10-QPeriod: Q3 FY2018

ONEOK INC /NEW/ Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 31, 2018For Securities:OKE

Summary

ONEOK Inc. (OKE) reported a strong third quarter and first nine months of 2018, demonstrating significant year-over-year growth in both revenue and net income. Total revenues increased by 17% for the quarter and 13% for the nine-month period, driven by a substantial rise in commodity sales, partially offset by a decrease in services revenue. Net income saw an impressive jump of 89% for the quarter and 63% for the nine-month period, reaching $313.9 million and $862.1 million, respectively. This performance was largely fueled by increased optimization and marketing earnings in the Natural Gas Liquids segment due to wider price differentials, alongside volume growth in the Williston Basin and STACK/SCOOP areas across the Natural Gas Gathering and Processing and Natural Gas Liquids segments. The company continues to execute on its robust growth project pipeline, with significant capital expenditures directed towards expanding its midstream infrastructure, particularly in NGL transportation and processing. This strategic investment is supported by a strong contract structure, predominantly fee-based, and positions ONEOK to capitalize on increasing production and demand for natural gas and natural gas liquids. The company also successfully managed its debt, issuing new notes and repaying existing obligations, while maintaining compliance with its credit agreement covenants. The balance sheet remains solid, with growth in property, plant, and equipment reflecting ongoing investments.

Financial Highlights

51 data points
Beta

Revenue

$3.39B

24.5% Gross Margin

Net Income

$313.92M

9.2% Net Margin

EPS (Diluted)

$0.75

Total Assets

$17.91B

Cash & Equivalents

$84.46M

Free Cash Flow

-$180.82M

Financial Statements
Beta
Revenue$3.39B
Cost of Revenue$2.56B
Gross Profit$833.13M
Operating Income$495.53M
Interest Expense$121.91M
Net Income$313.92M
EPS (Basic)$0.76
EPS (Diluted)$0.75
Shares Outstanding (Basic)412.12M
Shares Outstanding (Diluted)414.85M

Key Highlights

  • 1Strong revenue growth driven by commodity sales, with total revenues up 17% for the quarter and 13% for the nine-month period.
  • 2Significant increase in net income, up 89% for the quarter and 63% for the nine-month period, reflecting improved operational performance and higher commodity prices.
  • 3Robust expansion of capital growth projects, with $1.3 billion invested in the first nine months of 2018, primarily in Natural Gas Liquids and Gathering/Processing infrastructure.
  • 4Natural Gas Liquids segment performance boosted by wider location price differentials and increased optimization/marketing earnings.
  • 5Natural Gas Gathering and Processing segment saw volume growth in key basins like the Williston and STACK/SCOOP areas, driving higher earnings.
  • 6Successful debt management, including issuance of $1.25 billion in senior unsecured notes and repayment of existing debt.
  • 7Continued commitment to shareholder returns with a declared dividend of $0.855 per share, indicating confidence in ongoing operational performance and cash flow generation.

Frequently Asked Questions

ONEOK's revenue growth was primarily driven by a substantial increase in commodity sales, up 33% for the quarter and 28% for the nine-month period. This was further supported by higher optimization and marketing earnings in the Natural Gas Liquids segment due to wider location price differentials and increased volumes in the Natural Gas Gathering and Processing segment, particularly from the Williston Basin and STACK/SCOOP areas.

ONEOK is actively investing in growth projects, with capital expenditures totaling $1.3 billion for the first nine months of 2018. These investments are focused on expanding midstream infrastructure in NGL transportation, processing, and gathering, particularly in key producing basins. The company has announced approximately $6 billion in capital-growth projects supported by long-term contracts, minimum volume commitments, and acreage dedications.

ONEOK adopted ASC Topic 606 on 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'. While this has significantly reduced reported services revenue, the overall impact on net income and adjusted EBITDA has been immaterial, with results for reporting periods after January 1, 2018, presented under the new standard.

ONEOK successfully managed its debt and liquidity by issuing $1.25 billion in senior unsecured notes in July 2018 and repaying $425 million in senior notes in August 2018. The company also completed a $1.2 billion equity offering in January 2018. At September 30, 2018, ONEOK had $84.5 million in cash and cash equivalents and $2.4 billion in borrowing capacity under its credit agreement, while remaining in compliance with all covenants.