10-QPeriod: Q2 FY2023

ONEOK INC /NEW/ Quarterly Report for Q2 Ended Jun 30, 2023

Filed August 8, 2023For Securities:OKE

Summary

ONEOK Inc. reported solid financial results for the second quarter and first half of 2023, demonstrating resilience and strategic progress. Net income available to common shareholders significantly increased year-over-year, driven by a substantial gain from the Medford incident insurance settlement and improved operational performance across its segments. The company continues to execute on its growth strategy, notably with the significant announcement of its agreement to acquire Magellan Midstream Partners, L.P., which is expected to close in Q3 2023. This strategic move, financed through a combination of cash and stock, aims to expand ONEOK's midstream infrastructure and services. Despite facing some cost pressures and merger-related expenses, ONEOK maintained a strong financial position, with healthy cash flow generation and a commitment to returning value to shareholders through dividends. The company's diversified, primarily fee-based business model provides a stable foundation, and proactive hedging strategies help mitigate commodity price volatility. Investors should note the positive impact of the Magellan acquisition on future growth prospects, while also being aware of integration risks and the ongoing operational focus on core midstream activities.

Financial Highlights

48 data points
Beta

Revenue

$3.73B

33.5% Gross Margin

Net Income

$468.00M

12.5% Net Margin

EPS (Diluted)

$1.04

Total Assets

$24.04B

Cash & Equivalents

$106.00M

Free Cash Flow

$467.00M

Financial Statements
Beta
Revenue$3.73B
Cost of Revenue$2.48B
Gross Profit$1.25B
Operating Income$737.00M
Interest Expense$180.00M
Net Income$468.00M
EPS (Basic)$1.04
EPS (Diluted)$1.04
Shares Outstanding (Basic)448.30M
Shares Outstanding (Diluted)449.00M

Key Highlights

  • 1Net income available to common shareholders increased significantly to $468 million for Q2 2023 and $1.517 billion for the six months ended June 30, 2023, compared to $414 million and $805 million in the prior year periods, respectively. This was largely driven by a $779 million gain from the Medford incident insurance settlement.
  • 2Agreement to acquire Magellan Midstream Partners, L.P. for approximately $18 billion (cash and stock), expected to close in Q3 2023, significantly expanding ONEOK's midstream infrastructure and reach.
  • 3Segment Adjusted EBITDA showed robust performance, with the Natural Gas Gathering and Processing segment up 24% and Natural Gas Liquids segment up 3% for Q2 2023. Total Adjusted EBITDA for Q2 2023 was $971 million, an increase of 9.6% year-over-year.
  • 4The company redeemed $925 million of senior notes in the first half of 2023, demonstrating proactive debt management and strengthening its balance sheet.
  • 5Capital expenditures were $594 million for the first six months of 2023, reflecting ongoing investment in growth projects, including new NGL fractionators and pipeline expansions.
  • 6ONEOK declared a common stock dividend of $0.955 per share for Q3 2023, maintaining its commitment to returning capital to shareholders, with a 2% increase year-over-year on quarterly dividends.
  • 7Despite merger-related costs and some operational cost increases, the company's diversified, primarily fee-based business model provides a stable revenue stream and resilience against commodity price volatility.

Frequently Asked Questions

The primary driver for the substantial increase in net income available to common shareholders for the six months ended June 30, 2023, was a one-time insurance settlement gain of $779 million related to the Medford incident that occurred in July 2022. Excluding this significant item, operational improvements and other income also contributed positively.

ONEOK has announced an agreement to acquire Magellan Midstream Partners, L.P. in a cash-and-stock transaction valued at approximately $18 billion. This strategic acquisition is expected to significantly expand ONEOK's midstream footprint, particularly in refined products and crude oil transportation and storage, complementing its existing natural gas and NGL infrastructure. The transaction is financed through a combination of cash and stock, with ONEOK securing a $5.25 billion bridge loan facility and intending to issue senior unsecured notes to finance the cash portion of the consideration. The acquisition is anticipated to close in the third quarter of 2023, subject to shareholder and unitholder approvals.

ONEOK has actively managed its debt by redeeming $925 million in senior notes during the first half of 2023. The company ended the period with a strong liquidity position, reporting $106 million in cash and cash equivalents and no outstanding borrowings under its $2.5 billion revolving credit facility as of June 30, 2023. It remains in compliance with its financial covenants. The company also has access to an "at-the-market" equity program for additional liquidity if needed.

ONEOK's performance is evaluated across three main segments: Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines. Key performance indicators include volumes processed, throughput, fee rates, transportation capacity contracted, and segment Adjusted EBITDA. For the second quarter of 2023, the Natural Gas Gathering and Processing segment saw increased volumes and higher fee rates, while the Natural Gas Liquids segment benefited from higher NGL volumes, despite facing increased third-party fractionation costs related to the Medford incident. The Natural Gas Pipelines segment showed growth in transportation and storage services, with high contracted capacity.