10-QPeriod: Q3 FY2020

ONEOK INC /NEW/ Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 28, 2020For Securities:OKE

Summary

ONEOK Inc. reported its third-quarter 2020 financial results, which indicate a stabilization and slight recovery following the significant market disruptions experienced earlier in the year due to the COVID-19 pandemic. While total revenues saw a modest year-over-year decrease for the quarter, operating income improved, driven by efficient cost management and operational adjustments across its segments. Notably, the company recorded substantial non-cash impairment charges in the first half of the year impacting the nine-month results, primarily within its Natural Gas Gathering and Processing and Natural Gas Liquids segments. Despite the challenging market conditions that led to producer curtailments and price volatility, ONEOK's diversified and largely fee-based business model provided resilience. The company actively managed its financial position by issuing new debt and equity, while also repaying existing debt, demonstrating a proactive approach to liquidity. Management anticipates continued improvement in volumes for the remainder of 2020 and into 2021, supported by the recent completion of significant growth projects.

Financial Highlights

49 data points
Beta

Revenue

$2.17B

41.8% Gross Margin

Net Income

$312.32M

14.4% Net Margin

EPS (Diluted)

$0.70

Total Assets

$22.78B

Cash & Equivalents

$447.13M

Free Cash Flow

-$13.33M

Financial Statements
Beta
Revenue$2.17B
Cost of Revenue$1.27B
Gross Profit$908.59M
Operating Income$550.43M
Interest Expense$176.37M
Net Income$312.32M
EPS (Basic)$0.70
EPS (Diluted)$0.70
Shares Outstanding (Basic)445.10M
Shares Outstanding (Diluted)445.51M

Key Highlights

  • 1Total revenues for the third quarter decreased slightly to $2.17 billion from $2.26 billion in the prior year's quarter, reflecting ongoing market impacts.
  • 2Operating income saw a significant increase of 14.1% to $550.4 million for the third quarter, driven by effective cost management and operational efficiencies.
  • 3The company incurred substantial non-cash impairment charges totaling $641.8 million during the nine months ended September 30, 2020, impacting net income.
  • 4Net income for the third quarter remained relatively stable at $312.3 million, compared to $309.2 million in the prior year's quarter.
  • 5Despite challenges, Adjusted EBITDA increased by 15.1% to $747.0 million for the third quarter, indicating operational resilience and recovery.
  • 6ONEOK raised capital through significant debt and equity issuances, while also actively repaying debt, strengthening its liquidity position. The company had no outstanding borrowings under its $2.5 Billion Credit Agreement as of September 30, 2020.
  • 7Management expects continued volume improvement for the remainder of 2020 and into 2021, supported by recently completed growth projects and producer activity.

Frequently Asked Questions

The substantial non-cash impairment charges of $641.8 million recorded in the first nine months of 2020 were primarily driven by the significant decline in energy commodity prices and market capitalization experienced in the first quarter, largely due to the COVID-19 pandemic's impact on global demand and supply disruptions. These charges affected goodwill, long-lived asset groups, and equity investments across the Natural Gas Gathering and Processing and Natural Gas Liquids segments.

ONEOK took a proactive approach to manage its liquidity and debt. During the nine months ended September 30, 2020, the company completed significant debt offerings totaling $3.25 billion and an equity offering of $937 million. Concurrently, it repaid $1.25 billion on its term loan and $220 million in commercial paper, and also repurchased $202.3 million of its senior notes. As of September 30, 2020, the company had no outstanding borrowings under its $2.5 Billion Credit Agreement and maintained $447.1 million in cash and cash equivalents, demonstrating a strong liquidity position.

ONEOK anticipates continued volume improvement for the remainder of 2020 and into 2021. The company observed producers reversing curtailments and bringing production back to pre-COVID-19 levels in the third quarter of 2020, driven by improved commodity prices. Management expects this trend to continue, supported by recently completed growth projects that enhance capacity without significant additional capital investment.

While ONEOK's business model is predominantly fee-based (over 90% expected for 2020), it does have some direct commodity price exposure, particularly in its Natural Gas Gathering and Processing segment through 'POP with fee' contracts. This exposure can lead to changes in contractual fees based on production volumes, delivery pressures, or commodity prices. To mitigate this risk, ONEOK utilizes commodity derivative financial instruments and physical-forward contracts. The company has hedged a portion of its commodity price risk for its Natural Gas Gathering and Processing segment for the remainder of 2020 and into 2021.