form_10-q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
X Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
quarterly period ended June 30, 2009
OR
___
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the
transition period from __________ to __________.
Commission
file number 001-13643
ONEOK,
Inc.
(Exact
name of registrant as specified in its charter)
Oklahoma
|
73-1520922
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
100
West Fifth Street, Tulsa, OK
|
74103
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code (918) 588-7000
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every
Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). Yes X No __
Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer X Accelerated
filer
__ Non-accelerated
filer
__ Smaller
reporting company__
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes __ No
X
On July
31, 2009, the
Company had 105,394,349
shares of common stock outstanding.
ONEOK,
Inc.
QUARTERLY
REPORT ON FORM 10-Q
|
Financial
Information
|
Page
No.
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
|
|
5
|
|
|
6-7
|
|
|
9
|
|
|
10-11
|
|
|
12
|
|
|
13-32
|
Item
2.
|
|
33-54
|
Item
3.
|
|
54-55
|
Item
4.
|
|
55-56
|
Part
II.
|
Other
Information
|
|
Item
1.
|
|
56
|
Item
1A.
|
|
56
|
Item
2.
|
|
57
|
Item
3.
|
|
57
|
Item
4.
|
|
57
|
Item
5.
|
|
57
|
Item
6.
|
|
58
|
|
|
59
|
As used
in this Quarterly Report, references to “we,” “our” or “us” refer to ONEOK,
Inc., an Oklahoma corporation, and its predecessors and subsidiaries, unless the
context indicates otherwise.
The
statements in this Quarterly Report that are not historical information,
including statements concerning plans and objectives of management for future
operations, economic performance or related assumptions, are forward-looking
statements. Forward-looking statements may include words such as
“anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,”
“should,” “goal,” “forecast,” “could,” “may,” “continue,” “might,” “potential,”
“scheduled” and other words and terms of similar meaning. Although we
believe that our expectations regarding future events are based on reasonable
assumptions, we can give no assurance that such expectations and assumptions
will be achieved. Important factors that could cause actual results
to differ materially from those in the forward-looking statements are described
under Part I, Item 2, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, “Forward-Looking Statements” and Part II,
Item 1A, “Risk Factors” in this Quarterly Report and under Part I, Item 1A,
“Risk Factors,” in our Annual Report.
INFORMATION
AVAILABLE ON OUR WEB SITE
We make
available on our Web site copies of our Annual Report, Quarterly Reports,
Current Reports on Form 8-K, amendments to those reports filed or furnished to
the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act and reports of
holdings of our securities filed by our officers and directors under Section 16
of the Exchange Act as soon as reasonably practicable after filing such material
electronically or otherwise furnishing it to the SEC. Our Web site
and any contents thereof are not incorporated by reference into this
report.
We also
make available on our Web site the Interactive Data Files required to be
submitted and posted pursuant to Rule 405 of Regulation S-T. In
accordance with Rule 402 of Regulation S-T, the Interactive Data Files shall not
be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of that section, and shall not be
incorporated by reference into any registration statement or other document
filed under the Securities Act of 1933 or the Exchange Act, except as shall be
expressly set forth by specific reference in such filing.
GLOSSARY
The
abbreviations, acronyms and industry terminology used in this Quarterly Report
are defined as follows:
AFUDC
|
Allowance
for funds used during
construction
|
Annual
Report
|
Annual
Report on Form 10-K for the year ended December 31,
2008
|
ARB
|
Accounting
Research Bulletin
|
Bbl
|
Barrels,
1 barrel is equivalent to 42 United States
gallons
|
BBtu/d
|
Billion
British thermal units per day
|
Bcf/d
|
Billion
cubic feet per day
|
Btu(s)
|
British
thermal units, a measure of the amount of heat required to raise the
temperature of one pound of water one degree
Fahrenheit
|
Bushton
Plant
|
Bushton
Gas Processing Plant
|
EBITDA
|
Earnings
before interest, taxes, depreciation and
amortization
|
EITF
|
Emerging
Issues Task Force
|
Exchange
Act
|
Securities
Exchange Act of 1934, as
amended
|
FASB
|
Financial
Accounting Standards Board
|
FERC
|
Federal
Energy Regulatory Commission
|
GAAP
|
Accounting
principles generally accepted in the United States of
America
|
Guardian
Pipeline
|
Guardian
Pipeline, L.L.C.
|
KCC
|
Kansas
Corporation Commission
|
KDHE
|
Kansas
Department of Health and
Environment
|
LDC
|
Local
Distribution Company
|
LIBOR
|
London
Interbank Offered Rate
|
MBbl/d
|
Thousand
barrels per day
|
MMBtu
|
Million
British thermal units
|
MMBtu/d
|
Million
British thermal units per day
|
MMcf/d
|
Million
cubic feet per day
|
Moody’s
|
Moody’s
Investors Service, Inc.
|
NGL
products
|
Marketable
natural gas liquid purity products, such as ethane, ethane/propane mix,
propane, iso-butane, normal butane and natural
gasoline
|
NGL(s)
|
Natural
gas liquid(s)
|
Northern
Border Pipeline
|
Northern
Border Pipeline Company
|
NYMEX
|
New
York Mercantile Exchange
|
OBPI
|
ONEOK
Bushton Processing Inc.
|
OCC
|
Oklahoma
Corporation Commission
|
ONEOK
Partners
|
ONEOK
Partners, L.P.
|
ONEOK
Partners GP
|
ONEOK
Partners GP, L.L.C., a wholly owned subsidiary of ONEOK and the sole
general partner of ONEOK Partners,
L.P.
|
OPIS
|
Oil
Price Information Service
|
Overland
Pass Pipeline Company
|
Overland
Pass Pipeline Company LLC
|
Quarterly
Report(s)
|
Quarterly
Report(s) on Form 10-Q
|
S&P
|
Standard
& Poor’s Rating Group
|
SEC
|
Securities
and Exchange Commission
|
Statement
|
Statement
of Financial Accounting
Standards
|
XBRL
|
eXtensible
Business Reporting Language
|
This page
intentionally left blank.
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM
1. FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
ONEOK,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS
OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(Unaudited)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands
of dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
2,227,627 |
|
|
$ |
4,172,866 |
|
|
$ |
5,017,454 |
|
|
$ |
9,074,942 |
|
Cost
of sales and fuel
|
|
|
1,795,201 |
|
|
|
3,752,038 |
|
|
|
4,033,617 |
|
|
|
8,068,202 |
|
Net
margin
|
|
|
432,426 |
|
|
|
420,828 |
|
|
|
983,837 |
|
|
|
1,006,740 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
and maintenance
|
|
|
184,874 |
|
|
|
171,431 |
|
|
|
346,593 |
|
|
|
339,423 |
|
Depreciation
and amortization
|
|
|
71,249 |
|
|
|
59,701 |
|
|
|
143,375 |
|
|
|
119,180 |
|
General
taxes
|
|
|
25,261 |
|
|
|
16,680 |
|
|
|
50,488 |
|
|
|
42,011 |
|
Total
operating expenses
|
|
|
281,384 |
|
|
|
247,812 |
|
|
|
540,456 |
|
|
|
500,614 |
|
Gain
(loss) on sale of assets
|
|
|
3,762 |
|
|
|
(4 |
) |
|
|
4,426 |
|
|
|
9 |
|
Operating
income
|
|
|
154,804 |
|
|
|
173,012 |
|
|
|
447,807 |
|
|
|
506,135 |
|
Equity
earnings from investments (Note L)
|
|
|
14,188 |
|
|
|
17,610 |
|
|
|
35,410 |
|
|
|
45,393 |
|
Allowance
for equity funds used during construction
|
|
|
9,468 |
|
|
|
11,676 |
|
|
|
18,471 |
|
|
|
20,172 |
|
Other
income
|
|
|
7,939 |
|
|
|
704 |
|
|
|
9,604 |
|
|
|
3,936 |
|
Other
expense
|
|
|
(1,399 |
) |
|
|
(407 |
) |
|
|
(5,343 |
) |
|
|
(5,015 |
) |
Interest
expense
|
|
|
(73,392 |
) |
|
|
(59,059 |
) |
|
|
(151,353 |
) |
|
|
(121,920 |
) |
Income
before income taxes
|
|
|
111,608 |
|
|
|
143,536 |
|
|
|
354,596 |
|
|
|
448,701 |
|
Income
taxes
|
|
|
(30,258 |
) |
|
|
(30,574 |
) |
|
|
(109,697 |
) |
|
|
(122,942 |
) |
Net
income
|
|
|
81,350 |
|
|
|
112,962 |
|
|
|
244,899 |
|
|
|
325,759 |
|
Less:
Net income attributable to noncontrolling interests
|
|
|
39,671 |
|
|
|
71,097 |
|
|
|
80,935 |
|
|
|
140,057 |
|
Net
income attributable to ONEOK
|
|
$ |
41,679 |
|
|
$ |
41,865 |
|
|
$ |
163,964 |
|
|
$ |
185,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share of common stock (Note M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share, basic
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
$ |
1.56 |
|
|
$ |
1.78 |
|
Net
earnings per share, diluted
|
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
1.55 |
|
|
$ |
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares of common stock (thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
105,335 |
|
|
|
104,340 |
|
|
|
105,249 |
|
|
|
104,255 |
|
Diluted
|
|
|
105,950 |
|
|
|
106,072 |
|
|
|
105,848 |
|
|
|
105,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share of common stock
|
|
$ |
0.40 |
|
|
$ |
0.38 |
|
|
$ |
0.80 |
|
|
$ |
0.76 |
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ONEOK,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
(Unaudited)
|
|
2009
|
|
|
2008
|
|
Assets
|
|
(Thousands
of dollars)
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
47,038 |
|
|
$ |
510,058 |
|
Accounts
receivable, net
|
|
|
771,196 |
|
|
|
1,265,300 |
|
Gas
and natural gas liquids in storage
|
|
|
564,530 |
|
|
|
858,966 |
|
Commodity
exchanges and imbalances
|
|
|
53,417 |
|
|
|
56,248 |
|
Energy
marketing and risk management assets (Notes B and C)
|
|
|
168,457 |
|
|
|
362,808 |
|
Other
current assets
|
|
|
189,277 |
|
|
|
324,222 |
|
Total
current assets
|
|
|
1,793,915 |
|
|
|
3,377,602 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
9,880,620 |
|
|
|
9,476,619 |
|
Accumulated
depreciation and amortization
|
|
|
2,289,760 |
|
|
|
2,212,850 |
|
Net
property, plant and equipment (Note J)
|
|
|
7,590,860 |
|
|
|
7,263,769 |
|
|
|
|
|
|
|
|
|
|
Investments
and other assets
|
|
|
|
|
|
|
|
|
Goodwill
and intangible assets
|
|
|
1,034,393 |
|
|
|
1,038,226 |
|
Energy
marketing and risk management assets (Notes B and C)
|
|
|
47,163 |
|
|
|
45,900 |
|
Investments
in unconsolidated affiliates (Note L)
|
|
|
735,394 |
|
|
|
755,492 |
|
Other
assets
|
|
|
631,998 |
|
|
|
645,073 |
|
Total
investments and other assets
|
|
|
2,448,948 |
|
|
|
2,484,691 |
|
Total
assets
|
|
$ |
11,833,723 |
|
|
$ |
13,126,062 |
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
ONEOK,
Inc. and Subsidiaries
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
(Unaudited)
|
|
2009
|
|
|
2008
|
|
Liabilities
and shareholders’ equity
|
|
(Thousands
of dollars)
|
|
Current
liabilities
|
|
|
|
|
|
|
Current
maturities of long-term debt (Note G)
|
|
$ |
268,205 |
|
|
$ |
118,195 |
|
Notes
payable (Note F)
|
|
|
689,910 |
|
|
|
2,270,000 |
|
Accounts
payable
|
|
|
826,414 |
|
|
|
1,122,761 |
|
Commodity
exchanges and imbalances
|
|
|
166,847 |
|
|
|
188,030 |
|
Energy
marketing and risk management liabilities (Notes B and C)
|
|
|
41,485 |
|
|
|
175,006 |
|
Other
current liabilities
|
|
|
444,182 |
|
|
|
319,772 |
|
Total
current liabilities
|
|
|
2,437,043 |
|
|
|
4,193,764 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, excluding current maturities (Note G)
|
|
|
4,346,285 |
|
|
|
4,112,581 |
|
|
|
|
|
|
|
|
|
|
Deferred
credits and other liabilities
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
867,015 |
|
|
|
890,815 |
|
Energy
marketing and risk management liabilities (Notes B and C)
|
|
|
8,301 |
|
|
|
46,311 |
|
Other
deferred credits
|
|
|
762,213 |
|
|
|
715,052 |
|
Total
deferred credits and other liabilities
|
|
|
1,637,529 |
|
|
|
1,652,178 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note I)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ONEOK
shareholders’ equity
|
|
|
|
|
|
|
|
|
Common
stock, $0.01 par value:
|
|
|
|
|
|
|
|
|
authorized
300,000,000 shares; issued 122,180,571 shares and
outstanding
|
|
|
|
|
|
|
|
|
105,371,561
shares at June 30, 2009; issued 121,647,007 shares and
|
|
|
|
|
|
|
|
|
outstanding
104,845,231 shares at December 31, 2008
|
|
|
1,222 |
|
|
|
1,216 |
|
Paid
in capital
|
|
|
1,308,141 |
|
|
|
1,301,153 |
|
Accumulated
other comprehensive loss (Note D)
|
|
|
(82,960 |
) |
|
|
(70,616 |
) |
Retained
earnings
|
|
|
1,632,795 |
|
|
|
1,553,033 |
|
Treasury
stock, at cost: 16,809,010 shares at June 30, 2009 and
|
|
|
|
|
|
|
|
|
16,801,776
shares at December 31, 2008
|
|
|
(696,805 |
) |
|
|
(696,616 |
) |
Total
ONEOK shareholders’ equity
|
|
|
2,162,393 |
|
|
|
2,088,170 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interests in consolidated subsidiaries
|
|
|
1,250,473 |
|
|
|
1,079,369 |
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
3,412,866 |
|
|
|
3,167,539 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
11,833,723 |
|
|
$ |
13,126,062 |
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
This page
intentionally left blank.
ONEOK,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
(Unaudited)
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands
of dollars)
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income
|
|
$ |
244,899 |
|
|
$ |
325,759 |
|
Depreciation
and amortization
|
|
|
143,375 |
|
|
|
119,180 |
|
Allowance
for equity funds used during construction
|
|
|
(18,471 |
) |
|
|
(20,172 |
) |
Gain
on sale of assets
|
|
|
(4,426 |
) |
|
|
(9 |
) |
Equity
earnings from investments
|
|
|
(35,410 |
) |
|
|
(45,393 |
) |
Distributions
received from unconsolidated affiliates
|
|
|
38,233 |
|
|
|
39,904 |
|
Deferred
income taxes
|
|
|
40,865 |
|
|
|
65,374 |
|
Stock-based
compensation expense
|
|
|
8,551 |
|
|
|
14,416 |
|
Allowance
for doubtful accounts
|
|
|
1,663 |
|
|
|
6,965 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
492,441 |
|
|
|
194,146 |
|
Gas
and natural gas liquids in storage
|
|
|
285,271 |
|
|
|
(85,083 |
) |
Accounts
payable
|
|
|
(324,364 |
) |
|
|
261,530 |
|
Commodity
exchanges and imbalances, net
|
|
|
(18,352 |
) |
|
|
53,881 |
|
Energy
marketing and risk management assets and liabilities
|
|
|
35,373 |
|
|
|
77,033 |
|
Unrecovered
purchased gas costs
|
|
|
42,766 |
|
|
|
18,185 |
|
Fair
value of firm commitments
|
|
|
179,582 |
|
|
|
(350,626 |
) |
Other
assets and liabilities
|
|
|
(36,144 |
) |
|
|
(140,285 |
) |
Cash
provided by operating activities
|
|
|
1,075,852 |
|
|
|
534,805 |
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Changes
in investments in unconsolidated affiliates
|
|
|
17,393 |
|
|
|
6,480 |
|
Capital
expenditures (less allowance for equity funds used during
construction)
|
|
|
(407,600 |
) |
|
|
(640,048 |
) |
Proceeds
from sale of assets
|
|
|
10,029 |
|
|
|
201 |
|
Proceeds
from insurance
|
|
|
- |
|
|
|
9,792 |
|
Acquisitions
|
|
|
- |
|
|
|
2,450 |
|
Cash
used in investing activities
|
|
|
(380,178 |
) |
|
|
(621,125 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Borrowing
(repayment) of notes payable, net
|
|
|
(710,090 |
) |
|
|
598,893 |
|
Repayment
of notes payable with maturities over 90 days
|
|
|
(870,000 |
) |
|
|
- |
|
Issuance
of debt, net of discounts
|
|
|
498,325 |
|
|
|
- |
|
Long-term
debt financing costs
|
|
|
(4,000 |
) |
|
|
- |
|
Payment
of debt
|
|
|
(107,970 |
) |
|
|
(408,789 |
) |
Repurchase
of common stock
|
|
|
(250 |
) |
|
|
(29 |
) |
Issuance
of common stock
|
|
|
4,342 |
|
|
|
5,786 |
|
Issuance
of common units, net of discounts
|
|
|
220,458 |
|
|
|
146,969 |
|
Dividends
paid
|
|
|
(84,202 |
) |
|
|
(79,212 |
) |
Distributions
to noncontrolling interests
|
|
|
(105,307 |
) |
|
|
(97,659 |
) |
Cash
provided by (used in) financing activities
|
|
|
(1,158,694 |
) |
|
|
165,959 |
|
Change
in cash and cash equivalents
|
|
|
(463,020 |
) |
|
|
79,639 |
|
Cash
and cash equivalents at beginning of period
|
|
|
510,058 |
|
|
|
19,105 |
|
Cash
and cash equivalents at end of period
|
|
$ |
47,038 |
|
|
$ |
98,744 |
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
ONEOK,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENT OF SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ONEOK
Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Stock
|
|
|
Common
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
(Unaudited)
|
|
Issued
|
|
|
Stock
|
|
|
Capital
|
|
|
Income
(Loss)
|
|
|
|
(Shares)
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
121,647,007 |
|
|
$ |
1,216 |
|
|
$ |
1,301,153 |
|
|
$ |
(70,616 |
) |
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
comprehensive income (loss) (Note D)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12,344 |
) |
Repurchase
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Common
stock issued
|
|
|
533,564 |
|
|
|
6 |
|
|
|
6,988 |
|
|
|
- |
|
Common
stock dividends -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.80
per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance
of equity units
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Distributions
paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
June
30, 2009
|
|
|
122,180,571 |
|
|
$ |
1,222 |
|
|
$ |
1,308,141 |
|
|
$ |
(82,960 |
) |
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ONEOK,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENT OF SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ONEOK
Shareholders
|
|
|
Noncontrolling
Interests in Consolidated Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Retained
|
|
|
Treasury
|
|
|
Shareholders’
|
|
(Unaudited)
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
1,553,033 |
|
|
$ |
(696,616 |
) |
|
$ |
1,079,369 |
|
|
$ |
3,167,539 |
|
Net
income
|
|
|
163,964 |
|
|
|
- |
|
|
|
80,935 |
|
|
|
244,899 |
|
Other
comprehensive income (loss) (Note D)
|
|
|
- |
|
|
|
- |
|
|
|
(24,982 |
) |
|
|
(37,326 |
) |
Repurchase
of common stock
|
|
|
- |
|
|
|
(250 |
) |
|
|
- |
|
|
|
(250 |
) |
Common
stock issued
|
|
|
- |
|
|
|
61 |
|
|
|
- |
|
|
|
7,055 |
|
Common
stock dividends -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.80
per share
|
|
|
(84,202 |
) |
|
|
- |
|
|
|
- |
|
|
|
(84,202 |
) |
Issuance
of equity units
|
|
|
- |
|
|
|
- |
|
|
|
220,458 |
|
|
|
220,458 |
|
Distributions
paid
|
|
|
- |
|
|
|
- |
|
|
|
(105,307 |
) |
|
|
(105,307 |
) |
June
30, 2009
|
|
$ |
1,632,795 |
|
|
$ |
(696,805 |
) |
|
$ |
1,250,473 |
|
|
$ |
3,412,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ONEOK,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(Unaudited)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
81,350 |
|
|
$ |
112,962 |
|
|
$ |
244,899 |
|
|
$ |
325,759 |
|
Other
comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on energy marketing and risk management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets/liabilities,
net of tax
|
|
|
(22,177 |
) |
|
|
(66,249 |
) |
|
|
38,469 |
|
|
|
(118,570 |
) |
Realized
(gains) losses in net income, net of tax
|
|
|
(16,793 |
) |
|
|
11,267 |
|
|
|
(70,713 |
) |
|
|
4,000 |
|
Unrealized
holding gains (losses) arising during the period, net of
tax
|
|
|
318 |
|
|
|
(682 |
) |
|
|
505 |
|
|
|
(5,446 |
) |
Change
in pension and postretirement benefit plan liability, net of
tax
|
|
|
(3,260 |
) |
|
|
(2,468 |
) |
|
|
(5,795 |
) |
|
|
(4,937 |
) |
Other
|
|
|
18 |
|
|
|
- |
|
|
|
208 |
|
|
|
- |
|
Total
other comprehensive income (loss), net of tax (Note D)
|
|
|
(41,894 |
) |
|
|
(58,132 |
) |
|
|
(37,326 |
) |
|
|
(124,953 |
) |
Comprehensive
income
|
|
|
39,456 |
|
|
|
54,830 |
|
|
|
207,573 |
|
|
|
200,806 |
|
Less:
Comprehensive income attributable to noncontrolling
interests
|
|
|
24,731 |
|
|
|
51,184 |
|
|
|
55,953 |
|
|
|
121,431 |
|
Comprehensive
income attributable to ONEOK
|
|
$ |
14,725 |
|
|
$ |
3,646 |
|
|
$ |
151,620 |
|
|
$ |
79,375 |
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ONEOK,
Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. SUMMARY
OF ACCOUNTING POLICIES
Our
accompanying unaudited consolidated financial statements have been prepared in
accordance with GAAP and reflect all adjustments that, in our opinion, are
necessary for a fair presentation of the results for the interim periods
presented. All such adjustments are of a normal recurring
nature. The 2008 year-end consolidated balance sheet data was derived
from audited financial statements but does not include all disclosures required
by GAAP. These unaudited consolidated financial statements should be
read in conjunction with our audited consolidated financial statements in our
Annual Report. Due to the seasonal nature of our business, the
results of operations for the three and six months ended June 30, 2009, are not
necessarily indicative of the results that may be expected for a 12-month
period.
Our
accounting policies are consistent with those disclosed in Note A of the Notes
to Consolidated Financial Statements in our Annual Report. The
following recently issued accounting pronouncements will affect our consolidated
financial statements during 2009.
Noncontrolling Interests -
Statement 160, “Noncontrolling Interests in Consolidated Financial Statements -
an amendment of ARB No. 51,” requires noncontrolling interest (previously
referred to as minority interest) to be reported as a component of
equity. Statement 160 was effective for our year beginning January 1,
2009, and requires retroactive adoption of the presentation and disclosure
requirements for existing noncontrolling interests.
Derivative Instruments and Hedging
Activities - Statement 161, “Disclosures about Derivative Instruments and
Hedging Activities - an amendment to FASB Statement No. 133,” requires enhanced
disclosures about how derivative and hedging activities affect our financial
position, financial performance and cash flows. Statement 161 was
effective for our year beginning January 1, 2009, and was applied
prospectively. See Note C for applicable disclosures.
Fair Value Measurements - As
of January 1, 2009, we have applied the provisions of Statement 157, “Fair Value
Measurements,” to assets and liabilities that are measured at fair value on a
nonrecurring basis subsequent to initial recognition, and the impact was not
material. See Note B for disclosures of our fair value
measurements.
Interim Disclosures about Fair
Value - FSP 107-1 and Accounting Principles Board (APB) Opinion No. 28-1,
“Interim Disclosures about Fair Value of Financial Instruments,” require
disclosures of fair value of financial instruments for interim reporting
periods, which were effective for our quarter ended June 30,
2009. These disclosures are included in Note B.
Postretirement Benefit Plan
Assets - FSP 132R-1, “Employers’ Disclosures about Postretirement Benefit
Plan Assets,” requires enhanced disclosures about our plan assets, including our
investment policies, major categories of plan assets, significant concentrations
of risk within plan assets, and inputs and valuation techniques used to measure
the fair value of plan assets, is effective for our fiscal year ending December
31, 2009, and will be applied prospectively.
Subsequent Events - Statement
165, “Subsequent Events,” establishes standards of accounting for and
disclosures of events that occur after the balance sheet date but before
consolidated financial statements are issued. We have evaluated
subsequent events through August 6, 2009, the date our consolidated financial
statements were issued, and all required disclosures have been
made.
FASB Accounting Standards
Codification - Statement 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles,” establishes the
FASB Accounting Standards Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with
GAAP. Statement 168 will change the manner in which we reference
authoritative accounting principles in our consolidated financial statements and
will be effective for our September 30, 2009, Quarterly Report.
B. FAIR
VALUE MEASUREMENTS
Refer to
Notes A and C of the Notes to Consolidated Financial Statements in our Annual
Report for a discussion of our fair value measurements and the fair value
hierarchy.
Recurring Fair Value
Measurements - The following tables set forth our recurring fair value
measurements for the periods indicated.
|
|
June
30, 2009
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Netting
(a)
|
|
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
258,603 |
|
|
$ |
103,849 |
|
|
$ |
635,094 |
|
|
$ |
(781,926 |
) |
|
$ |
215,620 |
|
Trading
securities
|
|
|
7,341 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,341 |
|
Available-for-sale
investment securities
|
|
|
2,489 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,489 |
|
Total
assets
|
|
$ |
268,433 |
|
|
$ |
103,849 |
|
|
$ |
635,094 |
|
|
$ |
(781,926 |
) |
|
$ |
225,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
(230,180 |
) |
|
$ |
(38,227 |
) |
|
$ |
(464,680 |
) |
|
$ |
683,301 |
|
|
$ |
(49,786 |
) |
Fair
value of firm commitments
|
|
|
- |
|
|
|
- |
|
|
|
(137,403 |
) |
|
|
- |
|
|
|
(137,403 |
) |
Total
liabilities
|
|
$ |
(230,180 |
) |
|
$ |
(38,227 |
) |
|
$ |
(602,083 |
) |
|
$ |
683,301 |
|
|
$ |
(187,189 |
) |
(a)
- Our derivative assets and liabilities are presented in our Consolidated
Balance Sheets on a net basis. We net derivative assets and
liabilities, including cash collateral, when a legally enforceable master
netting arrangement exists between us and the counterparty to a derivative
contract. At June 30, 2009, we held $127.1 million of cash collateral
and had posted $28.5 million of cash collateral with various
counterparties.
|
|
|
|
December
31, 2008
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Netting
(a)
|
|
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
580,029 |
|
|
$ |
215,116 |
|
|
$ |
454,377 |
|
|
$ |
(840,814 |
) |
|
$ |
408,708 |
|
Trading
securities
|
|
|
4,910 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,910 |
|
Available-for-sale
investment securities
|
|
|
1,665 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,665 |
|
Fair
value of firm commitments
|
|
|
- |
|
|
|
- |
|
|
|
42,179 |
|
|
|
- |
|
|
|
42,179 |
|
Total
assets
|
|
$ |
586,604 |
|
|
$ |
215,116 |
|
|
$ |
496,556 |
|
|
$ |
(840,814 |
) |
|
$ |
457,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
(501,726 |
) |
|
$ |
(55,705 |
) |
|
$ |
(412,022 |
) |
|
$ |
748,136 |
|
|
$ |
(221,317 |
) |
Long-term
debt swapped to floating
|
|
|
- |
|
|
|
- |
|
|
|
(171,455 |
) |
|
|
- |
|
|
|
(171,455 |
) |
Total
liabilities
|
|
$ |
(501,726 |
) |
|
$ |
(55,705 |
) |
|
$ |
(583,477 |
) |
|
$ |
748,136 |
|
|
$ |
(392,772 |
) |
(a)
- Our derivative assets and liabilities are presented in our Consolidated
Balance Sheets on a net basis. We net derivative assets and
liabilities, including cash collateral, when a legally enforceable master
netting arrangement exists between us and the counterparty to a derivative
contract. At December 31, 2008, we held $92.7 million of cash
collateral.
|
|
In
accordance with Statement 157, we categorize derivatives for which fair value is
determined based on multiple inputs within a single level, based on the lowest
level input that is significant to the fair value measurement in its
entirety.
Our Level
1 fair value measurements are based on NYMEX-settled prices, actively quoted
prices for equity securities and foreign currency forward exchange
rates. These balances are predominantly comprised of exchange-traded
derivative contracts, including futures and certain options for natural gas and
crude oil, which are valued based on unadjusted quoted prices in active
markets. Also included in Level 1 are equity securities and foreign
currency forwards.
Our Level
2 fair value inputs are based on NYMEX-settled prices that are utilized to
determine the fair value of certain non-exchange traded financial instruments,
including natural gas and crude oil swaps.
Our Level
3 inputs are based on market volatilities derived from the NYMEX natural gas
volatility curve, internally developed basis curves incorporating observable and
unobservable market data, a pricing service for NGL products, historical
correlations of NGL product prices to crude oil, forward NYMEX curves for crude
oil, spot and forward LIBOR curves, and adjustments for the credit risk of our
counterparties. The derivatives categorized as Level 3 include
over-the-counter basis and swing swaps, physical forward contracts and options
for natural gas, NGL swaps and interest-rate swaps. Also included in
Level 3 are the fair values of firm commitments and long-term debt that have
been hedged. We corroborate the data on which our fair value
estimates are based using quotes from an independent broker of natural gas, our
market knowledge of recent transactions and analysis of historical relationships
of data from the pricing service compared with actual settlements and
correlations. We do not believe that our Level 3 fair value estimates
have a material impact on our results of operations, as the majority of our
derivatives are accounted for as hedges for which ineffectiveness is not
material.
The
following tables set forth the reconciliation of our Level 3 fair value
measurements for the periods indicated.
|
|
Derivative
Assets
(Liabilities)
|
|
Fair
Value of
Firm
Commitments
|
|
Long-Term
Debt
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
April
1, 2009
|
|
$ |
170,238 |
|
|
|
$ |
(111,212 |
) |
|
|
$ |
- |
|
|
$ |
59,026 |
|
Total
realized/unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in earnings
|
|
|
34,202 |
|
(a)
|
|
|
(26,191 |
) |
(a)
|
|
|
- |
|
|
|
8,011 |
|
Included
in other comprehensive income (loss)
|
|
|
(52,330 |
) |
|
|
|
- |
|
|
|
|
- |
|
|
|
(52,330 |
) |
Transfers
in and/or out of Level 3
|
|
|
18,304 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
18,304 |
|
June
30, 2009
|
|
$ |
170,414 |
|
|
|
$ |
(137,403 |
) |
|
|
$ |
- |
|
|
$ |
33,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
gains (losses) for the period included in earnings
attributable
to the
change in unrealized gains
(losses) relating
to assets
and
liabilities still
held as of June 30, 2009 (a)
|
|
$ |
57,041 |
|
|
|
$ |
(44,189 |
) |
|
|
|
- |
|
|
$ |
12,852 |
|
(a)
- Reported in revenues and cost of sales and fuel in our Consolidated
Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
Derivative
Assets
(Liabilities)
|
|
Fair
Value of
Firm
Commitments
|
|
Long-Term
Debt
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
April
1, 2008
|
|
$ |
(131,942 |
) |
|
|
$ |
135,538 |
|
|
|
$ |
(347,705 |
) |
|
$ |
(344,109 |
) |
Total
realized/unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in earnings
|
|
|
(283,285 |
) |
(a)
|
|
|
257,772 |
|
(a)
|
|
|
7,497 |
(
|
b)
|
|
(18,016 |
) |
Included
in other comprehensive income (loss)
|
|
|
(27,272 |
) |
|
|
|
- |
|
|
|
|
- |
|
|
|
(27,272 |
) |
Transfers
in and/or out of Level 3
|
|
|
32,138 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
32,138 |
|
June
30, 2008
|
|
$ |
(410,361 |
) |
|
|
$ |
393,310 |
|
|
|
$ |
(340,208 |
) |
|
$ |
(357,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
gains (losses) for the period included in earnings
attributable
to the
change in unrealized gains
(losses) relating to assets
and
liabilities still
held as of June 30, 2008 (a)
|
|
$ |
(260,918 |
) |
|
|
$ |
275,631 |
|
|
|
$ |
7,497 |
|
|
$ |
22,210 |
|
(a)
- Reported in revenues and cost of sales and fuel in our Consolidated
Statements of Income.
|
|
|
|
|
|
|
|
|
(b)
- Reported in interest expense in our Consolidated Statements of
Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Assets
(Liabilities)
|
|
|
|
Fair
Value of
Firm
Commitments
|
|
|
|
Long-Term
Debt
|
|
|
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
January
1, 2009
|
|
$ |
42,355 |
|
|
|
$ |
42,179 |
|
|
|
$ |
(171,455 |
) |
|
|
$ |
(86,921 |
) |
Total
realized/unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in earnings
|
|
|
188,038 |
|
(a)
|
|
|
(179,582 |
) |
(a)
|
|
|
1,455 |
|
(b)
|
|
|
9,911 |
|
Included
in other comprehensive income (loss)
|
|
|
(60,060 |
) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(60,060 |
) |
Maturities
|
|
|
- |
|
|
|
|
- |
|
|
|
|
100,000 |
|
|
|
|
100,000 |
|
Terminations
prior to maturity
|
|
|
- |
|
|
|
|
- |
|
|
|
|
70,000 |
|
|
|
|
70,000 |
|
Transfers
in and/or out of Level 3
|
|
|
81 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
81 |
|
June
30, 2009
|
|
$ |
170,414 |
|
|
|
$ |
(137,403 |
) |
|
|
$ |
- |
|
|
|
$ |
33,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
gains (losses) for the period included in earnings
attributable
to the
change in unrealized gains
(losses) relating to assets
and
liabilities still
held as of June 30, 2009 (a)
|
|
$ |
189,866 |
|
|
|
$ |
(162,734 |
) |
|
|
$ |
- |
|
|
|
$ |
27,132 |
|
(a)
- Reported in revenues and cost of sales and fuel in our Consolidated
Statements of Income.
|
|
|
|
|
|
|
|
|
|
(b)
- Reported in interest expense in our Consolidated Statements of
Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Assets
(Liabilities)
|
|
|
|
Fair
Value of
Firm
Commitments
|
|
|
|
Long-Term
Debt
|
|
|
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
January
1, 2008
|
|
$ |
(54,582 |
) |
|
|
$ |
42,684 |
|
|
|
$ |
(338,538 |
) |
|
|
$ |
(350,436 |
) |
Total
realized/unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in earnings
|
|
|
(356,375 |
) |
(a)
|
|
|
350,626 |
|
(a)
|
|
|
(1,670 |
) |
(b)
|
|
|
(7,419 |
) |
Included
in other comprehensive income (loss)
|
|
|
(4,007 |
) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(4,007 |
) |
Transfers
in and/or out of Level 3
|
|
|
4,603 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
4,603 |
|
June
30, 2008
|
|
$ |
(410,361 |
) |
|
|
$ |
393,310 |
|
|
|
$ |
(340,208 |
) |
|
|
$ |
(357,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
gains (losses) for the period included in earnings
attributable
to the
change in unrealized gains
(losses) relating to assets
and
liabilities still
held as of June 30, 2008 (a)
|
|
$ |
(373,399 |
) |
|
|
$ |
351,150 |
|
|
|
$ |
(1,670 |
) |
|
|
$ |
(23,919 |
) |
(a)
- Reported in revenues and cost of sales and fuel in our Consolidated
Statements of Income.
|
|
|
|
|
|
|
|
|
|
(b)
- Reported in interest expense in our Consolidated Statements of
Income.
|
|
|
|
|
|
|
|
|
|
|
|
Realized/unrealized
gains (losses) include the realization of our fair value derivative contracts
through maturity and changes in fair value of our hedged firm commitments and
fixed-rate debt swapped to a floating rate. Maturities represent the
long-term debt associated with an interest-rate swap that matured during the
period. Terminations prior to maturity represent the long-term debt
associated with an interest rate swap that was terminated during the
period. Transfers into Level 3 represent existing assets or
liabilities that were previously categorized at a higher level for which the
inputs to our fair value estimates became unobservable. Transfers out of
Level 3 represent existing assets and liabilities that were previously
classified as Level 3 for which the inputs became observable in accordance with
our hierarchy policy discussed in Note A of the Notes to Consolidated Financial
Statements in our Annual Report.
Investment Securities - Net
unrealized holding gains, net of tax, for our investment securities classified
as available for sale and reported in accumulated other comprehensive income
(loss) were $1.3 million and $0.8 million as of June 30, 2009, and December 31,
2008, respectively. For the three and six months ended June 30, 2009,
net unrealized holding gains on available-for-sale securities included in other
comprehensive income were immaterial. For the three and six months
ended June 30, 2009, we recorded net gains of $1.5 million and $2.4 million,
respectively, which represents the total mark-to-market effect of trading
securities still held as of June 30, 2009.
Other Financial Instruments
- The
approximate fair value of cash and cash equivalents, accounts receivable and
accounts payable is equal to book value, due to their short-term
nature. The fair value of notes payable approximates the carrying
value since the interest rates, prescribed by each borrowing’s respective credit
agreement, are periodically adjusted to reflect current market
conditions.
The
estimated fair value of long-term debt, including current maturities, was $4.52
billion at June 30, 2009. The book value of long-term debt, including
current maturities, was $4.61 billion at June 30, 2009. The estimated
fair value of long-term debt has been determined using quoted market prices of
the same or similar issues with similar terms and maturities.
C. RISK
MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES
Energy
Marketing and Risk Management Activities
Our
Energy Services and ONEOK Partners segments are exposed to various risks that we
manage by periodically entering into derivative instruments. These
risks include the following:
·
|
Commodity price
risk - We are exposed to the risk of loss in cash flows and future
earnings arising from adverse changes in the price of natural gas, NGLs
and crude oil. We use commodity derivative instruments such as
futures, physical forward contracts, swaps and options to mitigate the
commodity price risk associated with a portion of the forecasted purchases
and sales of commodities and natural gas and natural gas liquids in
storage.
|
·
|
Basis risk - We
are exposed to the risk of loss in cash flows and future earnings arising
from adverse changes in the price differentials between pipeline receipt
and delivery locations. Our firm transportation capacity allows
us to purchase gas at a pipeline receipt point and sell gas at a pipeline
delivery point. Our Energy Services segment periodically enters
into basis swaps between the transportation receipt and delivery points in
order to protect the fair value of these location price differentials
related to our firm commitments.
|
·
|
Currency exchange rate
risk - As a result of our Energy Services segment’s activities in
Canada, we are exposed to the risk of loss in cash flows and future
earnings from adverse changes in currency exchange rates on our commodity
purchases and sales primarily related to our firm transportation and
storage contracts that are transacted in a currency other than our
functional currency, the U.S. dollar. To reduce our exposure to
exchange-rate fluctuations, we use physical forward transactions, which
result in an actual two-way flow of currency on the settlement date in
which we exchange U.S. dollars for Canadian dollars with another
party.
|
The
following derivative instruments are used to manage our exposure to these
risks.
·
|
Futures
contracts - Standardized exchange-traded contracts to purchase
or sell natural gas and crude oil at a specified price, requiring delivery
on or settlement through the sale or purchase of an offsetting contract by
a specified future date under the provisions of exchange
regulations.
|
·
|
Forward
contracts - Commitments to purchase or sell natural gas, crude
oil or NGLs for delivery at some specified time in the future.
Forward contracts are different from futures in that forwards are
customized and non-exchange traded.
|
·
|
Swaps -
Financial trades involving the exchange of payments based on two different
pricing structures for a commodity. In a typical commodity swap,
parties exchange payments based on changes in the price of a commodity or
a market index, while fixing the price they effectively pay or receive for
the physical commodity. As a result, one party assumes the risks and
benefits of movements in market prices, while the other party assumes the
risks and benefits of a fixed price for the
commodity.
|
·
|
Options -
Contractual agreements that give the holder the right, but not the
obligation, to buy or sell a fixed quantity of a commodity, at a fixed
price, within a specified period of time. Options may either be
standardized, exchange traded or customized and non-exchange
traded.
|
Our
objectives for entering into such contracts include, but are not limited
to:
·
|
reducing
the variability of cash flows by locking in the price for all or a portion
of anticipated index-based physical purchases and sales, transportation
fuel requirements, asset management transactions and customer-related
business activities;
|
·
|
locking
in price differential to protect the fair value between transportation
receipt and delivery points and to protect the fair value of natural gas
or NGLs that are purchased in one month and sold in a later month;
and
|
·
|
reducing
our exposure to fluctuations in foreign currency exchange
rates.
|
Our
Energy Services segment also enters into derivative contracts for financial
trading purposes primarily to capitalize on opportunities created by market
volatility, weather-related events, supply-demand imbalances and market
liquidity
inefficiency,
which allows us to capture additional margin. Financial trading
activities are generally executed using financially settled derivatives and are
normally short term in nature.
With
respect to the net open positions that exist within our marketing and financial
trading operations, fluctuating commodity prices can impact our financial
position and results of operations. The net open positions are
actively managed, and the impact of the changing prices on our financial
condition at a point in time is not necessarily indicative of the impact of
price movements throughout the year.
Our
Distribution segment also uses derivative instruments to hedge the cost of
anticipated natural gas purchases during the winter heating months to protect
our customers from upward volatility in the market price of natural
gas. The use of these derivative instruments and the associated
recovery of these costs have been approved by the OCC, KCC and regulatory
authorities in certain of our Texas jurisdictions.
We are
also subject to fluctuation in interest rates. We manage
interest-rate risk through the use of fixed-rate debt, floating-rate debt and
interest-rate swaps. Floating-rate swaps may be used to convert the
fixed rates of long-term borrowings into short-term variable
rates. Interest-rate swaps are agreements to exchange an interest
payment at some future point based on the differential between two interest
rates.
Accounting
Treatment
We
account for derivative instruments and hedging activities in accordance with
Statement 133, “Accounting for Derivative Instruments and Hedging Activities,”
as amended. Under Statement 133, entities are required to record
derivative instruments at fair value, with the exception of normal purchases and
normal sales that are expected to result in physical delivery. The
accounting for changes in the fair value of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, the reason for holding it.
If
certain conditions are met, we may elect to designate a derivative instrument as
a hedge of exposure to changes in fair values, cash flows or foreign
currency. Certain non-trading derivative transactions, which are
economic hedges of our accrual transactions, such as our storage and
transportation contracts, do not qualify for hedge accounting
treatment.
The table
below summarizes the various ways in which we account for our derivative
instruments and the impact on our consolidated financial
statements.
Accounting
Treatment
|
|
Recognition
and Measurement
|
|
Balance
Sheet
|
|
Income
Statement
|
Normal
purchases and normal sales
|
-
|
Fair
value not recorded
|
-
|
Change
in fair value not recognized in earnings
|
Mark-to-market
|
-
|
Recorded
at fair value
|
-
|
Change
in fair value recognized in earnings
|
Cash
flow hedge
|
-
|
Recorded
at fair value
|
-
|
Ineffective
portion of the gain or loss on the derivative instrument is recognized in
earnings
|
|
-
|
Effective
portion of the gain or loss on the derivative instrument is reported
initially as a component of accumulated other comprehensive income
(loss)
|
-
|
Effective
portion of the gain or loss on the derivative instrument is reclassified
out of accumulated other comprehensive income (loss) into earnings when
the forecasted transaction affects earnings
|
Fair
value hedge
|
-
|
Recorded
at fair value
|
-
|
The
gain or loss on the derivative instrument is recognized in
earnings
|
|
-
|
Change
in fair value of the hedged item is recorded as an adjustment to book
value
|
-
|
Change
in fair value of the hedged item is recognized in
earnings
|
|
|
|
|
|
Gains or
losses associated with the fair value of derivative instruments entered into by
our Distribution segment are included in, and recoverable through, the monthly
purchased-gas cost mechanism.
As
required by Statement 133, we formally document all relationships between
hedging instruments and hedged items, as well as risk management objectives,
strategies for undertaking various hedge transactions and methods for assessing
and testing correlation and hedge ineffectiveness. We specifically
identify the asset, liability, firm commitment or forecasted transaction that
has been designated as the hedged item. We assess the effectiveness
of hedging relationships quarterly by performing a regression analysis on our
cash flow and fair value hedging relationships to determine whether the
hedge
relationships
are highly effective on a retrospective and prospective basis. We
also document our normal purchases and normal sales transactions that we expect
to result in physical delivery and which we elect to exempt from derivative
accounting treatment.
We
evaluate the presentation of revenues from our different types of activities to
determine which amounts should be reported on a gross or net basis in accordance
with the following literature:
·
|
EITF
03-11, “Reporting Realized Gains and Losses on Derivative Instruments That
Are Subject to FASB Statement No. 133 and Not ‘Held for Trading Purposes’
as Defined in EITF Issue No. 02-3;”
|
·
|
EITF
02-3, “Issues Involved in Accounting for Derivative Contracts Held for
Trading Purposes and Contracts Involved in Energy Trading and Risk
Management Activities;” and
|
·
|
EITF
99-19, “Reporting Revenue Gross as a Principal versus Net as an
Agent.”
|
In
accordance with this guidance, all financially settled derivative instruments,
as well as derivative instruments considered held for trading purposes that
result in physical delivery, are reported on a net basis in revenues in our
Consolidated Statements of Income. The realized revenues and purchase
costs of derivative instruments that are not considered held for trading
purposes and non-derivative contracts are reported on a gross
basis. Derivatives that qualify for the normal purchase or sale
exception as defined in Statement 133 are also reported on a gross
basis.
Revenues
in our Consolidated Statements of Income include financial trading margins, as
well as certain physical natural gas transactions with our trading
counterparties. Revenues and cost of sales and fuel from such
physical transactions are reported on a net basis.
Cash
flows from futures, forwards, options and swaps that are accounted for as hedges
are included in the same Consolidated Statements of Cash Flows category as the
cash flows from the related hedged items.
Fair
Values of Derivative Instruments
Statement
157 defines fair value as the price that would be received to sell an asset or
transfer a liability in an orderly transaction between market participants at
the measurement date. See Note B for a discussion of the inputs
associated with our fair value measurements and our fair value hierarchy
disclosures.
The
following table sets forth the fair values of our derivative instruments for the
period indicated.
|
|
June
30, 2009
|
|
|
|
Fair
Values of Derivatives (a)
|
|
|
|
Assets
|
|
|
(Liabilities)
|
|
|
|
(Thousands of
dollars)
|
|
|
|
|
|
|
|
|
Derivative
commodity contracts designated as hedging instruments
|
|
$ |
731,942 |
|
|
$ |
(467,630 |
) |
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity
contracts
|
|
|
265,604 |
|
|
|
(264,693 |
) |
Foreign
exchange contracts
|
|
|
- |
|
|
|
(764 |
) |
Total
derivatives not designated as hedging instruments
|
|
$ |
265,604 |
|
|
$ |
(265,457 |
) |
Total
derivatives
|
|
$ |
997,546 |
|
|
$ |
(733,087 |
) |
|
|
|
|
|
|
|
|
|
(a)
- Included on a net basis in energy marketing and risk management assets
and liabilities on our Consolidated Balance
Sheet.
|
|
|
The
following table sets forth the notional quantities for derivative instruments
held for the period indicated.
|
|
June
30, 2009
|
|
|
|
Contract
Type
|
|
Purchased/
Payor
|
|
Sold/
Receiver
|
|
Derivatives
designated as hedging instruments:
|
|
|
|
|
|
Cash
flow hedges
|
|
|
|
|
|
|
Fixed
price
|
|
|
|
|
|
|
-
Natural gas (Bcf)
|
Exchange
futures
|
|
|
6.9 |
|
|
(29.4 |
) |
|
Swaps
|
|
|
23.5 |
|
|
(82.8 |
) |
-
Crude oil and NGLs
(MMBbl)
|
Swaps
|
|
|
- |
|
|
(2.0 |
) |
Basis
|
|
|
|
|
|
|
|
|
-
Natural gas (Bcf)
|
Swaps
|
|
|
29.5 |
|
|
(111.1 |
) |
Fair
value hedges
|
|
|
|
|
|
|
|
|
Basis
|
|
|
|
|
|
|
|
|
-
Natural gas (Bcf)
|
Forwards
and swaps
|
|
|
411.4 |
|
|
(411.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
Fixed
price
|
|
|
|
|
|
|
|
|
-
Natural gas (Bcf)
|
Exchange
futures
|
|
|
31.7 |
|
|
(13.0 |
) |
|
Forwards
and swaps
|
|
|
90.1 |
|
|
(109.4 |
) |
|
Options
|
|
|
118.6 |
|
|
(95.0 |
) |
-
Foreign currency
(Millions of dollars)
|
Swaps
|
|
$ |
7.1 |
|
$ |
- |
|
Basis
|
|
|
|
|
|
|
|
|
-
Natural gas (Bcf)
|
Forwards
and swaps
|
|
|
891.0 |
|
|
(914.8 |
) |
Index
|
|
|
|
|
|
|
|
|
-
Natural gas
(Bcf)
|
Forwards
and swaps
|
|
|
74.4 |
|
|
(34.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
These
notional amounts are used to summarize the volume of financial
instruments. However, they do not reflect the extent to which the
positions offset one another and, consequently, do not reflect our actual
exposure to market or credit risk.
Cash Flow Hedges - Our Energy Services and
ONEOK Partners segments use derivative instruments to hedge the cash flows
associated with anticipated purchases and sales of natural gas, NGLs and
condensate and cost of fuel used in the transportation of natural
gas. Accumulated other comprehensive income (loss) at June 30, 2009,
includes gains of approximately $23.3 million, net of tax, related to these
hedges that will be realized within the next 21 months as the forecasted
transactions affect earnings. If prices remain at current levels, we
will recognize $25.4 million in net gains over the next 12 months, and we will
recognize net losses of $2.1 million thereafter.
For the
six months ended June 30, 2009, cost of sales and fuel in our Consolidated
Statements of Income includes $11.3 million reflecting an adjustment to
inventory at the lower of cost or market. We reclassified $11.3
million of deferred gains, before income taxes, on associated cash flow hedges
from accumulated other comprehensive income (loss) into earnings.
The
following table sets forth the effect of cash flow hedges recognized in other
comprehensive income (loss) for the periods indicated.
|
Three
Months Ended
|
|
Six
Months Ended
|
|
Derivatives
in Cash Flow Hedging
Relationships
|
|
June
30, 2009
|
|
|
June
30, 2009
|
|
|
|
(Thousands
of dollars)
|
|
Commodity
contracts
|
|
$ |
(32,363 |
) |
|
$ |
66,245 |
|
Interest
rate contracts
|
|
|
443 |
|
|
|
564 |
|
Total
gain (loss) recognized in other comprehensive income (loss)
on
derivatives (effective portion)
|
|
$ |
(31,920 |
) |
|
$ |
66,809 |
|
|
|
|
|
|
|
|
|
|
The
following tables set forth the effect of cash flow hedges on our Consolidated
Statements of Income for the periods indicated.
Derivatives
in Cash Flow
Hedging
Relationships
|
Location
of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income
(Loss) into Net Income (Effective Portion)
|
|
Three
Months Ended
June
30, 2009
|
|
|
Six
Months Ended
June
30, 2009
|
|
|
|
|
(Thousands
of dollars)
|
|
Commodity
contracts
|
Revenues
|
|
$ |
31,157 |
|
|
$ |
113,872 |
|
Commodity
contracts
|
Cost
of sales and fuel
|
|
|
(9,624 |
) |
|
|
(11,178 |
) |
Interest
rate contracts
|
Interest
expense
|
|
|
436 |
|
|
|
872 |
|
Total
gain (loss) reclassified from accumulated other comprehensive income
(loss) into net income on derivatives (effective portion)
|
|
$ |
21,969 |
|
|
$ |
103,566 |
|
Derivatives
in Cash Flow
Hedging
Relationships
|
Location
of Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion
and Amount Excluded from Effectiveness Testing)
|
|
Three
Months Ended
June
30, 2009
|
|
|
Six
Months Ended
June
30, 2009
|
|
|
|
|
(Thousands
of dollars)
|
|
Commodity
contracts
|
Revenues
|
|
$ |
(228 |
) |
|
$ |
2,820 |
|
Commodity
contracts
|
Cost
of sales and fuel
|
|
|
(217 |
) |
|
|
(747 |
) |
Total
gain (loss) recognized in income on derivatives (ineffective portion and
amount excluded from effectiveness testing)
|
|
$ |
(445 |
) |
|
$ |
2,073 |
|
For the
three and six months ended June 30, 2008, ineffectiveness related to our cash
flow hedges resulted in losses of approximately $0.6 million and $1.8 million,
respectively. In the event that it becomes probable that a forecasted
transaction will not occur, we will discontinue cash flow hedge treatment, which
will affect earnings. There were no gains or losses due to the
discontinuance of cash flow hedge treatment during the three and six months
ended June 30, 2009 and 2008.
Other Derivative Instruments -
The following table sets forth the effect of our derivative instruments that are
not part of a hedging relationship on our Consolidated Statements of Income for
the periods indicated.
Derivatives
Not Designated as
Hedging
Instruments
|
Location
of Gain (Loss)
|
|
Three
Months Ended
June
30, 2009
|
|
|
Six
Months Ended
June
30, 2009
|
|
|
|
|
(Thousands
of dollars)
|
|
Commodity
contracts - trading
|
Revenues
|
|
$ |
104 |
|
|
$ |
3,409 |
|
Commodity
contracts - non-trading (a)
|
Cost
of gas and fuel
|
|
|
2,476 |
|
|
|
1,937 |
|
Foreign
exchange contracts
|
Revenues
|
|
|
585 |
|
|
|
323 |
|
Total
gain (loss) recognized in income on derivatives
|
|
$ |
3,165 |
|
|
$ |
5,669 |
|
(a)
- For the six months ended June 30, 2009, we recognized $2.1 million of
losses associated with the fair value of derivative instruments entered
into by our Distribution segment that were deferred as they are included
in, and recoverable through, the monthly purchased-gas cost
mechanism.
|
|
Fair Value Hedges - In prior
years, we terminated various interest-rate swap agreements. The net
savings from the termination of these swaps is being recognized in interest
expense over the terms of the debt instruments originally
hedged. Interest expense savings for the six months ended June 30,
2009, from amortization of terminated swaps was $5.2 million, and the remaining
amortization of terminated swaps will be recognized over the following
periods.
|
|
|
|
|
ONEOK
|
|
|
|
|
|
|
ONEOK
|
|
|
Partners
|
|
|
Total
|
|
|
|
(Millions
of dollars)
|
|
Remainder
of 2009
|
|
$ |
3.2 |
|
|
$ |
1.8 |
|
|
$ |
5.0 |
|
2010
|
|
$ |
6.4 |
|
|
$ |
3.7 |
|
|
$ |
10.1 |
|
2011
|
|
$ |
3.4 |
|
|
$ |
0.9 |
|
|
$ |
4.3 |
|
2012
|
|
$ |
1.7 |
|
|
$ |
- |
|
|
$ |
1.7 |
|
2013
|
|
$ |
1.7 |
|
|
$ |
- |
|
|
$ |
1.7 |
|
2014
|
|
$ |
1.7 |
|
|
$ |
- |
|
|
$ |
1.7 |
|
Thereafter
|
|
$ |
23.6 |
|
|
$ |
- |
|
|
$ |
23.6 |
|
ONEOK and
ONEOK Partners had no interest-rate swap agreements at June 30,
2009.
Our
Energy Services segment uses basis swaps to hedge the fair value of location
price differentials related to certain firm transportation
commitments. Net gains or losses from the fair value hedges and
ineffectiveness are recorded to cost of sales and fuel. The
ineffectiveness related to these hedges was immaterial for the six months ended
June 30, 2009 and 2008.
For the
three and six months ended June 30, 2009, cost of sales and fuel in our
Consolidated Statements of Income include gains of $46.6 million and $178.3
million, respectively, related to the change in fair value of derivatives
declared as fair value hedges. Revenues include losses of $46.6
million and $179.1 million for the three and six months ended June 30, 2009,
respectively, to recognize the change in fair value of the hedged firm
commitments.
Credit Risk - We monitor the
creditworthiness of our counterparties and compliance with management’s risk
tolerance as determined by our Risk Oversight and Strategy
Committee. We maintain credit policies with regard to our
counterparties that we believe minimize overall credit risk. These
policies include an evaluation of potential counterparties’ financial condition
(including credit ratings, bond yields and credit default swap rates),
collateral requirements under certain circumstances and the use of standardized
master netting agreements which allow us to net the positive and negative
exposures associated with a single counterparty. We have
counterparties that are not publicly rated and for those customers, we use
internally-developed credit ratings.
Some of
our derivative instruments contain provisions that require us to maintain an
investment grade credit rating from S&P and/or Moody’s. If our
credit ratings on senior unsecured long-term debt were to decline below
investment grade, we would be in violation of these provisions, and the
counterparties to the derivative instruments could request collateralization on
derivative instruments in net liability positions. The aggregate fair
value of all derivative instruments with contingent features related to credit
risk that were in a net liability position as of June 30, 2009, was $30.8
million for which we have posted collateral of $28.5 million in the normal
course of business. If the contingent features underlying these
agreements were triggered on June 30, 2009, we would be required to post an
additional $2.3 million of collateral to our counterparties.
The
counterparties to our derivative contracts consist primarily of major energy
companies, LDCs, electric utilities, financial institutions and commercial and
industrial end-users. This concentration of counterparties may impact
our overall exposure to credit risk, either positively or negatively, in that
the counterparties may be similarly affected by changes in economic, regulatory
or other conditions. Based on our policies, exposures, credit and
other reserves, we do not anticipate a material adverse effect on our financial
position or results of operations as a result of counterparty
nonperformance.
The
following table sets forth the net credit exposure from our derivative assets
for the period indicated.
|
|
June
30, 2009
|
|
|
|
Investment
|
|
|
Non-investment
|
|
|
Not
|
|
|
|
Grade
|
|
|
Grade
|
|
|
Rated
|
|
Counterparty
sector
|
|
(Thousands
of dollars)
|
|
Gas
and electric utilities
|
|
$ |
87,060 |
|
|
$ |
7,913 |
|
|
$ |
7,336 |
|
Oil
and gas
|
|
|
76,972 |
|
|
|
467 |
|
|
|
10,110 |
|
Industrial
|
|
|
9,263 |
|
|
|
- |
|
|
|
264 |
|
Financial
|
|
|
15,533 |
|
|
|
- |
|
|
|
11 |
|
Other
|
|
|
14 |
|
|
|
29 |
|
|
|
648 |
|
Total
|
|
$ |
188,842 |
|
|
$ |
8,409 |
|
|
$ |
18,369 |
|
D. OTHER
COMPREHENSIVE INCOME (LOSS)
The
following table sets forth the gross amount of other comprehensive income (loss)
and related tax (expense) benefit for the periods indicated.
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
June
30, 2009
|
|
|
June
30, 2008
|
|
|
|
Gross
|
|
|
Tax
(Expense)
or
Benefit
|
|
|
Net
|
|
|
Gross
|
|
|
Tax
(Expense)
or
Benefit
|
|
|
Net
|
|
|
|
(Thousands
of dollars)
|
|
Unrealized
losses on energy marketing
and
risk management assets/liabilities
|
|
$ |
(31,920 |
) |
|
$ |
9,743 |
|
|
$ |
(22,177 |
) |
|
$ |
(92,320 |
) |
|
$ |
26,071 |
|
|
$ |
(66,249 |
) |
Less:
Gains (losses) on energy marketing
and
risk management assets/liabilities
recognized
in net income
|
|
|
21,969 |
|
|
|
(5,176 |
) |
|
|
16,793 |
|
|
|
(15,217 |
) |
|
|
3,950 |
|
|
|
(11,267 |
) |
Unrealized
holding gains (losses) on
investment
securities arising
during
the period
|
|
|
518 |
|
|
|
(200 |
) |
|
|
318 |
|
|
|
(1,112 |
) |
|
|
430 |
|
|
|
(682 |
) |
Change
in pension and postretirement
benefit
plan liability
|
|
|
(5,317 |
) |
|
|
2,057 |
|
|
|
(3,260 |
) |
|
|
(4,025 |
) |
|
|
1,557 |
|
|
|
(2,468 |
) |
Other
|
|
|
29 |
|
|
|
(11 |
) |
|
|
18 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
comprehensive income (loss)
|
|
$ |
(58,659 |
) |
|
$ |
16,765 |
|
|
$ |
(41,894 |
) |
|
$ |
(82,240 |
) |
|
$ |
24,108 |
|
|
$ |
(58,132 |
) |
Less:
Other comprehensive income (loss)
attributable
to noncontrolling interests
|
|
|
(14,940 |
) |
|
|
- |
|
|
|
(14,940 |
) |
|
|
(19,913 |
) |
|
|
- |
|
|
|
(19,913 |
) |
Total
other comprehensive income (loss)
attributable
to ONEOK
|
|
$ |
(43,719 |
) |
|
$ |
16,765 |
|
|
$ |
(26,954 |
) |
|
$ |
(62,327 |
) |
|
$ |
24,108 |
|
|
$ |
(38,219 |
) |
|
|
Six
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2009
|
|
|
June
30, 2008
|
|
|
|
Gross
|
|
|
Tax
(Expense)
or
Benefit
|
|
|
Net
|
|
|
Gross
|
|
|
Tax
(Expense)
or
Benefit
|
|
|
Net
|
|
|
|
(Thousands
of dollars)
|
|
Unrealized
gains (losses) on energy
marketing
and risk management
assets/liabilities
|
|
$ |
66,809 |
|
|
$ |
(28,340 |
) |
|
$ |
38,469 |
|
|
$ |
(181,279 |
) |
|
$ |
62,709 |
|
|
$ |
(118,570 |
) |
Less:
Gains (losses) on energy marketing
and
risk management assets/liabilities
recognized
in net income
|
|
|
103,566 |
|
|
|
(32,853 |
) |
|
|
70,713 |
|
|
|
(960 |
) |
|
|
(3,040 |
) |
|
|
(4,000 |
) |
Unrealized
holding gains (losses) on
investment
securities arising
during
the period
|
|
|
824 |
|
|
|
(319 |
) |
|
|
505 |
|
|
|
(8,881 |
) |
|
|
3,435 |
|
|
|
(5,446 |
) |
Change
in pension and postretirement
benefit
plan liability
|
|
|
(9,450 |
) |
|
|
3,655 |
|
|
|
(5,795 |
) |
|
|
(8,050 |
) |
|
|
3,113 |
|
|
|
(4,937 |
) |
Other
|
|
|
270 |
|
|
|
(62 |
) |
|
|
208 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
comprehensive income (loss)
|
|
$ |
(45,113 |
) |
|
$ |
7,787 |
|
|
$ |
(37,326 |
) |
|
$ |
(197,250 |
) |
|
$ |
72,297 |
|
|
$ |
(124,953 |
) |
Less:
Other comprehensive income (loss)
attributable
to noncontrolling interests
|
|
|
(24,982 |
) |
|
|
- |
|
|
|
(24,982 |
) |
|
|
(18,626 |
) |
|
|
- |
|
|
|
(18,626 |
) |
Total
other comprehensive income (loss)
attributable
to ONEOK
|
|
$ |
(20,131 |
) |
|
$ |
7,787 |
|
|
$ |
(12,344 |
) |
|
$ |
(178,624 |
) |
|
$ |
72,297 |
|
|
$ |
(106,327 |
) |
The
following table sets forth the balance in accumulated other comprehensive income
(loss) for the periods indicated.
|
|
Unrealized
Gains
(Losses)
on Energy
Marketing
and Risk
Management
Assets/Liabilities
|
|
Unrealized
Holding
Gains
(Losses) on
Investment
Securities
|
|
Pension
and
Postretirement
Benefit
Plan
Obligations
|
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
|
|
(Thousands
of dollars)
|
|
December
31, 2008
|
|
$ |
27,913
|
|
|
$ |
814
|
|
|
$ |
(99,343)
|
|
|
$ |
(70,616)
|
|
Other
comprehensive income (loss)
attributable
to ONEOK
|
|
|
(7,054)
|
|
|
|
505
|
|
|
|
(5,795)
|
|
|
|
(12,344)
|
|
June
30, 2009
|
|
$ |
20,859
|
|
|
$ |
1,319
|
|
|
$ |
(105,138)
|
|
|
$ |
(82,960)
|
|
E. CAPITAL
STOCK
Dividends - Fourth-quarter
2008 and first-quarter 2009 quarterly dividends paid on our common stock to
shareholders of record as of the close of business on January 30, 2009, and
April 30, 2009, respectively, were $0.40 per share. Additionally, a
second-quarter 2009 dividend of $0.42 per share was declared for shareholders of
record on July 31, 2009, payable on August 14, 2009.
F. CREDIT
FACILITIES AND SHORT-TERM NOTES PAYABLE
ONEOK’s
$1.2 billion amended and restated credit agreement dated July 14, 2006 (ONEOK
Credit Agreement), which expires in July 2011, and ONEOK Partners’ $1.0 billion
amended and restated revolving credit agreement dated March 30, 2007 (ONEOK
Partners Credit Agreement), which expires in March 2012, contain certain
financial and other typical covenants as discussed in Note H of the Notes to
Consolidated Financial Statements in our Annual Report. Among other
things, the ONEOK Credit Agreement’s covenants include a limitation on ONEOK’s
stand-alone debt-to-capital ratio, which may not exceed 67.5 percent at the end
of any calendar quarter. At June 30, 2009, ONEOK’s stand-alone
debt-to-capital ratio, as calculated under the terms of the ONEOK Credit
Agreement, was 45.7 percent, and ONEOK was in compliance with all covenants
under the ONEOK Credit Agreement and the $400 million, 364-day revolving credit
facility dated August 6, 2008 (364-Day Facility).
ONEOK
Partners Credit Agreement’s covenants include, among other things, maintaining a
ratio of indebtedness to adjusted EBITDA (EBITDA as adjusted for all non-cash
charges and increased for projected EBITDA from certain lender-approved capital
expansion projects) of no more than 5 to 1. At June 30, 2009, ONEOK
Partners’ ratio of indebtedness to adjusted EBITDA was 4.3 to
1. ONEOK Partners was in compliance with all covenants under the
ONEOK Partners Credit Agreement at June 30, 2009.
At June
30, 2009, ONEOK had $329.9 million in commercial paper outstanding and $48.0
million in letters of credit issued under the ONEOK Credit
Agreement. At June 30, 2009, ONEOK had approximately $822.1 million
of credit available under the ONEOK Credit Agreement and $400.0 million under
the 364-Day Facility. The 364-Day Facility expired on August 5,
2009.
At June
30, 2009, ONEOK Partners had $360.0 million in borrowings outstanding and $586.5
million of credit available under the ONEOK Partners Credit
Agreement. ONEOK Partners had a total of $49.2 million issued in
letters of credit outside of the ONEOK Partners Credit Agreement.
Borrowings
under the ONEOK Credit Agreement and the ONEOK Partners Credit Agreement are
short term in nature, ranging from one day to six months. Accordingly,
these borrowings are classified as short-term notes payable.
G. LONG-TERM
DEBT
In
February 2009, ONEOK repaid $100 million of maturing long-term debt with cash
from operations and short-term borrowings.
ONEOK Partners’ Debt Issuance
- In March
2009, ONEOK Partners completed an underwritten public offering of $500 million
aggregate principal amount of 8.625 percent Senior Notes due 2019 (2019
Notes). The 2019 Notes were issued under ONEOK Partners’ existing
shelf registration statement filed with the SEC.
ONEOK
Partners may redeem the 2019 Notes, in whole or in part, at any time prior to
their maturity at a redemption price equal to the principal amount, plus accrued
and unpaid interest and a make-whole premium. The redemption price
will never be less than 100 percent of the principal amount of the 2019 Notes
plus accrued and unpaid interest to the redemption date. The 2019
Notes are senior unsecured obligations, ranking equally in right of payment with
all of ONEOK Partners’ existing and future unsecured senior indebtedness, and
effectively junior to all of the existing and future debt and other liabilities
of its non-guarantor subsidiaries. The 2019 Notes are nonrecourse to
ONEOK.
The net
proceeds from the 2019 Notes, after deducting underwriting discounts and
commissions and expenses, of approximately $494.3 million were used to repay
indebtedness outstanding under the ONEOK Partners Credit Agreement.
The 2019
Notes are fully and unconditionally guaranteed on a senior unsecured basis by
ONEOK Partners Intermediate Limited Partnership (Intermediate
Partnership). The guarantee ranks equally in right of payment to all
of the Intermediate Partnership’s existing and future unsecured senior
indebtedness.
The terms
of the 2019 Notes are governed by an indenture, dated as of September 25, 2006,
between ONEOK Partners and Wells Fargo Bank, N.A., as trustee, as supplemented
by the Fifth Supplemental Indenture, dated March 3, 2009
(Indenture). The Indenture does not limit the aggregate principal
amount of debt securities that may be issued and provides that debt securities
may be issued from time to time in one or more additional series. The
Indenture contains covenants including, among other provisions, limitations on
ONEOK Partners’ ability to place liens on its property or assets and to sell and
leaseback its property.
The 2019
Notes will mature on March 1, 2019. ONEOK Partners will pay interest
on the 2019 Notes on March 1 and September 1 of each year. The first
payment of interest on the 2019 Notes will be made on September 1,
2009. Interest on the 2019 Notes accrues from March 3, 2009, which
was the issuance date.
H. EMPLOYEE
BENEFIT PLANS
The
following table sets forth the components of net periodic benefit cost for our
pension and other postretirement benefit plans for the periods
indicated.
|
|
Pension
Benefits
|
|
|
Pension
Benefits
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
(Thousands
of dollars)
|
Components
of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
4,984 |
|
|
$ |
5,041 |
|
|
$ |
9,968 |
|
|
$ |
10,082 |
|
Interest
cost
|
|
|
13,454 |
|
|
|
12,451 |
|
|
|
28,659 |
|
|
|
24,902 |
|
Expected
return on assets
|
|
|
(16,508 |
) |
|
|
(15,317 |
) |
|
|
(33,016 |
) |
|
|
(30,634 |
) |
Amortization
of unrecognized prior service cost
|
|
|
391 |
|
|
|
388 |
|
|
|
782 |
|
|
|
776 |
|
Amortization
of net loss
|
|
|
4,330 |
|
|
|
2,386 |
|
|
|
11,144 |
|
|
|
4,772 |
|
Net
periodic benefit cost
|
|
$ |
6,651 |
|
|
$ |
4,949 |
|
|
$ |
17,537 |
|
|
$ |
9,898 |
|
|
|
Postretirement
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
(Thousands
of dollars)
|
Components
of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
1,294 |
|
|
$ |
1,419 |
|
|
$ |
2,587 |
|
|
$ |
2,838 |
|
Interest
cost
|
|
|
4,229 |
|
|
|
4,475 |
|
|
|
8,459 |
|
|
|
8,950 |
|
Expected
return on assets
|
|
|
(1,702 |
) |
|
|
(1,855 |
) |
|
|
(3,404 |
) |
|
|
(3,710 |
) |
Amortization
of unrecognized net asset at adoption
|
|
|
797 |
|
|
|
797 |
|
|
|
1,594 |
|
|
|
1,594 |
|
Amortization
of unrecognized prior service cost
|
|
|
(501 |
) |
|
|
(501 |
) |
|
|
(1,002 |
) |
|
|
(1,002 |
) |
Amortization
of net loss
|
|
|
2,415 |
|
|
|
2,743 |
|
|
|
4,830 |
|
|
|
5,486 |
|
Net
periodic benefit cost
|
|
$ |
6,532 |
|
|
$ |
7,078 |
|
|
$ |
13,064 |
|
|
$ |
14,156 |
|
I. COMMITMENTS
AND CONTINGENCIES
Investment in Northern Border
Pipeline - In March 2009, ONEOK Partners made an equity contribution
of $4.3 million to Northern Border Pipeline. Northern Border Pipeline
anticipates requiring an additional equity contribution of approximately $76
million from its partners in the third quarter of 2009, of which ONEOK Partners’
share will be approximately $38 million based on its 50 percent equity
interest.
Environmental Liabilities - We
are subject to multiple environmental, historical and wildlife preservation laws
and regulations affecting many aspects of our present and future
operations. Regulated activities include those involving air
emissions, stormwater and wastewater discharges, handling and disposal of solid
and hazardous wastes, hazardous materials transportation, and pipeline and
facility construction. These laws and regulations require us to
obtain and comply with a wide variety of environmental clearances,
registrations, licenses, permits and other approvals. Failure to
comply with these laws, regulations, permits and licenses may expose us to
fines, penalties and/or interruptions in our operations that could be material
to our results of operations. If a leak or spill of hazardous
substances or petroleum products occurs from lines or facilities that we own,
operate or otherwise use, we could be held jointly and severally liable for all
resulting liabilities, including response, investigation and clean up costs,
which could materially affect our results of operations and cash
flows. In addition, emission controls required under the federal
Clean Air Act and other similar federal and state laws could require unexpected
capital expenditures at our facilities. We cannot assure that
existing environmental regulations will not be revised or that new regulations
will not be adopted or become applicable to us. Revised or additional
regulations that result in increased compliance costs or additional operating
restrictions, could have a material adverse effect on our business, financial
condition and results of operations.
We own or
retain legal responsibility for the environmental conditions at 12 former
manufactured gas sites in Kansas. These sites contain potentially
harmful materials that are subject to control or remediation under various
environmental laws and regulations. A consent agreement with the KDHE
presently governs all work at these sites. The terms of the consent
agreement allow us to investigate these sites and set remediation activities
based upon the results of the investigations and risk
analysis. Remediation typically involves the management of
contaminated soils and may involve removal of structures and monitoring and/or
remediation of groundwater.
Of the 12
sites, we have begun soil remediation on 11 sites. Regulatory closure
has been achieved at two locations, and we have completed or are near completion
of soil remediation at nine sites. We have begun site assessment at
the remaining site where no active remediation has occurred.
Our
expenditures for environmental evaluation, mitigation and remediation to date
have not been significant in relation to our financial position or results of
operations, and there were no material effects upon earnings or cash flows
during the three and six months ended June 30, 2009 and 2008 related to
compliance with environmental regulations.
J. PROPERTY,
PLANT AND EQUIPMENT
The
following table sets forth our property, plant and equipment, by segment, for
the periods indicated.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands
of dollars)
|
|
Non-Regulated
|
|
|
|
|
|
|
ONEOK
Partners
|
|
$ |
2,522,084 |
|
|
$ |
2,465,369 |
|
Energy
Services
|
|
|
7,907 |
|
|
|
7,907 |
|
Other
|
|
|
233,078 |
|
|
|
225,479 |
|
Regulated
|
|
|
|
|
|
|
|
|
ONEOK
Partners
|
|
|
3,627,600 |
|
|
|
3,343,310 |
|
Distribution
|
|
|
3,489,951 |
|
|
|
3,434,554 |
|
Property,
plant and equipment
|
|
|
9,880,620 |
|
|
|
9,476,619 |
|
Accumulated
depreciation and amortization
|
|
|
2,289,760 |
|
|
|
2,212,850 |
|
Net
property, plant and equipment
|
|
$ |
7,590,860 |
|
|
$ |
7,263,769 |
|
Property,
plant and equipment on our Consolidated Balance Sheets includes construction
work in process for capital projects that have not yet been put in service and
therefore are not being depreciated. The following table sets forth
our construction work in process, by segment, for the periods
indicated.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
(Thousands
of dollars)
|
ONEOK
Partners
|
|
$ |
793,885 |
|
|
$ |
809,978 |
|
Distribution
|
|
|
21,291 |
|
|
|
57,038 |
|
Other
|
|
|
12,570 |
|
|
|
10,984 |
|
Total
construction work in process
|
|
$ |
827,746 |
|
|
$ |
878,000 |
|
K. SEGMENTS
Segment Descriptions - We have
divided our operations into four reportable business segments based on
similarities in economic characteristics, products and services, types of
customers, methods of distribution and regulatory environment. These
segments are as follows: (i) our ONEOK Partners segment gathers, processes,
transports, stores and sells natural gas and gathers, treats, fractionates,
stores, distributes and markets NGLs; (ii) our Distribution segment delivers
natural gas to residential, commercial and industrial customers, and transports
natural gas; (iii) our Energy Services segment markets natural gas to wholesale
and retail customers; and (iv) our Other segment primarily consists of the
operating and leasing operations of our headquarters building and a related
parking facility. Our Distribution segment is comprised of regulated
public utilities, and portions of our ONEOK Partners segment are also
regulated.
Accounting Policies - The
accounting policies of the segments are the same as those described in Note A
and Note M of the Notes to Consolidated Financial Statements in our Annual
Report. Intersegment sales are recorded on the same basis as sales to
unaffiliated customers and are discussed in further detail in Note
N. Net margin is comprised of total revenues less cost of sales and
fuel. Cost of sales and fuel includes commodity purchases, fuel and
transportation costs.
Customers - For the three and
six months ended June 30, 2009 and 2008, we had no single external customer from
which we received 10 percent or more of our consolidated revenues.
Operating Segment Information
- The following tables set forth certain selected financial information for our
operating segments for the periods indicated.
Three
Months Ended
June
30, 2009
|
|
ONEOK
Partners
(a)
|
|
Distribution
(b)
|
|
Energy
Services
|
|
|
Other
and Eliminations
|
|
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
Sales
to unaffiliated customers
|
|
$ |
1,289,487 |
|
|
$ |
276,599 |
|
|
$ |
660,772 |
|
|
$ |
769 |
|
|
$ |
2,227,627 |
|
Intersegment
revenues
|
|
|
107,570 |
|
|
|
2 |
|
|
|
66,339 |
|
|
|
(173,911 |
) |
|
|
- |
|
Total
revenues
|
|
$ |
1,397,057 |
|
|
$ |
276,601 |
|
|
$ |
727,111 |
|
|
$ |
(173,142 |
) |
|
$ |
2,227,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
margin
|
|
$ |
261,982 |
|
|
$ |
139,563 |
|
|
$ |
30,114 |
|
|
$ |
767 |
|
|
$ |
432,426 |
|
Operating
costs
|
|
|
100,507 |
|
|
|
99,467 |
|
|
|
10,530 |
|
|
|
(369 |
) |
|
|
210,135 |
|
Depreciation
and amortization
|
|
|
39,953 |
|
|
|
30,717 |
|
|
|
146 |
|
|
|
433 |
|
|
|
71,249 |
|
Gain
(loss) on sale of assets
|
|
|
3,276 |
|
|
|
486 |
|
|
|
- |
|
|
|
- |
|
|
|
3,762 |
|
Operating
income
|
|
$ |
124,798 |
|
|
$ |
9,865 |
|
|
$ |
19,438 |
|
|
$ |
703 |
|
|
$ |
154,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
earnings from investments
|
|
$ |
14,188 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
14,188 |
|
Capital
expenditures
|
|
$ |
129,366 |
|
|
$ |
32,632 |
|
|
$ |
- |
|
|
$ |
2,575 |
|
|
$ |
164,573 |
|
(a)
- Our ONEOK Partners segment has regulated and non-regulated
operations. Our ONEOK Partners segment's regulated operations had
revenues of $116.6 million, net margin of $96.9 million and operating
income of $40.5 million.
|
|
(b)
- All of our Distribution segment's operations are
regulated.
|
|
Three
Months Ended
June
30, 2008
|
|
ONEOK
Partners
(a)
|
|
Distribution
(b)
|
|
Energy
Services
|
|
|
Other
and Eliminations
|
|
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
Sales
to unaffiliated customers
|
|
$ |
1,939,570 |
|
|
$ |
374,115 |
|
|
$ |
1,858,380 |
|
|
$ |
801 |
|
|
$ |
4,172,866 |
|
Intersegment
revenues
|
|
|
204,322 |
|
|
|
2 |
|
|
|
167,284 |
|
|
|
(371,608 |
) |
|
|
- |
|
Total
revenues
|
|
$ |
2,143,892 |
|
|
$ |
374,117 |
|
|
$ |
2,025,664 |
|
|
$ |
(370,807 |
) |
|
$ |
4,172,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
margin
|
|
$ |
280,933 |
|
|
$ |
134,993 |
|
|
$ |
4,173 |
|
|
$ |
729 |
|
|
$ |
420,828 |
|
Operating
costs
|
|
|
87,158 |
|
|
|
93,883 |
|
|
|
8,357 |
|
|
|
(1,287 |
) |
|
|
188,111 |
|
Depreciation
and amortization
|
|
|
30,033 |
|
|
|
29,074 |
|
|
|
198 |
|
|
|
396 |
|
|
|
59,701 |
|
Gain
(loss) on sale of assets
|
|
|
(3 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
(4 |
) |
Operating
income
|
|
$ |
163,739 |
|
|
$ |
12,036 |
|
|
$ |
(4,382 |
) |
|
$ |
1,619 |
|
|
$ |
173,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
earnings from investments
|
|
$ |
17,610 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
17,610 |
|
Capital
expenditures
|
|
$ |
257,529 |
|
|
$ |
39,706 |
|
|
$ |
15 |
|
|
$ |
3,267 |
|
|
$ |
300,517 |
|
(a)
- Our ONEOK Partners segment has regulated and non-regulated
operations. Our ONEOK Partners segment's regulated operations had
revenues of $108.2 million, net margin of $79.0 million and operating
income of $37.1 million.
|
|
(b)
- All of our Distribution segment's operations are
regulated.
|
|
Six
Months Ended
June
30, 2009
|
|
ONEOK
Partners
(a)
|
|
Distribution
(b)
|
|
Energy
Services
|
|
|
Other
and Eliminations
|
|
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
Sales
to unaffiliated customers
|
|
$ |
2,396,217 |
|
|
$ |
1,030,954 |
|
|
$ |
1,588,753 |
|
|
$ |
1,530 |
|
|
$ |
5,017,454 |
|
Intersegment
revenues
|
|
|
251,705 |
|
|
|
4 |
|
|
|
251,752 |
|
|
|
(503,461 |
) |
|
|
- |
|
Total
revenues
|
|
$ |
2,647,922 |
|
|
$ |
1,030,958 |
|
|
$ |
1,840,505 |
|
|
$ |
(501,931 |
) |
|
$ |
5,017,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
margin
|
|
$ |
515,523 |
|
|
$ |
374,122 |
|
|
$ |
92,682 |
|
|
$ |
1,510 |
|
|
$ |
983,837 |
|
Operating
costs
|
|
|
189,953 |
|
|
|
189,544 |
|
|
|
18,036 |
|
|
|
(452 |
) |
|
|
397,081 |
|
Depreciation
and amortization
|
|
|
79,893 |
|
|
|
62,329 |
|
|
|
291 |
|
|
|
862 |
|
|
|
143,375 |
|
Gain
(loss) on sale of assets
|
|
|
3,940 |
|
|
|
486 |
|
|
|
- |
|
|
|
- |
|
|
|
4,426 |
|
Operating
income
|
|
$ |
249,617 |
|
|
$ |
122,735 |
|
|
$ |
74,355 |
|
|
$ |
1,100 |
|
|
$ |
447,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
earnings from investments
|
|
$ |
35,410 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
35,410 |
|
Investments
in unconsolidated
affiliates
|
|
$ |
735,394 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
735,394 |
|
Total
assets
|
|
$ |
7,400,746 |
|
|
$ |
2,680,850 |
|
|
$ |
963,681 |
|
|
$ |
788,446 |
|
|
$ |
11,833,723 |
|
Noncontrolling
interests in
consolidated
subsidiaries
|
|
$ |
5,472 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,245,001 |
|
|
$ |
1,250,473 |
|
Capital
expenditures
|
|
$ |
321,860 |
|
|
$ |
77,284 |
|
|
$ |
- |
|
|
$ |
8,456 |
|
|
$ |
407,600 |
|
(a)
- Our ONEOK Partners segment has regulated and non-regulated
operations. Our ONEOK Partners segment's regulated operations had
revenues of $235.8 million, net margin of $192.8 million and operating
income of $86.1 million.
|
|
(b)
- All of our Distribution segment's operations are
regulated.
|
|
Six
Months Ended
June
30, 2008
|
|
ONEOK
Partners
(a)
|
|
Distribution
(b)
|
|
Energy
Services
|
|
|
Other
and Eliminations
|
|
|
Total
|
|
|
|
(Thousands
of dollars)
|
|
Sales
to unaffiliated customers
|
|
$ |
3,815,270 |
|
|
$ |
1,287,776 |
|
|
$ |
3,970,224 |
|
|
$ |
1,672 |
|
|
$ |
9,074,942 |
|
Intersegment
revenues
|
|
|
387,657 |
|
|
|
4 |
|
|
|
399,243 |
|
|
|
(786,904 |
) |
|
|
- |
|
Total
revenues
|
|
$ |
4,202,927 |
|
|
$ |
1,287,780 |
|
|
$ |
4,369,467 |
|
|
$ |
(785,232 |
) |
|
$ |
9,074,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
margin
|
|
$ |
549,458 |
|
|
$ |
366,681 |
|
|
$ |
89,038 |
|
|
$ |
1,563 |
|
|
$ |
1,006,740 |
|
Operating
costs
|
|
|
175,240 |
|
|
|
188,065 |
|
|
|
18,522 |
|
|
|
(393 |
) |
|
|
381,434 |
|
Depreciation
and amortization
|
|
|
59,975 |
|
|
|
58,024 |
|
|
|
576 |
|
|
|
605 |
|
|
|
119,180 |
|
Gain
(loss) on sale of assets
|
|
|
28 |
|
|
|
(18 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
9 |
|
Operating
income
|
|
$ |
314,271 |
|
|
$ |
120,574 |
|
|
$ |
69,940 |
|
|
$ |
1,350 |
|
|
$ |
506,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
earnings from investments
|
|
$ |
45,393 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
45,393 |
|
Investments
in unconsolidated
affiliates
|
|
$ |
752,952 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
752,952 |
|
Total
assets
|
|
$ |
6,869,540 |
|
|
$ |
2,634,667 |
|
|
$ |
1,763,545 |
|
|
$ |
901,320 |
|
|
$ |
12,169,072 |
|
Noncontrolling
interests in
consolidated
subsidiaries
|
|
$ |
5,911 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
966,794 |
|
|
$ |
972,705 |
|
Capital
expenditures
|
|
$ |
524,587 |
|
|
$ |
70,355 |
|
|
$ |
15 |
|
|
$ |
45,091 |
|
|
$ |
640,048 |
|
(a)
- Our ONEOK Partners segment has regulated and non-regulated
operations. Our ONEOK Partners segment's regulated operations had
revenues of $224.0 million, net margin of $160.9 million and operating
income of $74.7 million.
|
|
(b)
- All of our Distribution segment's operations are
regulated.
|
|
L. UNCONSOLIDATED
AFFILIATES
Equity Earnings from
Investments - The following table sets forth our equity earnings from
investments for the periods indicated. All amounts in the table below
are equity earnings from investments in our ONEOK Partners segment.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands
of dollars)
|
|
Northern
Border Pipeline
|
|
$ |
5,454 |
|
|
$ |
8,880 |
|
|
$ |
21,492 |
|
|
$ |
28,661 |
|
Fort
Union Gas Gathering, L.L.C.
|
|
|
3,805 |
|
|
|
3,464 |
|
|
|
6,015 |
|
|
|
5,759 |
|
Bighorn
Gas Gathering, L.L.C.
|
|
|
1,824 |
|
|
|
2,005 |
|
|
|
3,910 |
|
|
|
4,323 |
|
Lost
Creek Gathering Company, L.L.C.
|
|
|
1,312 |
|
|
|
1,797 |
|
|
|
2,202 |
|
|
|
3,082 |
|
Other
|
|
|
1,793 |
|
|
|
1,464 |
|
|
|
1,791 |
|
|
|
3,568 |
|
Equity
earnings from investments
|
|
$ |
14,188 |
|
|
$ |
17,610 |
|
|
$ |
35,410 |
|
|
$ |
45,393 |
|
Unconsolidated Affiliates Financial
Information - The following table sets forth summarized combined
financial information of our unconsolidated affiliates for the periods
indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands
of dollars)
|
|
Income
Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$ |
87,951 |
|
|
$ |
95,040 |
|
|
$ |
194,017 |
|
|
$ |
206,435 |
|
Operating
expenses
|
|
$ |
44,429 |
|
|
$ |
45,201 |
|
|
$ |
89,232 |
|
|
$ |
88,545 |
|
Net
income
|
|
$ |
32,129 |
|
|
$ |
33,927 |
|
|
$ |
82,645 |
|
|
$ |
89,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
paid to us
|
|
$ |
30,142 |
|
|
$ |
33,214 |
|
|
$ |
63,473 |
|
|
$ |
60,627 |
|
M. EARNINGS
PER SHARE INFORMATION
The
following tables set forth the computations of basic and diluted EPS from
continuing operations for the periods indicated.
|
Three
Months Ended June 30, 2009
|
|
|
|
|
|
|
|
Per
Share
|
|
|
Income
|
|
|
Shares
|
|
Amount
|
|
(Thousands,
except per share amounts)
|
Basic
EPS from continuing operations
|
|
|
|
|
|
|
|
|
|
Net
income attributable to ONEOK available for common stock
|
|
$ |
41,679 |
|
|
|
105,335 |
|
|
$ |
0.40 |
|
Diluted
EPS from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of options and other dilutive securities
|
|
|
- |
|
|
|
615 |
|
|
|
|
|
Net
income attributable to ONEOK available for common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
and
common stock equivalents
|
|
$ |
41,679 |
|
|
|
105,950 |
|
|
$ |
0.39 |
|
|
Three
Months Ended June 30, 2008
|
|
|
|
|
|
|
|
Per
Share
|
|
|
Income
|
|
|
Shares
|
|
Amount
|
|
(Thousands,
except per share amounts)
|
Basic
EPS from continuing operations
|
|
|
|
|
|
|
|
|
|
Net
income attributable to ONEOK available for common stock
|
|
$ |
41,865 |
|
|
|
104,340 |
|
|
$ |
0.40 |
|
Diluted
EPS from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of options and other dilutive securities
|
|
|
- |
|
|
|
1,732 |
|
|
|
|
|
Net
income attributable to ONEOK available for common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
and
common stock equivalents
|
|
$ |
41,865 |
|
|
|
106,072 |
|
|
$ |
0.39 |
|
|
Six
Months Ended June 30, 2009
|
|
|
|
|
|
|
|
Per
Share
|
|
|
Income
|
|
|
Shares
|
|
Amount
|
|
(Thousands,
except per share amounts)
|
Basic
EPS from continuing operations
|
|
|
|
|
|
|
|
|
|
Net
income attributable to ONEOK available for common stock
|
|
$ |
163,964 |
|
|
|
105,249 |
|
|
$ |
1.56 |
|
Diluted
EPS from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of options and other dilutive securities
|
|
|
- |
|
|
|
599 |
|
|
|
|
|
Net
income attributable to ONEOK available for common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
and
common stock equivalents
|
|
$ |
163,964 |
|
|
|
105,848 |
|
|
$ |
1.55 |
|
|
Six
Months Ended June 30, 2008
|
|
|
|
|
|
|
|
Per
Share
|
|
|
Income
|
|
|
Shares
|
|
Amount
|
|
(Thousands,
except per share amounts)
|
Basic
EPS from continuing operations
|
|
|
|
|
|
|
|
|
|
Net
income attributable to ONEOK available for common stock
|
|
$ |
185,702 |
|
|
|
104,255 |
|
|
$ |
1.78 |
|
Diluted
EPS from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of options and other dilutive securities
|
|
|
- |
|
|
|
1,692 |
|
|
|
|
|
Net
income attributable to ONEOK available for common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
and
common stock equivalents
|
|
$ |
185,702 |
|
|
|
105,947 |
|
|
$ |
1.75 |
|
There
were 258,225 and 261,634 option shares excluded from the calculation of diluted
EPS for the three and six months ended June 30, 2009, respectively, since their
inclusion would have been anti-dilutive. There were no anti-dilutive
option shares for the three and six months ended June 30, 2008.
N. ONEOK
PARTNERS
Ownership Interest in ONEOK
Partners - Our ownership interest in ONEOK Partners is shown in the
following table for the periods indicated.
|
|
June
30,
|
|
December
31,
|
|
|
2009
|
|
2008
|
General
partner interest
|
2.0%
|
|
|
2.0%
|
|
|
Limited
partner interest
|
43.3%
|
(a)
|
|
45.7%
|
(a)
|
|
Total
ownership interest
|
45.3%
|
(b)
|
47.7%
|
|
|
(a)
- Represents 5.9 million common units and approximately 36.5 million Class
B units, which are convertible, at our option, into common
units.
|
(b)
- Following the July 2009 sale of additional ONEOK Partners' units, our
interest in ONEOK Partners was 45.1 percent.
|
|
|
|
|
|
|
|
|
In June
2009, ONEOK Partners completed an underwritten public offering of 5,000,000
common units at $45.81 per common unit, generating net proceeds of approximately
$219.9 million after deducting underwriting discounts but before offering
expenses. In conjunction with ONEOK Partners’ public offering of
common units, ONEOK Partners GP contributed $4.7 million to ONEOK Partners in
order to maintain its 2 percent general partner interest.
In July
2009, ONEOK Partners sold an additional 486,690 common units at $45.81 per
common unit to the underwriters of the public offering upon the partial exercise
of their option to purchase additional common units to cover
over-allotments. ONEOK Partners received net proceeds of
approximately $21.4 million from the sale of the common units after deducting
underwriting discounts but before offering expenses. In conjunction
with the partial exercise by the underwriters, ONEOK Partners GP contributed
$0.5 million to ONEOK Partners in order to maintain its 2 percent general
partner interest. Following these transactions, our interest in ONEOK
Partners is 45.1 percent.
Cash Distributions - The
following table sets forth ONEOK Partners’ general partner and incentive
distributions declared for the periods indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
(Thousands
of dollars)
|
General
partner distributions
|
|
$ |
2,551 |
|
|
$ |
2,346 |
|
|
$ |
4,970 |
|
|
$ |
4,619 |
|
Incentive
distributions
|
|
|
21,437 |
|
|
|
18,574 |
|
|
|
41,757 |
|
|
|
35,403 |
|
Total
distributions to general partner
|
|
$ |
23,988 |
|
|
$ |
20,920 |
|
|
$ |
46,727 |
|
|
$ |
40,022 |
|
The
quarterly distributions paid by ONEOK Partners to limited partners in each of
the first and second quarters of 2009 were $1.08 per unit. The
quarterly distributions paid by ONEOK Partners to limited partners in the first
and second quarters of 2008 were $1.025 per unit and $1.04 per unit,
respectively. In July 2009, ONEOK Partners declared a second-quarter
2009 cash distribution of $1.08 per unit payable in the third
quarter.
Relationship - We consolidate
ONEOK Partners in our consolidated financial statements; however, we are
restricted from the assets and cash flows of ONEOK Partners except for our
distributions. Distributions are declared quarterly by ONEOK
Partners’ general partner based on the terms of the ONEOK Partners partnership
agreement. For the three months ended June 30, 2009 and 2008, cash
distributions declared from ONEOK Partners to us totaled $69.8 million and $65.9
million, respectively. For the six months ended June 30, 2009 and
2008, cash distributions declared from ONEOK Partners to us totaled $138.3
million and $129.0 million, respectively. See Note K for more
information on ONEOK Partners’ results.
Affiliate Transactions - We
have certain transactions with our ONEOK Partners affiliate and its
subsidiaries, which comprise our ONEOK Partners segment.
ONEOK
Partners sells natural gas from its natural gas gathering and processing
operations to our Energy Services segment. In addition, a portion of
ONEOK Partners’ revenues from its natural gas pipelines business is from our
Energy Services and Distribution segments, which utilize ONEOK Partners’ natural
gas transportation and storage services. ONEOK Partners
also
purchases natural gas from our Energy Services segment for its natural gas
liquids and natural gas gathering and processing operations.
ONEOK
Partners has certain contractual rights to our Bushton Plant through a
Processing and Services Agreement with us, which sets out the terms for
processing and related services we provide at the Bushton Plant through
2012. ONEOK Partners has contracted for all of the capacity of the
Bushton Plant from our wholly owned subsidiary, OBPI. In exchange,
ONEOK Partners pays OBPI for all costs and expenses of the Bushton Plant,
including reimbursement of a portion of our obligations under equipment leases
covering the Bushton Plant.
We
provide a variety of services to our affiliates, including cash management and
financial services, administrative services provided by our employees and
management, insurance and office space leased in our headquarters building and
other field locations. Where costs are specifically incurred on
behalf of an affiliate, the costs are billed directly to the affiliate by
us. In other situations, the costs are allocated to the affiliates
through a variety of methods, depending upon the nature of the expenses and the
activities of the affiliates. For example, a service that applies
equally to all employees is allocated based upon the number of employees in each
affiliate. However, an expense benefiting the consolidated company
but having no direct basis for allocation is allocated by the modified Distrigas
method, a method using a combination of ratios that include gross plant and
investment, earnings before interest and taxes and payroll
expense. It is not practicable to determine what these general
overhead costs would be on a stand-alone basis.
The
following table sets forth transactions with ONEOK Partners for the periods
indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
(Thousands
of dollars)
|
Revenues
|
|
$ |
107,570 |
|
|
$ |
204,322 |
|
|
$ |
251,705 |
|
|
$ |
387,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales and fuel
|
|
$ |
9,416 |
|
|
$ |
24,731 |
|
|
$ |
26,054 |
|
|
$ |
60,060 |
|
Administrative
and general expenses
|
|
|
49,855 |
|
|
|
43,333 |
|
|
|
98,478 |
|
|
|
90,234 |
|
Total
expenses
|
|
$ |
59,271 |
|
|
$ |
68,064 |
|
|
$ |
124,532 |
|
|
$ |
150,294 |
|
ITEM
2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
The
following discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements and the Notes to Consolidated
Financial Statements in this Quarterly Report, as well as our Annual
Report. Due to the seasonal nature of our business, the results of
operations for the three and six months ended June 30, 2009, are not necessarily
indicative of the results that may be expected for a 12-month
period.
EXECUTIVE
SUMMARY
The
following discussion highlights some of our achievements and significant issues
affecting us for the periods presented. Please refer to the “Capital
Projects,” “Financial Results and Operating Information,” and “Liquidity and
Capital Resources” sections of Management’s Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated financial statements
for additional information.
Outlook - We expect
challenging economic conditions to persist for the remainder of 2009 and into
2010, compared with 2008, when we experienced unprecedented drilling activity,
supply growth and commodity price levels for natural gas, NGLs and crude
oil. We anticipate that lower commodity prices will continue to result in
reduced drilling activity, and current economic conditions will result in
reduced demand for NGL products from the petrochemical
industry. Although ONEOK has been able to access the commercial paper
markets, and ONEOK Partners has been able to access the debt and equity markets
for the liquidity and capital resource needs of each in 2009, we expect
continued volatility and possible disruption in the financial markets, which
could limit our access to those markets or increase the cost of issuing new
securities in the future. We expect that depressed commodity prices
and tighter capital markets will result in the sale or consolidation of
underperforming assets in the industry, which may present opportunities for
us.
Operating Results - Diluted
earnings per share of common stock from continuing operations (EPS) were $0.39
for the three months ended June 30, 2009, and 2008. For the six-month
period, EPS decreased to $1.55 from $1.75 for the same period last
year. Operating income for the three months ended June 30, 2009,
decreased to $154.8 million from $173.0 million for the same period last
year. For the six months ended June 30, 2009, operating income
decreased to $447.8 million from $506.1 million for the same period last
year. These decreases were primarily due to lower realized commodity
prices in our ONEOK Partners segment and were partially offset by increased NGL
throughput as a result of the completion of the Overland Pass Pipeline and
related expansion projects, as well as new NGL supply connections in our ONEOK
Partners segment.
ONEOK Partners Equity Issuance
- In June 2009, ONEOK Partners completed an underwritten public offering of
5,000,000 common units at $45.81 per common unit, generating net proceeds of
approximately $219.9 million after deducting underwriting discounts but before
offering expenses. In conjunction with ONEOK Partners’ public
offering of common units, ONEOK Partners GP contributed $4.7 million to ONEOK
Partners in order to maintain its 2 percent general partner
interest.
In July
2009, ONEOK Partners sold an additional 486,690 common units at $45.81 per
common unit to the underwriters of the public offering upon the partial exercise
of their option to purchase additional common units to cover
over-allotments. ONEOK Partners received net proceeds of
approximately $21.4 million from the sale of the common units after deducting
underwriting discounts but before offering expenses. In conjunction
with the partial exercise by the underwriters, ONEOK Partners GP contributed
$0.5 million to ONEOK Partners in order to maintain its 2 percent general
partner interest.
As a
result of these transactions, our interest in ONEOK Partners is 45.1
percent.
ONEOK
Partners used the proceeds from the sale of common units and the general partner
contributions to repay borrowings under its $1.0 billion amended and restated
revolving credit agreement dated March 30, 2007 (ONEOK Partners Credit
Agreement) and for general partnership purposes.
ONEOK Partners Debt Issuance -
In March 2009, ONEOK Partners completed an underwritten public offering of $500
million aggregate principal amount of 8.625 percent Senior Notes due
2019. ONEOK Partners used the proceeds from the offering to repay
indebtedness outstanding under the ONEOK Partners Credit
Agreement.
Dividends/Distributions - We
declared a quarterly dividend of $0.42 per share ($1.68 per share on an
annualized basis) in July 2009, an increase of approximately 5 percent from the
$0.40 per share declared in July 2008. ONEOK Partners declared a cash
distribution of $1.08 per unit ($4.32 per unit on an annualized basis) in July
2009, an increase of approximately 2 percent from the $1.06 per unit declared in
July 2008.
Capital Projects - ONEOK
Partners placed the following projects in service during the first six months of
2009:
·
|
Guardian
Pipeline’s expansion and extension
project;
|
·
|
D-J
Basin lateral pipeline; and
|
·
|
Williston
Basin gas processing plant
expansion.
|
CAPITAL
PROJECTS
All of
the capital projects discussed below are in our ONEOK Partners
segment.
Overland Pass Pipeline - In
November 2008, Overland Pass Pipeline Company completed construction of a
760-mile natural gas liquids pipeline from Opal, Wyoming, to the Mid-Continent
natural gas liquids market center in Conway, Kansas. The Overland
Pass Pipeline is designed to transport approximately 110 MBbl/d of
unfractionated NGLs and can be increased to approximately 255 MBbl/d with
additional pump facilities. At the end of the second quarter 2009,
approximately 85 MBbl/d were flowing on Overland Pass
Pipeline. Overland Pass Pipeline Company is a joint venture between
ONEOK Partners and a subsidiary of The Williams Companies, Inc.
(Williams). A subsidiary of ONEOK Partners owns 99 percent of the
joint venture and is currently operating the pipeline. On or before
November 17, 2010, Williams has the option to increase its ownership in Overland
Pass Pipeline Company, which includes the Piceance Lateral and D-J Basin Lateral
pipeline projects, up to 50 percent, with the purchase price being determined in
accordance with the joint venture’s operating agreement. If Williams
exercises its option to increase its ownership to the full 50 percent, Williams
would have the option to become operator. If Williams does not elect
to increase its ownership to at least 10 percent, ONEOK Partners will have the
right, but not the obligation, to purchase Williams’ entire ownership interest,
with the purchase price being determined in accordance with the joint venture’s
operating agreement. The pipeline project cost approximately $575
million, excluding AFUDC.
As part
of a long-term agreement, Williams dedicated its NGL production from two of its
natural gas processing plants in Wyoming, estimated to be approximately 70
MBbl/d, to the Overland Pass Pipeline. Subsidiaries of ONEOK Partners
are providing downstream fractionation, storage and transportation services to
Williams. ONEOK Partners has also reached agreements with certain
producers for supply commitments from the D-J Basin and Piceance Lateral
pipelines for up to an additional 80 MBbl/d and is negotiating agreements with
other producers for supply commitments that could add an additional 60 MBbl/d of
supply to this pipeline within the next three to five years.
ONEOK
Partners also invested approximately $239 million, excluding AFUDC, to expand
its existing fractionation and storage capabilities and to increase the capacity
of its natural gas liquids distribution pipelines. Part of this
expansion included adding new fractionation facilities at ONEOK Partners’
Bushton, Kansas location, which increased the total fractionation capacity at
the Bushton facility to 150 MBbl/d from 80 MBbl/d. The addition of
the new facilities and the upgrade to the existing fractionator were completed
in October 2008. Additionally, portions of the natural gas liquids
distribution pipeline upgrades were completed in the second and third quarters
of 2008.
Piceance Lateral Pipeline - In
October 2008, Overland Pass Pipeline Company began construction of a 150-mile
lateral pipeline with capacity to transport as much as 100 MBbl/d of
unfractionated NGLs from the Piceance Basin in Colorado to the Overland Pass
Pipeline. Williams will dedicate its NGL production from an existing
natural gas processing plant and a new natural gas processing plant, with
estimated volumes totaling approximately 30 MBbl/d, to be transported by the
lateral pipeline. ONEOK Partners continues to negotiate with other
producers for supply commitments. Construction is expected to be
completed during the third quarter of 2009. The project is currently
estimated to cost in the range of $110 million to $140 million, excluding
AFUDC.
D-J Basin Lateral Pipeline -
In March 2009, Overland Pass Pipeline Company placed in service the 125-mile
natural gas liquids lateral pipeline from the Denver-Julesburg Basin in
northeastern Colorado to the Overland Pass Pipeline. The pipeline has
capacity to transport as much as 55 MBbl/d of unfractionated
NGLs. The project cost was approximately $70 million, excluding
AFUDC. Volumes are expected to exceed 31 MBbl/d during the third
quarter of 2009, with the potential for an additional 10 MBbl/d from new
drilling and plant upgrades in the next two years.
Arbuckle Natural Gas Liquids
Pipeline - In July 2009, ONEOK Partners completed construction of the
440-mile Arbuckle pipeline project, a natural gas liquids pipeline system that
delivers unfractionated NGLs from points in southern Oklahoma and Texas to the
Texas Gulf Coast. The Arbuckle pipeline system has the capacity to
transport 160 MBbl/d of unfractionated NGLs, expandable to 210 MBbl/d with
additional pump facilities, and connects with ONEOK Partners’ existing
Mid-Continent infrastructure with its fractionation facility in Mont Belvieu,
Texas, and other Gulf Coast region fractionators. ONEOK Partners has
NGL production dedicated from existing and new natural gas processing plants
that it expects will be sufficient to fill the 210 MBbl/d capacity level over
the next three to five years.
The
demand for surface easements increased dramatically in Texas and Oklahoma over
the last two years because of increased oil and natural gas exploration and
production activities, as well as pipeline construction. As
previously reported, project costs have been more expensive than originally
estimated due to delays associated with right-of-way acquisition and difficult
construction conditions associated with several weeks of heavy spring rains,
resulting in greatly reduced construction productivity. ONEOK
Partners has also experienced increased costs due to a number of scope changes,
arising primarily from additional supply development
opportunities. ONEOK Partners currently estimates project costs will
be approximately $490 million, excluding AFUDC. ONEOK Partners began
filling the pipeline with product in July 2009, and expects to place the project
in service in August 2009, with volumes reaching 65 MBbl/d by the end of the
third quarter of 2009.
Williston Basin Gas Processing Plant
Expansion - The expansion of ONEOK Partners’ Grasslands natural gas
processing facility in North Dakota was placed in service in March 2009.
The expansion increased processing capacity to approximately 100 MMcf/d from its
previous capacity of 63 MMcf/d and increased fractionation capacity to
approximately 12 MBbl/d from 8 MBbl/d. The cost of the project was
approximately $46 million, excluding AFUDC.
Guardian Pipeline Expansion and
Extension - In February 2009, ONEOK Partners completed the 119-mile
extension of its Guardian Pipeline. The pipeline has capacity to
transport 537 MMcf/d of natural gas north from Ixonia, Wisconsin, to the Green
Bay, Wisconsin, area. The project is supported by 15-year shipper
commitments with We Energies and Wisconsin Public Service Corporation, and the
capacity is close to fully subscribed. The project cost approximately
$325 million, excluding AFUDC.
REGULATORY
Several
regulatory initiatives impacted the earnings and future earnings potential for
our Distribution segment. See discussion of our Distribution
segment’s regulatory initiatives on page 43.
IMPACT
OF NEW ACCOUNTING STANDARDS
Information
about the impact of the following new accounting standards is included in Note A
of the Notes to Consolidated Financial Statements in this Quarterly
Report:
·
|
Statement
160, “Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51;”
|
·
|
Statement
161, “Disclosures about Derivative Instruments and Hedging Activities - an
amendment to FASB Statement No.
133;”
|
·
|
Statement
157, “Fair Value Measurements;”
|
·
|
FSP
107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial
Instruments;”
|
·
|
FSP
132R-1, “Employers’ Disclosures about Postretirement Benefit Plan
Assets;”
|
·
|
Statement
165, “Subsequent Events;” and
|
·
|
Statement
168, “The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting
Principles.”
|
CRITICAL
ACCOUNTING ESTIMATES
The
preparation of our consolidated financial statements and related disclosures in
accordance with GAAP requires us to make estimates and assumptions with respect
to values or conditions that cannot be known with certainty that affect the
reported amount of assets and liabilities, and the disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements. These estimates and assumptions also affect the reported
amounts of revenues and expenses during the reporting
period. Although we believe these estimates and assumptions are
reasonable, actual results could differ from our estimates.
Information
about our critical accounting estimates is included under Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, “Critical Accounting Estimates,” in our Annual
Report.
Impairment of Goodwill - We
assess our goodwill for impairment at least annually. Our July 1,
2009, impairment test will be completed in the third quarter of
2009. As part of our impairment test, an initial assessment is
made by comparing the fair value of a reporting unit with its book value,
including goodwill. To estimate the fair value of our reporting
units, we use two generally accepted valuation approaches, an income approach
and a market approach. Under the income approach, we use anticipated
cash flows over a period of years plus a terminal value and discount these
amounts to their present value using appropriate rates of
return. Under the market approach, we apply multiples to forecasted
EBITDA amounts. The multiples used are consistent with historical
asset transactions, and the EBITDA amounts are based on average EBITDA for a
reporting unit over a three-year forecasted period.
There
were no impairment charges resulting from our July 1, 2008, impairment
test. As a result of events in the financial markets and
deteriorating economic conditions following our July 1, 2008, impairment test,
we performed subsequent reviews and determined that interim testing of goodwill
was not indicated. Our estimates of fair value significantly exceeded
the book value of our reporting units in our July 1, 2008, impairment test and
our subsequent reviews. Even if the estimated fair values used in our
impairment test were reduced by 10 percent, no impairment charges would have
resulted from our July 1, 2008 impairment test. At June 30, 2009, and
December 31, 2008, we had $602.8 million of goodwill recorded on our
Consolidated Balance Sheets.
Derivatives and Risk Management
- We utilize financial instruments to reduce our market risk exposure to
commodity price and interest rate risk. We do not believe that
changes in our fair value estimates of our derivative instruments have a
material impact on our results of operations, as the majority of our derivatives
are accounted for as hedges for which ineffectiveness is not
material. See Notes B and C of the Notes to Consolidated
Financial Statements in this Quarterly Report for additional discussion of our
fair value measurements and derivatives and risk management
activities.
FINANCIAL
RESULTS AND OPERATING INFORMATION
Consolidated
Operations
Selected Financial Results -
The following table sets forth certain selected consolidated financial results
for the periods indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
Increase
(Decrease)
|
|
|
Increase
(Decrease)
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
Three
Months
|
|
|
Six
Months
|
|
Financial
Results
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
vs. 2008
|
|
|
2009
vs. 2008
|
|
|
(Millions
of dollars)
|
|
Revenues
|
|
$ |
2,227.6 |
|
|
$ |
4,172.9 |
|
|
$ |
5,017.4 |
|
|
$ |
9,074.9 |
|
|
$ |
(1,945.3 |
) |
|
|
(47 |
%) |
|
$ |
(4,057.5 |
) |
|
|
(45 |
%) |
Cost
of sales and fuel
|
|
|
1,795.2 |
|
|
|
3,752.1 |
|
|
|
4,033.6 |
|
|
|
8,068.2 |
|
|
|
(1,956.9 |
) |
|
|
(52 |
%) |
|
|
(4,034.6 |
) |
|
|
(50 |
%) |
Net
margin
|
|
|
432.4 |
|
|
|
420.8 |
|
|
|
983.8 |
|
|
|
1,006.7 |
|
|
|
11.6 |
|
|
|
3 |
% |
|
|
(22.9 |
) |
|
|
(2 |
%) |
Operating
costs
|
|
|
210.1 |
|
|
|
188.1 |
|
|
|
397.1 |
|
|
|
381.4 |
|
|
|
22.0 |
|
|
|
12 |
% |
|
|
15.7 |
|
|
|
4 |
% |
Depreciation
and amortization
|
|
|
71.2 |
|
|
|
59.7 |
|
|
|
143.4 |
|
|
|
119.2 |
|
|
|
11.5 |
|
|
|
19 |
% |
|
|
24.2 |
|
|
|
20 |
% |
Gain
(loss) on sale of assets
|
|
|
3.7 |
|
|
|
- |
|
|
|
4.5 |
|
|
|
- |
|
|
|
3.7 |
|
|
|
100 |
% |
|
|
4.5 |
|
|
|
100 |
% |
Operating
income
|
|
$ |
154.8 |
|
|
$ |
173.0 |
|
|
$ |
447.8 |
|
|
$ |
506.1 |
|
|
$ |
(18.2 |
) |
|
|
(11 |
%) |
|
$ |
(58.3 |
) |
|
|
(12 |
%) |
Equity
earnings from investments
|
|
$ |
14.2 |
|
|
$ |
17.6 |
|
|
$ |
35.4 |
|
|
$ |
45.4 |
|
|
$ |
(3.4 |
) |
|
|
(19 |
%) |
|
$ |
(10.0 |
) |
|
|
(22 |
%) |
Allowance
for equity funds used
during
construction
|
|
$ |
9.5 |
|
|
$ |
11.7 |
|
|
$ |
18.5 |
|
|
$ |
20.2 |
|
|
$ |
(2.2 |
) |
|
|
(19 |
%) |
|
$ |
(1.7 |
) |
|
|
(8 |
%) |
Other
income (expense)
|
|
$ |
6.5 |
|
|
$ |
0.3 |
|
|
$ |
4.3 |
|
|
$ |
(1.1 |
) |
|
$ |
6.2 |
|
|
|
* |
|
|
$ |
5.4 |
|
|
|
* |
|
Interest
expense
|
|
$ |
(73.4 |
) |
|
$ |
(59.1 |
) |
|
$ |
(151.4 |
) |
|
$ |
(121.9 |
) |
|
$ |
14.3 |
|
|
|
24 |
% |
|
$ |
29.5 |
|
|
|
24 |
% |
Net
income attributable to
noncontrolling
interests
|
|
$ |
39.7 |
|
|
$ |
71.1 |
|
|
$ |
80.9 |
|
|
$ |
140.1 |
|
|
$ |
(31.4 |
) |
|
|
(44 |
%) |
|
$ |
(59.2 |
) |
|
|
(42 |
%) |
Capital
expenditures
|
|
$ |
164.6 |
|
|
$ |
300.5 |
|
|
$ |
407.6 |
|
|
$ |
640.0 |
|
|
$ |
(135.9 |
) |
|
|
(45 |
%) |
|
$ |
(232.4 |
) |
|
|
(36 |
%) |
*
Percentage change is greater than 100 percent.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
margin increased for the three months ended June 30, 2009, compared with the
same period last year, primarily due to the following:
·
|
increased
NGL throughput as a result of the completion of the Overland Pass Pipeline
and related expansion projects, as well as new NGL supply connections in
our ONEOK Partners segment;
|
·
|
an
increase in transportation margins, net of hedging activities, in our
Energy Services segment;
|
·
|
incremental
natural gas transportation margins from the Guardian Pipeline expansion
and extension that was placed into service in early 2009 in our ONEOK
Partners segment; and
|
·
|
the
implementation of new rate mechanisms in our Distribution segment;
partially offset by
|
·
|
lower
realized commodity prices and narrower NGL product price differentials in
our ONEOK Partners segment.
|
Net
margin decreased for the six months ended June 30, 2009, compared with the same
period last year, primarily due to the following:
·
|
lower
realized commodity prices and narrower NGL product price differentials in
our ONEOK Partners segment; partially offset
by
|
·
|
increased
NGL throughput as a result of the completion of the Overland Pass Pipeline
and related expansion projects, as well as new NGL supply connections in
our ONEOK Partners segment;
|
·
|
incremental
natural gas transportation margins from the Guardian Pipeline expansion
and extension that was placed into service in early 2009 in our ONEOK
Partners segment;
|
·
|
higher
volumes processed and sold in our ONEOK Partners segment’s gathering and
processing business; and
|
·
|
the
implementation of new rate mechanisms in our Distribution
segment.
|
Operating
costs increased for the three and six months ended June 30, 2009, compared with
the same periods last year, primarily due to higher operating costs at ONEOK
Partners’ NGL fractionation facilities, which included incremental operating
expenses associated with the recently expanded Bushton Plant that resumed
operations in the third quarter of 2008, the operations of Overland Pass
Pipeline that began in the fourth quarter of 2008, and increased
employee-related costs in our Distribution and Energy Services
segments. These increases were slightly offset by lower bad-debt
expense in our Distribution segment.
Depreciation
and amortization expense increased for the three and six months ended June 30,
2009, compared with the same periods last year, primarily due to higher
depreciation expense associated with ONEOK Partners’ completed capital
projects.
Equity
earnings from investments decreased for the three and six months ended June 30,
2009, compared with the same periods last year, primarily due to lower
subscription volumes and rates on Northern Border Pipeline, of which ONEOK
Partners owns a 50 percent interest, and lower volumes gathered in ONEOK
Partners’ various other equity investments.
Interest
expense increased for the three and six months ended June 30, 2009, compared
with the same periods last year, primarily due to increased borrowings by ONEOK
Partners to fund its capital projects.
Noncontrolling
interests in income of consolidated subsidiaries for the three and six months
ended June 30, 2009 and 2008, primarily reflects the remaining 54.7 percent and
52.3 percent, respectively, of ONEOK Partners that we do not own. The
decrease in noncontrolling interests is due to the decrease in income for our
ONEOK Partners segment.
Capital
expenditures decreased for the three and six months ended June 30, 2009,
compared with the same periods last year, due to the completion of the Overland
Pass Pipeline and related expansion projects, the Williston Basin gas processing
plant expansion and the Guardian Pipeline expansion and extension in our ONEOK
Partners segment. This decrease was partially offset by a one-time
payment to terminate vehicle and other equipment leases in our Distribution
segment.
Additional
information regarding our financial results and operating information is
provided in the following discussion for each of our segments.
ONEOK
Partners
Overview - We currently own a
45.1 percent equity interest in ONEOK Partners. The remaining
interest in ONEOK Partners is reflected as net income attributable to
noncontrolling interests on our Consolidated Statements of Income and in
noncontrolling interests in consolidated subsidiaries on our Consolidated
Balance Sheets. See Note N of the Notes to Consolidated Financial
Statements in this Quarterly Report for additional information on the ONEOK
Partners’ equity issuance and related transactions.
Our ONEOK
Partners segment is engaged in the gathering and processing of unprocessed
natural gas and fractionation of NGLs, primarily in the Mid-Continent and Rocky
Mountain regions covering Oklahoma, Kansas, Montana, North Dakota and
Wyoming. These operations include the gathering of unprocessed
natural gas produced from crude oil and natural gas wells. Through
gathering systems, unprocessed natural gas is aggregated and treated or
processed for removal of water vapor, solids and other contaminants, and to
extract NGLs in order to provide marketable natural gas, commonly referred to
as
residue gas. When the NGLs are separated from the unprocessed natural
gas at the processing plants, the NGLs are generally in the form of a mixed,
unfractionated NGL stream.
ONEOK
Partners also gathers, treats, fractionates, transports and stores
NGLs. ONEOK Partners’ natural gas liquids gathering pipelines deliver
unfractionated NGLs gathered from natural gas processing plants located in
Oklahoma, Kansas, the Texas panhandle and the Rocky Mountain region to
fractionators it owns in Oklahoma, Kansas and Texas. The NGLs are
then separated through the fractionation process into the individual NGL
products that realize the greater economic value of the NGL
components. The individual NGL products are then stored or
distributed to petrochemical manufacturers, heating fuel users, refineries and
propane distributors through ONEOK Partners’ FERC-regulated distribution
pipelines that move NGL products from Oklahoma and Kansas to the market centers
in Conway, Kansas, and Mont Belvieu, Texas, as well as the Midwest markets near
Chicago, Illinois.
ONEOK
Partners operates interstate and intrastate natural gas transmission pipelines,
natural gas storage facilities and non-processable natural gas gathering
facilities. ONEOK Partners also provides natural gas transportation
and storage services in accordance with Section 311(a) of the Natural Gas Policy
Act. ONEOK Partners’ interstate assets transport natural gas through
FERC-regulated interstate natural gas pipelines that access supply from Canada
and from the Mid-Continent, Rocky Mountain and Gulf Coast
regions. ONEOK Partners’ intrastate natural gas pipeline assets in
Oklahoma have access to major natural gas producing areas and transport natural
gas throughout the state. ONEOK Partners also has access to the major
natural gas producing area in south central Kansas. In Texas, its
intrastate natural gas pipelines are connected to the major natural gas
producing areas in the Texas panhandle and the Permian Basin, and transport gas
to the Waha Hub, where other pipelines may be accessed for transportation east
to the Houston Ship Channel market, north into the Mid-Continent market and west
to the California market. ONEOK Partners owns or leases storage
capacity in underground natural gas storage facilities in Oklahoma, Kansas and
Texas.
Selected Financial Results and
Operating Information - The following table sets forth certain selected
financial results for our ONEOK Partners segment for the periods
indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
Increase
(Decrease)
|
|
|
Increase
(Decrease)
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
Three
Months
|
|
|
Six
Months
|
|
Financial
Results
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
vs. 2008
|
|
|
2009
vs. 2008
|
|
|
(Millions
of dollars)
|
|
Revenues
|
|
$ |
1,397.1 |
|
|
$ |
2,143.9 |
|
|
$ |
2,647.9 |
|
|
$ |
4,202.9 |
|
|
$ |
(746.8 |
) |
|
|
(35 |
%) |
|
$ |
(1,555.0 |
) |
|
|
(37 |
%) |
Cost
of sales and fuel
|
|
|
1,135.1 |
|
|
|
1,863.0 |
|
|
|
2,132.3 |
|
|
|
3,653.4 |
|
|
|
(727.9 |
) |
|
|
(39 |
%) |
|
|
(1,521.1 |
) |
|
|
(42 |
%) |
Net
margin
|
|
|
262.0 |
|
|
|
280.9 |
|
|
|
515.6 |
|
|
|
549.5 |
|
|
|
(18.9 |
) |
|
|
(7 |
%) |
|
|
(33.9 |
) |
|
|
(6 |
%) |
Operating
costs
|
|
|
100.5 |
|
|
|
87.2 |
|
|
|
190.0 |
|
|
|
175.2 |
|
|
|
13.3 |
|
|
|
15 |
% |
|
|
14.8 |
|
|
|
8 |
% |
Depreciation
and amortization
|
|
|
40.0 |
|
|
|
30.0 |
|
|
|
79.9 |
|
|
|
60.0 |
|
|
|
10.0 |
|
|
|
33 |
% |
|
|
19.9 |
|
|
|
33 |
% |
Gain
on sale of assets
|
|
|
3.3 |
|
|
|
- |
|
|
|
3.9 |
|
|
|
- |
|
|
|
3.3 |
|
|
|
100 |
% |
|
|
3.9 |
|
|
|
100 |
% |
Operating
income
|
|
$ |
124.8 |
|
|
$ |
163.7 |
|
|
$ |
249.6 |
|
|
$ |
314.3 |
|
|
$ |
(38.9 |
) |
|
|
(24 |
%) |
|
$ |
(64.7 |
) |
|
|
(21 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
earnings from investments
|
|
$ |
14.2 |
|
|
$ |
17.6 |
|
|
$ |
35.4 |
|
|
$ |
45.4 |
|
|
$ |
(3.4 |
) |
|
|
(19 |
%) |
|
$ |
(10.0 |
) |
|
|
(22 |
%) |
Allowance
for equity funds used
during
construction
|
|
$ |
9.5 |
|
|
$ |
11.7 |
|
|
$ |
18.5 |
|
|
$ |
20.2 |
|
|
$ |
(2.2 |
) |
|
|
(19 |
%) |
|
$ |
(1.7 |
) |
|
|
(8 |
%) |
Capital
expenditures
|
|
$ |
129.4 |
|
|
$ |
257.5 |
|
|
$ |
321.9 |
|
|
$ |
524.6 |
|
|
$ |
(128.1 |
) |
|
|
(50 |
%) |
|
$ |
(202.7 |
) |
|
|
(39 |
%) |
Net
margin decreased for the three months ended June 30, 2009, compared with the
same period last year, primarily due to the following:
·
|
a
decrease of $34.0 million due to significantly lower realized commodity
prices in ONEOK Partners’ natural gas gathering and processing
business;
|
·
|
a
decrease of $7.4 million due to the impact of lower natural gas prices on
retained fuel in ONEOK Partners’ natural gas pipelines businesses;
and
|
·
|
a
decrease of $7.1 million due to narrower NGL product price differentials
in ONEOK Partners’ natural gas liquids gathering and fractionation
business; partially offset by
|
·
|
an
increase of $23.5 million in ONEOK Partners’ natural gas liquids
businesses primarily due to increased NGL throughput as a result of the
completion of the Overland Pass Pipeline and related expansion projects,
as well as new NGL supply connections;
and
|
·
|
incremental
net margin of $8.3 million due to the Guardian Pipeline expansion and
extension that was placed into service in early 2009 in ONEOK Partners’
natural gas pipelines business.
|
Net
margin decreased for the six months ended June 30, 2009, compared with the same
period last year, primarily due to the following:
·
|
a
decrease of $61.4 million due to significantly lower realized commodity
prices in ONEOK Partners’ natural gas gathering and processing
business;
|
·
|
a
decrease of $28.0 million due to narrower NGL product price differentials
in ONEOK Partners’ natural gas liquids gathering and fractionation
business;
|
·
|
a
decrease of $11.7 million due to the impact of lower natural gas prices on
retained fuel in ONEOK Partners’ natural gas pipelines business; partially
offset by
|
·
|
an
increase of $47.6 million in ONEOK Partners’ natural gas liquids
businesses, primarily due to increased NGL throughput as a result of the
completion of the Overland Pass Pipeline and related expansion projects,
as well as new NGL supply
connections;
|
·
|
incremental
net margin of $13.2 million due to the Guardian Pipeline expansion and
extension that was placed into service in early 2009 in ONEOK Partners’
natural gas pipelines business; and
|
·
|
an
increase of $7.4 million due to higher volumes processed and sold in ONEOK
Partners’ natural gas gathering and processing
business.
|
Operating
costs increased for the three and six months ended June 30, 2009, compared with
the same periods last year, primarily due to higher operating costs at ONEOK
Partners’ fractionation facilities, which included incremental operating
expenses associated with the recently expanded Bushton Plant that resumed
operations in the third quarter of 2008, and due to the operations of the
Overland Pass Pipeline that began in the fourth quarter of 2008.
Depreciation
and amortization expense increased for the three and six months ended June 30,
2009, compared with the same periods last year, primarily due to higher
depreciation expense associated with ONEOK Partners’ completed capital
projects.
Equity
earnings from investments decreased for the three and six months ended June 30,
2009, compared with the same periods last year, primarily due to lower
subscription volumes and rates on Northern Border Pipeline and lower volumes
gathered in ONEOK Partners’ various other equity investments.
Capital
expenditures decreased for the three and six months ended June 30, 2009,
compared with the same periods last year, primarily due to the completion of the
Overland Pass Pipeline and related expansion projects, the Williston Basin gas
processing plant expansion and the Guardian Pipeline expansion and
extension.
Selected Operating Information
- The following table sets forth selected operating information for our ONEOK
Partners segment for the periods indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
Operating
Information
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Natural
gas gathered (BBtu/d)
(a)
|
|
|
1,130 |
|
|
|
1,185 |
|
|
|
1,147 |
|
|
|
1,188 |
|
Natural
gas processed (BBtu/d)
(a)
|
|
|
658 |
|
|
|
651 |
|
|
|
655 |
|
|
|
637 |
|
Natural
gas transportation capacity contracted (MMcf/d)
|
|
|
5,264 |
|
|
|
4,816 |
|
|
|
5,205 |
|
|
|
4,883 |
|
Residue
gas sales (BBtu/d)
(a)
|
|
|
291 |
|
|
|
281 |
|
|
|
288 |
|
|
|
279 |
|
NGLs
gathered (MBbl/d)
|
|
|
364 |
|
|
|
253 |
|
|
|
344 |
|
|
|
252 |
|
NGL
sales (MBbl/d)
|
|
|
401 |
|
|
|
265 |
|
|
|
391 |
|
|
|
275 |
|
NGLs
fractionated (MBbl/d)
|
|
|
479 |
|
|
|
371 |
|
|
|
472 |
|
|
|
381 |
|
NGLs
transported (MBbl/d)
|
|
|
461 |
|
|
|
308 |
|
|
|
453 |
|
|
|
305 |
|
Conway-to-Mont
Belvieu OPIS average price differential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethane
($/gallon)
|
|
$ |
0.12 |
|
|
$ |
0.13 |
|
|
$ |
0.10 |
|
|
$ |
0.11 |
|
Realized
composite NGL sales prices ($/gallon)
(a)
|
|
$ |
0.69 |
|
|
$ |
1.49 |
|
|
$ |
0.67 |
|
|
$ |
1.41 |
|
Realized
condensate sales price ($/Bbl)
(a)
|
|
$ |
72.15 |
|
|
$ |
102.77 |
|
|
$ |
67.04 |
|
|
$ |
95.82 |
|
Realized
residue gas sales price ($/MMBtu)
(a)
|
|
$ |
2.79 |
|
|
$ |
9.42 |
|
|
$ |
3.18 |
|
|
$ |
8.41 |
|
Realized
gross processing spread
($/MMBtu) (a)
|
|
$ |
6.34 |
|
|
$ |
6.69 |
|
|
$ |
6.34 |
|
|
$ |
7.06 |
|
(a)
- Statistics relate to ONEOK Partners’ natural gas gathering and
processing business.
|
|
|
|
|
|
|
|
|
|
Commodity Price Risk - The
following tables set forth ONEOK Partners’ hedging information for the remainder
of 2009 and for the year ending December 31, 2010, as of August 4,
2009.
|
|
Six
Months Ending
|
|
|
December
31, 2009
|
|
|
Volumes
Hedged
|
Average
Price
|
Percentage
Hedged
|
NGLs
(Bbl/d)
(a)
|
6,445
|
|
$1.08
|
/
gallon
|
75%
|
Condensate
(Bbl/d)
(a)
|
1,449
|
|
$2.18
|
/
gallon
|
72%
|
Total
(Bbl/d)
|
7,894
|
|
$1.29
|
/
gallon
|
74%
|
Natural
gas
(MMBtu/d)
|
8,753
|
|
$4.20
|
/
MMBtu
|
45%
|
(a)
- Hedged with fixed-price swaps.
|
|
|
|
|
|
|
|
|
Year
Ending
|
|
|
December
31, 2010
|
|
|
Volumes
Hedged
|
Average
Price
|
Percentage
Hedged
|
NGLs
(Bbl/d)
(a)
|
451
|
|
$1.37
|
/
gallon
|
5%
|
Condensate
(Bbl/d)
(a)
|
1,072
|
|
$1.70
|
/
gallon
|
49%
|
Total
(Bbl/d)
|
1,523
|
|
$1.60
|
/
gallon
|
14%
|
Natural
gas
(MMBtu/d)
|
7,828
|
|
$5.71
|
/
MMBtu
|
37%
|
(a)
- Hedged with fixed-price swaps.
|
|
|
|
|
|
|
See Note
C of the Notes to Consolidated Financial Statements in this Quarterly Report for
more information on our hedging activities.
Commodity
price risks related to estimated physical sales of commodities for ONEOK
Partners’ natural gas gathering and processing business are estimated as a
hypothetical change in the price of NGLs, crude oil and natural gas at June 30,
2009. ONEOK Partners estimates the following for its natural gas
gathering and processing business:
·
|
a
$0.01 per gallon decrease in the composite price of NGLs would decrease
annual net margin by approximately $1.2
million;
|
·
|
a
$1.00 per barrel decrease in the price of crude oil would decrease annual
net margin by approximately $1.0 million;
and
|
·
|
a
$0.10 per MMBtu decrease in the price of natural gas would decrease annual
net margin by approximately $0.7
million.
|
The above
estimates of commodity price risk exclude the effects of hedging and assume
normal operating conditions. Further, these estimates do not include
any effects on demand for ONEOK Partners’ services or processing plant
operations that might be caused by, or arise in conjunction with, price
changes. For example, a change in the gross processing spread may
cause a change in the amount of ethane extracted from the natural gas stream,
affecting gathering and processing margins.
Distribution
Overview - Our Distribution
segment provides natural gas distribution services to more than two million
customers in Oklahoma, Kansas and Texas through Oklahoma Natural Gas, Kansas Gas
Service and Texas Gas Service, respectively, each a division of
ONEOK. We serve residential, commercial, industrial and
transportation customers in all three states. In addition, our
distribution companies in Oklahoma and Kansas serve wholesale customers, and in
Texas we serve public authority customers, such as cities, governmental agencies
and schools.
Selected Financial Results -
The following table sets forth certain selected financial results for our
Distribution segment for the periods indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
Increase
(Decrease)
|
|
|
Increase
(Decrease)
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
Three
Months
|
|
|
Six
Months
|
|
Financial
Results
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
vs. 2008
|
|
|
2009
vs. 2008
|
|
|
(Millions
of dollars)
|
|
Gas
sales
|
|
$ |
245.9 |
|
|
$ |
344.9 |
|
|
$ |
961.8 |
|
|
$ |
1,220.9 |
|
|
$ |
(99.0 |
) |
|
|
(29 |
%) |
|
$ |
(259.1 |
) |
|
|
(21 |
%) |
Transportation
revenues
|
|
|
19.2 |
|
|
|
18.8 |
|
|
|
45.8 |
|
|
|
46.1 |
|
|
|
0.4 |
|
|
|
2 |
% |
|
|
(0.3 |
) |
|
|
(1 |
%) |
Cost
of gas
|
|
|
137.0 |
|
|
|
239.1 |
|
|
|
656.8 |
|
|
|
921.1 |
|
|
|
(102.1 |
) |
|
|
(43 |
%) |
|
|
(264.3 |
) |
|
|
(29 |
%) |
Net
margin, excluding other revenues
|
|
128.1 |
|
|
|
124.6 |
|
|
|
350.8 |
|
|
|
345.9 |
|
|
|
3.5 |
|
|
|
3 |
% |
|
|
4.9 |
|
|
|
1 |
% |
Other
revenues
|
|
|
11.5 |
|
|
|
10.4 |
|
|
|
23.3 |
|
|
|
20.8 |
|
|
|
1.1 |
|
|
|
11 |
% |
|
|
2.5 |
|
|
|
12 |
% |
Net
margin
|
|
|
139.6 |
|
|
|
135.0 |
|
|
|
374.1 |
|
|
|
366.7 |
|
|
|
4.6 |
|
|
|
3 |
% |
|
|
7.4 |
|
|
|
2 |
% |
Operating
costs
|
|
|
99.4 |
|
|
|
93.9 |
|
|
|
189.5 |
|
|
|
188.1 |
|
|
|
5.5 |
|
|
|
6 |
% |
|
|
1.4 |
|
|
|
1 |
% |
Depreciation
and amortization
|
|
|
30.7 |
|
|
|
29.1 |
|
|
|
62.3 |
|
|
|
58.0 |
|
|
|
1.6 |
|
|
|
5 |
% |
|
|
4.3 |
|
|
|
7 |
% |
Gain
on sale of assets
|
|
|
0.4 |
|
|
|
- |
|
|
|
0.4 |
|
|
|
- |
|
|
|
0.4 |
|
|
|
100 |
% |
|
|
0.4 |
|
|
|
100 |
% |
Operating
income
|
|
$ |
9.9 |
|
|
$ |
12.0 |
|
|
$ |
122.7 |
|
|
$ |
120.6 |
|
|
$ |
(2.1 |
) |
|
|
(17 |
%) |
|
$ |
2.1 |
|
|
|
2 |
% |
Capital
expenditures
|
|
$ |
32.6 |
|
|
$ |
39.7 |
|
|
$ |
77.3 |
|
|
$ |
70.4 |
|
|
$ |
(7.1 |
) |
|
|
(18 |
%) |
|
$ |
6.9 |
|
|
|
10 |
% |
Net
margin increased for the three months ended June 30, 2009, compared with the
same period last year, primarily due to:
·
|
an
increase of $3.7 million resulting from the implementation of new rate
mechanisms, which includes a $1.1 million increase in Oklahoma, a $1.9
million increase in Kansas and a $0.7 million increase in Texas;
and
|
·
|
an
increase of $1.2 million related to recovery of carrying costs for natural
gas in storage.
|
Net
margin increased for the six months ended June 30, 2009, compared with the same
period last year, primarily due to:
·
|
an
increase of $7.9 million resulting from the implementation of new rate
mechanisms, which includes a $2.8 million increase in Oklahoma, a $3.6
million increase in Kansas and a $1.5 million increase in Texas;
and
|
·
|
an
increase of $2.3 million related to recovery of carrying costs for natural
gas in storage; partially offset by
|
·
|
a
decrease of $1.6 million due to lower sales volumes due to warmer weather
across our entire service
territory.
|
Operating
costs increased for the three months and six months ended June 30, 2009,
compared with the same periods last year, primarily due to:
·
|
an
increase of $6.8 million and $5.6 million, respectively, in employee
related costs;
|
·
|
an
increase of $1.9 million and $1.8 million, respectively, in property tax
expense; partially offset by
|
·
|
a
decrease of $2.9 million and $5.8 million, respectively, in bad-debt
expense that includes the impact of the authorized recovery of the
fuel-related portion of bad debts in Oklahoma, effective January
2009.
|
Depreciation
and amortization expense increased for the three and six months ended June 30,
2009, compared with the same periods last year, primarily due to:
·
|
an
increase of $0.9 million and $2.1 million, respectively, in depreciation
expense related to our investment in property, plant and equipment;
and
|
·
|
an
increase of $0.7 million and $2.2 million, respectively, in regulatory
amortization associated with revenue rider
recoveries.
|
Capital Expenditures - Our
capital expenditure program includes expenditures for extending service to new
areas, modifications to customer service lines, increasing system capabilities,
general replacements and improvements. It is our practice to maintain
and upgrade facilities to assure safe, reliable and efficient
operations. Our capital expenditure program included $9.5 million and
$10.3 million for new business development for the three months ended June 30,
2009 and 2008, respectively, and $20.5 million and $21.9 million for the six
months ended June 30, 2009 and 2008, respectively. Capital
expenditures decreased for the three months ended June 30, 2009, compared with
the same period last year, primarily as a result of lower spending on
modifications to customer service lines, general replacements and improvements
during 2009. Capital expenditures increased for the six months ended
June 30, 2009, compared with the same period last year, due to a one-time
payment of $12.2 million to terminate vehicle and other equipment leases in the
first quarter of 2009.
Selected Operating Information
- The following tables set forth selected operating information for our
Distribution segment for the periods indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
Volumes
(MMcf)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Gas
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
13,388 |
|
|
|
14,058 |
|
|
|
68,745 |
|
|
|
75,339 |
|
Commercial
|
|
|
4,459 |
|
|
|
4,937 |
|
|
|
20,211 |
|
|
|
22,708 |
|
Industrial
|
|
|
156 |
|
|
|
388 |
|
|
|
668 |
|
|
|
973 |
|
Wholesale
|
|
|
3,578 |
|
|
|
2,333 |
|
|
|
4,712 |
|
|
|
2,559 |
|
Public
Authority
|
|
|
371 |
|
|
|
336 |
|
|
|
1,218 |
|
|
|
1,335 |
|
Total
volumes sold
|
|
|
21,952 |
|
|
|
22,052 |
|
|
|
95,554 |
|
|
|
102,914 |
|
Transportation
|
|
|
47,432 |
|
|
|
47,118 |
|
|
|
103,396 |
|
|
|
109,234 |
|
Total
volumes delivered
|
|
|
69,384 |
|
|
|
69,170 |
|
|
|
198,950 |
|
|
|
212,148 |
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
Net
margin, excluding other revenues
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Gas
Sales
|
|
(Millions
of dollars)
|
|
Residential
|
|
$ |
88.4 |
|
|
$ |
85.6 |
|
|
$ |
244.9 |
|
|
$ |
239.5 |
|
Commercial
|
|
|
19.1 |
|
|
|
18.6 |
|
|
|
56.5 |
|
|
|
56.4 |
|
Industrial
|
|
|
0.6 |
|
|
|
0.8 |
|
|
|
1.4 |
|
|
|
1.7 |
|
Wholesale
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.3 |
|
Public
Authority
|
|
|
0.7 |
|
|
|
0.6 |
|
|
|
2.0 |
|
|
|
1.9 |
|
Net
margin on gas sales
|
|
|
108.9 |
|
|
|
105.8 |
|
|
|
305.0 |
|
|
|
299.8 |
|
Transportation
revenues
|
|
|
19.2 |
|
|
|
18.8 |
|
|
|
45.8 |
|
|
|
46.1 |
|
Net
margin, excluding other revenues
|
|
$ |
128.1 |
|
|
$ |
124.6 |
|
|
$ |
350.8 |
|
|
$ |
345.9 |
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
Number
of Customers
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Residential
|
|
|
1,904,675 |
|
|
|
1,892,404 |
|
|
|
1,909,012 |
|
|
|
1,897,777 |
|
Commercial
|
|
|
157,463 |
|
|
|
160,538 |
|
|
|
158,957 |
|
|
|
162,603 |
|
Industrial
|
|
|
1,364 |
|
|
|
1,444 |
|
|
|
1,368 |
|
|
|
1,446 |
|
Wholesale
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
|
|
29 |
|
Public
Authority
|
|
|
2,858 |
|
|
|
3,035 |
|
|
|
2,903 |
|
|
|
2,987 |
|
Transportation
|
|
|
9,075 |
|
|
|
10,331 |
|
|
|
9,911 |
|
|
|
10,233 |
|
Total
customers
|
|
|
2,075,462 |
|
|
|
2,067,779 |
|
|
|
2,082,178 |
|
|
|
2,075,075 |
|
Residential
volumes decreased for both the three and six months ended June 30, 2009,
compared with the same periods last year, due to warmer temperatures across our
entire service territory; however, the impact on margin decreases was moderated
by weather-normalization mechanisms.
Wholesale
sales represent contracted gas volumes that exceed the needs of our residential,
commercial and industrial customer base and are available for sale to other
parties. Wholesale volumes increased for the three and six months
ended June 30, 2009, compared with the same periods last year, due to increased
volumes available for sale caused by warmer temperatures across our entire
service territory.
Regulatory
Initiatives
Oklahoma - In
December 2008, the OCC approved a final order to increase the recovery level of
Oklahoma Natural Gas’ capital investment recovery mechanism to $12.6 million
from $7.6 million annually. The recovery mechanism allows Oklahoma
Natural Gas to collect a rate of return, depreciation and 50 percent of the
property tax expense associated with incremental capital investments to maintain
its facilities since its 2005 rate case. The increased recovery level
was effective in January 2009.
The OCC
has authorized Oklahoma Natural Gas to defer transmission pipeline Integrity
Management Program (IMP) costs incurred (inclusive of operations and maintenance
expense, depreciation, property taxes and a rate of return) in compliance with
the Federal Pipeline Safety Improvement Act of 2002. An IMP
application was made at the OCC on January 30, 2009, covering the IMP deferrals
for 2008 and the true-ups associated with the prior recovery
period. The OCC approved this application for recovery of $10.5
million in IMP costs in June 2009.
In
December 2008, the OCC issued a final order authorizing Oklahoma Natural Gas to
defer the fuel-related portion of bad debts for recovery in the purchased gas
adjustment mechanism. The associated deferrals began in January
2009.
In
October 2008, a joint application for performance-based rates was filed by the
OCC staff and Oklahoma Natural Gas. This application proposes that the OCC
adopt a performance-based rate design and a more streamlined regulatory
process. In April 2009, a joint stipulation was signed and filed that
supports a performance-based rate mechanism for Oklahoma Natural
Gas. Upon hearing evidence and testimony supporting the joint
stipulation in a hearing on April 23, 2009, the administrative law judge
recommended the OCC approve the application. The Commission adopted the
recommendation of the administrative law judge and approved the joint
stipulation of the parties on May 7, 2009.
In June
2009, Oklahoma Natural Gas filed an application with the OCC requesting an
increase of approximately $66.1 million in base rates, which includes existing
riders that would effectively reduce the requested rate increase to a net amount
of $37.6 million. If approved as filed, the estimated annual impact
on operating income will be approximately $19.0 million. Oklahoma
Natural Gas has not had a base rate adjustment since July 2005. Since
the 2005 increase, Oklahoma Natural Gas has invested more than $162 million in
its rate base. In addition, operating expenses, such as labor and
operations and maintenance, have increased since 2005. The rate
application continues Oklahoma Natural Gas’ migration from traditional rate
cases to performance-based rates under an order previously approved by the
OCC. When fully implemented, performance-based rates will provide for
a streamlined annual review of Oklahoma Natural Gas’ performance and will result
in more frequent rate adjustments than what is experienced when rate cases occur
years apart. In accordance with Oklahoma law, the OCC has 180 days to
consider Oklahoma Natural Gas’ proposed rate changes.
Kansas - In December
2008, the KCC approved our request to impose a surcharge designed to annually
collect approximately $2.9 million in costs associated with its Gas System
Recovery Surcharge (GSRS) mechanism. The GSRS mechanism allows natural gas
utilities to earn a return and recover carrying charges associated with
investments made to comply with state and federal pipeline safety requirements
or costs to relocate existing facilities pursuant to requests made by a
government entity. The authorized GSRS collections were billed
effective with customer billings on January 1, 2009.
Texas - In June 2009,
Austin and the surrounding cities in our central Texas service area approved an
increase in base rates of $1.1 million, which included a $5.0 million decrease
in depreciation and amortization expense, plus recovery of the fuel related
portion of bad debts and carrying costs for natural gas in
storage. The new rates were effective July 2009.
In March
2009, Texas Gas Service filed a statement of intent to increase rates in its Rio
Grande Valley service area for approximately $3.7 million. If approved,
new rates are expected to become effective in August 2009.
General - Certain costs to be
recovered through the ratemaking process have been recorded as regulatory assets
in accordance with Statement 71, “Accounting for the Effects of Certain Types of
Regulation.” Should recovery cease due to regulatory actions, certain
of these assets may no longer meet the criteria of Statement 71, and
accordingly, a write-off of regulatory assets and stranded costs may be
required. There were no write-offs of regulatory assets resulting
from the failure to meet the criteria of Statement 71 during the three and six
months ended June 30, 2009 and 2008, respectively.
Energy
Services
Overview - Our Energy Services
segment’s primary focus is to create value for our customers by delivering
physical natural gas products and risk management services through our network
of contracted transportation and storage capacity and natural gas
supply. These services include meeting our customers’ baseload, swing
and peaking natural gas commodity requirements on a year-round
basis. Our contracted storage and transportation capacity connects
the major supply and demand centers throughout the United States and into
Canada. With these contracted assets, our business strategies include
identifying, developing and delivering specialized premium products and services
valued by our customers, which are primarily LDCs, electric utilities, and
commercial and industrial end users. Our storage and transportation
capacity allows us opportunities to optimize value through our application of
market knowledge and risk management skills.
Our
Energy Services segment conducts business with our ONEOK Partners and
Distribution segments. These services are provided under agreements
with market-based terms.
Due to
seasonality of natural gas consumption, storage withdrawals and demand for our
products and services, earnings are normally higher during the winter months
than the summer months. Our Energy Services segment’s margins are
subject to fluctuations during the year, primarily due to the impact certain
seasonal factors have on sales volumes and the price of natural
gas. Natural gas sales volumes are typically higher in the winter
heating months than in the summer months, reflecting increased demand due to
greater heating requirements and, typically, higher natural gas
prices. During periods of high natural gas demand, we utilize storage
capacity to supplement natural gas supply volumes to meet our peak day demand
obligations or market needs.
We
utilize our experience to optimize the value of our contracted assets, and we
use our risk management and marketing capabilities to both manage risk and to
generate additional margins. We apply a combination of cash flow and
fair value hedge accounting when implementing hedging strategies that take
advantage of favorable market conditions. See Note C of the Notes to
Consolidated Financial Statements in this Quarterly Report for additional
information. Additionally, certain non-trading transactions, which
are economic hedges of our accrual transactions, such as our storage and
transportation contracts, will not qualify for hedge accounting
treatment. These economic hedges receive mark-to-market accounting
treatment, as they are derivative contracts and are not designated as part of a
hedge relationship. As a result, the underlying risk being hedged
receives accrual accounting treatment, while we use mark-to-market accounting
treatment for the economic hedges. We cannot predict the earnings
fluctuations from mark-to-market accounting, and the impact on earnings could be
material.
Selected Financial Results -
The following table sets forth selected financial results for our Energy
Services segment for the periods indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
Increase
(Decrease)
|
|
|
Increase
(Decrease)
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
Three
Months
|
|
|
Six
Months
|
|
Financial
Results
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
vs. 2008
|
|
|
2009
vs. 2008
|
|
|
(Millions
of dollars)
|
Revenues
|
|
$ |
727.1 |
|
|
$ |
2,025.7 |
|
|
$ |
1,840.5 |
|
|
$ |
4,369.5 |
|
|
$ |
(1,298.6 |
) |
|
|
(64 |
%) |
|
$ |
(2,529.0 |
) |
|
|
(58 |
%) |
Cost
of sales and fuel
|
|
|
697.0 |
|
|
|
2,021.5 |
|
|
|
1,747.8 |
|
|
|
4,280.5 |
|
|
|
(1,324.5 |
) |
|
|
(66 |
%) |
|
|
(2,532.7 |
) |
|
|
(59 |
%) |
Net
margin
|
|
|
30.1 |
|
|
|
4.2 |
|
|
|
92.7 |
|
|
|
89.0 |
|
|
|
25.9 |
|
|
|
* |
|
|
|
3.7 |
|
|
|
4 |
% |
Operating
costs
|
|
|
10.5 |
|
|
|
8.4 |
|
|
|
18.0 |
|
|
|
18.5 |
|
|
|
2.1 |
|
|
|
25 |
% |
|
|
(0.5 |
) |
|
|
(3 |
%) |
Depreciation
and amortization
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
- |
|
|
|
0 |
% |
|
|
(0.3 |
) |
|
|
(50 |
%) |
Operating
income
|
|
$ |
19.4 |
|
|
$ |
(4.4 |
) |
|
$ |
74.4 |
|
|
$ |
69.9 |
|
|
$ |
23.8 |
|
|
|
* |
|
|
$ |
4.5 |
|
|
|
6 |
% |
*
Percentage change is greater than 100 percent.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
markets were affected by lower commodity prices during the six months ended June
30, 2009, compared with the same period last year. The decrease in
commodity prices had a direct impact on our revenues and the cost of sales and
fuel. Our average sales price was 67 percent lower for the three
months ended June 30, 2009, and 54 percent lower for the six months ended June
30, 2009, compared with the same periods last year.
Net
margin increased for the three months ended June 30, 2009, compared with the
same period last year, due to the following:
·
|
an
increase of $26.1 million in transportation margins, net of hedging
activities, due to higher realized Rockies-to-Mid-Continent margins
resulting from hedging activities and favorable unrealized fair value
changes on derivative financial instruments not qualified in a hedging
relationship;
|
·
|
an
increase of $4.4 million in retail sales margins primarily associated with
customer risk management activities; partially offset
by
|
·
|
a
decrease of $4.7 million in financial trading
margins.
|
Net
margin increased for the six months ended June 30, 2009, compared with the same
period last year, due to the following:
·
|
an
increase of $10.0 million in transportation margins, net of hedging
activities, due to higher realized Rockies-to-Mid-Continent margins
resulting from hedging activities and favorable unrealized fair value
changes on derivative financial instruments not qualified in a hedging
relationship;
|
·
|
an
increase of $3.6 million in retail sales margins, primarily associated
with customer risk management
activities;
|
·
|
an
increase of $2.3 million in financial trading margins; partially offset
by
|
·
|
a
net decrease of $12.3 million in storage and marketing margins, net of
hedging activities, primarily due to lower realized seasonal storage
differentials, partially offset by increased net margins associated with
managing our demand services, due to warmer winter weather in 2009, and
higher margins from fair value changes on derivative financial instruments
not qualified in a hedging
relationship.
|
Operating
costs increased for the three months ended June 30, 2009, compared with the same
period last year, due to higher employee-related costs and an increase in
bad-debt expense.
Selected Operating Information
- The following table sets forth selected operating information for our Energy
Services segment for the periods indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
Operating
Information
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Natural
gas marketed (Bcf)
|
|
|
258 |
|
|
|
265 |
|
|
|
586 |
|
|
|
605 |
|
Natural
gas gross margin ($/Mcf)
|
|
$ |
0.11 |
|
|
$ |
0.01 |
|
|
$ |
0.15 |
|
|
$ |
0.10 |
|
Physically
settled volumes (Bcf)
|
|
|
544 |
|
|
|
561 |
|
|
|
1,178 |
|
|
|
1,196 |
|
Our
natural gas in storage at June 30, 2009, was 68.9 Bcf, compared with 41.2 Bcf at
June 30, 2008. The increase is primarily due to warmer weather in
2009 compared with colder weather in 2008, which resulted in higher storage
withdrawals in 2008. At June 30, 2009, our total natural gas storage
capacity under lease was 82.5 Bcf, with maximum withdrawal capability of 2.2
Bcf/d and maximum injection capability of 1.4 Bcf/d. Our current
natural gas transportation capacity is 1.7 Bcf/d.
The
following table sets forth our margins by activity for the periods
indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
(Millions
of dollars)
|
Marketing,
storage and transportation, gross
|
|
$ |
74.7 |
|
|
$ |
51.2 |
|
|
$ |
186.6 |
|
|
$ |
188.8 |
|
Storage
and transportation costs
|
|
|
(51.6 |
) |
|
|
(54.3 |
) |
|
|
(108.6 |
) |
|
|
(108.5 |
) |
Marketing,
storage and transportation, net
|
|
|
23.1 |
|
|
|
(3.1 |
) |
|
|
78.0 |
|
|
|
80.3 |
|
Retail
marketing
|
|
|
6.8 |
|
|
|
2.4 |
|
|
|
11.2 |
|
|
|
7.6 |
|
Financial
trading
|
|
|
0.2 |
|
|
|
4.9 |
|
|
|
3.5 |
|
|
|
1.1 |
|
Net
margin
|
|
$ |
30.1 |
|
|
$ |
4.2 |
|
|
$ |
92.7 |
|
|
$ |
89.0 |
|
Marketing,
storage and transportation, net, primarily includes marketing, purchases and
sales, firm storage and transportation capacity expense, including the impact of
cash flow and fair value hedges and other derivative instruments used to manage
our risk associated with these activities. Risk management and
operational decisions have a significant impact on the net result of our
marketing and storage activities.
Retail
marketing includes revenues from providing physical marketing and supply
services, coupled with risk management services, to residential, municipal, and
small commercial and industrial customers.
Financial
trading margin includes activities that are generally executed using financially
settled derivatives. These activities are normally short term in
nature, with a focus on capturing value from short-term price
volatility. Revenues in our Consolidated Statements of Income include
financial trading margins, as well as certain physical natural gas transactions
with our trading counterparties. Revenues and cost of sales and fuel
from such physical transactions are reported on a net basis.
Contingencies
Legal Proceedings - We are a
party to various litigation matters and claims that are in the normal course of
our operations. While the results of litigation and claims cannot be
predicted with certainty, we believe the final outcome of such matters will not
have a material adverse effect on our consolidated results of operations,
financial position or liquidity. Additional information about our
legal proceedings is included under Part II, Item 1, Legal Proceedings of this
Quarterly Report and under Part I, Item 3, Legal Proceedings, in our Annual
Report.
LIQUIDITY
AND CAPITAL RESOURCES
General - Part of our strategy
is to grow through internally generated growth projects and acquisitions that
strengthen and complement our existing assets. ONEOK and ONEOK
Partners have relied primarily on operating cash flow, commercial paper, bank
credit facilities, debt issuances and/or the sale of equity for their liquidity
and capital resource requirements. ONEOK and ONEOK Partners fund
their operating expenses, debt service and dividends to shareholders primarily
with operating cash flow. We expect to continue to use these sources
for liquidity and capital resource needs on both a short- and long-term
basis. Neither ONEOK nor ONEOK Partners guarantees the debt or other
similar commitments to unaffiliated parties, and ONEOK does not guarantee the
debt or other similar commitments of ONEOK Partners.
During
2009, the capital markets have improved significantly from year-end
2008. ONEOK has been able to access the commercial paper markets to
meet its short-term funding needs. Additionally, ONEOK Partners has
been able to access the debt and equity markets to meet its long-term financing
needs for 2009. At current commodity price levels, we do not expect
ONEOK’s short-term borrowings to exceed $400 million for the remainder of
2009.
Higher
commodity prices and wider basis differentials in 2008 increased collateral
requirements and natural gas inventory costs in our Energy Services segment,
resulting in peak short-term borrowings of $1.4 billion at December 31, 2008,
under ONEOK’s revolving credit facilities. Throughout this period,
ONEOK has continued to have access to its $1.2 billion amended and restated
credit agreement dated July 14, 2006 (ONEOK Credit Agreement), which expires in
July 2011. In addition, ONEOK has also had access to its $400
million, 364-day revolving credit facility dated August 6, 2008 (364-Day
Facility), which expired on August 5, 2009. ONEOK Partners has
continued to have access to its ONEOK Partners Credit Agreement, which has been
adequate to fund its short-term liquidity needs and expires in March
2012.
We expect
challenging economic conditions to persist for the remainder of 2009 and into
2010, with downward pressures, compared with 2008, on commodity
prices. We also expect continued volatility and possible disruption
in the financial markets, which could limit our access to those markets or
increase the cost of issuing new securities in the future. ONEOK’s
and ONEOK Partners’ ability to continue to access capital markets for debt and
equity financing under reasonable terms depends on the Company’s and
Partnership’s respective financial condition, credit ratings and market
conditions. ONEOK and ONEOK Partners anticipate that cash flow
generated from operations, existing capital resources and ability to obtain
financing will enable both to maintain current levels of operations and planned
operations, collateral requirements and capital expenditures.
Capital Structure - The
following table sets forth our consolidated capital structure for the periods
indicated.
|
|
June
30,
|
|
December
31,
|
|
|
2009
|
|
2008
|
Long-term
debt
|
|
57%
|
|
67%
|
Equity
|
|
43%
|
|
33%
|
|
|
|
|
|
Debt
(including notes payable)
|
|
61%
|
|
76%
|
Equity
|
|
39%
|
|
24%
|
ONEOK
does not guarantee the debt of ONEOK Partners. For purposes of
determining compliance with financial covenants in the ONEOK Credit Agreement
and the 364-Day Facility, the debt of ONEOK Partners is excluded. The
following table sets forth ONEOK’s capitalization structure, excluding the debt
of ONEOK Partners for the periods indicated.
|
|
June
30,
|
|
December
31,
|
|
|
2009
|
|
2008
|
Long-term
debt
|
|
41%
|
|
44%
|
Equity
|
|
59%
|
|
56%
|
|
|
|
|
|
Debt
(including notes payable)
|
|
46%
|
|
59%
|
Equity
|
|
54%
|
|
41%
|
In
February 2009, ONEOK repaid $100 million of maturing long-term debt with cash
from operations and short-term borrowings. In February 2008, ONEOK
repaid $402.3 million of maturing long-term debt with cash from operations and
short-term borrowings.
Cash Management - ONEOK and
ONEOK Partners each use similar centralized cash management programs that
concentrate the cash assets of their operating subsidiaries in joint accounts
for the purpose of providing financial flexibility and lowering the cost of
borrowing, transaction costs and bank fees. Both centralized cash
management programs provide that funds in excess of the daily needs of the
operating subsidiaries are concentrated, consolidated or otherwise made
available for use by other entities within the respective consolidated
groups. ONEOK Partners’ operating subsidiaries participate in these
programs to the extent they are permitted pursuant to FERC regulations or their
operating agreements. Under these cash management programs, depending
on whether a participating subsidiary has short-term cash surpluses or cash
requirements, ONEOK and ONEOK Partners provide cash to their respective
subsidiaries or the subsidiaries provide cash to them.
Short-term Liquidity - ONEOK’s
principal sources of short-term liquidity consist of cash generated from
operating activities, quarterly distributions from ONEOK Partners and the ONEOK
Credit Agreement as discussed below. ONEOK also has a commercial
paper program that is utilized for short-term liquidity needs to the extent
funds are available under the ONEOK Credit Agreement. ONEOK Partners’
principal sources of short-term liquidity consist of cash generated from
operating activities and borrowings under the ONEOK Partners Credit
Agreement.
The total
amount of short-term borrowings authorized by ONEOK’s Board of Directors is $2.5
billion. At June 30, 2009, ONEOK had $329.9 million in commercial
paper outstanding, $48.0 million in letters of credit issued under the ONEOK
Credit Agreement, and available cash and cash equivalents of approximately $15.2
million. ONEOK had approximately $1.2 billion of credit available at
June 30, 2009, under the ONEOK Credit Agreement and the 364-Day
Facility. The amount of credit available under committed bank lines
decreased by $400 million when the 364-Day Facility expired on August 5,
2009. As of June 30, 2009, ONEOK could have issued $2.8 billion of
additional short- and long-term debt under the most restrictive provisions
contained in its various borrowing agreements.
The total
amount of short-term borrowings authorized by the Board of Directors of ONEOK
Partners GP, the general partner of ONEOK Partners, is $1.5
billion. At June 30, 2009, ONEOK Partners had $360.0 million in
borrowings outstanding and $586.5 million of credit available under the ONEOK
Partners Credit Agreement, and available cash and cash equivalents of
approximately $31.8 million. As of June 30, 2009, ONEOK Partners
could have issued $586.5 million of additional short- and long-term debt under
the most restrictive provisions of the ONEOK Partners Credit
Agreement. At June 30, 2009, ONEOK Partners had a total of $49.2
million in letters of credit issued outside the ONEOK Partners Credit
Agreement.
The ONEOK
Credit Agreement, the 364-Day Facility and the ONEOK Partners Credit Agreement
contain certain financial, operational and legal covenants as discussed in Note
H of the Notes to Consolidated Financial Statements in our Annual
Report. Among other things, the ONEOK Credit Agreement’s covenants
include a limitation on ONEOK’s stand-alone debt-to-capital ratio, which may not
exceed 67.5 percent at the end of any calendar quarter. At June 30,
2009, ONEOK’s stand-alone debt-to-capital ratio, as calculated under the terms
of the ONEOK Credit Agreement, was 45.7 percent, and ONEOK was in compliance
with all covenants under the ONEOK Credit Agreement and the 364-Day
Facility. ONEOK Partners Credit Agreement’s covenants include, among
other things, maintaining a ratio of indebtedness to adjusted EBITDA (EBITDA, as
adjusted for all non-cash charges and increased for projected EBITDA from
certain lender-approved capital expansion projects) of no more than 5 to
1. At June 30, 2009, ONEOK Partners’ ratio of indebtedness to
adjusted EBITDA was 4.3 to 1. ONEOK Partners was in compliance with
all covenants under the ONEOK Partners Credit Agreement.
Long-term Financing - In
addition to the principal sources of short-term liquidity discussed above,
options available to ONEOK to meet its longer-term cash requirements include the
issuance of equity, issuance of long-term notes, issuance of convertible debt
securities, asset securitization and the sale and leaseback of
facilities. Options available to ONEOK Partners to meet its
longer-term cash requirements include the issuance of common units, issuance of
long-term notes, issuance of convertible debt securities, asset securitization
and the sale and leaseback of facilities.
ONEOK and
ONEOK Partners are subject to changes in the debt and equity markets, and there
is no assurance they will be able or willing to access the public or private
markets in the future. ONEOK and ONEOK Partners may choose to meet
their cash requirements by utilizing some combination of cash flows from
operations, borrowing under existing credit facilities, altering the timing of
controllable expenditures, restricting future acquisitions and capital projects,
or pursuing other debt or equity financing alternatives. Some of
these alternatives could involve higher costs or negatively affect their
respective credit ratings, among other factors. Based on ONEOK’s and
ONEOK Partners’ investment-grade credit ratings, general financial condition and
market expectations regarding their future earnings and projected cash flows,
ONEOK and ONEOK Partners believe that they will be able to meet their respective
cash requirements and maintain their investment-grade credit
ratings.
ONEOK Partners Equity
Issuance - In June 2009, ONEOK Partners completed an underwritten public
offering of 5,000,000 common units at $45.81 per common unit, generating net
proceeds of approximately $219.9 million after deducting underwriting discounts
but before offering expenses. In conjunction with ONEOK Partners’
public offering of common units, ONEOK Partners GP contributed $4.7 million to
ONEOK Partners in order to maintain its 2 percent general partner
interest.
In July
2009, ONEOK Partners sold an additional 486,690 common units at $45.81 per
common unit to the underwriters of the public offering upon the partial exercise
of their option to purchase additional common units to cover
over-allotments. ONEOK Partners received net proceeds of
approximately $21.4 million from the sale of the common units after deducting
underwriting discounts but before offering expenses. In conjunction
with the partial exercise by the underwriters, ONEOK Partners GP contributed
$0.5 million to ONEOK Partners in order to maintain its 2 percent general
partner interest.
Following
completion of these transactions, our interest in ONEOK Partners is 45.1
percent.
ONEOK
Partners used the proceeds from the sale of common units and the general partner
contributions to repay borrowings under its existing ONEOK Partners Credit
Agreement and for general partnership purposes.
ONEOK Partners Debt
Issuance - In March 2009, ONEOK Partners completed an underwritten public
offering of $500 million aggregate principal amount of 8.625 percent Senior
Notes due 2019. The 2019 Notes were issued under ONEOK Partners’
existing shelf registration statement filed with the SEC.
ONEOK
Partners may redeem the 2019 Notes, in whole or in part, at any time prior to
their maturity at a redemption price equal to the principal amount, plus accrued
and unpaid interest and a make-whole premium. The redemption price
will never be less than 100 percent of the principal amount of the 2019 Notes
plus accrued and unpaid interest to the redemption date.
The 2019
Notes are senior unsecured obligations, ranking equally in right of payment with
all of ONEOK Partners’ existing and future unsecured senior indebtedness, and
effectively junior to all of the existing and future debt and other liabilities
of its non-guarantor subsidiaries. The 2019 Notes are nonrecourse to
ONEOK. For more information regarding the 2019 Notes, refer to
discussion in Note G of the Notes to Consolidated Financial Statements in this
Quarterly Report.
Debt Covenants - The
terms of the 2019 Notes are governed by an indenture, dated as of September 25,
2006, between ONEOK Partners and Wells Fargo Bank, N.A., as trustee, as
supplemented by the Fifth Supplemental Indenture, dated March 3, 2009
(Indenture). The Indenture does not limit the aggregate principal
amount of debt securities that may be issued and provides that debt securities
may be issued from time to time in one or more additional series. The
Indenture contains covenants including, among other provisions, limitations on
ONEOK Partners’ ability to place liens on its property or assets and to sell and
lease back its property.
ONEOK
Partners’ $250 million and $225 million senior notes, due 2010 and 2011,
respectively, contain provisions that require ONEOK Partners to offer to
repurchase the senior notes at par value if its Moody’s or S&P credit rating
falls below investment grade (Baa3 for Moody’s or BBB- for S&P) and the
investment-grade rating is not reinstated within a period of 40
days. Further, the indentures governing ONEOK Partners’ senior notes
due 2010 and 2011 include an event of default upon acceleration of other
indebtedness of $25 million or more and the indentures governing the senior
notes due 2012, 2016, 2019, 2036 and 2037 include an event of default upon the
acceleration of other indebtedness of $100 million or more that
would be
triggered by such an offer to repurchase. Such events of default
would entitle the trustee or the holders of 25 percent in aggregate principal
amount of the outstanding senior notes due 2010, 2011, 2012, 2016, 2019, 2036
and 2037 to declare those notes immediately due and payable in
full.
Capital Expenditures - ONEOK’s
and ONEOK Partners’ capital expenditures are typically financed through
operating cash flows, short- and long-term debt and the issuance of
equity. Total capital expenditures were $407.6 million and $640.0
million for the six months ended June 30, 2009 and 2008,
respectively. Of these amounts, ONEOK Partners’ capital expenditures
were $321.9 million and $524.6 million for the six months ended June 30, 2009
and 2008, respectively. Our capital expenditures are driven primarily
by ONEOK Partners’ capital projects discussed beginning on page 34.
Projected
2009 capital expenditures are significantly less than 2008 capital expenditures,
primarily due to the completion of the Overland Pass Pipeline and related
expansion projects, the Williston Basin gas processing plant expansion and the
Guardian Pipeline expansion and extension. The following table sets
forth our 2009 projected capital expenditures, excluding AFUDC.
2009
Projected Capital Expenditures
|
|
(Millions
of dollars)
|
ONEOK
Partners
|
|
$ |
570 |
|
Distribution
|
|
|
158 |
|
Other
|
|
|
17 |
|
Total
projected capital expenditures
|
|
$ |
745 |
|
Investment in Northern Border
Pipeline - In March 2009, ONEOK Partners made an equity contribution
of $4.3 million to Northern Border Pipeline. Northern Border Pipeline
anticipates requiring an additional equity contribution of approximately $76
million from its partners in the third quarter of 2009, of which ONEOK Partners’
share will be approximately $38 million based on its 50 percent equity
interest.
Credit Ratings - ONEOK’s and
ONEOK Partners’ credit ratings as of June 30, 2009, are shown in the table
below.
|
|
ONEOK
|
|
|
ONEOK
Partners
|
Rating
Agency
|
|
Rating
|
|
Outlook
|
|
|
Rating
|
|
Outlook
|
Moody’s
|
|
Baa2
|
|
Stable
|
|
|
Baa2
|
|
Stable
|
S&P
|
|
BBB
|
|
Stable
|
|
|
BBB
|
|
Stable
|
ONEOK’s
commercial paper is rated P2 by Moody’s and A2 by S&P. ONEOK’s
and ONEOK Partners’ credit ratings, which are currently investment grade, may be
affected by a material change in financial ratios or a material event affecting
the business. The most common criteria for assessment of credit
ratings are the debt-to-capital ratio, business risk profile, pretax and
after-tax interest coverage, and liquidity. ONEOK and ONEOK Partners do not
anticipate their respective credit ratings to be downgraded. However,
if our credit ratings were downgraded, the interest rates on our commercial
paper borrowings and the ONEOK Credit Agreement would increase, resulting in an
increase in our cost to borrow funds, and we could potentially lose access to
the commercial paper market. Likewise, ONEOK Partners would see
increased borrowing costs under the ONEOK Partners Credit
Agreement. In the event that ONEOK is unable to borrow funds under
its commercial paper program and there has not been a material adverse change in
its business, ONEOK would continue to have access to the ONEOK Credit Agreement,
which expires in July 2011. An adverse rating change alone is not a
default under the ONEOK Credit Agreement or the ONEOK Partners Credit Agreement,
but could trigger repurchase obligations with respect to certain ONEOK Partners’
long-term debt. See additional discussion about our credit ratings
under “Debt Covenants.”
If ONEOK
Partners’ repurchase obligations are triggered, it may not have sufficient cash
on hand to repurchase and repay any accelerated senior notes, which may cause it
to borrow money under its credit facilities or seek alternative financing
sources to finance the repurchases and repayment. ONEOK Partners
could also face difficulties accessing capital or its borrowing costs could
increase, impacting its ability to obtain financing for acquisitions or capital
expenditures, to refinance indebtedness and to fulfill its debt
obligations.
Our
Energy Services segment relies upon the investment-grade credit rating of
ONEOK’s senior unsecured long-term debt to reduce its collateral
requirements. If ONEOK’s credit ratings were to decline below
investment grade, our ability to participate in energy marketing and trading
activities could be significantly limited. Without an
investment-grade rating, we
may be
required to fund margin requirements with our counterparties with cash, letters
of credit or other negotiable instruments. At June 30, 2009, ONEOK
could have been required to fund approximately $2.3 million in margin
requirements related to financial contracts upon such a downgrade. A
decline in ONEOK’s credit ratings below investment grade may also significantly
impact other business segments.
Other
than ONEOK Partners’ note repurchase obligations and the margin requirements for
our Energy Services segment described above, we have determined that we do not
have significant exposure to rating triggers under ONEOK’s trust indentures,
building leases, equipment leases and other various contracts. Rating
triggers are defined as provisions that would create an automatic default or
acceleration of indebtedness based on a change in our credit
rating.
In the
normal course of business, ONEOK’s and ONEOK Partners’ counterparties provide
secured and unsecured credit. In the event of a downgrade in ONEOK’s
or ONEOK Partners’ credit rating or a significant change in ONEOK’s or ONEOK
Partners’ counterparties’ evaluation of creditworthiness, ONEOK or ONEOK
Partners could be asked to provide additional collateral in the form of cash,
letters of credit or other negotiable instruments.
Commodity Prices - We are
subject to commodity price volatility. Significant fluctuations in
commodity prices may impact our overall liquidity due to the impact commodity
price changes have on our cash flows from operating activities, including the
impact on working capital for NGLs and natural gas held in storage, margin
requirements and certain energy-related receivables. We believe that
ONEOK’s and ONEOK Partners’ available credit and cash and cash equivalents are
adequate to meet liquidity requirements associated with commodity price
volatility. See discussion beginning on page 54 under “Commodity
Price Risk” in Item 3, Quantitative and Qualitative Disclosures about Market
Risk, for information on our hedging activities.
Pension and Postretirement Benefit
Plans - Information about our pension and postretirement benefits plans
is included in Note J of the Notes to Consolidated Financial Statements in our
Annual Report. See Note H of the Notes to Consolidated Financial
Statements in this Quarterly Report for additional information.
CASH
FLOW ANALYSIS
We use
the indirect method to prepare our Consolidated Statements of Cash
Flows. Under this method, we reconcile net income to cash flows
provided by operating activities by adjusting net income for those items that
impact net income but may not result in actual cash receipts or payments during
the period. These reconciling items include depreciation and
amortization, allowance for equity funds used during construction, gain on sale
of assets, undistributed earnings from equity investments in excess of
distributions received, deferred income taxes, stock-based compensation expense,
allowance for doubtful accounts, and changes in our assets and liabilities not
classified as investing or financing activities.
The
following table sets forth the changes in cash flows by operating, investing and
financing activities for the periods indicated.
|
|
Six
Months Ended
|
|
|
Increase
(Decrease)
|
|
|
|
June
30,
|
|
Six
Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
vs. 2008
|
|
Total
cash provided by (used in):
|
|
(Millions
of dollars)
|
Operating
activities
|
|
$ |
1,075.9 |
|
|
$ |
534.8 |
|
|
$ |
541.1 |
|
|
|
* |
|
Investing
activities
|
|
|
(380.2 |
) |
|
|
(621.1 |
) |
|
|
240.9 |
|
|
|
39 |
% |
Financing
activities
|
|
|
(1,158.7 |
) |
|
|
165.9 |
|
|
|
(1,324.6 |
) |
|
|
* |
|
Change
in cash and cash equivalents
|
|
|
(463.0 |
) |
|
|
79.6 |
|
|
|
(542.6 |
) |
|
|
* |
|
Cash
and cash equivalents at beginning of period
|
|
|
510.0 |
|
|
|
19.1 |
|
|
|
490.9 |
|
|
|
* |
|
Cash
and cash equivalents at end of period
|
|
$ |
47.0 |
|
|
$ |
98.7 |
|
|
$ |
(51.7 |
) |
|
|
(52 |
%) |
*
Percentage change is greater than 100 percent.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flows -
Operating cash flows are affected by earnings from our business
activities. We provide services for producers and consumers of
natural gas and NGLs. Changes in commodity prices and demand for our
services or products, whether because of general economic conditions, changes in
demand for the end products that are made with our products or increased
competition from other service providers, could affect our earnings and
operating cash flows.
The
changes in operating assets and liabilities increased operating cash flows
$656.6 million for the six months ended June 30, 2009, compared with an increase
of $28.8 million for the same period last year, primarily as a result of the
following:
· a
decrease in cash collateral and margin requirements in our Energy Services
segment;
· the
impact of lower commodity prices on our operating assets and
liabilities;
· the
timing of cash receipts from our revenues resulting in decreased accounts
receivable; partially offset by
· the
timing of payments for purchases of commodities and other expenses resulting in
decreased accounts payable.
Operating
cash flows, before changes in operating assets and liabilities, were $419.3
million for the six months ended June 30, 2009, compared with $506.0 million for
the same period last year. The decrease was primarily due to lower
realized commodity prices and product price differentials in our ONEOK Partners
segment, and decreases in storage and marketing margins, net of hedging
activities, in our Energy Services segment. These decreases were
partially offset by increased throughput from the completion of the Overland
Pass Pipeline and related expansion projects, and new NGL supply connections in
our ONEOK Partners segment and an increase in transportation margins, net of
hedging activities, in our Energy Services segment.
Investing Cash Flows - Cash
used in investing activities decreased for the six months ended June 30, 2009,
compared with the same period last year, primarily due to the completion of the
Overland Pass Pipeline and related expansion projects, the Williston Basin gas
processing plant expansion and the Guardian Pipeline expansion and
extension.
Financing Cash Flows - During
the six months ended June 30, 2009, we had a net repayment of notes payable of
$1.6 billion. The repayments were made with the proceeds ONEOK
Partners received from the senior notes and public offering of common units, as
discussed below, and cash generated from operations. During the six
months ended June 30, 2008, we had net borrowings of $598.9 million, which were
used to repay $402.3 million of ONEOK’s maturing long-term debt and fund ONEOK
Partners’ capital projects.
In June
2009, ONEOK Partners’ public sale of 5,000,000 common units generated net
proceeds of approximately $219.9 million after deducting underwriting discounts
but before offering expenses. ONEOK Partners used the proceeds to
repay borrowings under the ONEOK Partners Partnership Credit Agreement and for
general partnership purposes.
In March
2009, ONEOK Partners completed an underwritten public offering of senior notes
and received proceeds totaling approximately $498.3 million, net of discounts
but before offering expenses. ONEOK Partners used the net proceeds
from the notes to repay borrowings under the ONEOK Partners Partnership Credit
Agreement.
In
February 2009 and 2008, ONEOK repaid $100.0 million and $402.3 million,
respectively, of maturing long-term debt with available cash and short-term
borrowings.
During
the first six months of 2008, ONEOK Partners’ public sale of 2.6 million common
units generated net proceeds of approximately $147 million after deducting
underwriting discounts but before offering expenses. ONEOK Partners
used a portion of the proceeds to repay borrowings under the ONEOK Partners
Partnership Credit Agreement.
Dividends
paid were $0.80 per share and $0.76 per share for the six months ended June 30,
2009 and 2008, respectively.
Distributions
paid to limited partners by ONEOK Partners were $2.16 per unit and $2.065 per
unit for the six months ended June 30, 2009 and 2008, respectively.
ENVIRONMENTAL
AND SAFETY MATTERS
Information
about our environmental matters is included in Note I of the Notes to
Consolidated Financial Statements in this Quarterly Report.
Pipeline Safety - We are
subject to United States Department of Transportation regulations, including
integrity management regulations. The Pipeline Safety Improvement Act
requires pipeline companies to perform integrity assessments on pipeline
segments that pass through densely populated areas or near specifically
designated high consequence areas. To our knowledge, we are in
compliance with all material requirements associated with the various pipeline
safety regulations. Further, we cannot assure that existing pipeline
safety regulations will not be revised or that new regulations will not be
adopted that could result in increased compliance costs or additional operating
restrictions.
Air and Water Emissions - The
federal Clean Air Act, the federal Clean Water Act and analogous state laws
impose restrictions and controls regarding the discharge of pollutants into the
air and water in the United States. Under the Clean Air Act, a
federally enforceable operating permit is required for sources of significant
air emissions. We may be required to incur certain capital
expenditures for air pollution-control equipment in connection with obtaining or
maintaining permits and approvals for sources of air emissions. The
Clean Water Act imposes substantial potential liability for the removal of
pollutants discharged to waters of the United States and remediation of waters
affected by such discharge. To our knowledge, we are in compliance
with all material requirements associated with the various
regulations.
The
United States Congress is actively considering legislation to reduce greenhouse
gas emissions, including carbon dioxide and methane. In addition,
state and regional initiatives to regulate greenhouse gas emissions are under
way. We are monitoring federal and state legislation to assess the
potential impact on our operations. We estimate our direct greenhouse
gas emissions annually as we collect all applicable greenhouse gas emission data
for the previous year. Our most recent estimate for ONEOK and ONEOK
Partners, based on 2008 data, indicates that our emissions are less than 5
million metric tons of carbon dioxide equivalents on an annual
basis. We will continue efforts to improve our ability to better
quantify direct greenhouse gas emissions and will report such emissions as
required by any mandatory reporting rule, including the rules anticipated to be
issued by the United States Environmental Protection Agency (EPA) in
late-2009.
Superfund - The Comprehensive
Environmental Response, Compensation and Liability Act, also known as CERCLA or
Superfund, imposes liability, without regard to fault or the legality of the
original act, on certain classes of persons who contributed to the release of a
hazardous substance into the environment. These persons include the
owner or operator of a facility where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
facility. Under CERCLA, these persons may be liable for the costs of
cleaning up the hazardous substances released into the environment, damages to
natural resources and the costs of certain health studies.
Chemical Site Security - The
United States Department of Homeland Security (Homeland Security) released an
interim rule in April 2007 that requires companies to provide reports on sites
where certain chemicals, including many hydrocarbon products, are
stored. We completed the Homeland Security assessments, and our
facilities were subsequently assigned one of four risk-based tiers ranging from
high (Tier 1) to low (Tier 4) risk, or not tiered at all due to low
risk. A majority of our facilities were not tiered. We are
currently waiting for Homeland Security’s analysis to determine if any of the
tiered facilities will require Site Security Plans and possible physical
security enhancements. In addition, the Transportation Security
Administration and the Department of Transportation have completed a review and
inspection of our “critical facilities” with no material issues.
Environmental Footprint - Our
environmental and climate change strategy focuses on taking steps to minimize
the impact of our operations on the environment. These strategies
include: (i) developing and maintaining an accurate greenhouse gas emissions
inventory, according to rules anticipated to be issued by the EPA in late 2009;
(ii) improving the efficiency of our various pipelines, natural gas processing
facilities and natural gas liquids fractionation facilities; (iii) following
developing technologies for emission control; (iv) following developing
technologies to capture carbon dioxide to keep it from reaching the atmosphere;
and (v) analyzing options for future energy investment.
Currently,
certain subsidiaries of ONEOK Partners participate in the Processing and
Transmission sectors, and LDCs in our Distribution segment participate in the
Distribution sector of the EPA’s Natural Gas STAR Program to voluntarily reduce
methane emissions. A subsidiary in our ONEOK Partners’ segment was
honored in 2008 as the “Natural Gas STAR Gathering and Processing Partner of the
Year” for its efforts to positively address environmental issues through
voluntary implementation of emission-reduction opportunities. In
addition, we continue to focus on maintaining low rates of
lost-and-unaccounted-for methane gas through expanded implementation of best
practices to limit the release of methane during pipeline and facility
maintenance and operations. Our 2008 calculation of our annual
lost-and-unaccounted-for natural gas, for all of our business operations, is
less than 1 percent of total throughput.
FORWARD-LOOKING
STATEMENTS
Some of
the statements contained and incorporated in this Quarterly Report are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Exchange Act, as
amended. The forward-looking statements relate to our anticipated
financial performance, management’s plans and objectives for our future
operations, our business prospects, the outcome of regulatory and legal
proceedings, market conditions and other matters. We make these
forward-looking statements in reliance on the safe harbor protections provided
under the Private Securities Litigation Reform Act of 1995. The
following discussion is intended to identify important factors that could cause
future outcomes to differ materially from those set forth in the forward-looking
statements.
Forward-looking
statements include the items identified in the preceding paragraph, the
information concerning possible or assumed future results of our operations and
other statements contained or incorporated in this Quarterly Report identified
by words such as “anticipate,” “estimate,” “expect,” “project,” “intend,”
“plan,” “believe,” “should,” “goal,” “forecast,” “could,” “may,” “continue,”
“might,” “potential,” “scheduled” and other words and terms of similar
meaning.
You
should not place undue reliance on forward-looking statements, which are
applicable only as of the date of this Quarterly Report. Known and
unknown risks, uncertainties and other factors may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by forward-looking
statements. Those factors may affect our operations, markets,
products, services and prices. In addition to any assumptions and
other factors referred to specifically in connection with the forward-looking
statements, factors that could cause our actual results to differ materially
from those contemplated in any forward-looking statement include, among others,
the following:
·
|
the
effects of weather and other natural phenomena on our operations,
including energy sales and demand for our services and energy
prices;
|
·
|
competition
from other United States and foreign energy suppliers and transporters, as
well as alternative forms of energy, including, but not limited to, solar
power, wind power, geothermal energy and biofuels such as ethanol and
biodiesel;
|
·
|
the
status of deregulation of retail natural gas
distribution;
|
·
|
the
capital intensive nature of our
businesses;
|
·
|
the
profitability of assets or businesses acquired or constructed by
us;
|
·
|
our
ability to make cost-saving changes in
operations;
|
·
|
risks
of marketing, trading and hedging activities, including the risks of
changes in energy prices or the financial condition of our
counterparties;
|
·
|
the
uncertainty of estimates, including accruals and costs of environmental
remediation;
|
·
|
the
timing and extent of changes in energy commodity
prices;
|
·
|
the
effects of changes in governmental policies and regulatory actions,
including changes with respect to income and other taxes, environmental
compliance, climate change initiatives, and authorized rates of recovery
of gas and gas transportation
costs;
|
·
|
the
impact on drilling and production by factors beyond our control, including
the demand for natural gas and refinery-grade crude oil; producers’ desire
and ability to obtain necessary permits; reserve performance; and capacity
constraints on the pipelines that transport crude oil, natural gas and
NGLs from producing areas and our
facilities;
|
·
|
changes
in demand for the use of natural gas because of market conditions caused
by concerns about global warming;
|
·
|
the
impact of unforeseen changes in interest rates, equity markets, inflation
rates, economic recession and other external factors over which we have no
control, including the effect on pension expense and funding resulting
from changes in stock and bond market
returns;
|
·
|
our
indebtedness could make us vulnerable to general adverse economic and
industry conditions, limit our ability to borrow additional funds, and/or
place us at competitive disadvantages compared to our competitors that
have less debt, or have other adverse
consequences;
|
·
|
actions
by rating agencies concerning the credit ratings of ONEOK and ONEOK
Partners;
|
·
|
the
results of administrative proceedings and litigation, regulatory actions
and receipt of expected clearances involving the OCC, KCC, Texas
regulatory authorities or any other local, state or federal regulatory
body, including the FERC;
|
·
|
our
ability to access capital at competitive rates or on terms acceptable to
us;
|
·
|
risks
associated with adequate supply to our gathering, processing,
fractionation and pipeline facilities, including production declines that
outpace new drilling;
|
·
|
the
risk that material weaknesses or significant deficiencies in our internal
controls over financial reporting could emerge or that minor problems
could become significant;
|
·
|
the
impact and outcome of pending and future
litigation;
|
·
|
the
ability to market pipeline capacity on favorable terms, including the
effects of:
|
-
|
future
demand for and prices of natural gas and
NGLs;
|
-
|
competitive
conditions in the overall energy
market;
|
-
|
availability
of supplies of Canadian and United States natural gas;
and
|
-
|
availability
of additional storage capacity;
|
·
|
performance
of contractual obligations by our customers, service providers,
contractors and shippers;
|
·
|
the
timely receipt of approval by applicable governmental entities for
construction and operation of our pipeline and other projects and required
regulatory clearances;
|
·
|
our
ability to acquire all necessary permits, consents or other approvals in a
timely manner, to promptly obtain all necessary materials and supplies
required for construction, and to construct gathering, processing,
storage, fractionation and transportation facilities without labor or
contractor problems;
|
·
|
the
mechanical integrity of facilities
operated;
|
·
|
demand
for our services in the proximity of our
facilities;
|
·
|
our
ability to control operating costs;
|
·
|
adverse
labor relations;
|
·
|
acts
of nature, sabotage, terrorism or other similar acts that cause damage to
our facilities or our suppliers’ or shippers’
facilities;
|
·
|
economic
climate and growth in the geographic areas in which we do
business;
|
·
|
the
risk of a prolonged slowdown in growth or decline in the U.S. economy or
the risk of delay in growth recovery in the United States economy,
including increasing liquidity risks in United States credit
markets;
|
·
|
the
impact of recently issued and future accounting pronouncements and other
changes in accounting policies;
|
·
|
the
possibility of future terrorist attacks or the possibility or occurrence
of an outbreak of, or changes in, hostilities or changes in the political
conditions in the Middle East and
elsewhere;
|
·
|
the
risk of increased costs for insurance premiums, security or other items as
a consequence of terrorist attacks;
|
·
|
risks
associated with pending or possible acquisitions and dispositions,
including our ability to finance or integrate any such acquisitions and
any regulatory delay or conditions imposed by regulatory bodies in
connection with any such acquisitions and
dispositions;
|
·
|
the
possible loss of gas distribution franchises or other adverse effects
caused by the actions of
municipalities;
|
·
|
the
impact of unsold pipeline capacity being greater or less than
expected;
|
·
|
the
ability to recover operating costs and amounts equivalent to income taxes,
costs of property, plant and equipment and regulatory assets in our state
and FERC-regulated rates;
|
·
|
the
composition and quality of the natural gas and NGLs we gather and process
in our plants and transport on our
pipelines;
|
·
|
the
efficiency of our plants in processing natural gas and extracting and
fractionating NGLs;
|
·
|
the
impact of potential impairment
charges;
|
·
|
the
risk inherent in the use of information systems in our respective
businesses, implementation of new software and hardware, and the impact on
the timeliness of information for financial
reporting;
|
·
|
our
ability to control construction costs and completion schedules of our
pipelines and other projects; and
|
·
|
the
risk factors listed in the reports we have filed and may file with the
SEC, which are incorporated by
reference.
|
These
factors are not necessarily all of the important factors that could cause actual
results to differ materially from those expressed in any of our forward-looking
statements. Other factors could also have material adverse effects on
our future results. These and other risks are described in greater
detail in Part I, Item 1A, Risk Factors, in our Annual Report. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these factors. Other
than as required under securities laws, we undertake no obligation to update
publicly any forward-looking statement whether as a result of new information,
subsequent events or change in circumstances, expectations or
otherwise.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
quantitative and qualitative disclosures about market risk are consistent with
those discussed in Part II, Item 7A, Quantitative and Qualitative Disclosures
About Market Risk in our Annual Report.
COMMODITY
PRICE RISK
See Note
C of the Notes to Consolidated Financial Statements and the discussion under
ONEOK Partners’ “Commodity Price Risk” in Item 2, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, in this Quarterly
Report for information on our hedging activities.
Fair Value Component of Energy
Marketing and Risk Management Assets and Liabilities - The following
table sets forth the fair value component of our energy marketing and risk
management assets and liabilities, excluding $244.9 million of net assets at
June 30, 2009, from derivative instruments declared as either fair value or cash
flow hedges, for the periods indicated.
Fair
Value Component of Energy Marketing and Risk Management Assets and
Liabilities
|
|
|
(Thousands
of dollars)
|
Net
fair value of derivatives outstanding at December 31, 2008
(a)
|
|
$ |
3,656 |
|
Derivatives
reclassified or otherwise settled during the period
|
|
|
(5,905 |
) |
Fair
value of new derivatives entered into during the period
|
|
|
(2,234 |
) |
Other
changes in fair value
|
|
|
7,904 |
|
Net
fair value of derivatives outstanding at June 30, 2009 (b)
|
|
$ |
3,421 |
|
|
|
|
|
|
(a)
- This balance has been adjusted by $255.1 million from the amount
reported in our Annual Report.
The
adjustment was made in order to exclude from this table the gains on cash
flow hedges that were
reclassified
into earnings from accumulated other comprehensive income (loss) related
to the write
down
of our natural gas in storage to its lower of weighted-average cost or
market.
|
(b)
- The maturities of derivatives are based on injection and withdrawal
periods from April through March,
which
is consistent with our business strategy. The maturities are as
follows: $2.6 million matures
through
March 2010, $0.6 million matures through March 2011 and $0.2 million
matures through
March
2015.
|
The
change in the net fair value of derivatives outstanding includes the effect of
settled energy contracts and current period changes resulting primarily from
newly originated transactions and the impact of market movements on the fair
value of energy marketing and risk management assets and
liabilities.
For
further discussion of derivative instruments and fair value measurements, see
the “Critical Accounting Estimates” section of Item 7, Management’s Discussion
and Analysis of Financial Condition and Results of Operations in our Annual
Report. Also, see Notes B and C of the Notes to Consolidated
Financial Statements in this Quarterly Report.
Value-at-Risk (VAR) Disclosure of
Market Risk - The potential impact on
our future earnings, as measured by VAR, was $6.9 million and $14.9 million at
June 30, 2009 and 2008, respectively. The following table sets forth
the average, high and low VAR calculations for the periods
indicated.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
Value-at-Risk
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
(Millions
of dollars)
|
Average
|
|
$ |
9.0 |
|
|
$ |
12.6 |
|
|
$ |
9.6 |
|
|
$ |
12.5 |
|
High
|
|
$ |
13.0 |
|
|
$ |
18.4 |
|
|
$ |
14.1 |
|
|
$ |
24.9 |
|
Low
|
|
$ |
6.5 |
|
|
$ |
8.0 |
|
|
$ |
6.2 |
|
|
$ |
4.0 |
|
Quarterly Evaluation of Disclosure
Controls and Procedures - As of the end of the period covered by this
report, our Chief Executive Officer (Principal Executive Officer) and Chief
Financial Officer (Principal Financial Officer) evaluated the effectiveness of
our disclosure controls and procedures as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to management, including
our principal executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure. Based on their
evaluation, they concluded that as of June 30, 2009, our disclosure controls and
procedures were effective in ensuring that the information required to be
disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
Changes in Internal Controls Over
Financial Reporting - We have made no changes in our internal controls
over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the
Exchange Act) during the second quarter ended June 30, 2009, that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
Additional
information about our legal proceedings is included under Part I, Item 3, Legal
Proceedings, in our Annual Report.
Mont
Belvieu Emissions, Texas
Commission on Environmental Quality - As previously reported, personnel
of ONEOK Hydrocarbon Southwest, L.L.C. (OHSL), a subsidiary of ONEOK Partners,
are in discussions with the Texas Commission on Environmental Quality (TCEQ)
staff regarding air emissions at ONEOK Partners’ Mont Belvieu fractionator,
which may have exceeded the emissions allowed under its air permit. On
March 13, 2009, the TCEQ issued a Notice of Enforcement, alleging that OHSL
failed to isolate the source of the emissions in a timely manner. In a
letter dated April 15, 2009, the TCEQ proposed settling the matter by entering
into an Agreed Order with an administrative penalty of $160,000 and requiring
OHSL to perform certain preventative procedures. On May 13, 2009, OHSL
submitted its response to the settlement proposal letter. While
OHSL’s response remained under consideration by the TCEQ staff, the time for
accepting the settlement lapsed, and, in a letter dated June 24, 2009, the
Enforcement Division of the TCEQ withdrew its settlement offer and referred the
matter to its Litigation Division. This does not foreclose the
possibility of a settlement, and OHSL continues to communicate with the TCEQ
staff in both divisions regarding resolution of this matter.
Gas Index
Pricing Litigation - As previously reported,
we, ONEOK Energy Services Company, L.P. (“OESC”) and one other affiliate are
defending, either individually or together, against multiple lawsuits claiming
damages resulting from the alleged market manipulation or false reporting of
prices to gas index publications by us and others. On April 27, 2009,
the Tennessee Supreme Court granted the defendants’ (including us and OESC)
application to appeal the decision of the Tennessee Court of Appeals that
reversed the trial court’s granting of the defendants’ motion to dismiss in the
Samuel P. Leggett, et al. v. Duke Energy
Corporation, et al., case. Briefing on the appeal has been
completed and a hearing before the Tennessee Supreme Court is scheduled for
November 2009.
Additionally,
on May 6, 2009, the NewPage
Wisconsin System Inc. v. CMS Energy Resource Management Company, et al.,
case was transferred to the multi-district litigation matter MDL-1566 in
the United States District Court for the District of Nevada for further
proceedings. We continue to vigorously defend all claims made in
these cases.
Our
investors should consider the risks set forth in Part I, Item 1A, Risk Factors
of our Annual Report that could affect us and our business. Although
we have tried to discuss key factors, our investors need to be aware that other
risks may prove to be important in the future. New risks may emerge
at any time and we cannot predict such risks or estimate the extent to which
they may affect our financial performance. Investors should carefully
consider the discussion of risks and the other information included or
incorporated by reference in this Quarterly Report, including “Forward-Looking
Statements,” which are included in Part I, Item 2, Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
ISSUER
PURCHASES OF EQUITY SECURITIES
The
following table sets forth information relating to our purchases of our common
stock for the periods shown.
Period
|
Total
Number of Shares
Purchased
|
Average
Price
Paid
per Share
|
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plans or
Programs
|
Maximum
Number (or
Approximate
Dollar Value) of
Shares
(or Units) that May
Be
Purchased Under the
Plans
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
1-30, 2009
|
|
29
|
|
(a)
|
$25.05
|
|
|
-
|
|
|
|
-
|
|
May
1-31, 2009
|
|
71
|
|
(a)
|
$27.64
|
|
|
-
|
|
|
|
-
|
|
June
1-30, 2009
|
|
44
|
|
(a)
|
$29.59
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
144
|
|
|
$27.71
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
- Represents shares repurchased directly from employees, pursuant to our
Employee Stock Award
Program.
|
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
Not
Applicable.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held
our 2009 annual meeting of shareholders on May 21, 2009. At this
meeting, the individuals set forth below were elected by a majority vote to our
Board of Directors to serve for a term of one year.
Director
|
|
Votes
For
|
|
|
Votes
Against
|
|
|
Abstained
|
James
C. Day
|
|
92,064,097
|
|
|
4,551,566
|
|
|
432,754
|
Julie
H. Edwards
|
|
95,744,855
|
|
|
985,025
|
|
|
318,537
|
William
L. Ford
|
|
91,036,062
|
|
|
5,689,013
|
|
|
323,342
|
John
W. Gibson
|
|
93,375,749
|
|
|
3,297,750
|
|
|
374,918
|
David
L. Kyle
|
|
93,496,965
|
|
|
3,269,074
|
|
|
282,378
|
Bert
H. Mackie
|
|
92,096,407
|
|
|
4,583,849
|
|
|
368,161
|
Jim
W. Mogg
|
|
91,965,702
|
|
|
4,660,750
|
|
|
421,965
|
Pattye
L. Moore
|
|
95,831,806
|
|
|
920,047
|
|
|
296,564
|
Gary
D. Parker
|
|
92,317,669
|
|
|
4,407,386
|
|
|
323,362
|
Eduardo
A. Rodriguez
|
|
95,624,066
|
|
|
1,056,052
|
|
|
368,299
|
David
J. Tippeconnic
|
|
90,168,169
|
|
|
6,420,777
|
|
|
459,471
|
In
addition, at this meeting our shareholders approved the proposal to ratify the
selection of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the year ending December 31, 2009, as follows:
Votes
For
|
|
Votes
Against
|
|
Abstained
|
96,269,240
|
|
|
516,911
|
|
|
262,266
|
ITEM
5. OTHER INFORMATION
Not
Applicable.
Readers
of this report should not rely on or assume the accuracy of any representation
or warranty or the validity of any opinion contained in any agreement filed as
an exhibit to this Quarterly Report, because such representation, warranty or
opinion may be subject to exceptions and qualifications contained in separate
disclosure schedules, may represent an allocation of risk between parties in the
particular transaction, may be qualified by materiality standards that differ
from what may be viewed as material for securities law purposes, or may no
longer continue to be true as of any given date. All exhibits attached to
this Quarterly Report are included for the purpose of complying with
requirements of the SEC, and, other than the certifications made by our officers
pursuant to the Sarbanes-Oxley Act of 2002 included as exhibits to this
Quarterly Report, all exhibits are included only to provide information to
investors regarding their respective terms and should not be relied upon as
constituting or providing any factual disclosures about us, any other persons,
any state of affairs or other matters.
The
following exhibits are filed as part of this Quarterly Report:
Exhibit
No. Exhibit
Description
|
10.1
|
Letter
agreement between ONEOK, Inc. and Sam Combs III, dated June 16,
2009.
|
|
31.1
|
Certification
of John W. Gibson pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
of Curtis L. Dinan pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32.1
|
Certification
of John W. Gibson pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only pursuant
to Rule 13a-14(b)).
|
|
32.2
|
Certification
of Curtis L. Dinan pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only pursuant
to Rule 13a-14(b)).
|
|
101.INS
|
XBRL
Instance Document
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document
|
|
101.CAL
|
XBRL
Taxonomy Calculation Linkbase
Document
|
|
101.DEF
|
XBRL
Taxonomy Extension Definitions
Document
|
|
101.LAB
|
XBRL
Taxonomy Label Linkbase Document
|
|
101.PRE
|
XBRL
Taxonomy Presentation Linkbase
Document
|
Attached
as Exhibit 101 to this Quarterly Report are the following documents formatted in
XBRL: (i) Document and Entity Information; (ii) Consolidated Statements of
Income for the three and six months ended June 30, 2009 and 2008;
(iii) Consolidated Balance Sheets at June 30, 2009 and
December 31, 2008; (iv) Consolidated Statements of Cash Flows for the
six months ended June 30, 2009 and 2008; (v) Consolidated Statement of
Shareholders’ Equity for the six months ended June 30, 2009; (vi) Consolidated
Statements of Comprehensive Income for the three and six months ended June 30,
2009 and 2008; and (vii) Notes to Consolidated Financial
Statements.
Users of
this data are advised pursuant to Rule 401 of Regulation S-T that the
information contained in the XBRL documents is unaudited and these XBRL
documents are not the official publicly filed consolidated financial statements
of ONEOK, Inc. The purpose of submitting these XBRL formatted
documents is to test the related format and technology and, as a result,
investors should continue to rely on the official filed version of the furnished
documents and not rely on this information in making investment
decisions.
In
accordance with Rule 402 of Regulation S-T, the XBRL related information in
Exhibit 101 to this Quarterly Report shall not be deemed to be “filed” for
purposes of Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be incorporated by reference into any
registration statement or other document filed under the Securities Act of 1933
or the Exchange Act, except as shall be expressly set forth by specific
reference in such filing. We also make available on our Web site the
Interactive Data Files submitted as Exhibit 101 to this Quarterly
Report.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
ONEOK,
Inc.
Registrant
|
Date:
August 6, 2009
|
By:
|
/s/
Curtis L. Dinan
|
|
|
Curtis
L. Dinan
Senior
Vice President,
Chief
Financial Officer and Treasurer
(Principal
Financial Officer)
|