ONEOK INC /NEW/
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
For the quarterly period ended
March 31, 2023
.
OR
For the transition period from __________ to __________.
Commission file number
001-13643
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer Identification No.)
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| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
Registrant’s telephone number, including area code
(
918
)
588-7000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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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
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
On April 24, 2023, the Company had
447,443,257
shares of common stock outstanding.
ONEOK, Inc.
TABLE OF CONTENTS
| Page No. | ||||||||
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,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “intend,” “may,” “might,” “outlook,” “plan,” “potential,” “project,” “scheduled,” “should,” “target,” “will,” “would” 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 or 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 WEBSITE
We make available, free of charge, on our website (www.oneok.com) copies of our Annual Reports, 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. Copies of our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Director Independence Guidelines, Corporate Sustainability Report and the written charters of our Board Committees also are available on our website, and we will provide copies of these documents upon request.
In addition to our filings with the SEC and materials posted on our website, we also use social media platforms as additional channels of distribution to reach public investors. Information contained on our website, posted on our social media accounts, and any corresponding applications, are not incorporated by reference into this report.
2
GLOSSARY
The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:
| $2.5 Billion Credit Agreement | ONEOK’s $2.5 billion revolving credit agreement, as amended and restated | ||||
| AFUDC | Allowance for funds used during construction | ||||
| Annual Report | Annual Report on Form 10-K for the year ended December 31, 2022 | ||||
| ASU | Accounting Standards Update | ||||
| Bbl | Barrels, 1 barrel is equivalent to 42 United States gallons | ||||
| BBtu/d | Billion British thermal units per day | ||||
| Bcf | Billion cubic feet | ||||
| CFTC | United States Commodity Futures Trading Commission | ||||
| DJ | Denver-Julesburg | ||||
| EBITDA | Earnings before interest expense, income taxes, depreciation and amortization | ||||
| EPA | United States Environmental Protection Agency | ||||
| EPS | Earnings per share of common stock | ||||
| Exchange Act | Securities Exchange Act of 1934, as amended | ||||
| FERC | Federal Energy Regulatory Commission | ||||
| Fitch | Fitch Ratings, Inc. | ||||
| GAAP | Accounting principles generally accepted in the United States of America | ||||
| Guardian | Guardian Pipeline, L.L.C., a wholly owned subsidiary of ONEOK, Inc. | ||||
| Guardian Term Loan Agreement | Guardian’s senior unsecured three-year $120 million term loan agreement dated June 2022 | ||||
| GHG | Greenhouse gas | ||||
| Homeland Security | United States Department of Homeland Security | ||||
| Intermediate Partnership |
ONEOK Partners Intermediate Limited Partnership, a wholly owned subsidiary of ONEOK Partners, L.P.
|
||||
| MBbl/d | Thousand barrels per day | ||||
| MDth/d | Thousand dekatherms per day | ||||
| MMBbl | Million barrels | ||||
| MMBtu | Million British thermal units | ||||
| MMcf/d | Million cubic feet per day | ||||
| Moody’s | Moody’s Investors Service, Inc. | ||||
| Natural Gas Act | Natural Gas Act of 1938, as amended | ||||
| NGL(s) | Natural gas liquid(s) | ||||
| Northern Border | Northern Border Pipeline Company, a 50% owned joint venture | ||||
| NYMEX | New York Mercantile Exchange | ||||
| ONEOK | ONEOK, Inc. | ||||
| ONEOK Partners | ONEOK Partners, L.P., a wholly owned subsidiary of ONEOK, Inc. | ||||
| OPIS | Oil Price Information Service | ||||
| Overland Pass |
Overland Pass Pipeline Company, LLC, a 50% owned joint venture
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| PHMSA |
United States Department of Transportation Pipeline and Hazardous Materials Safety Administration
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| POP | Percent of Proceeds | ||||
| Purity NGLs |
Marketable natural gas liquid purity products, such as ethane, ethane/propane mix, propane, iso-butane, normal butane and natural gasoline
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| Quarterly Report(s) | Quarterly Report(s) on Form 10-Q | ||||
| Roadrunner | Roadrunner Gas Transmission, LLC, a 50% owned joint venture | ||||
| S&P | S&P Global Ratings | ||||
| SEC | Securities and Exchange Commission | ||||
| Series E Preferred Stock | Series E Non-Voting, Perpetual Preferred Stock, par value $0.01 per share | ||||
| SOFR | Secured Overnight Financing Rate | ||||
| Term SOFR | The forward-looking term rate based on SOFR | ||||
| Viking | Viking Gas Transmission Company, a wholly owned subsidiary of ONEOK, Inc. | ||||
| Viking Term Loan Agreement | Viking’s senior unsecured three-year $60 million term loan agreement dated March 2023 | ||||
| WTI | West Texas Intermediate | ||||
| XBRL | eXtensible Business Reporting Language | ||||
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| ONEOK, Inc. and Subsidiaries | ||||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||
| Three Months Ended | ||||||||||||||
| March 31, | ||||||||||||||
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(
Unaudited
)
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2023 | 2022 | ||||||||||||
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(
Millions of dollars, except per share amounts
)
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| Revenues | ||||||||||||||
| Commodity sales | $ |
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$ |
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| Services |
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Total revenues (Note K)
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| Cost of sales and fuel (exclusive of items shown separately below) |
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| Operations and maintenance |
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| Depreciation and amortization |
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| General taxes |
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Other operating (income) expense, net (Note B)
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(
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(
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| Operating income |
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Equity in net earnings from investments (Note I)
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| Other income (expense), net |
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(
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Interest expense (net of capitalized interest of $
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(
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(
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| Income before income taxes |
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| Income taxes |
(
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(
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| Net income |
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| Less: Preferred stock dividends |
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| Net income available to common shareholders | $ |
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$ |
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Basic EPS (Note H)
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$ |
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$ |
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Diluted EPS (Note H)
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$ |
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$ |
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Average shares
(millions)
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| Basic |
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| Diluted |
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See accompanying Notes to Consolidated Financial Statements.
4
| ONEOK, Inc. and Subsidiaries | ||||||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||
| Three Months Ended | ||||||||||||||
| March 31, | ||||||||||||||
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(
Unaudited
)
|
2023 | 2022 | ||||||||||||
| (Millions of dollars) | ||||||||||||||
| Net income | $ |
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$ |
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| Other comprehensive income (loss), net of tax | ||||||||||||||
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Change in fair value of derivatives, net of tax of $(
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(
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Derivative amounts reclassified to net income, net of tax of $
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(
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Change in retirement and other postretirement benefit plan obligations, net of tax of $
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||||||||||||
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Other comprehensive income (loss) of unconsolidated affiliates, net of tax of $
|
(
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||||||||||||
| Total other comprehensive income, net of tax |
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||||||||||||
| Comprehensive income | $ |
|
$ |
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||||||||||
See accompanying Notes to Consolidated Financial Statements.
5
| ONEOK, Inc. and Subsidiaries | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| March 31, | December 31, | |||||||||||||
|
(
Unaudited
)
|
2023 | 2022 | ||||||||||||
| Assets |
(
Millions of dollars
)
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|||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ |
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$ |
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||||||||||
| Accounts receivable, net |
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| Materials and supplies |
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| NGLs and natural gas in storage |
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| Commodity imbalances |
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| Other current assets |
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| Total current assets |
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Property, plant and equipment
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| Property, plant and equipment |
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| Accumulated depreciation and amortization |
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| Net property, plant and equipment |
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Investments and other assets
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| Investments in unconsolidated affiliates |
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| Goodwill and net intangible assets |
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| Other assets |
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| Total investments and other assets |
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| Total assets | $ |
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$ |
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6
| ONEOK, Inc. and Subsidiaries | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| (Continued) | ||||||||||||||
| March 31, | December 31, | |||||||||||||
|
(
Unaudited
)
|
2023 | 2022 | ||||||||||||
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Liabilities and equity
|
(
Millions of dollars
)
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|||||||||||||
| Current liabilities | ||||||||||||||
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Current maturities of long-term debt (Note E)
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$ |
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$ |
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||||||||||
| Accounts payable |
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| Commodity imbalances |
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| Accrued taxes |
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| Accrued interest |
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| Operating lease liability |
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| Other current liabilities |
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| Total current liabilities |
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Long-term debt, excluding current maturities (Note E)
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Deferred credits and other liabilities
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| Deferred income taxes |
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| Operating lease liability |
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| Other deferred credits |
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| Total deferred credits and other liabilities |
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Commitments and contingencies (Note J)
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Equity (Note F)
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| ONEOK shareholders’ equity: | ||||||||||||||
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Preferred stock, $
authorized and issued |
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Common stock, $
authorized |
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| Paid-in capital |
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Accumulated other comprehensive loss (Note G)
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(
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(
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| Retained earnings |
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Treasury stock, at cost:
|
(
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(
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||||||||||||
| Total equity |
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||||||||||||
| Total liabilities and equity | $ |
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$ |
|
||||||||||
See accompanying Notes to Consolidated Financial Statements.
7
This page intentionally left blank.
8
| ONEOK, Inc. and Subsidiaries | ||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
| Three Months Ended | ||||||||||||||
| March 31, | ||||||||||||||
|
(
Unaudited
)
|
2023 | 2022 | ||||||||||||
|
(
Millions of dollars
)
|
||||||||||||||
| Operating activities | ||||||||||||||
| Net income | $ |
|
$ |
|
||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization |
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||||||||||||
| Equity in net earnings from investments |
(
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(
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||||||||||||
| Distributions received from unconsolidated affiliates |
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| Deferred income taxes |
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| Medford settlement gain |
(
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| Medford settlement proceeds |
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| Other, net |
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| Changes in assets and liabilities: | ||||||||||||||
| Accounts receivable |
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(
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||||||||||||
| NGLs and natural gas in storage, net of commodity imbalances |
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(
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||||||||||||
| Accounts payable |
(
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||||||||||||
| Accrued interest |
(
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(
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||||||||||||
| Risk-management assets and liabilities |
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(
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| Other assets and liabilities, net |
(
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(
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| Cash provided by operating activities |
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Investing activities
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| Capital expenditures (less allowance for equity funds used during construction) |
(
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(
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| Distributions received from unconsolidated affiliates in excess of cumulative earnings |
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| Medford settlement proceeds |
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| Other, net |
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| Cash provided by (used in) investing activities |
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(
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Financing activities
|
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| Dividends paid |
(
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(
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| Short-term borrowings, net |
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| Issuance of long-term debt, net of discounts |
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| Repayment of long-term debt |
(
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| Other, net |
(
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(
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| Cash used in financing activities |
(
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(
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||||||||||||
| Change in cash and cash equivalents |
|
(
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||||||||||||
| Cash and cash equivalents at beginning of period |
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||||||||||||
| Cash and cash equivalents at end of period | $ |
|
$ |
|
||||||||||
See accompanying Notes to Consolidated Financial Statements.
9
| ONEOK, Inc. and Subsidiaries | ||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||||||||||||||||||||||
|
(
Unaudited
)
|
Preferred
Stock Issued |
Common
Stock Issued |
Preferred
Stock |
Common
Stock |
Paid-in
Capital |
|||||||||||||||||||||||||||
|
(
Shares
)
|
(
Millions of dollars
)
|
|||||||||||||||||||||||||||||||
| January 1, 2023 |
|
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||
| Net income | — | — |
|
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|||||||||||||||||||||||||||
|
Other comprehensive income (Note G)
|
— | — |
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Preferred stock dividends - $
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— | — |
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| Common stock issued | — |
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(
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Common stock dividends - $
|
— | — |
|
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|||||||||||||||||||||||||||
| Other, net | — | — |
|
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| March 31, 2023 |
|
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||
|
(
Unaudited
)
|
Preferred
Stock Issued |
Common
Stock Issued |
Preferred
Stock |
Common
Stock |
Paid-in
Capital |
|||||||||||||||||||||||||||
|
(
Shares
)
|
(
Millions of dollars
)
|
|||||||||||||||||||||||||||||||
| January 1, 2022 |
|
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||
| Net income | — | — |
|
|
|
|||||||||||||||||||||||||||
| Other comprehensive income | — | — |
|
|
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|||||||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — |
|
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|
|||||||||||||||||||||||||||
| Common stock issued | — |
|
|
|
(
|
|||||||||||||||||||||||||||
|
Common stock dividends - $
|
— | — |
|
|
(
|
|||||||||||||||||||||||||||
| Other, net | — | — |
|
|
(
|
|||||||||||||||||||||||||||
| March 31, 2022 |
|
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||
10
| ONEOK, Inc. and Subsidiaries | ||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||||||||||||||||
| (Continued) | ||||||||||||||||||||||||||
|
(
Unaudited
)
|
Accumulated
Other Comprehensive Loss |
Retained
Earnings |
Treasury
Stock |
Total
Equity |
||||||||||||||||||||||
|
(
Millions of dollars
)
|
||||||||||||||||||||||||||
| January 1, 2023 | $ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||
| Net income |
|
|
|
|
||||||||||||||||||||||
|
Other comprehensive income (Note G)
|
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|
|
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||||||||||||||||||||||
|
Preferred stock dividends - $
|
|
|
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|
||||||||||||||||||||||
| Common stock issued |
|
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|
||||||||||||||||||||||
|
Common stock dividends - $
|
|
(
|
|
(
|
||||||||||||||||||||||
| Other, net |
|
|
|
|
||||||||||||||||||||||
| March 31, 2023 | $ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||
|
(
Unaudited
)
|
Accumulated
Other Comprehensive Loss |
Retained
Earnings |
Treasury
Stock |
Total
Equity |
||||||||||||||||||||||
|
(
Millions of dollars
)
|
||||||||||||||||||||||||||
| January 1, 2022 | $ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||
| Net income |
|
|
|
|
||||||||||||||||||||||
| Other comprehensive income |
|
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||||||||||||||||||||||
|
Preferred stock dividends - $
|
|
|
|
|
||||||||||||||||||||||
| Common stock issued |
|
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|
||||||||||||||||||||||
|
Common stock dividends - $
|
|
(
|
|
(
|
||||||||||||||||||||||
|
Other, net
|
|
|
|
(
|
||||||||||||||||||||||
| March 31, 2022 | $ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
11
ONEOK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
B.
MEDFORD INCIDENT
On July 9, 2022, a fire occurred at our 210 MBbl/d Medford, Oklahoma, natural gas liquids fractionation facility. Beginning in August 2022, we developed claims related to the Medford incident and recorded accruals for the expected insurance recoveries. We assessed incurred costs and lost earnings related to business interruption and property damage to our facility, as well as timing of recognition under applicable insurance recovery guidance, and recorded accruals of $
151
million in 2022 for insurance recoveries that offset our incurred costs and losses.
On January 9, 2023, we reached an agreement with our insurers to settle all claims for physical damage and business interruption related to the Medford incident. Under the terms of the settlement agreement, we agreed to resolve the claims for total insurance payments of $
930
million, $
100
million of which was received in 2022. The remaining $
830
million was received in the first quarter 2023. The proceeds serve as settlement for property damage, business interruption claims to the date of the settlement and as payment in lieu of future business interruption insurance claims.
C.
FAIR VALUE MEASUREMENTS
12
Recurring Fair Value Measurements
-
The following tables set forth our recurring fair value measurements as of the dates indicated:
| March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total - Gross | Netting (a) | Total - Net | ||||||||||||||||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||||||||||||||
| Commodity contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
| Interest-rate contracts |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total derivative assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
|
Derivative liabilities
|
|||||||||||||||||||||||||||||||||||
| Commodity contracts | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Total derivative liabilities | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||||||
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At March 31, 2023, we posted
no
cash and held cash of $
17
million from various counterparties, which offsets our derivative net asset position under master netting arrangements as shown in the table above.
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total - Gross | Netting (a) | Total - Net | ||||||||||||||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||||||||||||||
| Commodity contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
| Interest-rate contracts |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total derivative assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
|
Derivative liabilities
|
|||||||||||||||||||||||||||||||||||
| Commodity contracts | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Total derivative liabilities | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||||||
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At December 31, 2022, we held
no
cash and posted $
9
million of cash with various counterparties, which is included in other current assets in our Consolidated Balance Sheet.
The following table sets forth a reconciliation of our Level 3 fair value measurements for the periods indicated:
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| Derivative Assets (Liabilities) | 2023 | 2022 | |||||||||
|
(
Millions of dollars
)
|
|||||||||||
| Net liabilities at beginning of period | $ |
|
$ |
(
|
|||||||
| Total changes in fair value: | |||||||||||
| Settlements included in net income (a) |
|
|
|||||||||
| New Level 3 derivatives included in other comprehensive income (b) |
|
(
|
|||||||||
| Unrealized change included in other comprehensive income (b) |
|
(
|
|||||||||
| Net liabilities at end of period | $ |
|
$ |
(
|
|||||||
(a) - Included in commodity sales revenues/cost of sales and fuel in our Consolidated Statements of Income.
During the year ended December 31, 2022, we transferred out of Level 3 commodity derivatives associated with certain locations for both NGL and natural gas basis swaps, principally due to improved transparency of market prices as a result of the volume and frequency of transactions in these markets. We consider the valuation of these commodity derivatives, which are transacted through a clearing broker and valued with an unadjusted published price from an exchange, as a Level 2 valuation.
Other Financial Instruments
- The approximate fair value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings is equal to book value due to the short-term nature of these items. Our cash and cash equivalents are
13
composed of bank and money market accounts and are classified as Level 1. Our short-term borrowings are classified as Level 2 since the estimated fair value of the short-term borrowings can be determined using information available in the commercial paper market. We have investments associated with our supplemental executive retirement plan and nonqualified deferred compensation plan that are carried at fair value and primarily are composed of exchange-traded mutual funds classified as Level 1.
The estimated fair value of our consolidated long-term debt, including current maturities, was $
12.6
billion and $
12.7
billion at March 31, 2023, and December 31, 2022, respectively. The book value of our consolidated long-term debt, including current maturities, was $
13.2
billion and $
13.6
billion at March 31, 2023, and December 31, 2022, respectively. The estimated fair value of the aggregate senior notes outstanding was determined using quoted market prices for similar issues with similar terms and maturities. The estimated fair value of our consolidated long-term debt is classified as Level 2.
D.
RISK-MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES
Risk-management Activities
- We are sensitive to changes in natural gas, crude oil and NGL prices, principally as a result of contractual terms under which these commodities are processed, purchased and sold. We are also subject to the risk of interest-rate fluctuation in the normal course of business. We use physical-forward purchases and sales and financial derivatives to secure a certain price for a portion of our natural gas, condensate and purity NGLs; to reduce our exposure to commodity price and interest-rate fluctuations; and to achieve more predictable cash flows. We follow established policies and procedures to assess risk and approve, monitor and report our risk-management activities. We have not used these instruments for trading purposes.
Commodity price risk
- Commodity price risk refers to the risk of loss in cash flows and future earnings arising from adverse changes in the price of natural gas, NGLs and condensate. We may use commodity derivative instruments to reduce the near-term commodity price risk associated with a portion of our forecasted purchases and sales of commodities. Our exposure to commodity price risk is consistent with that discussed in our Annual Report.
Interest-rate risk
- We may manage interest-rate risk through the use of fixed-rate debt, floating-rate debt and interest-rate swaps. Interest-rate swaps are agreements to exchange interest payments at some future point based on specified notional amounts. At March 31, 2023, and December 31, 2022, we had forward-starting interest-rate swaps with notional amounts totaling $
375
million to hedge the variability of interest payments on a portion of our forecasted debt issuances. All of our interest-rate swaps are designated as cash flow hedges.
Fair Values of Derivative Instruments
-
The following table sets forth the fair values of our derivative instruments presented on a gross basis as of the dates indicated:
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
|
Location in our
Consolidated Balance Sheets |
Assets | (Liabilities) | Assets | (Liabilities) | |||||||||||||||||||||||||
| Derivatives designated as hedging instruments |
(
Millions of dollars
)
|
||||||||||||||||||||||||||||
| Commodity contracts (a) | Other current assets | $ |
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||
| Other assets |
|
|
|
(
|
|||||||||||||||||||||||||
| Interest-rate contracts | Other current assets |
|
|
|
|
||||||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ |
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||||||||||||||
| Commodity contracts (a) | Other current assets |
|
|
|
(
|
||||||||||||||||||||||||
| Total derivatives not designated as hedging instruments |
|
|
|
(
|
|||||||||||||||||||||||||
| Total derivatives | $ |
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||||
14
Notional Quantities for Derivative Instruments
-
The following table sets forth the notional quantities for derivative instruments held as of the dates indicated:
|
March 31,
2023 |
December 31
2022 |
|||||||||||||
|
Contract
Type |
Net Purchased/Payor
(Sold/Receiver) |
|||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||
| Cash flow hedges | ||||||||||||||
| Fixed price | ||||||||||||||
|
- Natural gas (
Bcf
)
|
Futures |
(
|
(
|
|||||||||||
|
- Crude oil and NGLs (
MMBbl
)
|
Futures |
(
|
(
|
|||||||||||
| Basis | ||||||||||||||
|
- Natural gas (
Bcf
)
|
Futures |
(
|
(
|
|||||||||||
|
Interest-rate contracts (
Billions of dollars
)
|
Swaps | $ |
|
$ |
|
|||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||
| Fixed price | ||||||||||||||
|
- Natural gas (
Bcf
)
|
Futures |
|
(
|
|||||||||||
|
- Crude oil and NGLs (
MMBbl
)
|
Futures |
|
|
|||||||||||
| Basis | ||||||||||||||
|
- Natural gas (
Bcf
)
|
Futures |
|
(
|
|||||||||||
Cash Flow Hedges
-
The following table sets forth the unrealized change in fair value of cash flow hedges in other comprehensive income (loss) for the periods indicated:
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
|
(Millions of dollars
)
|
|||||||||||
| Commodity contracts | $ |
|
$ |
(
|
|||||||
| Interest-rate contracts |
(
|
|
|||||||||
| Total unrealized change in fair value of cash flow hedges in other comprehensive income (loss) | $ |
|
$ |
(
|
|||||||
The following table sets forth the effect of cash flow hedges on net income for the periods indicated:
|
Derivatives in Cash Flow
Hedging Relationships |
Location of Gain (Loss) Reclassified from
Accumulated Other Comprehensive Loss into Net Income |
Three Months Ended | ||||||||||||
| March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
|
(Millions of dollars
)
|
||||||||||||||
| Commodity contracts | Commodity sales revenues | $ |
|
$ |
(
|
|||||||||
| Cost of sales and fuel |
(
|
|
||||||||||||
| Interest-rate contracts | Interest expense |
(
|
(
|
|||||||||||
| Total change in fair value of cash flow hedges reclassified from accumulated other comprehensive loss into net income on derivatives | $ |
|
$ |
(
|
||||||||||
Credit Risk
- We monitor the creditworthiness of our counterparties and compliance with policies and limits established by our Risk Oversight and Strategy Committee. We maintain credit policies with regard to our counterparties that we believe minimize credit risk. Our policies and related credit risk are consistent with those discussed in our Annual Report.
15
E.
DEBT
The following table sets forth our consolidated debt as of the dates indicated:
|
March 31,
2023 |
December 31,
2022 |
|||||||||||||
|
(
Millions of dollars
)
|
||||||||||||||
| Commercial paper outstanding (a) | $ |
|
$ |
|
||||||||||
| Senior unsecured obligations: | ||||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
|
$
|
|
|
||||||||||||
| Guardian | ||||||||||||||
|
$
|
|
|
||||||||||||
| Viking | ||||||||||||||
|
$
|
|
|
||||||||||||
| Total debt |
|
|
||||||||||||
| Unamortized portion of terminated swaps |
|
|
||||||||||||
| Unamortized debt issuance costs and discounts |
(
|
(
|
||||||||||||
| Current maturities of long-term debt |
(
|
(
|
||||||||||||
| Long-term debt | $ |
|
$ |
|
||||||||||
(a) - Individual issuances of commercial paper under our commercial paper program generally mature in 90 days or less.
$2.5 Billion Credit Agreement
- Our $
2.5
Billion Credit Agreement is a revolving credit facility and contains certain customary conditions for borrowing, as well as customary financial, affirmative and negative covenants.
Among other things, these covenants include maintaining a ratio of consolidated net indebtedness to adjusted EBITDA (EBITDA, as defined in our $2.5 Billion Credit Agreement, adjusted for all noncash charges and increased for projected EBITDA from certain lender-approved capital expansion projects) of no more than
5.0
to 1.
At March 31, 2023, we had
no
outstanding borrowings, our ratio of indebtedness to adjusted EBITDA was
2.8
to 1, and we were in compliance with all covenants under our $2.5 Billion Credit Agreement.
Viking Term Loan Agreement
-
In March 2023, Viking entered into a $
60
million senior unsecured Term Loan Agreement. The Viking Term Loan Agreement matures in March 2026 and
bears interest at Term SOFR plus an applicable margin based on Viking’s credit rating at the time of determination plus an adjustment of 10 basis points. Under Viking’s current credit ratings, the applicable margin is 125 basis points.
The Viking Term Loan Agreement allows prepayment of all or any portion
16
Debt Repayments
- In February 2023, we redeemed our $
425
million,
5.0
% senior notes due September 2023 at
100
% of the principal amount, plus accrued and unpaid interest, with cash on hand.
Subsequent event
-
In April, we elected to redeem our $
500
million,
7.5
% senior notes due September 2023, with an effective redemption date in June 2023. The redemption price will be
100
% of the principal amount of the notes, plus accrued and unpaid interest, which we expect to pay with cash on hand.
Debt Guarantees
- ONEOK, ONEOK Partners and the Intermediate Partnership have cross guarantees in place for ONEOK’s and ONEOK Partners’ indebtedness. The Guardian Term Loan Agreement and Viking Term Loan Agreement are not guaranteed by ONEOK, ONEOK Partners or the Intermediate Partnership.
F.
EQUITY
Dividends
-
Holders of our common stock share equally in any dividend declared by our Board of Directors, subject to the rights of the holders of outstanding Series E Preferred Stock. Dividends paid on our common stock in February 2023 were $
0.955
per share. A common stock dividend of $
0.955
per share was declared for shareholders of record at the close of business on
May 1, 2023
, payable
May 15, 2023
.
Our Series E Preferred Stock pays quarterly dividends on each share of Series E Preferred Stock, when, as and if declared by our Board of Directors, at a rate of
5.5
% per year. We paid dividends for the Series E Preferred Stock of $
0.3
million in February 2023. Dividends totaling $
0.3
million were declared for the Series E Preferred Stock and are payable
May 15, 2023
.
G.
ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table sets forth the balance in accumulated other comprehensive loss for the period indicated, net of tax:
|
Risk-
Management Assets/Liabilities |
Retirement and
Other Postretirement Benefit Plan Obligations (a) |
Risk-
Management Assets/Liabilities of Unconsolidated Affiliates |
Accumulated
Other Comprehensive Loss |
|||||||||||||||||||||||
|
(
Millions of dollars
)
|
||||||||||||||||||||||||||
| January 1, 2023 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||
| Other comprehensive income (loss) before reclassifications |
|
|
(
|
|
||||||||||||||||||||||
| Amounts reclassified to net income (b) |
(
|
|
|
(
|
||||||||||||||||||||||
| Other comprehensive income (loss) |
|
|
(
|
|
||||||||||||||||||||||
| March 31, 2023 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||
(a) - Includes amounts related to supplemental executive retirement plan.
(b) - See Note D for details of amounts reclassified to net income for risk-management assets/liabilities.
17
The following table sets forth information about the balance of accumulated other comprehensive loss at March 31, 2023, representing unrealized gains (losses) related to risk-management assets and liabilities, net of tax:
|
Risk-
Management Assets/Liabilities |
||||||||
|
(Millions of dollars
)
|
||||||||
| Commodity derivative instruments expected to be realized within the next 21 months (a) | $ |
|
||||||
| Settled interest-rate swaps to be recognized over the life of the long-term, fixed-rate debt (b) |
(
|
|||||||
|
Interest-rate swaps with future settlement dates expected to be amortized over the life of long-term debt
|
|
|||||||
| Accumulated other comprehensive loss at March 31, 2023 | $ |
(
|
||||||
(a) - Based on commodity prices on March 31, 2023, we expect net gains of $
48
million, net of tax, will be reclassified into earnings during the next 12 months. The remaining forecasted gains and losses have offsetting positions and are immaterial.
(b) - We expect net losses of $
18
million, net of tax, will be reclassified into earnings during the next 12 months.
The remaining amounts in accumulated other comprehensive loss relate primarily to our retirement and other postretirement benefit plan obligations, which are expected to be amortized over the average remaining service period of employees participating in these plans.
H.
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted EPS for the periods indicated:
| Three Months Ended March 31, 2023 | |||||||||||||||||
| Income | Shares |
Per Share
Amount |
|||||||||||||||
|
(
Millions, except per share amounts
)
|
|||||||||||||||||
| Basic EPS | |||||||||||||||||
| Net income available for common stock | $ |
|
|
$ |
|
||||||||||||
| Diluted EPS | |||||||||||||||||
| Effect of dilutive securities |
|
|
|||||||||||||||
| Net income available for common stock and common stock equivalents | $ |
|
|
$ |
|
||||||||||||
| Three Months Ended March 31, 2022 | |||||||||||||||||
| Income | Shares |
Per Share
Amount |
|||||||||||||||
|
(
Millions, except per share amounts
)
|
|||||||||||||||||
| Basic EPS | |||||||||||||||||
| Net income available for common stock | $ |
|
|
$ |
|
||||||||||||
| Diluted EPS | |||||||||||||||||
| Effect of dilutive securities |
|
|
|||||||||||||||
| Net income available for common stock and common stock equivalents | $ |
|
|
$ |
|
||||||||||||
18
I.
UNCONSOLIDATED AFFILIATES
Equity in Net Earnings from Investments
-
The following table sets forth our equity in net earnings from investments for the periods indicated:
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
|
(
Millions of dollars
)
|
|||||||||||
| Northern Border | $ |
|
$ |
|
|||||||
| Overland Pass |
|
|
|||||||||
| Roadrunner |
|
|
|||||||||
| Other |
|
|
|||||||||
| Equity in net earnings from investments | $ |
|
$ |
|
|||||||
We incurred expenses in transactions with unconsolidated affiliates of $
28
million and $
15
million for the three months ended March 31, 2023 and 2022, respectively, related primarily to Overland Pass and Northern Border. Revenue earned and accounts receivable from, and accounts payable to, our equity-method investees were not material.
We have an operating agreement with Roadrunner that provides for reimbursement or payment to us for management services and certain operating costs. Reimbursements and payments from Roadrunner included in operating income in our Consolidated Statements of Income for all periods presented were not material.
J.
COMMITMENTS AND CONTINGENCIES
Environmental Matters and Pipeline Safety
-
The operation of pipelines, plants and other facilities for the gathering, processing, fractionation, transportation and storage of natural gas, NGLs, condensate and other products is subject to numerous and complex laws and regulations pertaining to health, safety and the environment. As an owner and/or operator of these facilities, we must comply with laws and regulations that relate to air and water quality, hazardous and solid waste management and disposal, cultural resource protection and other environmental and safety matters. The cost of planning, designing, constructing and operating pipelines, plants and other facilities must incorporate compliance with these laws, regulations and safety standards. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures, including citizen suits, which can include the assessment of monetary penalties, the imposition of remedial requirements and the issuance of injunctions or restrictions on operation or construction. Management does not believe that, based on currently known information, a material risk of noncompliance with these laws and regulations exists that will affect adversely our consolidated results of operations, financial condition or cash flows.
Legal Proceedings
- We are a party to various legal proceedings that have arisen in the normal course of our operations. While the results of these proceedings cannot be predicted with certainty, we believe the reasonably possible losses from such proceedings, individually and in the aggregate, are not material. Additionally, we believe the probable final outcome of such proceedings will not have a material adverse effect on our consolidated results of operations, financial position or cash flows.
K.
REVENUES
Contract Assets and Contract Liabilities
- Our contract asset balances at the beginning and end of the period primarily relate to our firm service transportation contracts with tiered rates, which are not material. Our contract liabilities at the beginning and end of the period primarily represent deferred revenue on storage contracts and deferred revenue on contributions in aid of construction received from customers, which are not material.
Receivables from Customers and Revenue Disaggregation
- Substantially all of the balances in accounts receivable on our Consolidated Balance Sheets at March 31, 2023, and December 31, 2022, relate to customer receivables. Revenue sources are disaggregated in Note L.
Transaction Price Allocated to Unsatisfied Performance Obligations
- We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) variable consideration on contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
19
The following table presents aggregate value allocated to unsatisfied performance obligations as of March 31, 2023, and the amounts we expect to recognize in revenue in future periods, related primarily to firm transportation and storage contracts with remaining contract terms ranging from
one month to 22 years
:
| Expected Period of Recognition in Revenue |
(
Millions of dollars
)
|
|||||||
| Remainder of 2023 | $ |
|
||||||
| 2024 |
|
|||||||
| 2025 |
|
|||||||
| 2026 |
|
|||||||
| 2027 and beyond |
|
|||||||
| Total estimated transaction price allocated to unsatisfied performance obligations | $ |
|
||||||
The table above excludes variable consideration allocated entirely to wholly unsatisfied performance obligations, wholly unsatisfied promises to transfer distinct goods or services that are part of a single performance obligation and consideration we determine to be fully constrained. The amounts we determined to be fully constrained relate to future sales obligations under long-term sales contracts where the transaction price is not known and minimum volume agreements, which we consider to be fully constrained until invoiced.
L.
SEGMENTS
Segment Descriptions
- Our operations are divided into three reportable business segments as follows:
• our Natural Gas Gathering and Processing segment gathers, treats and processes natural gas;
• our Natural Gas Liquids segment gathers, treats, fractionates and transports NGLs and stores, markets and distributes purity NGLs;
and
• our Natural Gas Pipelines segment transports and stores natural gas.
Other and eliminations consist of corporate costs, the operating and leasing activities of our headquarters building and related parking facility, the activity of our wholly owned captive insurance company and eliminations necessary to reconcile our reportable segments to our Consolidated Financial Statements.
20
Operating Segment Information
-
The following tables set forth certain selected financial information for our operating segments for the periods indicated:
|
Three Months Ended
March 31, 2023 |
Natural Gas
Gathering and Processing |
Natural Gas
Liquids (a) |
Natural Gas
Pipelines (b) |
Total
Segments |
|||||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||||||||
| NGL and condensate sales | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Residue natural gas sales |
|
|
|
|
|||||||||||||||||||
| Gathering, processing and exchange services revenue |
|
|
|
|
|||||||||||||||||||
| Transportation and storage revenue |
|
|
|
|
|||||||||||||||||||
| Other |
|
|
|
|
|||||||||||||||||||
| Total revenues (c) |
|
|
|
|
|||||||||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Operating costs |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Equity in net earnings from investments |
|
|
|
|
|||||||||||||||||||
| Noncash compensation expense |
|
|
|
|
|||||||||||||||||||
| Other |
|
|
|
|
|||||||||||||||||||
| Segment adjusted EBITDA | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Depreciation and amortization | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Investments in unconsolidated affiliates | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $
638
million, of which $
577
million related to revenues within the segment, cost of sales and fuel of $
184
million and operating costs of $
87
million.
(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $
116
million, cost of sales and fuel of $
15
million and operating costs of $
38
million.
(c) - Intersegment revenues are primarily commodity sales, which are based on the contracted selling price that is generally index-based and settled monthly, and for our Natural Gas Gathering and Processing segment totaled $
631
million. Intersegment revenues for our Natural Gas Liquids and Natural Gas Pipelines segments were not material.
|
Three Months Ended
March 31, 2023 |
Total
Segments |
Other and
Eliminations |
Total | |||||||||||||||||
|
(
Millions of dollars
)
|
||||||||||||||||||||
| Reconciliations of total segments to consolidated | ||||||||||||||||||||
| NGL and condensate sales | $ |
|
$ |
(
|
$ |
|
||||||||||||||
| Residue natural gas sales |
|
|
|
|||||||||||||||||
| Gathering, processing and exchange services revenue |
|
|
|
|||||||||||||||||
| Transportation and storage revenue |
|
(
|
|
|||||||||||||||||
| Other |
|
(
|
|
|||||||||||||||||
| Total revenues (a) | $ |
|
$ |
(
|
$ |
|
||||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | $ |
(
|
$ |
|
$ |
(
|
||||||||||||||
| Operating costs | $ |
(
|
$ |
|
$ |
(
|
||||||||||||||
| Depreciation and amortization | $ |
(
|
$ |
|
$ |
(
|
||||||||||||||
| Equity in net earnings from investments | $ |
|
$ |
|
$ |
|
||||||||||||||
| Investments in unconsolidated affiliates | $ |
|
$ |
|
$ |
|
||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
||||||||||||||
(a) - Noncustomer revenue for the three months ended March 31, 2023, totaled $
40
million
related primarily to gains from derivatives on commodity contracts.
21
|
Three Months Ended
March 31, 2022 |
Natural Gas
Gathering and Processing |
Natural Gas
Liquids (a) |
Natural Gas
Pipelines (b) |
Total
Segments |
|||||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||||||||
| NGL and condensate sales | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Residue natural gas sales |
|
|
|
|
|||||||||||||||||||
| Gathering, processing and exchange services revenue |
|
|
|
|
|||||||||||||||||||
| Transportation and storage revenue |
|
|
|
|
|||||||||||||||||||
| Other |
|
|
|
|
|||||||||||||||||||
| Total revenues (c) |
|
|
|
|
|||||||||||||||||||
|
Cost of sales and fuel (exclusive of depreciation and operating costs)
|
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Operating costs |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Equity in net earnings from investments |
|
|
|
|
|||||||||||||||||||
| Noncash compensation expense and other |
|
|
|
|
|||||||||||||||||||
| Segment adjusted EBITDA | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Depreciation and amortization | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Investments in unconsolidated affiliates | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $
604
million, of which $
547
million related to revenues within the segment, cost of sales and fuel of $
146
million and operating costs of $
75
million.
(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $
126
million, cost of sales and fuel of $
21
million and operating costs of $
35
million.
(c) - Intersegment revenues are primarily commodity sales, which are based on the contracted selling price that is generally index-based and settled monthly, and for our Natural Gas Gathering and Processing segment totaled $
1.0
billion. Intersegment revenues for our Natural Gas Liquids and Natural Gas Pipelines segments were not material.
|
Three Months Ended
March 31, 2022 |
Total
Segments |
Other and
Eliminations |
Total | |||||||||||||||||
|
(
Millions of dollars
)
|
||||||||||||||||||||
| Reconciliations of total segments to consolidated | ||||||||||||||||||||
| NGL and condensate sales | $ |
|
$ |
(
|
$ |
|
||||||||||||||
| Residue natural gas sales |
|
|
|
|||||||||||||||||
| Gathering, processing and exchange services revenue |
|
|
|
|||||||||||||||||
| Transportation and storage revenue |
|
(
|
|
|||||||||||||||||
| Other |
|
|
|
|||||||||||||||||
| Total revenues (a) | $ |
|
$ |
(
|
$ |
|
||||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | $ |
(
|
$ |
|
$ |
(
|
||||||||||||||
| Operating costs | $ |
(
|
$ |
|
$ |
(
|
||||||||||||||
| Depreciation and amortization | $ |
(
|
$ |
(
|
$ |
(
|
||||||||||||||
| Equity in net earnings from investments | $ |
|
$ |
|
$ |
|
||||||||||||||
| Investments in unconsolidated affiliates | $ |
|
$ |
|
$ |
|
||||||||||||||
| Total assets | $ |
|
$ |
(
|
$ |
|
||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
||||||||||||||
(a) - Noncustomer revenue for the three months ended March 31, 2022, totaled $(
175
) million related primarily to losses from derivatives on commodity contracts.
22
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
|
(
Millions of dollars
)
|
|||||||||||
| Reconciliation of net income to total segment adjusted EBITDA | |||||||||||
| Net income | $ |
|
$ |
|
|||||||
| Add: | |||||||||||
| Interest expense, net of capitalized interest |
|
|
|||||||||
| Depreciation and amortization |
|
|
|||||||||
| Income taxes |
|
|
|||||||||
| Noncash compensation expense and other |
|
|
|||||||||
| Other corporate costs |
(
|
|
|||||||||
| Total segment adjusted EBITDA (a) | $ |
|
$ |
|
|||||||
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.
RECENT DEVELOPMENTS
Please refer to the “Financial Results and Operating Information” and “Liquidity and Capital Resources” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report for additional information.
Market Conditions and Business Update
- We experienced increased volumes in the first quarter 2023, compared with the first quarter 2022, due primarily to increased producer activity across our operations. In the remainder of 2023, we expect to benefit from the completion of our Demicks Lake III natural gas processing plant and our MB-5 fractionator, highlighting our extensive and integrated assets that are located in, and connected to, some of the most productive shale basins in the United States. Although the energy industry has experienced many commodity cycles, we have positioned ourselves to reduce exposure to direct commodity price volatility. Each of our three reportable segments are primarily fee-based, and we expect our consolidated earnings to be approximately 90% fee-based in 2023. While our Natural Gas Gathering and Processing segment’s earnings are primarily fee-based, we have direct commodity price exposure related primarily to fee with POP contracts, and we have hedged approximately 70% of our forecasted equity volumes for the remainder of 2023. In addition, our Natural Gas Gathering and Processing and Natural Gas Liquids segments are exposed to volumetric risk as a result of drilling and completion activity, severe weather disruptions, operational outages, global crude oil, NGL and natural gas demand, changes in gas-to-oil ratios and normal volumetric well declines. Our Natural Gas Pipelines segment is not exposed to significant volumetric risk due to nearly all of our capacity being subscribed under long-term, firm fee-based contracts.
Medford Incident
- On July 9, 2022, a fire occurred at our 210 MBbl/d Medford, Oklahoma, natural gas liquids fractionation facility. On January 9, 2023, we reached an agreement with our insurers to settle all claims for physical damage and business interruption related to the Medford incident. Under the terms of the settlement agreement, we agreed to resolve the claims for total insurance payments of $930 million, $100 million of which was received in 2022. The remaining $830 million was received in the first quarter 2023, resulting in a one-time settlement gain of $779 million. The proceeds serve as settlement for property damage, business interruption claims to the date of settlement and as payment in lieu of future business interruption insurance claims.
In the first quarter 2023, the Medford incident resulted in an increase in operating income and adjusted EBITDA of $733 million, compared with the same quarter in the prior year, due to the settlement gain of $779 million, which was offset partially by $46 million of third-party fractionation costs. We expect our cash from operations in the remainder of 2023 and in 2024 to be impacted by incurred costs resulting from the Medford incident for which we will no longer receive business interruption proceeds.
Due to market demand and a more favorable completion schedule, we announced plans to construct a new 125 MBbl/d MB-6 NGL fractionator in Mont Belvieu, Texas, instead of rebuilding our Medford NGL fractionator at this time. The MB-6
23
fractionator will produce purity ethane instead of the ethane/propane mix previously produced at the Medford facility. The 125 MBbl/d capacity of the MB-6 fractionator is expected to be economically comparable to the capacity lost at Medford. In addition, our 125 MBbl/d MB-5 NGL fractionator was
completed early in t
he second quarter of 2023, which will reduce the need for third-party fractionation while the new MB-6 fractionator is being constructed.
Sustainability and Social Responsibility
- In 2023, we qualified for inclusion in the S&P Global Sustainability Yearbook for the third consecutive year, ranking in the top 10% of the Oil and Gas Storage and Transportation industry and being recognized as an Industry Mover. We continue to look for ways to reduce our environmental impact and utilize more efficient technologies. We are evaluating the development of renewable energy and low-carbon projects, including opportunities that may complement our midstream assets and expertise.
Natural Gas
- In our Natural Gas Gathering and Processing segment, processed volumes increased in the first quarter 2023, compared with the first quarter 2022, due primarily to increased producer activity in the Rocky Mountain and Mid-Continent regions. In the remainder of 2023, we expect to benefit from our 200 MMcf/d Demicks Lake III natural gas processing plant, which was completed in the first quarter 2023, and is supported by acreage dedications with primarily fee-based contracts.
In our Natural Gas Pipelines segment, continued demand from local distribution companies, electric-generation facilities and large industrial companies supported low-cost expansion projects that position us well to provide additional services to our customers. We are currently expanding the injection capabilities of our Oklahoma natural gas storage facilities which will allow us to utilize and subscribe an additional 4 Bcf of our existing storage capacity, with expected completion in the second quarter 2023. We have subscribed 100% of the incremental 4 Bcf of storage capacity through 2027 and 90% through 2029. In addition, we have begun the electrification of certain compression assets on Viking to improve the reliability of our operations while lowering our Scope 1 emissions from this equipment. Viking will seek to recover its investment in the project through a proposed change in rates expected to be filed in third quarter 2023.
NGLs
- In our Natural Gas Liquids segment, we benefited from increased volumes in the first quarter 2023, compared with the first quarter 2022, due primarily to increased production in the Permian Basin and Rocky Mountain region, offset partially by lower ethane volumes in the Mid-Continent and Rocky Mountain regions due to ethane economics as described below. In the remainder of 2023
, we expect to benefit from our 125 MBbl/d MB-5 fractionator, which was completed early in the second quarter 2023.
Ethane Economics
- Price differentials between ethane and natural gas can cause natural gas processors to recover ethane or leave it in the natural gas stream, known as ethane rejection. As a result of these ethane economics, ethane volumes on our system can fluctuate. Ethane volumes under long-term contracts delivered to our NGL system decreased approximately 30 MBbl/d to an average of 430 MBbl/d in the first quarter 2023, compared with an average of 460 MBbl/d in the first quarter 2022, due primarily to changes in ethane extraction economics. We estimate that there are approximately 250 MBbl/d of discretionary ethane, consisting of approximately 150 MBbl/d in the Rocky Mountain region and approximately 100 MBbl/d in the Mid-Continent region, that could be recovered and transported on our system.
Capital Projects
- We operate an integrated, reliable and diversified network of NGL and natural gas gathering, processing, fractionation, transportation and storage assets connecting supply in the Rocky Mountain, Mid-Continent and Permian regions with key market centers. Our primary capital projects are outlined in the table below:
| Project | Scope |
Approximate
Cost (a) |
Completion |
||||||||
| Natural Gas Gathering and Processing |
(
In millions
)
|
||||||||||
| Demicks Lake III plant | 200 MMcf/d processing plant in the core of the Williston Basin | $188 | Completed | ||||||||
| Natural Gas Liquids | |||||||||||
| MB-5 fractionator | 125 MBbl/d NGL fractionator in Mont Belvieu, Texas | $750 | Completed | ||||||||
| MB-6 fractionator | 125 MBbl/d NGL fractionator in Mont Belvieu, Texas | $550 | First Quarter 2025 | ||||||||
| Natural Gas Pipelines | |||||||||||
| Viking compression | Upgrade reliability of certain compressor assets | $95 | Third Quarter 2023 | ||||||||
(a) - Excludes capitalized interest/AFUDC.
Debt Repayments
- In February 2023, we redeemed our $425 million, 5.0% senior notes due September 2023 at 100% of the principal amount, plus accrued and unpaid interest, with cash on hand.
24
Subsequent eve
nt
- In April, we elected to redeem our $500 million, 7.5% senior notes due September 2023, with an effective redemption date in June 2023. The redemption price will be 100% of the principal amount of the notes, plus accrued and unpaid interest, which we expect to pay with cash on hand.
Dividends
- In February 2023, we paid a quarterly common stock dividend of
$0.955 per share ($3.82 per share on an annualized basis), an increase of 2% compared with the same quarter in the prior year. Our dividend growth is primarily due to the increase in cash flows resulting from the growth of our operations.
We declared a quarterly common stock dividend of $0.955 per share ($3.82 per share on an annualized basis) in April 2023. The quarterly common stock dividend will be paid May 15, 2023, to shareholders of record at the close of business on May 1, 2023.
FINANCIAL RESULTS AND OPERATING INFORMATION
How We Evaluate Our Operations
Management uses a variety of financial and operating metrics to analyze our performance. Our consolidated financial metrics include: (1) operating income; (2) net income; (3) diluted EPS; and (4) adjusted EBITDA. We evaluate segment operating results using adjusted EBITDA and our operating metrics, which include various volume and rate statistics that are relevant for the respective segment. These operating metrics allow investors to analyze the various components of segment financial results in terms of volumes and rate/price. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. For additional information on our operating metrics, see the respective segment subsections of this “Financial Results and Operating Information” section.
Non-GAAP Financial Measures
- Adjusted EBITDA is a non-GAAP measure of our financial performance. Adjusted EBITDA is defined as net income adjusted for interest expense, depreciation and amortization, noncash impairment charges, income taxes, allowance for equity funds used during construction, noncash compensation expense and certain other noncash items. We believe this non-GAAP financial measure is useful to investors because it and similar measures are used by many companies in our industry as a measurement of financial performance and is commonly employed by financial analysts and others to evaluate our financial performance and to compare financial performance among companies in our industry. Adjusted EBITDA should not be considered an alternative to net income, EPS or any other measure of financial performance presented in accordance with GAAP. Additionally, this calculation may not be comparable with similarly titled measures of other companies.
Consolidated Operations
Selected Financial Results
- The following table sets forth certain selected financial results for the periods indicated:
| Three Months Ended | Three Months | ||||||||||||||||
| March 31, | 2023 vs. 2022 | ||||||||||||||||
| Financial Results | 2023 | 2022 | $ Increase (Decrease) | ||||||||||||||
|
(
Millions of dollars, except per share amounts
)
|
|||||||||||||||||
| Revenues | |||||||||||||||||
| Commodity sales | $ | 4,156 | $ | 5,105 | (949) | ||||||||||||
| Services | 365 | 340 | 25 | ||||||||||||||
| Total revenues | 4,521 | 5,445 | (924) | ||||||||||||||
|
Cost of sales and fuel (exclusive of items shown separately below)
|
3,347 | 4,366 | (1,019) | ||||||||||||||
| Operating costs | 296 | 264 | 32 | ||||||||||||||
|
Depreciation and amortization
|
162 | 154 | 8 | ||||||||||||||
| Other operating (income) expense, net | (781) | (1) | 780 | ||||||||||||||
| Operating income | $ | 1,497 | $ | 662 | 835 | ||||||||||||
|
Equity in net earnings from investments
|
$ | 40 | $ | 36 | 4 | ||||||||||||
|
Interest expense, net of capitalized interest
|
$ | (166) | $ | (172) | (6) | ||||||||||||
| Net income | $ | 1,049 | $ | 391 | 658 | ||||||||||||
| Diluted EPS | $ | 2.34 | $ | 0.87 | 1.47 | ||||||||||||
|
Adjusted EBITDA
|
$ | 1,717 | $ | 864 | 853 | ||||||||||||
| Capital expenditures | $ | 289 | $ | 257 | 32 | ||||||||||||
See reconciliation of net income to adjusted EBITDA in the “Non-GAAP Financial Measures” section.
25
Changes in commodity prices and sales volumes affect both revenues and cost of sales and fuel in our Consolidated Statements of Income and, therefore, the impact is largely offset between these line items.
Operating income increased $835 million for the three months ended March 31, 2023, compared with the same period in 2022, primarily as a result of the following:
•
Natural Gas Liquids
- an increase of $733 million related to the Medford incident, due to the settlement gain of $779 million, offset partially by $46 million of third-party fractionation costs, and an increase of $29 million in exchange services due primarily to higher volumes in the Rocky Mountain region and Permian Basin;
•
Natural Gas Gathering and Processing
- an increase of $49 million due primarily to higher average fee rates and net realized prices, net of hedging and $31 million from higher volumes in the Mid-Continent and Rocky Mountain regions;
and
•
Natural Gas Pipelines
- an
increase of $17 million in storage services due primarily to higher storage rates and $5 million in transportation services;
offset by
•
Consolidated Operating Costs -
an increase of $32 million due primarily to higher employee-related costs, outside services and property taxes related primarily to the growth of our operations.
Net income and diluted EPS increased for the three months ended March 31, 2023, compared with the same period in 2022, due primarily to the items discussed above, benefits related to the mark-to-market of investments associated with certain benefit plan investments, increased interest income due to both higher cash balances and higher interest rates and lower interest expense related to increased capitalized interest and lower debt balances.
Capital expenditures increased for the three months ended March 31, 2023, compared with the same period in 2022, due primarily to our growth projects, including the construction of our MB-5 fractionator and Viking compression project.
Additional information regarding our financial results and operating information is provided in the following discussion for each of our segments.
Natural Gas Gathering and Processing
Overview
-
Our Natural Gas Gathering and Processing segment provides midstream services to producers in North Dakota, Montana, Wyoming, Kansas and Oklahoma. Raw natural gas is typically gathered at the wellhead, compressed and transported through pipelines to our processing facilities. Most raw natural gas produced at the wellhead also contains a mixture of NGL components, including ethane, propane, iso-butane, normal butane and natural gasoline. Processed natural gas, usually referred to as residue natural gas, is then recompressed and delivered to natural gas pipelines, storage facilities and end users. The NGLs separated from the raw natural gas are sold and delivered through NGL pipelines to fractionation facilities for further processing.
Our Natural Gas Gathering and Processing segment’s earnings are primarily fee-based, but we have some direct commodity price exposure related primarily to fee with POP contracts. Under certain fee with POP contracts, our contractual fees and POP percentage may increase or decrease if production volumes, delivery pressures or commodity prices change relative to specified thresholds. To mitigate the impact of this commodity price exposure, we have hedged a significant portion of our Natural Gas Gathering and Processing segment’s commodity price risk for the remainder of 2023 and began hedging into 2024. This segment has substantial long-term acreage dedications in some of the most productive areas of the Williston Basin, which helps to mitigate long-term volumetric risk.
Capital Projects
- Our Natural Gas Gathering and Processing segment has invested in growth projects in NGL-rich areas in the Williston Basin. See “Capital Projects” in the “Recent Developments” section for more information on our capital projects.
For a discussion of our capital expenditure financing, see “Capital Expenditures” in the “Liquidity and Capital Resources” section.
26
Selected Financial Results and Operating Information
- The following tables set forth certain selected financial results and operating information for our Natural Gas Gathering and Processing segment for the periods indicated:
| Three Months Ended | Three Months | ||||||||||||||||
| March 31, | 2023 vs. 2022 | ||||||||||||||||
| Financial Results | 2023 | 2022 | $ Increase (Decrease) | ||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||
| NGL and condensate sales | $ | 644 | $ | 1,004 | (360) | ||||||||||||
| Residue natural gas sales | 568 | 551 | 17 | ||||||||||||||
|
Gathering, compression, dehydration and processing fees and other revenue
|
46 | 37 | 9 | ||||||||||||||
|
Cost of sales and fuel (exclusive of depreciation and operating costs)
|
(875) | (1,289) | (414) | ||||||||||||||
|
Operating costs, excluding noncash compensation adjustments
|
(101) | (89) | 12 | ||||||||||||||
| Equity in net earnings from investments | — | 2 | (2) | ||||||||||||||
| Other | 1 | (1) | 2 | ||||||||||||||
| Adjusted EBITDA | $ | 283 | $ | 215 | 68 | ||||||||||||
| Capital expenditures | $ | 98 | $ | 93 | 5 | ||||||||||||
See reconciliation of net income to adjusted EBITDA in the “Non-GAAP Financial Measures” section.
Changes in commodity prices and sales volumes affect both revenues and cost of sales and fuel and, therefore, the impact is largely offset between these line items.
Adjusted EBITDA increased $68 million for the three months ended March 31, 2023, compared with the same period in 2022, primarily as a result of the following:
•
an increase of $49 million due primarily to higher average fee rates and realized natural gas and condensate prices, net of hedging, offset partially by lower realized NGL prices, net of hedging;
and
•
an
increase of $31 million from higher volumes due primarily to increased producer activity in the Mid-Continent and Rocky Mountain regions;
offset by
•
an increase of $12 million in operating costs due primarily to higher employee-related costs and higher materials and supplies expense due primarily to the growth of our operations.
| Three Months Ended | ||||||||||||||
| March 31, | ||||||||||||||
| Operating Information (a) | 2023 | 2022 | ||||||||||||
|
Natural gas processed (
BBtu/d
) (b)
|
2,794 | 2,517 | ||||||||||||
|
Average fee rate (
$/MMBtu
)
|
$ | 1.13 | $ | 1.04 | ||||||||||
(a) - Includes volumes for consolidated entities only.
(b) - Includes volumes we processed at company-owned and third-party facilities.
Our natural gas processed volumes increased for the three months ended March 31, 2023, compared with the same period in 2022, due primarily to increased producer activity in the Rocky Mountain and Mid-Continent regions.
Our average fee rate increased due primarily to inflation-based escalators in our contracts, and for certain fee with POP contracts, our contractual fees increased due to production volumes, delivery pressures or commodity prices relative to specified contractual thresholds.
Natural Gas Liquids
Overview
- Our Natural Gas Liquids segment owns and operates facilities that gather, fractionate, treat and distribute NGLs and store purity NGLs, primarily in Oklahoma, Kansas, Texas, New Mexico and the Rocky Mountain region, which includes the Williston, Powder River and DJ Basins. We provide midstream services to producers of NGLs and deliver those products to the two primary market centers: one in the Mid-Continent in Conway, Kansas, and the other in the Gulf Coast in Mont Belvieu, Texas. We own or have an ownership interest in FERC-regulated NGL gathering and distribution pipelines in Oklahoma, Kansas, Texas, New Mexico, Montana, North Dakota, Wyoming and Colorado, and terminal and storage facilities in Kansas, Nebraska, Iowa and Illinois. We have a 50% ownership interest in Overland Pass, which operates an interstate NGL pipeline originating in Wyoming and Colorado and terminating in Kansas. The majority of the pipeline-connected natural gas processing plants in the Williston Basin, Oklahoma, Kansas and the Texas Panhandle are connected to our NGL gathering
27
systems. We lease rail cars and own and operate truck- and rail-loading and -unloading facilities connected to our NGL fractionation, storage and pipeline assets. We also own FERC-regulated NGL distribution pipelines in Kansas, Nebraska, Iowa, Illinois and Indiana that connect our Mid-Continent assets with Midwest markets, including Chicago, Illinois. A portion of our ONEOK North System transports refined petroleum products, including unleaded gasoline and diesel, from Kansas to Iowa.
Capital Projects
- Our Natural Gas Liquids segment invests ingrowth projects to transport, fractionate, store and deliver to market centers NGL supply from shale and other resource development areas. Our growth strategy is focused around connecting diversified supply basins from the Rocky Mountain region through the Mid-Continent region and the Permian Basin with demand for purity NGLs from the petrochemical and refining industries and NGL exports in the Gulf Coast. See “Capital Projects” in the “Recent Developments” section for more information on our capital projects.
In the first quarter 2023, we connected one third-party natural gas processing plant in the Permian Basin and one affiliate natural gas processing plant in the Rocky Mountain region.
For a discussion of our capital expenditure financing, see “Capital Expenditures” in the “Liquidity and Capital Resources” section.
Selected Financial Results and Operating Information
-
The following tables set forth certain selected financial results and operating information for our Natural Gas Liquids segment for the periods indicated:
| Three Months Ended | Three Months | ||||||||||||||||
| March 31, | 2023 vs. 2022 | ||||||||||||||||
| Financial Results | 2023 | 2022 | $ Increase (Decrease) | ||||||||||||||
| (Millions of dollars) | |||||||||||||||||
| NGL and condensate sales | $ | 3,551 | $ | 4,549 | (998) | ||||||||||||
| Exchange service and other revenues | 134 | 138 | (4) | ||||||||||||||
| Transportation and storage revenues | 50 | 47 | 3 | ||||||||||||||
|
Cost of sales and fuel (exclusive of depreciation and operating costs)
|
(3,095) | (4,089) | (994) | ||||||||||||||
|
Operating costs, excluding noncash compensation adjustments
|
(146) | (120) | 26 | ||||||||||||||
|
Equity in net earnings from investments
|
9 | 5 | 4 | ||||||||||||||
| Other | 778 | (2) | 780 | ||||||||||||||
| Adjusted EBITDA | $ | 1,281 | $ | 528 | 753 | ||||||||||||
| Capital expenditures | $ | 137 | $ | 126 | 11 | ||||||||||||
See reconciliation of net income to adjusted EBITDA in the “Non-GAAP Financial Measures” section.
Changes in commodity prices and sales volumes affect both revenues and cost of sales and fuel and, therefore, the impact is largely offset between these line items.
Adjusted EBITDA increased $753 million for the three months ended March 31, 2023, compared with the same period in 2022, primarily as a result of the following:
•
an increase of $733 million related to the Medford incident, due to the settlement gain of $779 million, offset partially by $46 million of third-party fractionation costs;
•
an increase of $29 million in exchange services due primarily to:
◦
an increase of $36 million from higher volumes primarily in the Rocky Mountain region and Permian Basin, and
◦
an increase of $12 million from higher average fee rates, offset partially by
◦
a decrease of $20 million related to narrower commodity price differentials and lower related volumes;
and
•
an increase of $8 million in optimization and marketing due primarily to higher earnings on sales of purity NGLs held in inventory;
offset by
•
an increase of $26 million in operating costs due primarily to higher outside service costs, higher employee-related costs and higher property taxes related primarily to the growth of our operations.
Capital expenditures increased for the three months ended March 31, 2023, compared with the same period in 2022, due primarily to growth projects, including our MB-5 fractionator.
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| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| Operating Information | 2023 | 2022 | |||||||||
|
Raw feed throughput (
MBbl/d
) (a)
|
1,256 | 1,212 | |||||||||
|
Average Conway-to-Mont Belvieu OPIS price differential - ethane in ethane/propane mix (
$/gallon
)
|
$ | 0.03 | $ | 0.02 | |||||||
(a) - Represents physical raw feed volumes for which we provide transportation and/or fractionation services.
We generally expect ethane volumes to increase or decrease with corresponding increases or decreases in overall NGL production. However, ethane volumes may experience growth or decline greater than corresponding growth or decline in overall NGL production due to ethane economics causing producers to recover or reject ethane.
Volumes increased for the three months ended March 31, 2023, compared with the same period in 2022, due primarily to increased production in the Permian Basin and Rocky Mountain region, offset partially by lower ethane volumes in the Mid-Continent and Rocky Mountain regions.
Natural Gas Pipelines
Overview
- In our Natural Gas Pipelines segment, our assets are connected to key supply areas and demand centers, including export markets in Mexico via Roadrunner and supply areas in Canada and the United States via our interstate and intrastate natural gas pipelines and Northern Border, which enable us to provide essential natural gas transportation and storage services. Continued demand from local distribution companies, electric-generation facilities and large industrial companies supported low-cost expansions that position us well to provide additional services to our customers when needed.
Capital Projects
- Our Natural Gas Pipelines segment invests in growth projects that provide transportation and storage services to end users. In December 2022, our Saguaro Connector Pipeline L.L.C. subsidiary filed a Presidential Permit application with the FERC to construct and operate new international border-crossing facilities at the U.S. and Mexico border. The proposed border facilities would connect upstream with a potential intrastate pipeline, the Saguaro Connector Pipeline, which would be owned and operated by ONEOK. Additionally, the proposed border facilities would connect at the international boundary with a new pipeline under development in Mexico for delivery to a liquefied natural gas export facility on the west coast of Mexico. The final investment decision on the pipeline is expected by mid-2023.
See “Capital Projects” in the “Recent Developments” section for more information on our capital projects.
For a discussion of our capital expenditure financing, see “Capital Expenditures” in the “Liquidity and Capital Resources” section.
Selected Financial Results
and Operating Information
- The following tables set forth certain selected financial results and operating information for our Natural Gas Pipelines segment for the periods indicated:
| Three Months Ended | Three Months | ||||||||||||||||
| March 31, | 2023 vs. 2022 | ||||||||||||||||
| Financial Results | 2023 | 2022 | $ Increase (Decrease) | ||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||
| Transportation revenues | $ | 107 | $ | 102 | 5 | ||||||||||||
| Storage revenues | 38 | 21 | 17 | ||||||||||||||
| Residue natural gas sales and other revenues | 26 | 26 | — | ||||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | (14) | (17) | (3) | ||||||||||||||
| Operating costs, excluding noncash compensation adjustments | (43) | (39) | 4 | ||||||||||||||
| Equity in net earnings from investments | 31 | 29 | 2 | ||||||||||||||
| Other | — | 2 | (2) | ||||||||||||||
| Adjusted EBITDA | $ | 145 | $ | 124 | 21 | ||||||||||||
| Capital expenditures | $ | 46 | $ | 23 | 23 | ||||||||||||
See reconciliation of net income to adjusted EBITDA in the “Non-GAAP Financial Measures” section.
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Adjusted EBITDA increased $21 million for the three months ended March 31, 2023, compared with the same period in 2022, primarily as a result of the following:
•
an increase of $17 million in storage services due primarily to higher storage rates on renegotiated contracts;
and
•
an increase of $5 million in transportation services due primarily to higher firm and interruptible volumes;
offset by
•
an increase of $4 million in operating costs due primarily to higher employee-related costs.
Capital expenditur
e
s increased for the three months ended March 31, 2023, compared with the same period in 2022, due primarily to growth projects, including the Viking compression project.
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| Operating Information (a) | 2023 | 2022 | |||||||||
|
Natural gas transportation capacity contracted (
MDth/d
)
|
7,693 | 7,527 | |||||||||
| Transportation capacity contracted | 96 | % | 96 | % | |||||||
(a) - Includes volumes for consolidated entities only.
In April 2022, the FERC initiated a review of Guardian’s rates pursuant to Section 5 of the Natural Gas Act. In August 2022, Guardian reached a settlement in principle with the participants in the Section 5 rate case.
The FERC approved the settlement in February 2023, which
resulted in a reduction of rates starting in April 2023. We do not expect the reduced rates to have a material impact on our results of operations.
Non-GAAP Financial Measures
The following table sets forth a reconciliation of net income, the nearest comparable GAAP financial performance measure, to adjusted EBITDA for the periods indicated:
| Three Months Ended | ||||||||||||||
| March 31, | ||||||||||||||
| (Unaudited) | 2023 | 2022 | ||||||||||||
| Reconciliation of net income to adjusted EBITDA |
(
Millions of dollars)
|
|||||||||||||
| Net income | $ | 1,049 | $ | 391 | ||||||||||
| Add: | ||||||||||||||
| Interest expense, net of capitalized interest | 166 | 172 | ||||||||||||
| Depreciation and amortization | 162 | 154 | ||||||||||||
| Income taxes | 330 | 122 | ||||||||||||
| Noncash compensation expense and other | 10 | 25 | ||||||||||||
| Adjusted EBITDA (a) | $ | 1,717 | $ | 864 | ||||||||||
| Reconciliation of segment adjusted EBITDA to adjusted EBITDA | ||||||||||||||
| Segment adjusted EBITDA: | ||||||||||||||
| Natural Gas Gathering and Processing | $ | 283 | $ | 215 | ||||||||||
| Natural Gas Liquids (a) | 1,281 | 528 | ||||||||||||
| Natural Gas Pipelines | 145 | 124 | ||||||||||||
| Other | 8 | (3) | ||||||||||||
| Adjusted EBITDA (a) | $ | 1,717 | $ | 864 | ||||||||||
(a) - The three months ended March, 31 2023 includes $733 million related to the Medford incident, including a settlement gain of $779 million, offset partially by $46 million of third-party fractionation costs.
CONTINGENCIES
See Note J of the Notes to Consolidated Financial Statements in this Quarterly Report for discussion of regulatory and environmental matters.
LIQUIDITY AND CAPITAL RESOURCES
General
-
Our primary sources of cash inflows are operating cash flows, proceeds from our commercial paper program and our $2.5 Billion Credit Agreement, debt issuances and the issuance of common stock for our liquidity and capital resources requirements.
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On January 9, 2023, we reached an agreement with our insurers to settle all claims for physical damage and business interruption related to the Medford incident. Under the terms of the settlement agreement, we agreed to resolve the claims for total insurance payments of $930 million, $100 million of which was received in 2022. The remaining $830 million was received in the first quarter 2023. The proceeds serve as settlement for property damage, business interruption claims to the date of settlement and as payment in lieu of future business interruption insurance claims. We expect our cash from operations in the remainder of 2023 and in 2024 to be impacted by incurred costs resulting from the Medford incident for which we will no longer receive business interruption proceeds.
We expect our sources of cash inflows to provide sufficient resources to finance our operations, quarterly cash dividends, capital expenditures, maturities of long-term debt and contributions to unconsolidated affiliates. We believe we have sufficient liquidity due to our $2.5 Billion Credit Agreement, which expires in June 2027, and access to $1 billion available through our “at-the-market” equity program. As of the date of this report, no shares have been sold through our “at-the-market” equity program.
We may manage interest-rate risk through the use of fixed-rate debt, floating-rate debt and interest-rate swaps. For additional information on our interest-rate swaps, see Note D of the Notes to Consolidated Financial Statements in this Quarterly Report.
Cash Management
- At March 31, 2023, we had $680 million of cash and cash equivalents. Our cash balance is composed primarily of highly liquid government and treasury money market funds and deposits fully insured by the Federal Deposit Insurance Corporation.
We use a centralized cash management program that concentrates the cash assets of our nonguarantor operating subsidiaries in joint accounts for the purposes of providing financial flexibility and lowering the cost of borrowing, transaction costs and bank fees. Our centralized cash management program provides that funds in excess of the daily needs of our operating subsidiaries are concentrated, consolidated or otherwise made available for use by other entities within our consolidated group. Our operating subsidiaries participate in this program to the extent they are permitted pursuant to FERC regulations or their operating agreements. Under the cash management program, depending on whether a participating subsidiary has short-term cash surpluses or cash requirements, we provide cash to the subsidiary or the subsidiary provides cash to us.
Guarantees -
We and ONEOK Partners are issuers of certain public debt securities. We guarantee certain indebtedness of ONEOK Partners, and ONEOK Partners and the Intermediate Partnership guarantee certain of our indebtedness. As allowed under Rule 13-01, we have excluded the summarized financial information for each issuer and guarantor as the combined financial information of the subsidiary issuer and parent guarantor, excluding our ownership of all the interests in ONEOK Partners, reflect no material assets, liabilities or results of operations, apart from the guaranteed indebtedness. For additional information on our and ONEOK Partners indebtedness, please see Note E of the Notes to Consolidated Financial Statements in this Quarterly Report.
Short-term Liquidity
- Our principal sources of short-term liquidity consist of cash generated from operating activities, distributions received from our equity-method investments, proceeds from our commercial paper program and our $2.5 Billion Credit Agreement. As of March 31, 2023, we had no borrowings under our $2.5 Billion Credit Agreement and we are in compliance with all covenants.
As of March 31, 2023, we had a working capital surplus of $387 million (defined as current assets less current liabilities). Although working capital is influenced by several factors, including, among other things: (i) the timing of (a) debt and equity issuances, (b) the funding of capital expenditures, (c) scheduled debt payments, and (d) accounts receivable and payable; and (ii) the volume and cost of inventory and commodity imbalances, our working capital surplus at March 31, 2023, was driven primarily by insurance proceeds received from the Medford settlement. We may have working capital deficits in future periods as we continue to repay long-term debt. We do not expect a working capital deficit of this nature to have an adverse impact to our cash flows or operations.
For additional information on our $2.5 Billion Credit Agreement, see Note E of the Notes to Consolidated Financial Statements in this Quarterly Report.
Long-term Financing
- In addition to our principal sources of short-term liquidity discussed above, we expect to fund our longer-term financing requirements by issuing long-term notes, as needed. Other options to obtain financing include, but are not limited to, issuing common stock, loans from financial institutions, issuance of convertible debt securities or preferred equity securities, asset securitization and the sale and lease-back of facilities.
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Viking Term Loan Agreement
- In March 2023, Viking entered into a $60 million senior unsecured Term Loan Agreement, and drew $50 million available under the agreement. Viking used the proceeds primarily to repay intercompany debt with ONEOK.
Debt Repayments
- In February 2023, we redeemed our $425 million, 5.0% senior notes due September 2023 at 100% of the principal amount, plus accrued and unpaid interest, with cash on hand.
Subsequent event
- In April, we elected to redeem our $500 million, 7.5% senior notes due September 2023, with an effective redemption date in June 2023. The redemption price will be 100% of the principal amount of the notes, plus accrued and unpaid interest, which we expect to pay with cash on hand.
For additional information on our long-term debt, see Note E of the Notes to Consolidated Financial Statements in this Quarterly Report.
Capital Expenditures
- We classify expenditures that are expected to generate additional revenue, return on investment or significant operating or environmental efficiencies as growth capital expenditures. Maintenance capital expenditures are those capital expenditures required to maintain our existing assets and operations and do not generate additional revenues. Maintenance capital expenditures are made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives. Our capital expenditures are financed typically through operating cash flows and short- and long-term debt.
Capital expenditures, excluding AFUDC, were $289 million and $257 million for the three months ended March 31, 2023 and 2022, respectively.
We expect total capital expenditures, excluding AFUDC and capitalized interest, of $1.3-$1.5 billion in 2023.
Credit Ratings
- Our long-term debt credit ratings as of April 24, 2023, are shown in the table below:
| Rating Agency | Long-Term Rating | Short-Term Rating | Outlook | ||||||||
| Moody’s | Baa2 | Prime-2 | Stable | ||||||||
| S&P | BBB | A-2 | Stable | ||||||||
| Fitch | BBB | F2 | Stable | ||||||||
Our credit ratings, which are investment grade, may be affected by our leverage, liquidity, credit profile or potential transactions. In April 2023, Moody’s upgraded our long-term rating to Baa2 from Baa3, our short-term rating to Prime-2 from Prime-3 and changed the outlook to stable from positive. The most common criteria for assessment of our credit ratings are the debt-to-EBITDA ratio, interest coverage, business risk profile and liquidity. If our credit ratings were downgraded, our cost to borrow funds under our $2.5 Billion Credit Agreement could increase and a potential loss of access to the commercial paper market could occur. In the event that we are unable to borrow funds under our commercial paper program and there has not been a material adverse change in our business, we would continue to have access to our $2.5 Billion Credit Agreement, which expires in 2027. An adverse credit rating change alone is not a default under our $2.5 Billion Credit Agreement.
In the normal course of business, our counterparties provide us with secured and unsecured credit. In the event of a downgrade in our credit ratings or a significant change in our counterparties’ evaluation of our creditworthiness, we could be required to provide additional collateral in the form of cash, letters of credit or other negotiable instruments as a condition of continuing to conduct business with such counterparties. We may be required to fund margin requirements with our counterparties with cash, letters of credit or other negotiable instruments.
Dividends
-
Holders of our common stock share equally in any common stock dividends declared by our Board of Directors, subject to the rights of the holders of outstanding preferred stock. In February 2023, we paid a common stock dividend of $0.955 per share ($3.82 per share on an annualized basis),
an increase of 2% compared with the same quarter in the prior year.
A common stock dividend of $0.955 per share was declared for the shareholders of record at the close of business on May 1, 2023, payable May 15, 2023.
Our Series E Preferred Stock pays quarterly dividends on each share of Series E Preferred Stock, when, as and if declared by our Board of Directors, at a rate of 5.5% per year. We paid dividends for the Series E Preferred Stock of $0.3 million in February 2023. Dividends totaling $0.3 million were declared for the Series E Preferred Stock and are payable May 15, 2023.
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For the three months ended March 31, 2023, our cash flows from operations exceeded dividends paid by $794 million. We expect our cash flows from operations to continue to sufficiently fund our cash dividends. To the extent operating cash flows are not sufficient to fund our dividends, we may utilize cash on hand from other sources of short- and long-term liquidity to fund a portion of our dividends.
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 affect net income but do not result in actual cash receipts or payments during the period and for operating cash items that do not impact net income. These reconciling items can include depreciation and amortization, deferred income taxes, impairment charges, allowance for equity funds used during construction, gain or loss on sale of assets, net undistributed earnings from equity-method investments, share-based compensation expense, other amounts 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:
| Variances | |||||||||||||||||
| Three Months Ended | 2023 vs. 2022 | ||||||||||||||||
| March 31, |
Favorable
(Unfavorable) |
||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||
| Total cash provided by (used in): | |||||||||||||||||
| Operating activities | $ | 1,221 | $ | 463 | $ | 758 | |||||||||||
| Investing activities | 47 | (244) | 291 | ||||||||||||||
| Financing activities | (808) | (350) | (458) | ||||||||||||||
| Change in cash and cash equivalents | 460 | (131) | 591 | ||||||||||||||
| Cash and cash equivalents at beginning of period | 220 | 146 | 74 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 680 | $ | 15 | $ | 665 | |||||||||||
Operating Cash Flows
- Operating cash flows are affected by earnings from our business activities and changes in our operating assets and liabilities. Changes in commodity prices and demand for our services or products, whether because of general economic conditions, changes in supply, 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. Our operating cash flows can also be impacted by changes in our NGLs and natural gas inventory balances, which are driven primarily by commodity prices, supply, demand and the operation of our assets.
Cash flows from operating activities, before changes in operating assets and liabilities for the three months ended March 31, 2023, increased $559 million compared with t
he same period in 2022
, due primarily to insurance proceeds received from the Medford settlement, and higher net income resulting from higher exchange services in our Natural Gas Liquids segment, higher average fees rates and net realized prices, net of hedging, in our Natural Gas Gathering and Processing segment and higher storage services in our Natural Gas Pipelines segment, as discussed in “Financial Results and Operating Information.”
The changes in operating assets and liabilities decreased operating cash flows $19 million for the three months ended March 31, 2023, compared with a decrease of $218 million for the s
ame period in 2022
. This change is due primarily to changes in accounts receivable resulting from the timing of receipt of cash from customers and NGLs and natural gas in inventory, both of which vary from period to period and with changes in commodity prices, and changes in risk management assets and liabilities; offset partially by changes in accounts payable, which also vary from period to period with changes in commodity prices, and from the timing of payments to vendors, suppliers and other third parties.
Investing Cash Flows
- Cash from investing activities for the three months ended March 31, 2023, increased $291 million, compared with the same period in 2022, due primarily to insurance proceeds received from the Medford settlement.
Financing Cash Flows
- Cash used in financing activities for the three months ended March 31, 2023, increased $458 million, compared with the same period in 2022, due primarily to the repayment of long-term debt.
33
REGULATORY, ENVIRONMENTAL AND SAFETY MATTERS
Information about our regulatory, environmental and safety matters can be found in “Regulatory, Environmental and Safety Matters” under Part I, Item 1, Business, in our Annual Report.
IMPACT OF NEW ACCOUNTING STANDARDS
See Note A of the Notes to Consolidated Financial Statements in this Quarterly Report for discussion of new accounting standards.
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 amounts 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 revenue 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 Policies and Estimates,” in our Annual Report.
FORWARD-LOOKING STATEMENTS
Some of the statements contained and incorporated in this Quarterly Report are forward-looking statements as defined under federal securities laws. The forward-looking statements relate to our anticipated financial performance (including projected operating income, net income, capital expenditures, cash flows and projected levels of dividends), liquidity, management’s plans and objectives for our future capital projects and other future operations (including plans to construct additional natural gas and NGL pipelines, processing and fractionation facilities and related cost estimates), 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 federal securities legislation and other applicable laws. 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 and other statements in this Quarterly Report regarding our environmental, social and other sustainability targets, plans and goals are not an indication that these statements are required to be disclosed in our filings with the SEC, or that we will continue to make similar statements in the same extent or manner in future filings. In addition, historical, current and forward-looking environmental, social and sustainability-related statements may be based on standards and processes for measuring progress that are still developing and that continue to evolve, and assumptions that are subject to change in the future.
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,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “intend,” “may,” “might,” “outlook,” “plan,” “potential,” “project,” “scheduled,” “should,” “target,” “will,” “would,” and other words and terms of similar meaning.
One should not place undue reliance on forward-looking statements. 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 impact of inflationary pressures, including increased interest rates, which may increase our capital expenditures and operating costs, raise the cost of capital or depress economic growth;
•
the impact on drilling and production by factors beyond our control, including the demand for natural gas, NGLs and crude oil; producers’ desire and ability to drill and obtain necessary permits; regulatory compliance; reserve
34
performance; and capacity constraints and/or shut downs on the pipelines that transport crude oil, natural gas and NGLs from producing areas and our facilities;
•
risks associated with adequate supply to our gathering, processing, fractionation and pipeline facilities, including production declines that outpace new drilling, the shutting-in of production by producers, actions taken by federal, state or local governments to require producers to prorate or to cut their production levels as a way to address any excess market supply situations or extended periods of ethane rejection;
•
demand for our services and products in the proximity of our facilities;
•
economic climate and growth in the geographic areas in which we operate;
•
the risk of a slowdown in growth or decline in the United States or international economies, including liquidity risks in United States or foreign credit markets;
•
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 throughout the world, including the current conflict in Ukraine and the surrounding region;
•
performance of contractual obligations by our customers, service providers, contractors and shippers;
•
the effects of changes in governmental policies and regulatory actions, including changes with respect to income and other taxes, pipeline safety, environmental compliance, cybersecurity, climate change initiatives, emissions credits, carbon offsets, carbon pricing, production limits and authorized rates of recovery of natural gas and natural gas transportation costs;
•
changes in demand for the use of natural gas, NGLs and crude oil because of the development of new technologies or other market conditions caused by concerns about climate change;
•
the impact of the transformation to a lower-carbon economy, including the timing and extent of the transformation, as well as the expected role of different energy sources, including natural gas, NGLs and crude oil, in such a transformation;
•
the pace of technological advancements and industry innovation, including those focused on reducing GHG emissions and advancing other climate-related initiatives, and our ability to take advantage of those innovations and developments;
•
the effectiveness of our risk-management function, including mitigating cyber- and climate-related risks;
•
our ability to identify and execute opportunities, and the economic viability of those opportunities, including those relating to renewable natural gas, carbon capture, use and storage, other renewable energy sources such as solar and wind and alternative low carbon fuel sources such as hydrogen;
•
the ability of our existing assets and our ability to apply and continue to develop our expertise to support the growth of, and transformation to, various renewable and alternative energy opportunities, including through the positioning and optimization of our assets;
•
our ability to efficiently reduce our GHG emissions (both Scope 1 and 2 emissions), including through the use of lower carbon power alternatives, management practices and system optimizations;
•
the necessity to focus on maintaining and enhancing our existing assets while reducing our Scope 1 and 2 GHG emissions;
•
the effects of weather and other natural phenomena and the effects of climate change (including physical and transformation-related effects) on our operations, demand for our services and commodity prices;
•
acts of nature, sabotage, terrorism or other similar acts that cause damage to our facilities or our suppliers’, customers’ or shippers’ facilities;
•
the inability of insurance proceeds to cover all liabilities or incurred costs and losses, or lost earnings, resulting from a loss;
•
delays in receiving insurance proceeds from covered losses;
•
the risk of increased costs for insurance premiums, or less favorable coverage;
•
increased costs as a consequence of terrorist attacks, including security related measures;
•
the timing and extent of changes in energy commodity prices, including changes due to production decisions by other countries, such as the failure of countries to abide by agreements to reduce production volumes;
•
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 ability to market pipeline capacity on favorable terms, including the effects of:
– future demand for and prices of natural gas, NGLs and crude oil;
– competitive conditions in the overall energy market;
– availability of supplies of United States natural gas and crude oil; and
– availability of additional storage capacity;
•
the efficiency of our plants in processing natural gas and extracting and fractionating NGLs;
•
the composition and quality of the natural gas and NGLs we gather and process in our plants and transport on our pipelines;
35
•
risks of marketing, trading and hedging activities, including the risks of changes in commodity prices or the financial condition of our counterparties;
•
our ability to control operating costs and make cost-saving changes;
•
the risks inherent in the use of information systems in our respective businesses and those of our counterparties and service providers, including cyber-attacks, which, according to experts, have increased in volume and sophistication since the beginning of the COVID-19 (Coronavirus disease 2019, including variants thereof) pandemic; implementation of new software and hardware; and the impact on the timeliness of information for financial reporting;
•
the timely receipt of approval by applicable governmental entities for construction and operation of our pipeline and other projects and required regulatory clearances;
•
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 results of governmental actions, administrative proceedings and litigation, regulatory actions, executive orders, rule changes and receipt of expected clearances involving any local, state or federal regulatory body, including the FERC, the National Transportation Safety Board, Homeland Security, the PHMSA, the EPA and the CFTC;
•
the mechanical integrity of facilities and pipelines operated;
•
the capital-intensive nature of our businesses;
•
the impact of unforeseen changes in interest rates, debt and equity markets, inflation rates, economic recession and other external factors over which we have no control, including the effect on pension and postretirement expense and funding resulting from changes in equity and bond market returns;
•
actions by rating agencies concerning our credit;
•
our indebtedness and guarantee obligations could cause adverse consequences, including making us vulnerable to general adverse economic and industry conditions, limiting our ability to borrow additional funds and placing us at competitive disadvantages compared with our competitors that have less debt;
•
our ability to access capital at competitive rates or on terms acceptable to us;
•
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, fractionation, transportation and storage facilities without labor or contractor problems;
•
our ability to control construction costs and completion schedules of our pipelines and other projects;
•
difficulties or delays experienced by trucks, railroads or pipelines in delivering products to or from our terminals or pipelines;
•
the uncertainty of estimates, including accruals and costs of environmental remediation;
•
the impact of uncontracted capacity in our assets being greater or less than expected;
•
the impact of potential impairment charges;
•
the profitability of assets or businesses acquired or constructed by us;
•
the 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 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 impact of recently issued and future accounting updates and other changes in accounting policies;
•
the risk factors listed in the reports we have filed, which are incorporated by reference, and may file with the SEC; and
•
the length, severity and reemergence of a pandemic or other health crisis, such as the COVID-19 pandemic and the measures taken to address it, which may (as with COVID-19) precipitate or exacerbate one or more of the factors herein, reduce the demand for natural gas, NGLs and crude oil and significantly disrupt or prevent us and our customers and counterparties from operating in the ordinary course of business for an extended period and increase the cost of operating our business.
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 affect adversely our future results. These and other risks are described in greater detail in Part I, Item 1A, Risk Factors, in our Annual Report and in our other filings that we make with the SEC, which are available via the SEC’s website at www.sec.gov and our website at www.oneok.com. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Any such forward-looking statement speaks only as of the date on which such statement is made, and 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.
36
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that would affect the quantitative and qualitative disclosures presented as of December 31, 2022, in Part II, Item 7A in our Annual Report. Our commodity hedge tables are presented below.
The following tables set forth hedging information for our Natural Gas Gathering and Processing segment’s forecasted equity volumes for the periods indicated:
| Nine Months Ending December 31, 2023 | ||||||||||||||||||||
|
Volumes
Hedged |
Average Price |
Percentage
Hedged |
||||||||||||||||||
|
NGLs - excluding ethane (
MBbl/d
) - Conway/Mont Belvieu
|
11.0 | $ | 1.22 | / gallon | 67% | |||||||||||||||
|
Condensate (
MBbl/d
) - WTI-NYMEX
|
1.5 | $ | 86.02 | / Bbl | 67% | |||||||||||||||
|
Natural gas (
BBtu/d
) - NYMEX and basis
|
100.1 | $ | 3.06 | / MMBtu | 75% | |||||||||||||||
| Year Ending December 31, 2024 | ||||||||||||||||||||
|
Volumes
Hedged |
Average Price |
Percentage
Hedged |
||||||||||||||||||
|
NGLs - excluding ethane (
MBbl/d
) - Conway/Mont Belvieu
|
1.0 | $ | 0.87 | / gallon | 6% | |||||||||||||||
|
Condensate (
MBbl/d
) - WTI-NYMEX
|
0.2 | $ | 75.44 | / Bbl | 8% | |||||||||||||||
|
Natural gas (
BBtu/d
) - NYMEX and basis
|
18.6 | $ | 6.79 | / MMBtu | 13% | |||||||||||||||
See Note D of the Notes to Consolidated Financial Statements in this Quarterly Report for more information on our hedging activities.
ITEM 4.
CONTROLS AND PROCEDURES
Quarterly Evaluation of Disclosure Controls and Procedures
- Our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report based on the evaluation of the controls and procedures required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act.
Changes in Internal Control Over Financial Reporting
-
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2023, 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 in Note J of the Notes to Consolidated Financial Statements in this Quarterly Report and under Note O of the Notes to Consolidated Financial Statements in our Annual Report.
ITEM 1A.
RISK FACTORS
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 consider carefully 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
Not applicable.
37
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
Not applicable.
ITEM 6.
EXHIBITS
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. 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 | ||||
| 3.1 | |||||
| 3.2 | |||||
| 10.1 | |||||
| 10.2 | |||||
| 10.3 | |||||
| 22.1 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
38
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | ||||
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document. | ||||
| 101.DEF |
Inline XBRL Taxonomy Extension Definitions Document.
|
||||
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document. | ||||
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document. | ||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). | ||||
Attached as Exhibit 101 to this Quarterly Report are the following Inline XBRL-related documents: (i) Document and Entity Information; (ii) Consolidated Statements of Income for the three months ended March 31, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022; (iv) Consolidated Balance Sheets at March 31, 2023, and December 31, 2022; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022; (vi) Consolidated Statements of Changes in Equity for the three months ended March 31, 2023 and 2022; and (vii) Notes to Consolidated Financial Statements.
39
SIGNATURE
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ONEOK, Inc. | ||||||||
| Registrant | ||||||||
| Date: May 3, 2023 | By: | /s/ Walter S. Hulse III | ||||||
| Walter S. Hulse III | ||||||||
| Chief Financial Officer, Treasurer and | ||||||||
| Executive Vice President, Investor Relations | ||||||||
| and Corporate Development | ||||||||
| (Principal Financial Officer) | ||||||||
40
TABLE OF CONTENTS
Part I - Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II - Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 4. Mine Safety DisclosuresprintItem 5. Other InformationprintItem 6. Exhibitsprint