10-QPeriod: Q3 FY2023

ONEOK INC /NEW/ Quarterly Report for Q3 Ended Sep 30, 2023

Filed November 1, 2023For Securities:OKE

Summary

ONEOK, Inc. (OKE) reported its third-quarter and nine-month results for 2023, marked by the significant completion of the Magellan Midstream Partners acquisition on September 25, 2023. This transformative deal, valued at $14.1 billion, diversifies ONEOK's asset base into refined products and crude oil, creating a new reportable segment. While the integration of Magellan presents opportunities for synergies, it also introduced substantial transaction costs and integration complexities. Financially, for the nine months ended September 30, 2023, net income available to common shareholders reached $1,970 million, a substantial increase from $1,236 million in the prior year. This growth was influenced by a $779 million gain recognized from the settlement of claims related to the 2022 Medford incident. Despite increased interest expenses due to higher debt levels, the company maintained a strong operational performance across its core segments, with a significant portion of earnings (over 85%) expected to be fee-based in 2023, mitigating direct commodity price volatility.

Financial Highlights

51 data points
Beta

Revenue

$4.19B

33.2% Gross Margin

Net Income

$454.00M

10.8% Net Margin

EPS (Diluted)

$0.99

Total Assets

$43.94B

Cash & Equivalents

$284.00M

Free Cash Flow

$522.00M

Financial Statements
Beta
Revenue$4.19B
Cost of Revenue$2.80B
Gross Profit$1.39B
Operating Income$739.00M
Interest Expense$215.00M
Net Income$454.00M
EPS (Basic)$0.99
EPS (Diluted)$0.99
Shares Outstanding (Basic)457.30M
Shares Outstanding (Diluted)458.20M

Key Highlights

  • 1Completed the transformative $14.1 billion acquisition of Magellan Midstream Partners on September 25, 2023, significantly expanding ONEOK's asset base and creating a new Refined Products and Crude segment.
  • 2Nine-month net income available to common shareholders surged to $1,970 million from $1,236 million in the prior year, driven in part by a $779 million gain from the Medford incident insurance settlement.
  • 3Reported increased revenues and operating income across key segments, particularly in Natural Gas Liquids and Natural Gas Gathering and Processing, reflecting higher volumes and operational efficiencies.
  • 4Managed increased debt levels associated with the Magellan acquisition, including issuing $5.25 billion in senior unsecured notes, while maintaining compliance with credit covenants (3.7 to 1 debt to EBITDA ratio).
  • 5Continued commitment to shareholder returns with a consistent quarterly dividend of $0.955 per share, an annualized rate of $3.82, and a 2% increase year-over-year.
  • 6Strategic capital projects are progressing, including expansions of the West Texas NGL pipeline and the Elk Creek pipeline, with an expectation of strong fee-based earnings for the full year 2023.
  • 7The company is evaluating opportunities in renewable energy and low-carbon projects, aligning with industry trends towards sustainability.

Frequently Asked Questions

The Magellan Acquisition, completed on September 25, 2023, for $14.1 billion, significantly expanded ONEOK's asset base into refined products and crude oil, creating a new business segment. This transaction involved issuing approximately 135 million shares of ONEOK common stock and $5.05 billion in cash. While it diversifies revenue streams and offers significant synergy potential, it also resulted in $133 million in transaction costs recognized in the nine months ended September 30, 2023, and increased the company's debt levels.

ONEOK received $930 million in insurance payments related to the 2022 Medford incident. The settlement, finalized in the first quarter of 2023, resulted in an operational gain of $779 million, which significantly boosted net income for the nine months ended September 30, 2023. While this provided a substantial one-time financial benefit, the company notes that future cash flows will be impacted by ongoing costs from the incident for which business interruption proceeds are no longer received.

ONEOK's strategy focuses on a predominantly fee-based business model, with over 85% of consolidated earnings expected to be fee-based in 2023. This strategy aims to reduce direct exposure to commodity price volatility. For segments with residual commodity exposure, such as Natural Gas Gathering and Processing, the company utilizes hedging strategies to mitigate risks, having hedged approximately 70% of its forecasted equity volumes for the remainder of 2023.

To fund the cash portion of the Magellan Acquisition, ONEOK issued $5.25 billion in senior unsecured notes in August 2023. The company reported a debt-to-adjusted EBITDA ratio of 3.7 to 1 at September 30, 2023, and remains in compliance with its credit agreement covenants, which include an increased leverage ratio covenant temporarily following the acquisition. ONEOK continues to manage its debt through a combination of issuances, repayments, and maintaining access to its revolving credit facility.