10-QPeriod: Q2 FY2017

ONEOK INC /NEW/ Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 2, 2017For Securities:OKE

Summary

ONEOK Inc. (OKE) reported its second quarter and first half 2017 financial results, highlighted by the significant completion of the acquisition of ONEOK Partners on June 30, 2017. This strategic move is expected to enhance cash flows and support a substantial dividend increase for common shareholders. While the company saw a slight dip in net income for the quarter, driven partly by merger-related costs and a non-cash contribution to a foundation, overall revenues and operating income showed resilience and growth across segments compared to the prior year. The company's predominantly fee-based business model, which now comprises approximately 90% fee-based earnings, continues to demonstrate strength. Growth in natural gas gathering and processing volumes in key basins like the Williston and Anadarko (STACK/SCOOP), coupled with higher fee rates from contract restructuring, contributed positively. Similarly, the Natural Gas Liquids segment benefited from increased volumes and expansion projects, while the Natural Gas Pipelines segment saw growth in transportation services driven by higher contracted capacity.

Financial Highlights

49 data points
Beta

Revenue

$2.73B

23.3% Gross Margin

Net Income

$71.69M

2.6% Net Margin

EPS (Diluted)

$0.33

Total Assets

$16.67B

Cash & Equivalents

$332.37M

Free Cash Flow

$291.31M

Financial Statements
Beta
Revenue$2.73B
Cost of Revenue$2.09B
Gross Profit$634.75M
Operating Income$319.45M
Interest Expense$118.47M
Net Income$71.69M
EPS (Basic)$0.34
EPS (Diluted)$0.33
Shares Outstanding (Basic)211.78M
Shares Outstanding (Diluted)214.01M

Key Highlights

  • 1Completion of the ONEOK Partners acquisition on June 30, 2017, a major strategic event impacting ownership structure and future cash flows.
  • 2Declaration of a dividend increase to $0.745 per share, a 21% increase, reflecting confidence in improved cash flows post-acquisition.
  • 3Overall revenues increased by 28% for the quarter and 40% for the six-month period, demonstrating top-line growth.
  • 4Operating income remained stable year-over-year for the quarter and saw a modest increase for the six-month period, despite merger-related costs.
  • 5Significant growth in Natural Gas Gathering and Processing segment's fee revenues due to contract restructuring and volume increases in key basins.
  • 6Natural Gas Liquids segment experienced growth driven by new plant connections and expansion projects, though optimization and marketing earnings were impacted by narrower price differentials.
  • 7Natural Gas Pipelines segment showed improved performance due to higher transportation services from increased firm demand charge contracted capacity and growth in equity earnings from investments.

Frequently Asked Questions

The acquisition of ONEOK Partners, completed on June 30, 2017, was accounted for as an equity transaction, meaning no gain or loss was recognized on the income statement. However, it significantly altered the ownership structure and is expected to enhance future cash flows available to ONEOK shareholders, supporting dividend growth. It also led to the termination of incentive distribution rights and the consolidation of ONEOK Partners' debt and operations under ONEOK Inc.

Total revenues increased significantly, up 28% for the quarter and 40% for the six-month period, driven by volume growth and higher fees. Net income saw a slight decrease of 2% for the quarter but increased by 2% for the six-month period, with the quarter's performance impacted by merger transaction costs and a non-cash contribution to a foundation.

ONEOK anticipates continued growth driven by increased production in key basins like the Williston and Anadarko (STACK/SCOOP) regions. The company is actively investing in growth projects, including expansions of natural gas processing facilities and NGL gathering systems, with substantial capital expenditures planned for 2017 and beyond. These projects are largely supported by long-term, fee-based contracts and minimum volume commitments.

ONEOK primarily operates on a fee-based model, which naturally reduces direct commodity price exposure. For the remaining exposure in its Natural Gas Gathering and Processing segment, the company utilizes a combination of restructured contracts that increase fees and a significant portion of its forecasted equity volumes are hedged using commodity derivative financial instruments and physical-forward contracts. The company also uses purchased put options to mitigate risk.