10-QPeriod: Q2 FY2018

ONEOK INC /NEW/ Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 1, 2018For Securities:OKE

Summary

ONEOK Inc. reported solid financial results for the second quarter and first half of 2018, demonstrating significant year-over-year growth. Total revenues increased by 9% in the quarter and 11% in the first half, driven by strong performance across its Natural Gas Gathering and Processing and Natural Gas Liquids segments. Operating income and Adjusted EBITDA saw substantial increases, reflecting higher volumes in key basins like the Williston and STACK/SCOOP areas, along with improved optimization and marketing earnings. The company also continued its strategic investment in growth projects, with capital expenditures significantly increasing to support the expansion of its midstream infrastructure. The company highlighted the impact of higher NGL price differentials and increased demand from petrochemical companies and exporters, which benefited its Natural Gas Liquids segment. ONEOK has successfully managed its debt and equity financing, completing a significant common stock offering in January 2018 and a substantial senior unsecured notes offering in July 2018. The company also reaffirmed its commitment to returning capital to shareholders through dividends, with an expectation that a significant portion of these dividends will be treated as a return of capital.

Financial Highlights

51 data points
Beta

Revenue

$2.96B

26.5% Gross Margin

Net Income

$282.18M

9.5% Net Margin

EPS (Diluted)

$0.68

Total Assets

$16.91B

Cash & Equivalents

$15.29M

Free Cash Flow

$156.76M

Financial Statements
Beta
Revenue$2.96B
Cost of Revenue$2.18B
Gross Profit$784.71M
Operating Income$448.37M
Interest Expense$113.50M
Net Income$282.18M
EPS (Basic)$0.68
EPS (Diluted)$0.68
Shares Outstanding (Basic)411.95M
Shares Outstanding (Diluted)414.64M

Key Highlights

  • 1Total revenues increased by 9% for the quarter and 11% for the six-month period compared to the prior year, driven by strong performance in the Natural Gas Gathering and Processing and Natural Gas Liquids segments.
  • 2Operating income saw a significant increase of 40% for the quarter and 36% for the six-month period, demonstrating improved operational efficiency and market conditions.
  • 3Adjusted EBITDA grew by 30% for the quarter and 27% for the six-month period, reflecting robust operational performance and higher earnings from optimization and marketing activities.
  • 4Capital expenditures increased substantially by 268% for the quarter and 420% for the six-month period, primarily due to ongoing investments in growth projects across its operational segments.
  • 5The Natural Gas Liquids segment experienced strong growth, with Adjusted EBITDA increasing by 29% for the quarter and 26% for the six-month period, driven by wider NGL price differentials and increased volumes.
  • 6ONEOK completed a $1.25 billion senior unsecured notes offering in July 2018 and a $1.2 billion common stock offering in January 2018, strengthening its financial position and funding growth initiatives.
  • 7The company continues to focus on returning capital to shareholders, declaring a quarterly dividend of $0.825 per share and expecting 85-95% of 2018 dividends to be a return of capital.

Frequently Asked Questions

ONEOK's revenue and operating income saw substantial year-over-year growth primarily due to increased volumes in its Natural Gas Gathering and Processing and Natural Gas Liquids segments, driven by producer activity in key basins like the Williston and STACK/SCOOP areas. Higher optimization and marketing earnings, resulting from wider NGL price differentials, and a reduction in merger transaction costs compared to the prior year also contributed positively.

ONEOK is financing its substantial capital-growth projects through a combination of operating cash flows, proceeds from debt issuances, and equity offerings. The company completed a significant common stock offering in January 2018 and a $1.25 billion senior unsecured notes offering in July 2018, indicating a well-managed approach to funding its strategic expansion initiatives.

ONEOK observed wider NGL price differentials in recent quarters, driven by increased NGL supply from producing regions and growing demand from petrochemical expansions and exports. The company expects these differentials to fluctuate but anticipates continued growth in NGL demand, particularly for ethane, from petrochemical companies and international markets. Its infrastructure expansion projects are aimed at alleviating system constraints and capitalizing on these market trends.

ONEOK adopted ASC Topic 606, 'Revenue from Contracts with Customers,' effective January 1, 2018. The primary impact has been a reclassification of certain contractual fees from 'Services revenue' to a reduction in 'Cost of sales and fuel.' This change, while impacting line item presentation, had an immaterial effect on net income and Adjusted EBITDA. The company continues to assess its contracts to ensure compliance with the new revenue recognition standards.