Summary
ONEOK Inc. (OKE) announced on June 10, 2013, a strategic decision to discontinue its Energy Services segment through an accelerated wind-down process. This action, authorized by the board of directors on May 22, 2013, is a response to persistently challenging industry conditions characterized by increased natural gas supply, improved infrastructure, and reduced price volatility, which have significantly narrowed price differentials and limited revenue generation opportunities for the segment's contracted capacity. This wind-down will result in a significant non-cash write-down. OKE anticipates a non-cash, after-tax charge of approximately $75 million in the second quarter of 2013, with an additional $25 million in non-cash, after-tax write-downs anticipated between July 1, 2013, and April 1, 2014, as remaining contracts are released or assigned. While the segment's operations are expected to be substantially completed by April 2014, cash expenditures related to certain contracts will extend beyond this date, totaling an estimated $100 million on an after-tax basis. The company also stated that severance benefits for the 49 affected employees are not expected to be material.
Key Highlights
- 1ONEOK is discontinuing its Energy Services segment through an accelerated wind-down due to adverse industry conditions.
- 2The company expects a non-cash, after-tax write-down of approximately $75 million in Q2 2013 related to this exit.
- 3Additional non-cash, after-tax write-downs of up to $25 million are expected between July 1, 2013, and April 1, 2014.
- 4Total estimated after-tax cash expenditures from these write-downs are approximately $100 million, spread over several years.
- 5The wind-down process is targeted for substantial completion by April 2014, though some cash payments will continue beyond that.
- 6Impact on affected employees is expected, with severance benefits not anticipated to be material.
- 7The company reduced its 2013 earnings guidance as a result of this announcement.