company's predominantly fee-based business model continues to drive stability, with approximately 90% of earnings expected to be fee-based in 2017.
  • 7Significant growth in producer activity is anticipated in the STACK and SCOOP areas, supporting expected increases in natural gas and NGL volumes in the second half of 2017.

Frequently Asked Questions

The most significant strategic development is the announcement of the proposed acquisition of ONEOK Partners, L.P. (OKS) in an all-stock transaction. This deal, announced in January 2017 and expected to close in mid-2017, aims to simplify ONEOK's corporate structure. It is expected to be treated as an equity transaction, meaning it will not directly impact the consolidated statements of income with a gain or loss upon closing.

ONEOK reported a substantial 55% increase in total revenues to $2.75 billion, primarily driven by a significant surge in commodity sales. Net income also saw a healthy 6% increase, reaching $186.2 million, while Adjusted EBITDA grew by 4% to $459.6 million, indicating strong operational leverage and performance.

ONEOK anticipates increased natural gas and NGL volumes, particularly in the second half of 2017, driven by growing production activity in the STACK and SCOOP areas of the Mid-Continent region and the Williston Basin. The company expects continued demand for its midstream services to connect these growing production volumes with end-use markets.

ONEOK utilizes a combination of fee-based contracts and hedging strategies to manage commodity price risk. The company has been restructuring contracts to increase fee components and has hedged a significant portion of its commodity price exposure for 2017 and 2018 to mitigate the impact of price fluctuations.