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
Sept. 30, 2024
.
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.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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On Oct. 21, 2024, the Company had
584,184,191
shares of common stock outstanding.
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2
ONEOK, Inc.
TABLE OF CONTENTS
| Page No. | ||||||||
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 “anticipates,” “believes,” “continues,” “could,” “estimates,” “expect,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “might,” “outlook,” “plans,” “potential,” “projects,” “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.
3
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 or posted on our social media accounts, including any corresponding applications, are not incorporated by reference into this report.
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 amended and restated revolving credit agreement, as amended | ||||
| AFUDC | Allowance for funds used during construction | ||||
| Annual Report |
Annual Report on Form 10-K for the year ended Dec. 31, 2023
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| 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 | ||||
| Bcf/d | Billion cubic feet per day | ||||
| BridgeTex | BridgeTex Pipeline Company, LLC, a 30% owned joint venture | ||||
| EBITDA | Earnings before interest expense, income taxes, depreciation and amortization | ||||
| EnLink | EnLink Midstream, LLC | ||||
| EnLink Controlling Interest Acquisition |
The transaction completed on Oct. 15, 2024, pursuant to which ONEOK acquired (i) approximately 43% of the outstanding EnLink Units and (ii) all of the outstanding limited liability company interests in EnLink Midstream Manager, LLC, pursuant to the EnLink Purchase Agreement
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| EnLink Purchase Agreement | Purchase agreement of ONEOK, GIP III Stetson I, L.P., GIP III Stetson II, L.P. and EnLink Midstream Manager, LLC, dated Aug. 28, 2024 | ||||
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EnLink Units
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Common units representing limited liability company interests in EnLink
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| EPS | Earnings per share of common stock | ||||
| ESG | Environmental, social and governance | ||||
| Exchange Act | Securities Exchange Act of 1934, as amended | ||||
| FASB |
Financial Accounting Standards Board
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| FERC | Federal Energy Regulatory Commission | ||||
| Fitch | Fitch Ratings, Inc. | ||||
| GAAP | Accounting principles generally accepted in the United States of America | ||||
| GIP | Global Infrastructure Partners | ||||
| 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 | ||||
| GWh | Gigawatt hour | ||||
| Intermediate Partnership |
ONEOK Partners Intermediate Limited Partnership, a wholly owned subsidiary of ONEOK Partners, L.P.
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| Magellan | Magellan Midstream Partners, L.P., a wholly owned subsidiary of ONEOK, Inc. | ||||
4
| Magellan Acquisition |
The transaction completed on Sept. 25, 2023, pursuant to which ONEOK acquired all of Magellan’s outstanding common units in a cash-and-stock transaction, pursuant to the Agreement and Plan of Merger of ONEOK, Otter Merger Sub, LLC and Magellan, dated May 14, 2023
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| MBbl/d | Thousand barrels per day | ||||
| MDth/d | Thousand dekatherms per day | ||||
| Medallion | GIP III Trophy Intermediate Holdings, L.P. | ||||
| Medallion Acquisition |
The transaction contemplated by the Medallion Purchase and Sale Agreement pursuant to which ONEOK will (i) become general partner of Medallion and (ii) acquire all of the issued and outstanding limited Partner interests in Medallion
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| Medallion Purchase and Sale Agreement |
Purchase and Sale Agreement of ONEOK, GIP III Trophy GP 2, LLC, GIP III Trophy Acquisition Partners, L.P., Medallion Management, L.P., dated Aug. 28, 2024
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| MMBbl | Million barrels | ||||
| MMBtu | Million British thermal units | ||||
| Moody’s | Moody’s Investors Service, Inc. | ||||
| MVP |
MVP Terminalling, LLC, a 25% owned joint venture
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| 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 | ||||
| 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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| POP | Percent of Proceeds | ||||
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Potential EnLink Transaction
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The potential acquisition of the publicly held EnLink Units in a tax-free transaction, which we intend to pursue following the completion of the EnLink Controlling Interest Acquisition
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| 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 | ||||
| Refined Products | The output from crude oil refineries, including products such as gasoline, diesel fuel, aviation fuel, kerosene and heating oil | ||||
| Roadrunner |
Roadrunner Gas Transmission, LLC, a
50%
owned joint venture
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| S&P | S&P Global Ratings | ||||
| Saddlehorn |
Saddlehorn Pipeline Company, LLC, a 40% owned joint venture
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| SEC | Securities and Exchange Commission | ||||
| Series E Preferred Stock | Series E Non-Voting, Perpetual Preferred Stock, par value $0.01 per share | ||||
| 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 | ||||
| XBRL | eXtensible Business Reporting Language | ||||
5
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| ONEOK, Inc. and Subsidiaries | |||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Sept. 30, | Sept. 30, | ||||||||||||||||||||||
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(
Unaudited
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2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
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(
Millions of dollars, except per share amounts
)
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Revenues
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| Commodity sales | $ |
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$ |
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$ |
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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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Transaction costs (Note B)
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Other operating (income) expense, net (Note C)
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(
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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, net
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Interest expense (net of capitalized interest of $
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(
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(
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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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(
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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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$ |
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$ |
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Basic EPS (Note H)
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$ |
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$ |
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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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$ |
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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.
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Sept. 30, | Sept. 30, | ||||||||||||||||||||||
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(
Unaudited
)
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2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||
| Net income | $ |
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$ |
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$ |
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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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(
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(
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Changes in benefit plan obligations and other, net of tax of $
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(
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(
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| Total other comprehensive income (loss), net of tax |
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(
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| Comprehensive income | $ |
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$ |
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$ |
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$ |
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See accompanying Notes to Consolidated Financial Statements.
6
| ONEOK, Inc. and Subsidiaries | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| Sept. 30, | Dec. 31, | |||||||||||||
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(
Unaudited
)
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2024 | 2023 | ||||||||||||
| 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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| Inventories |
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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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Other assets
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| Investments in unconsolidated affiliates |
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| Goodwill |
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| Intangible assets, net |
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Cash held for acquisitions (Notes B & F)
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| Other assets |
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| Total other assets |
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| Total assets | $ |
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$ |
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Liabilities and equity
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| Current liabilities | ||||||||||||||
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Current maturities of long-term debt (Note F)
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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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| Other current liabilities |
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| Total current liabilities |
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Long-term debt, excluding current maturities
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Deferred credits and other liabilities
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| Deferred income taxes |
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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 G)
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Preferred stock, $
authorized and issued |
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Common stock, $
authorized
Sept. 30, 2024; issued
2023
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| Paid-in capital |
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| Accumulated other comprehensive loss |
(
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(
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| Retained earnings |
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Treasury stock, at cost:
Dec. 31, 2023
|
(
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(
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| Total equity |
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| Total liabilities and equity | $ |
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$ |
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See accompanying Notes to Consolidated Financial Statements.
7
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8
| ONEOK, Inc. and Subsidiaries | ||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
| Nine Months Ended | ||||||||||||||
| Sept. 30, | ||||||||||||||
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(
Unaudited
)
|
2024 | 2023 | ||||||||||||
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(
Millions of dollars
)
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| Operating activities | ||||||||||||||
| Net income | $ |
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$ |
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| 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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(
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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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| Inventories, net of commodity imbalances |
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(
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| Accounts payable |
(
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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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| Cash paid for acquisitions, net of cash received |
(
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(
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Purchases of and contributions to unconsolidated affiliates
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(
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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 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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| Issuance of long-term debt, net of discounts |
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| Debt financing costs |
(
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(
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| Repayment of long-term debt |
(
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(
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| Other, net |
(
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| Cash provided by financing activities |
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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 (a)
|
$ |
|
$ |
|
||||||||||
(a) -
Includes cash held for acquisitions, which is included within other assets on our Consolidated Balance Sheet as of Sept. 30, 2024.
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
)
|
|||||||||||||||||||||||||||||||
| Jan. 1, 2024 |
|
|
$ |
|
$ |
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$ |
|
||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | |||||||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Common stock issued | — | — | — | — |
(
|
|||||||||||||||||||||||||||
|
Common stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Other, net | — | — | — | — |
(
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|||||||||||||||||||||||||||
| March 31, 2024 |
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| Net Income | — | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Common stock issued | — | — | — | — |
|
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|
Common stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Other, net | — | — | — | — |
|
|||||||||||||||||||||||||||
| June 30, 2024 |
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| Net Income | — | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Common stock issued | — | — | — | — |
|
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Common stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Other, net | — | — | — | — |
|
|||||||||||||||||||||||||||
| Sept. 30, 2024 |
|
|
$ |
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$ |
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$ |
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||||||||||||||||||||||||
| Jan. 1, 2023 |
|
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$ |
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$ |
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$ |
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| Net income | — | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Common stock issued | — | — | — | — |
(
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|||||||||||||||||||||||||||
|
Common stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Other, net | — | — | — | — |
|
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| March 31, 2023 |
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| Net income | — | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Common stock issued | — | — | — | — |
|
|||||||||||||||||||||||||||
|
Common stock dividends $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Other, net | — | — | — | — |
|
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| June 30, 2023 |
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|
|||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Magellan Acquisition consideration | — |
|
— |
|
|
|||||||||||||||||||||||||||
| Common stock issued | — | — | — | — |
|
|||||||||||||||||||||||||||
|
Common stock dividends $
|
— | — | — | — | — | |||||||||||||||||||||||||||
| Other, net | — | — | — | — |
(
|
|||||||||||||||||||||||||||
| Sept. 30, 2023 |
|
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||
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
)
|
||||||||||||||||||||||||||
| Jan. 1, 2024 | $ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||
| Net income | — |
|
— |
|
||||||||||||||||||||||
| Other comprehensive loss |
(
|
— | — |
(
|
||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | ||||||||||||||||||||||
| Common stock issued | — | — |
|
|
||||||||||||||||||||||
|
Common stock dividends - $
|
— |
(
|
— |
(
|
||||||||||||||||||||||
|
Other, net
|
— |
(
|
— |
(
|
||||||||||||||||||||||
| March 31, 2024 |
(
|
|
(
|
|
||||||||||||||||||||||
| Net income | — |
|
— |
|
||||||||||||||||||||||
| Other comprehensive income |
|
— | — |
|
||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | ||||||||||||||||||||||
| Common stock issued | — | — |
|
|
||||||||||||||||||||||
|
Common stock dividends - $
|
— |
(
|
— |
(
|
||||||||||||||||||||||
| Other, net | — |
(
|
— |
|
||||||||||||||||||||||
| June 30, 2024 |
(
|
|
(
|
|
||||||||||||||||||||||
| Net income | — |
|
— |
|
||||||||||||||||||||||
| Other comprehensive income |
|
— | — |
|
||||||||||||||||||||||
|
Preferred stock dividends - $
|
— |
(
|
— |
(
|
||||||||||||||||||||||
| Common stock issued | — | — |
|
|
||||||||||||||||||||||
|
Common stock dividends - $
|
— |
(
|
— |
(
|
||||||||||||||||||||||
| Other, net | — |
(
|
— |
|
||||||||||||||||||||||
| Sept. 30, 2024 | $ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||
| Jan 1, 2023 | $ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||
| Net income | — |
|
— |
|
||||||||||||||||||||||
| Other comprehensive income |
|
— | — |
|
||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | ||||||||||||||||||||||
| Common stock issued | — | — |
|
|
||||||||||||||||||||||
|
Common stock dividends - $
|
— |
(
|
— |
(
|
||||||||||||||||||||||
|
Other, net
|
— | — | — |
|
||||||||||||||||||||||
| March 31, 2023 |
(
|
|
(
|
|
||||||||||||||||||||||
| Net income | — |
|
— |
|
||||||||||||||||||||||
| Other comprehensive income |
|
— | — |
|
||||||||||||||||||||||
|
Preferred stock dividends - $
|
— | — | — | — | ||||||||||||||||||||||
| Common stock issued | — | — |
|
|
||||||||||||||||||||||
|
Common stock dividends - $
|
— |
(
|
— |
(
|
||||||||||||||||||||||
|
Other, net
|
— | — | — |
|
||||||||||||||||||||||
| June 30, 2023 |
(
|
|
(
|
|
||||||||||||||||||||||
| Net income | — |
|
— |
|
||||||||||||||||||||||
| Other comprehensive income |
|
— | — |
|
||||||||||||||||||||||
|
Preferred stock dividends - $
|
— |
(
|
— |
(
|
||||||||||||||||||||||
| Magellan Acquisition consideration | — | — | — |
|
||||||||||||||||||||||
| Common stock issued | — | — |
|
|
||||||||||||||||||||||
|
Common stock dividends - $
|
— |
(
|
— |
(
|
||||||||||||||||||||||
| Other, net | — | — | — |
(
|
||||||||||||||||||||||
| Sept. 30, 2023 | $ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
11
ONEOK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Goodwill Impairment Review
- We assess our goodwill for impairment at least annually as of July 1, unless events or changes in circumstances indicate an impairment may have occurred before that time. At July 1, 2024, we assessed qualitative factors to determine whether it was more likely than not that the fair value of each of our reporting units with goodwill was less than its carrying amount. After assessing qualitative factors (including macroeconomic conditions, industry and market considerations, costs and overall financial performance), we determined that it was more likely than not that the fair value of the Natural Gas Pipelines, Natural Gas Liquids and Refined Products and Crude reporting units were not less than their respective carrying value, that no further testing was necessary and that goodwill was not considered impaired.
Recently Issued Accounting Standards Update
- Changes to GAAP are established by the FASB in the form of ASUs to the FASB Accounting Standards Codification. We consider the applicability and impact of all ASUs. Except as discussed below, there have been no new accounting pronouncements that have become effective or have been issued that are of significance or potential significance to us during the quarter.
In November 2023, the FASB issued ASU 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
, which requires public entities to disclose significant expense categories and amounts for each reportable segment on both an interim and annual basis, consisting of expenses regularly reported to the chief operating decision maker and included in a segment's reported measure of segment profit or loss. The standard also requires disclosing an amount of other segment items as well as all annual disclosures in interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We do not expect the adoption of this standard to materially impact us.
B.
ACQUISITIONS
EnLink Controlling Interest Acquisition -
On Aug. 28, 2024, we entered into the EnLink Purchase Agreement with GIP to acquire GIP’s interest in EnLink consisting of
43
% of the outstanding EnLink Units for $
14.90
in cash per unit and
100
% of the outstanding limited liability company interests in the managing member of EnLink for $
300
million, for total cash consideration of approximately $
3.3
billion.
Subsequent event
- On Oct. 15, 2024, we completed the EnLink Controlling Interest Acquisition, and through our
100
% ownership of the managing member of EnLink, we have obtained control of EnLink. We funded this acquisition with an underwritten public offering of senior notes. For additional information on our long-term debt, see Note F.
EnLink’s operations are principally composed of providing midstream services relating to natural gas, NGLs and crude oil. The assets of EnLink include approximately
13,600
miles of pipeline,
25
natural gas processing plants, with approximately
5.9
Bcf/d of processing capacity,
seven
fractionators with approximately
316
MBbl/d of fractionation capacity, barge and rail terminals, product storage facilities, including natural gas storage, purchasing and marketing capabilities and equity investments in certain joint ventures.
12
This acquisition meaningfully increases our scale and integrated value chain within the growing Permian Basin while expanding and extending our asset bases in the Mid-Continent, North Texas and Louisiana regions. We expect to achieve significant synergies by combining our complementary asset positions. In addition, we intend to pursue the acquisition of the publicly held EnLink Units in a tax-free transaction.
The EnLink Controlling Interest Acquisition will be accounted for using the acquisition method of accounting for business combinations pursuant to Accounting Standards Codification 805, “Business Combinations,” which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. Any excess of consideration to be transferred over the estimated fair value of assets acquired and liabilities assumed will be recorded as goodwill. Determining the fair value of acquired assets and liabilities assumed requires management’s judgment and the use of independent valuation specialists. At the time of this filing, it is impracticable to disclose all the information required by ASC 805, “Business Combinations,” as we are in the process of evaluating the purchase accounting and pro forma implications of this transaction.
See Part 2, Item 1A “Risk Factors” for further discussion of risks related to the EnLink Controlling Interest Acquisition and the Potential EnLink Transaction.
Medallion Acquisition
- On Aug. 28, 2024, we also entered into the Medallion Purchase and Sale Agreement with GIP to acquire all of the equity interests in Medallion for a purchase price of $
2.6
billion, subject to upward and downward adjustments specified in the Medallion Purchase and Sale Agreement, and inclusive of the purchase of additional interests in a Medallion joint venture owned by a separate third party. Medallion operations are principally composed of providing midstream services for crude oil and condensate in West Texas, specifically the Midland Basin. The assets of Medallion include crude oil gathering and transportation pipelines and crude oil storage facilities. Following the completion of the Medallion Acquisition, we expect Medallion to be a wholly owned subsidiary.
The closing of this transaction is expected to occur during the fourth quarter of 2024, subject to the satisfaction of customary closing conditions, including the expiration or termination of all applicable waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. We intend to fund this acquisition with a portion of the proceeds from the September 2024 underwritten public offering of senior notes. For additional information on our long-term debt, see Note F.
We expect to account for this acquisition using the acquisition method of accounting for business combinations pursuant to Accounting Standards Codification 805, “Business Combinations,” which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. Any excess of consideration to be transferred over the estimated fair value of assets acquired and liabilities assumed will be recorded as goodwill.
See Part 2, Item 1A “Risk Factors” for further discussion of risks related to this acquisition.
Gulf Coast NGL Pipelines Acquisition
- In June 2024, we completed the acquisition of a system of NGL pipelines from Easton Energy, a Houston-based midstream company, for approximately $
280
million. This acquisition in our Natural Gas Liquids segment includes approximately
450
miles of liquids products pipelines located in the strategic Gulf Coast market centers for NGLs, Refined Products and crude oil. A portion of the Easton assets are already connected to our Mont Belvieu assets. We expect to add connections to our Houston-based assets beginning in mid-2025 through the end of 2025.
Magellan Acquisition
- On Sept. 25, 2023, we completed the Magellan Acquisition. This acquisition strategically diversifies our complementary asset base and allows for significant expected synergies as a combined entity. Each common unit of Magellan was exchanged for a fixed ratio of
0.667
shares of ONEOK common stock and $
25.00
of cash, for a total consideration of $
14.1
billion. A total of approximately
135
million shares of common stock were issued, with a fair value of approximately $
9.0
billion as of the closing date of the Magellan Acquisition. We funded the cash portion of this acquisition with an underwritten public offering of $
5.25
billion senior unsecured notes. For additional information on our long-term debt, please see Note H in our Annual Report.
The Magellan Acquisition was accounted for using the acquisition method of accounting for business combinations pursuant to Accounting Standards Codification 805, “Business Combinations,” which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. Determining the fair value of acquired assets and liabilities assumed requires management’s judgment and the use of independent valuation specialists.
13
The following tables set forth the acquisition consideration and final purchase price allocation of assets acquired and liabilities assumed:
| At Sept. 25, 2023 | |||||
|
(Millions of dollars and shares/units, except per share/unit data)
|
|||||
|
Magellan public common units outstanding
|
|
||||
|
Cash consideration per Magellan unit
|
$
|
||||
| Cash consideration | $ |
|
|||
|
Magellan public common units outstanding
|
|
||||
|
ONEOK exchange ratio per Magellan unit
|
|
||||
|
Shares of ONEOK common stock issued
|
|
||||
|
ONEOK common stock closing price on Sept. 25, 2023
|
$
|
||||
|
Fair value of common stock issued
|
$ |
|
|||
|
Fair value of Magellan replacement equity awards
|
|
||||
|
Equity consideration
|
$ |
|
|||
|
Total consideration
|
$ |
|
|||
| At Sept. 25, 2023 | |||||
| Assets acquired: | (Millions of dollars) | ||||
| Cash and cash equivalents | $ |
|
|||
|
Accounts receivables, net
|
|
||||
| Inventories |
|
||||
| Other current assets |
|
||||
| Property, plant and equipment |
|
||||
| Investments in unconsolidated affiliates |
|
||||
| Intangible assets |
|
||||
|
Other assets
|
|
||||
| Total assets acquired |
|
||||
| Liabilities assumed: | |||||
| Accounts payable |
|
||||
|
Other current liabilities (a)
|
|
||||
| Long-term debt, excluding current maturities |
|
||||
|
Other deferred credits and liabilities
|
|
||||
| Total liabilities assumed |
|
||||
| Total identifiable net assets |
|
||||
| Goodwill |
|
||||
| Total purchase price | $ |
|
|||
During the nine months ended Sept. 30, 2024, we recorded adjustments to the preliminary purchase price allocation that resulted in an increase to goodwill of $
165
million due to additional information received during the measurement period. The adjustment is due primarily to a decrease in property, plant and equipment of approximately $
100
million, and an increase to certain contingencies that existed as of the acquisition date.
Pro Forma Financial Information
The following table sets forth the unaudited supplemental pro forma financial information for the three and nine months ended Sept. 30, 2023, as if we had completed the Magellan Acquisition on Jan. 1, 2022:
|
Three Months Ended
|
Nine Months Ended
|
||||||||||
|
Sept. 30,
|
Sept. 30,
|
||||||||||
| 2023 | 2023 | ||||||||||
|
(Millions of dollars
)
|
|||||||||||
| Revenue | $ |
|
$ |
|
|||||||
| Net income | $ |
|
$ |
|
|||||||
14
The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of our operating results that would have occurred had the transaction been completed on Jan. 1, 2022, nor is it necessarily indicative of future results. For more information on the basis of our pro forma adjustments, please see our Annual Report.
Transaction Costs
- For the three and nine months ended Sept. 30, 2024, transaction costs relate primarily to our recent acquisitions, including the Magellan Acquisition, the EnLink Controlling Interest Acquisition and the Medallion Acquisition. For the nine months ended Sept. 30, 2023, we recognized approximately $
154
million of transaction costs associated with the Magellan Acquisition. These non-recurring costs are primarily related to advisory fees, severance and settlement of share-based awards for certain Magellan employees and integration costs, as well as bridge facility commitment fees.
The following table sets forth the impact of acquisition related transaction costs in our Consolidated Statements of Income as of the periods indicated:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||
|
Sept. 30,
|
Sept. 30,
|
|||||||||||||
| 2024 | 2023 | 2024 |
2023
|
|||||||||||
|
(Millions of dollars)
|
||||||||||||||
|
Transaction costs
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
|
Interest expense
|
|
|
|
|
||||||||||
|
Total
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
C.
MEDFORD INCIDENT
D.
FAIR VALUE MEASUREMENTS
15
Recurring Fair Value Measurements
-
The following tables set forth our recurring fair value measurements as of the dates indicated:
| Sept. 30, 2024 | |||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total - Gross | Netting (a) | Total - Net | ||||||||||||||||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||||||||||||||
| Commodity 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 Sept. 30, 2024, we posted
no
cash and held cash of $
15
million from various counterparties, which offsets our derivative net asset position under master-netting arrangements as shown in the table above.
| Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total - Gross | Netting (a) | Total - Net | ||||||||||||||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||||||||||||||
| Commodity 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 Dec. 31, 2023, we posted
no
cash and held cash of $
41
million with various counterparties, which offsets our derivative net asset position under master-netting arrangements as shown in the table above.
Other Financial Instruments
- The approximate fair value of cash and cash equivalents, including cash held for the EnLink Controlling Interest Acquisition and the Medallion Acquisition, 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 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 mutual funds, municipal bonds and other fixed income securities classified as Level 1 and Level 2.
The estimated fair value of our consolidated long-term debt, including current maturities, was $
28.0
billion and $
21.4
billion at Sept. 30, 2024, and Dec. 31, 2023, respectively. The book value of our consolidated long-term debt, including current maturities, was $
28.1
billion and $
21.7
billion at Sept. 30, 2024, and Dec. 31, 2023, 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.
E.
RISK-MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES
Risk-management Activities
- We are sensitive to changes in the prices of natural gas, NGLs, Refined Products and crude oil, 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, NGLs, Refined Products, condensate and crude oil purchases and sales; to reduce our exposure to commodity price and interest-rate fluctuations; and to achieve more predictable cash flows. Additionally, we may use physical-forward purchases and financial derivatives to reduce commodity price risk associated with power and natural gas used to operate our facilities. 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.
16
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, Refined Products and crude oil. 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, Treasury locks and interest-rate swaps.
Treasury locks are agreements to pay the difference between the benchmark Treasury rate and the rate that is designated in the terms of the agreement.
In the third quarter of 2024, we entered into $
1.5
billion of Treasury locks
to hedge the variability of interest payments on a portion of our forecasted debt issuances. In the same quarter, we settled all of our $
1.5
billion Treasury locks related to our underwritten public offering of $
7.0
billion senior unsecured notes associated with the EnLink Controlling Interest Acquisition and Medallion Acquisition. All of our Treasury locks were designated as cash flow hedges.
At Sept. 30, 2024, and Dec. 31, 2023, we had no outstanding interest-rate derivative instruments.
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:
| Sept. 30, 2024 | Dec. 31, 2023 | ||||||||||||||||||||||||||||
|
Location in our
Consolidated Balance Sheets |
Assets | (Liabilities) | Assets | (Liabilities) | |||||||||||||||||||||||||
| Derivatives designated as hedging instruments |
(
Millions of dollars
)
|
||||||||||||||||||||||||||||
| Commodity contracts (a) | 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 | $ |
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||||
Notional Quantities for Derivative Instruments
-
The following table sets forth the notional quantities for derivative instruments held as of the dates indicated:
|
Sept. 30,
2024 |
Dec. 31,
2023 |
|||||||||||||
|
Contract
Type |
Net Purchased/Payor
(Sold/Receiver) |
|||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||
| Cash flow hedges | ||||||||||||||
| Fixed price | ||||||||||||||
|
- Natural gas (
Bcf
)
|
Futures and swaps |
(
|
(
|
|||||||||||
|
- NGLs, Refined Products and crude oil (
MMBbl
)
|
Futures and swaps |
(
|
(
|
|||||||||||
|
- Power (
GWh
)
|
Futures and swaps |
|
|
|||||||||||
| Basis | ||||||||||||||
|
- Natural gas (
Bcf
)
|
Futures and swaps |
(
|
(
|
|||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||
| Fixed price | ||||||||||||||
|
- Natural gas (
Bcf
)
|
Futures and swaps |
|
(
|
|||||||||||
|
- NGLs, Refined Products and crude oil (
MMBbl
)
|
Futures and swaps |
(
|
|
|||||||||||
| Basis | ||||||||||||||
|
- Natural gas (
Bcf
)
|
Futures and swaps |
|
(
|
|||||||||||
|
- NGLs, Refined Products, and crude oil (
MMBbl
)
|
Futures and swaps |
|
(
|
|||||||||||
17
Cash Flow Hedges
- During the three and nine months ended Sept. 30, 2024 and 2023, we had no material changes in other comprehensive income related to our commodity derivative instruments.
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.
F.
DEBT
Current Maturities -
At Sept. 30, 2024, our current maturities of long-term debt consist of the following:
|
(
Millions of dollars
)
|
|||||
|
$
|
$ |
|
|||
|
$
|
|
||||
|
$
|
|
||||
|
Guardian $
|
|
||||
| Current maturities of long-term debt | $ |
|
|||
Debt Issuances
- In September 2024, we completed an underwritten public offering of $
7.0
billion senior unsecured notes consisting of $
1.25
billion,
4.25
% senior notes due 2027; $
600
million,
4.4
% senior notes due 2029; $
1.25
billion,
4.75
% senior notes due 2031; $
1.6
billion,
5.05
% senior notes due 2034; $
1.5
billion,
5.7
% senior notes due 2054; and $
800
million,
5.85
% senior notes due 2064. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $
6.9
billion. We intend to use the net proceeds from this offering to fund the EnLink Controlling Interest Acquisition and the Medallion Acquisition, purchase additional interests in a Medallion joint venture owned by a separate third party and to pay fees and expenses related to the acquisitions. We intend to use any remaining net proceeds for general corporate purposes, which may include the repayment of outstanding indebtedness, including the repurchase or redemption of existing notes. Cash held as of Sept. 30, 2024, to fund the acquisitions is classified as a long-term asset within the Consolidated Balance Sheet due to its designation for use in conjunction with these acquisitions.
Subsequent event
- In October 2024, we used a portion of the net proceeds to fund the EnLink Controlling Interest Acquisition upon closing.
Debt Repayments
- In September 2024, we repaid the remaining $
484
million of our $
500
million,
2.75
% senior notes at maturity with cash on hand.
Commercial Paper Program
- At Sept. 30, 2024, and Dec. 31, 2023, we had
no
commercial paper outstanding.
$
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). In addition, adjusted EBITDA as defined in our $
2.5
Billion Credit Agreement allows inclusion of the trailing 12 months of consolidated adjusted EBITDA of any acquired business. In May 2024, we entered into an amendment to our $
2.5
Billion Credit Agreement that extended the maturity date by
one year
, from June 2027 to June 2028. All other terms and conditions of our $
2.5
Billion Credit Agreement remain unchanged. In June 2024, we completed the acquisition of a system of NGL pipelines, which allowed us to elect an acquisition adjustment period under our $
2.5
Billion Credit Agreement and, as a result, increased our leverage ratio covenant to
5.5
to 1. In October 2024, we completed the EnLink Controlling Interest Acquisition, which effectively extended our acquisition adjustment period until the quarter ended June 30, 2025, after which it will decrease to
5.0
to 1. As of Sept. 30, 2024, we had
no
outstanding borrowings, our ratio of consolidated indebtedness to adjusted EBITDA was
3.7
to 1, and we were in compliance with all covenants under our $
2.5
Billion Credit Agreement.
Debt Guarantees
- ONEOK, ONEOK Partners, the Intermediate Partnership and Magellan 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, the Intermediate Partnership or Magellan. For further details on our indebtedness, see Note H of the Notes to Consolidated Financial Statements in our Annual Report.
18
G.
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, May and August 2024 were
99
cents per share. A common stock dividend of
99
cents per share was declared for shareholders of record at the close of business on Nov. 1, 2024, payable Nov. 14, 2024.
Our Series E Preferred Stock pays quarterly dividends on each share of Series E Preferred Stock when, 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, May and August 2024. Dividends totaling $
0.3
million were declared for the Series E Preferred Stock and are payable Nov. 14, 2024.
H.
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted EPS for the periods indicated:
| Three Months Ended Sept. 30, 2024 | |||||||||||||||||
| 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 Sept. 30, 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 | $ |
|
|
$ |
|
||||||||||||
| Nine Months Ended Sept. 30, 2024 | |||||||||||||||||
| 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 | $ |
|
|
$ |
|
||||||||||||
| Nine Months Ended Sept. 30, 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 | $ |
|
|
$ |
|
||||||||||||
19
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 | Nine Months Ended | |||||||||||||
| Sept. 30, | Sept. 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
|
(
Millions of dollars
)
|
||||||||||||||
| Northern Border | $ |
|
$ |
|
$ |
|
$ |
|
||||||
| Overland Pass |
|
|
|
|
||||||||||
| Saddlehorn |
|
|
|
|
||||||||||
| Roadrunner |
|
|
|
|
||||||||||
| BridgeTex |
|
|
|
|
||||||||||
| MVP |
|
|
|
|
||||||||||
| Other |
|
|
|
|
||||||||||
| Equity in net earnings from investments | $ |
|
$ |
|
$ |
|
$ |
|
||||||
In March 2024, we purchased an additional
10
% interest in Saddlehorn, resulting in a
40
% ownership interest.
We incurred expenses in transactions with unconsolidated affiliates of $
54
million and $
33
million for the three months ended Sept. 30, 2024 and 2023, respectively, and $
149
million and $
88
million for the nine months ended Sept. 30, 2024 and 2023, respectively, related primarily to Overland Pass and Northern Border. Revenue earned and accounts receivable from, and accounts payable to, our unconsolidated affiliates were not material.
J.
COMMITMENTS AND CONTINGENCIES
Regulatory, Environmental and Safety Matters
-
The operation of pipelines, terminals, plants and other facilities for the gathering, processing, fractionation, transportation and storage of 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, terminals, 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
-
Corpus Christi Terminal Personal Injury Proceeding
- Ismael Garcia, Andrew Ramirez and Jesus Juarez Quintero, et al. brought personal injury cases against Magellan and co-defendants Triton Industrial Services, LLC, Tidal Tank, Inc. and Cleveland Integrity Services, Inc. in Nueces County Court in Texas. The claims were originally brought in
three
different actions but were consolidated into a single case on March 2, 2021. Claims were asserted by or on behalf of
seven
individuals, and certain beneficiaries, who were employed by a contractor and working at a Magellan facility. These individuals were injured, one fatally, as a result of a fire that occurred on Dec. 5, 2020, while they were cleaning a tank at our Corpus Christi terminal. During the first quarter of 2024, we reached settlement with all remaining claimants. In the second quarter of 2024, all settlement payments were made to claimants, and were fully offset by insurance proceeds received.
We are a party to various other 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.
20
K.
REVENUES
Contract Assets and Contract Liabilities
- Our contract asset balances at the beginning and the 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 relate primarily to deferred revenue on Refined Products and crude transportation contracts, NGL storage contracts and contributions in aid of construction received from customers.
The following table sets forth the balances in contract liabilities for the periods indicated:
| Contract Liabilities |
(
Millions of dollars
)
|
|||||||
| Balance at Dec. 31, 2023 (a) | $ |
|
||||||
| Revenue recognized included in beginning balance |
(
|
|||||||
| Net additions |
|
|||||||
| Balance at Sept. 30, 2024 (b) | $ |
|
||||||
(a) - Contract liabilities of $
104
million and $
46
million are included in other current liabilities and other deferred credits, respectively, in our Consolidated Balance Sheet.
Receivables from Customers and Revenue Disaggregation
- Substantially all of the balances in accounts receivable on our Consolidated Balance Sheet at Sept. 30, 2024, relate to customer receivables. Excluding the insurance receivable related to the legal proceeding described in Note O of the Notes to Consolidated Financial Statements in our Annual Report, substantially all of the balances in accounts receivable on our Consolidated Balance Sheet at Dec. 31, 2023, related to customer receivables. Revenue sources are disaggregated in Note L.
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.
The following table presents aggregate value allocated to unsatisfied performance obligations as of Sept. 30, 2024, 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
30
years:
| Expected Period of Recognition in Revenue |
(
Millions of dollars
)
|
|||||||
| Remainder of 2024 | $ |
|
||||||
| 2025 |
|
|||||||
| 2026 |
|
|||||||
| 2027 |
|
|||||||
| 2028 and beyond |
|
|||||||
| Total | $ |
|
||||||
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 value is not known and minimum volume agreements, which we consider to be fully constrained until invoiced.
21
L.
SEGMENTS
Segment Descriptions
- Our operations are divided into
four
reportable business segments as follows:
• our Natural Gas Gathering and Processing segment gathers, treats, processes and markets natural gas;
• our Natural Gas Liquids segment gathers, treats, fractionates and transports NGLs and stores, markets and distributes Purity NGLs;
• our Natural Gas Pipelines segment transports and stores natural gas;
and
• our Refined Products and Crude segment transports, stores, distributes, blends and markets Refined Products and crude oil.
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.
Operating Segment Information
-
The following tables set forth certain selected financial information for our operating segments for the periods indicated:
|
Three Months Ended
Sept. 30, 2024 |
Natural Gas
Gathering and Processing |
Natural Gas
Liquids |
Natural Gas
Pipelines |
Refined Products and Crude |
Total
Segments |
||||||||||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||||||||||||||
| Liquids commodity 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 |
(
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Adjusted EBITDA from unconsolidated affiliates |
|
|
|
|
|
||||||||||||||||||||||||
| Noncash compensation expense and other |
|
|
|
|
|
||||||||||||||||||||||||
| Segment adjusted EBITDA | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Depreciation and amortization | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Equity in net earnings (loss) from investments | $ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
(a) - Intersegment revenues are primarily from commodity sales, which are based on the contracted selling price that is generally index-based and settled monthly. Intersegment revenues for the Natural Gas Gathering and Processing segment totaled $
657
million and were not material for the Natural Gas Liquids, Refined Products and Crude and Natural Gas Pipelines segments.
|
Three Months Ended
Sept. 30, 2024 |
Total
Segments |
Other and
Eliminations |
Total | |||||||||||||||||
|
(
Millions of dollars
)
|
||||||||||||||||||||
| Reconciliations of total segments to consolidated | ||||||||||||||||||||
| Liquids commodity 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 | $ |
|
$ |
|
$ |
|
||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
||||||||||||||
(a) - Substantially all of our revenues relate to contracts with customers.
22
|
Three Months Ended
Sept. 30, 2023 |
Natural Gas
Gathering and Processing |
Natural Gas
Liquids |
Natural Gas
Pipelines |
Refined Products and Crude (c) |
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 (a) |
|
|
|
|
|
||||||||||||||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) |
(
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Operating costs |
(
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Adjusted EBITDA from unconsolidated affiliates (b) |
|
|
|
|
|
||||||||||||||||||||||||
| Noncash compensation expense and other |
|
|
|
|
|
||||||||||||||||||||||||
| Segment adjusted EBITDA (b) | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Depreciation and amortization | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Equity in net earnings from investments | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
(a) - Intersegment revenues are primarily from commodity sales, which are based on the contracted selling price that is generally index-based and settled monthly. Intersegment revenues for the Natural Gas Gathering and Processing segment totaled $
620
million and were not material for the Natural Gas Liquids and Natural Gas Pipelines segments.
(b) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $
14
million of adjusted EBITDA for the three months ended Sept. 30, 2023.
(c) - Disaggregation of revenue for our Refined Products and Crude segment was based on a preliminary evaluation of contracts upon completion of the Magellan Acquisition.
|
Three Months Ended
Sept. 30, 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 | $ |
|
$ |
|
$ |
|
||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
||||||||||||||
23
|
Nine Months Ended
Sept. 30, 2024 |
Natural Gas
Gathering and Processing |
Natural Gas
Liquids |
Natural Gas
Pipelines |
Refined Products and Crude |
Total
Segments |
||||||||||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||||||||||||||
| Liquids commodity 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 |
(
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Adjusted EBITDA from unconsolidated affiliates |
|
|
|
|
|
||||||||||||||||||||||||
|
Noncash compensation expense
|
|
|
|
|
|
||||||||||||||||||||||||
|
Other
|
|
|
|
(
|
|
||||||||||||||||||||||||
| Segment adjusted EBITDA | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Depreciation and amortization | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Equity in net earnings from investments | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Investments in unconsolidated affiliates | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
(a) - Intersegment revenues are primarily from commodity sales, which are based on the contracted selling price that is generally index-based and settled monthly. Intersegment revenues for the Natural Gas Gathering and Processing segment totaled $
1.9
billion and were not material for the Natural Gas Liquids, Refined Products and Crude and Natural Gas Pipelines segments.
|
Nine Months Ended
Sept. 30, 2024 |
Total
Segments |
Other and
Eliminations |
Total | |||||||||||||||||
|
(
Millions of dollars
)
|
||||||||||||||||||||
| Reconciliations of total segments to consolidated | ||||||||||||||||||||
| Liquids commodity 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) - Substantially all of our revenues relate to contracts with customers.
24
|
Nine Months Ended
Sept. 30, 2023 |
Natural Gas
Gathering and Processing |
Natural Gas
Liquids |
Natural Gas
Pipelines |
Refined Products and Crude (c) |
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 (a) |
|
|
|
|
|
|||||||||||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) |
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||
| Operating costs |
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||
| Adjusted EBITDA from unconsolidated affiliates (b) |
|
|
|
|
|
|||||||||||||||||||||
| Noncash compensation expense |
|
|
|
|
|
|||||||||||||||||||||
| Other |
|
|
|
|
|
|||||||||||||||||||||
| Segment adjusted EBITDA (b) | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
| Depreciation and amortization | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
||||||||||||||||
| Equity in net earnings from investments | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
| Investments in unconsolidated affiliates | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
(a) - Intersegment revenues are primarily from commodity sales, which are based on the contracted selling price that is generally index-based and settled monthly. Intersegment revenues for the Natural Gas Gathering and Processing segment totaled $
1.8
billion and were not material for the Natural Gas Liquids and Natural Gas Pipelines segments.
(b) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $
40
million of adjusted EBITDA for the nine months ended Sept. 30, 2023.
(c) - Disaggregation of revenue for our Refined Products and Crude segment was based on a preliminary evaluation of contracts upon completion of the Magellan Acquisition.
|
Nine Months Ended
Sept. 30, 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) - Substantially all of our revenues relate to contracts with customers.
25
|
Three Months Ended
Sept. 30, |
Nine Months Ended
Sept. 30, |
|||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Reconciliation of net income to total segment adjusted EBITDA |
(
Millions of dollars
)
|
|||||||||||||||||||||||||
| Net income | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Interest expense, net of capitalized interest |
|
|
|
|
||||||||||||||||||||||
| Depreciation and amortization |
|
|
|
|
||||||||||||||||||||||
| Income taxes |
|
|
|
|
||||||||||||||||||||||
| Adjusted EBITDA from unconsolidated affiliates (b) |
|
|
|
|
||||||||||||||||||||||
| Equity in net earnings from investments (b) |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Noncash compensation expense and other |
|
|
|
|
||||||||||||||||||||||
| Other corporate costs (c) |
|
|
|
|
||||||||||||||||||||||
| Total segment adjusted EBITDA (a)(b) | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
(a) - The nine months ended Sept. 30, 2023, includes $
667
million related to the Medford incident, including a settlement gain of $
779
million, offset partially by $
112
million of third-party fractionation costs.
(b) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $
14
million and $
40
million of adjusted EBITDA for the three and nine months ended Sept. 30, 2023, respectively.
(c) - Includes transaction costs related to the Magellan Acquisition of $
123
million, offset partially by interest income of $
26
million for the three months ended Sept. 30, 2023, and transaction costs related to the Magellan Acquisition of $
133
million, offset partially by interest income of $
42
million for the nine months ended Sept. 30, 2023.
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.
EnLink Controlling Interest Acquisition -
On Aug. 28, 2024, we entered into the EnLink Purchase Agreement with GIP to acquire GIP’s interest in EnLink consisting of 43% of the outstanding EnLink Units for $14.90 in cash per unit and 100% of the outstanding limited liability company interests in the managing member of EnLink for $300 million, for total cash consideration of approximately $3.3 billion. On Oct. 15, 2024, we completed the EnLink Controlling Interest Acquisition. We funded this acquisition with an underwritten public offering of senior notes. For additional information on our long-term debt, see Note F of the Notes to Consolidated Financial Statements in this Quarterly Report.
This acquisition meaningfully increases our scale and integrated value chain within the growing Permian Basin while expanding and extending our asset bases in the Mid-Continent, North Texas and Louisiana regions. We expect to achieve significant synergies by combining our complementary asset positions.
We intend to pursue the acquisition of the publicly held EnLink Units in a tax-free transaction. For additional information on our acquisitions, see Note B of the Notes to Consolidated Financial Statements in this Quarterly Report. See Part 2, Item 1A “Risk Factors” for further discussion of risks related to the EnLink Controlling Interest Acquisition and the Potential EnLink Transaction.
Medallion Acquisition
- On Aug. 28, 2024, we also entered into the Medallion Purchase and Sale Agreement with GIP to acquire all of the equity interests in Medallion for a purchase price of $2.6 billion, subject to upward and downward adjustments specified in the Medallion Purchase and Sale Agreement, and inclusive of the purchase of additional interests in a Medallion joint venture owned by a separate third party. Medallion operations are principally composed of providing midstream services for crude oil and condensate in West Texas, specifically the Midland Basin.
The closing of this transaction is expected to occur during the fourth quarter of 2024, subject to the satisfaction of customary closing conditions, including the expiration or termination of all applicable waiting periods imposed by the Hart-Scott-Rodino
26
Antitrust Improvements Act of 1976, as amended. We intend to fund this acquisition with a portion of the proceeds from the September 2024 underwritten public offering of senior notes. For additional information on our long-term debt, see Note F of the Notes to Consolidated Financial Statements in this Quarterly Report. See Part 2, Item 1A “Risk Factors” for further discussion of risks related to the Medallion Acquisition.
Gulf Coast NGL Pipelines Acquisition
- In June 2024, we completed the acquisition of a system of NGL pipelines from Easton Energy, a Houston-based midstream company, for approximately $280 million. This acquisition in our Natural Gas Liquids segment includes approximately 450 miles of liquids products pipelines located in the strategic Gulf Coast market centers for NGLs, Refined Products and crude oil. A portion of the Easton assets are already connected to our Mont Belvieu assets. We expect to add connections to our Houston-based assets beginning in mid-2025 through the end of 2025.
Market Conditions and Business Update
- Earnings increased in the third quarter of 2024, compared with the third quarter of 2023, due primarily to contributions from the Refined Products and Crude segment, higher NGL and natural gas processing volumes in the Rocky Mountain region, and increased transportation services in the Natural Gas Pipelines segment. Our extensive and integrated assets are located in, and connected with, some of the most productive shale basins, as well as refineries and demand centers, 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 four reportable segments are primarily fee-based, and we expect our consolidated earnings to be more than 85% fee-based in 2024.
Capital Projects
- Our primary capital projects are outlined in the table below:
|
Project (d)
|
Scope |
Approximate
Cost (a) |
Expected Completion
|
||||||||
| Natural Gas Liquids | (In millions) | ||||||||||
| MB-6 fractionator | 125 MBbl/d NGL fractionator in Mont Belvieu, Texas | $550 |
Year-End 2024 (b)
|
||||||||
|
West Texas NGL pipeline expansion
|
Increase capacity via pipeline looping in the Permian Basin
|
$520 |
Year-End 2024 (b)
|
||||||||
| Elk Creek pipeline expansion | Increase capacity to 435 MBbl/d out of the Rocky Mountain region | $355 | First Quarter 2025 | ||||||||
|
Medford fractionator
|
Rebuild our 210 MBbl/d NGL fractionation facility in Medford, Oklahoma
|
$385 |
(c)
|
||||||||
|
Refined Products and Crude
|
|||||||||||
|
Greater Denver pipeline expansion
|
Increase total system capacity by 35 MBbl/d and additional expansion capabilities
|
$480 |
Mid-2026
|
||||||||
(a) - Excludes capitalized interest/AFUDC.
(b) - This project originally had an estimated completion of first quarter 2025.
(c) - This project is expected to be completed in two phases, with the first phase expected to be completed in the fourth quarter of 2026, and the second phase completed in the first quarter of 2027.
(d) - This table excludes EnLink’s capital projects.
In August 2024, we announced plans to rebuild our 210 MBbl/d NGL fractionator in Medford, Oklahoma. Rebuilding at Medford provides strategic benefits that include expansion options that will allow our integrated system to accommodate volume growth from the Permian Basin and the Rocky Mountain and Mid-Continent regions. The Medford fractionator will also produce butane and natural gasoline for incremental Refined Products and diluent blending opportunities in the Mid-Continent region.
In July 2024, we announced plans to expand our Refined Products pipeline capacity, connecting Mid-Continent and Gulf Coast supply with the greater Denver area, to meet growing demand and increase connectivity with the Denver International Airport (DIA). The project includes construction of a new 230-mile, 16-inch diameter pipeline from Scott City, Kansas, to DIA and the addition or upgrading of certain pump stations along the existing Refined Products pipeline system. Total system capacity will increase by 35 MBbl/d and will have additional expansion capabilities. This project is fully subscribed under long-term contracts.
At the end of the first quarter of 2024, we completed the expansion of our Refined Products pipeline to El Paso, Texas. This expansion connects more supply to growing markets in Texas, New Mexico, Arizona and Mexico.
For a discussion of our capital expenditure financing, see “Capital Expenditures” in the “Liquidity and Capital Resources” section.
27
Debt Issuances
- In September 2024, we completed an underwritten public offering of $7.0 billion senior unsecured notes consisting of $1.25 billion, 4.25% senior notes due 2027; $600 million, 4.4% senior notes due 2029; $1.25 billion, 4.75% senior notes due 2031; $1.6 billion, 5.05% senior notes due 2034; $1.5 billion, 5.7% senior notes due 2054; and $800 million, 5.85% senior notes due 2064. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $6.9 billion. In October 2024, we used a portion of the net proceeds from this offering to fund the EnLink Controlling Interest Acquisition and related fees and expenses. We intend to use the remaining net proceeds to fund the Medallion Acquisition and related fees and expenses, purchase additional interests in a Medallion joint venture owned by a separate third party and for general corporate purposes, which may include repayment of outstanding indebtedness, including the repurchase or redemption of existing notes.
Debt Repayments
- In September 2024, we repaid the remaining $484 million of our $500 million, 2.75% senior notes at maturity with cash on hand.
Share Repurchase Program
- In January 2024, our Board of Directors authorized a share repurchase program to buy up to $2.0 billion of our outstanding common stock and targets the program to be largely utilized over the next four years. We expect shares to be acquired from time to time in open-market transactions or through privately negotiated transactions at our discretion, subject to market conditions and other factors. We expect any purchases to be funded by cash on hand, operating cash flows and short-term borrowings. The program will terminate upon completion of the repurchase of $2.0 billion of common stock or on Jan. 1, 2029, whichever occurs first. As of Oct. 21, 2024, no shares have been repurchased under the program.
Dividends
- In February, May and August 2024, we paid a quarterly common stock dividend of 99 cents p
er share ($3.96 per share on an annualized basis),
an increase of 3.7% compared with the same quarters in the prior year. Our dividend growth is due primarily to the increase in cash flows resulting from the growth of our operations. We declared a quarterly common stock dividend of 99 cents per share in October 2024. The quarterly common stock dividend will be paid Nov. 14, 2024, to shareholders of record at the close of business on Nov. 1, 2024.
Goodwill Impairment Review
- We assess our goodwill for impairment at least annually as of July 1, unless events or changes in circumstances indicate an impairment may have occurred before that time. At July 1, 2024, we assessed qualitative factors to determine whether it was more likely than not that the fair value of each of our reporting units with goodwill was less than its carrying amount. After assessing qualitative factors (including macroeconomic conditions, industry and market considerations, costs and overall financial performance), we determined that it was more likely than not that the fair value of the Natural Gas Pipelines, Natural Gas Liquids and Refined Products and Crude reporting units was not less than their respective carrying value, that no further testing was necessary, and that goodwill was not considered impaired.
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. See reconciliation of net income to adjusted EBITDA in the “Non-GAAP Financial Measures” subsection. 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, noncash compensation expense and certain other noncash items. Following the Magellan Acquisition, we performed a review of our calculation methodology of adjusted EBITDA and, beginning in 2023, we updated our calculation to include the adjusted EBITDA related to our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. Adjusted EBITDA from our unconsolidated affiliates is calculated consistently with the definition above and excludes items such as interest expense, depreciation and amortization, income taxes and other noncash items. Although the amounts related to our unconsolidated affiliates are included in the calculation of adjusted EBITDA, such inclusion should not be understood to imply that we have control over the operations and resulting revenues, expenses or cash flows of such unconsolidated affiliates.
28
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 | Nine Months Ended | Three Months | Nine Months | ||||||||||||||||||||||||||
| Sept. 30, | Sept. 30, | 2024 vs. 2023 | 2024 vs. 2023 | ||||||||||||||||||||||||||
| Financial Results | 2024 | 2023 | 2024 | 2023 | $ Increase (Decrease) | $ Increase (Decrease) | |||||||||||||||||||||||
|
(
Millions of dollars, except per share amounts
)
|
|||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||
| Commodity sales | $ | 4,083 | $ | 3,760 | $ | 12,005 | $ | 11,287 | 323 | 718 | |||||||||||||||||||
| Services | 940 | 429 | 2,693 | 1,155 | 511 | 1,538 | |||||||||||||||||||||||
| Total revenues | 5,023 | 4,189 | 14,698 | 12,442 | 834 | 2,256 | |||||||||||||||||||||||
| Cost of sales and fuel (exclusive of items shown separately below) | 3,027 | 2,799 | 8,815 | 8,628 | 228 | 187 | |||||||||||||||||||||||
| Operating costs | 582 | 352 | 1,720 | 981 | 230 | 739 | |||||||||||||||||||||||
| Depreciation and amortization | 274 | 177 | 790 | 509 | 97 | 281 | |||||||||||||||||||||||
| Transaction costs | 10 | 123 | 17 | 133 | (113) | (116) | |||||||||||||||||||||||
| Other operating (income) expense, net | 2 | (1) | (65) | (782) | (3) | (717) | |||||||||||||||||||||||
| Operating income | $ | 1,128 | $ | 739 | $ | 3,421 | $ | 2,973 | 389 | 448 | |||||||||||||||||||
| Equity in net earnings from investments | $ | 92 | $ | 49 | $ | 256 | $ | 132 | 43 | 124 | |||||||||||||||||||
| Interest expense, net of capitalized interest | $ | (325) | $ | (215) | $ | (923) | $ | (561) | 110 | 362 | |||||||||||||||||||
| Net income | $ | 693 | $ | 454 | $ | 2,112 | $ | 1,971 | 239 | 141 | |||||||||||||||||||
| Diluted EPS | $ | 1.18 | $ | 0.99 | $ | 3.60 | $ | 4.36 | 0.19 | (0.76) | |||||||||||||||||||
| Adjusted EBITDA (a) | $ | 1,545 | $ | 1,015 | $ | 4,610 | $ | 3,729 | 530 | 881 | |||||||||||||||||||
| Capital expenditures | $ | 468 | $ | 398 | $ | 1,459 | $ | 992 | 70 | 467 | |||||||||||||||||||
(a) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $14 million and $40 million of adjusted EBITDA for the three and nine months ended Sept. 30, 2023, respectively.
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 $389 million for the three months ended Sept. 30, 2024, compared with the same period in 2023, primarily as a result of the following:
•
Natural Gas Gathering and Processing
- a decrease of $9 million due primarily to lower realized NGL prices, net of hedging, and higher operating costs, offset partially by higher volumes in the Rocky Mountain region;
and
•
Natural Gas Liquids
- a decrease of $6 million due primarily to lower earnings on sales of Purity NGLs held in inventory, offset partially by higher exchange services;
offset by
•
Natural Gas Pipelines
- an
increase of $21 million due primarily to higher transportation services;
•
Refined Products and Crude
- contributed
$267 million
to operating income
for the three months ended Sept. 30, 2024, due to the impact of the Magellan Acquisition;
and
•
Consolidated Transaction Costs
- a decrease of $113 million due primarily to transaction costs related to the Magellan Acquisition in 2023.
Operating income increased $448 million for the nine months ended Sept. 30, 2024, compared with the same period in 2023, primarily as a result of the following:
•
Natural Gas Gathering and Processing
- an increase of $57 million due primarily to higher volumes in the Rocky Mountain region and the sale of certain Kansas assets in 2024, offset partially by lower realized NGL prices, net of hedging, and higher operating costs;
offset by
29
•
Natural Gas Liquids
- a decrease of $628 million due primarily to an insurance settlement gain in 2023 related to the Medford incident and higher operating costs, offset partially by an increase in exchange services due primarily to higher volumes in the Rocky Mountain region;
offset by
•
Natural Gas Pipelines
- an
increase of $35 million due primarily to higher transportation services, offset partially by higher operating costs;
•
Refined Products and Crude
- contributed
$867 million
to operating income
for the nine months ended Sept. 30, 2024, due to the impact of the Magellan Acquisition;
and
•
Consolidated Transaction Costs
- a decrease of $116 million due primarily to transaction costs related to the Magellan Acquisition in 2023.
Net income increased for the three and nine months ended Sept. 30, 2024, compared with the same periods in 2023, due primarily to the items discussed above and higher equity in net earnings from investments, offset partially by higher interest expense due to higher debt balances resulting from the August 2023 $5.25 billion notes offering, the September 2024 $7.0 billion notes offering and the acquired debt balances from the Magellan Acquisition in 2023.
Diluted EPS increased for the three months ended Sept. 30, 2024, compared with the same period in 2023, due primarily to the items discussed above. Diluted EPS decreased for the nine months ended Sept. 30, 2024, compared with the same period in 2023, due primarily to the impact of the insurance settlement gain in 2023 related to the Medford incident
.
Capital expenditures increased for the three and nine months ended Sept. 30, 2024, compared with the same periods in 2023, due primarily to our capital projects. Please refer to the “Recent Developments” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report for additional information on our capital projects.
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
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 | Nine Months Ended | Three Months | Nine Months | ||||||||||||||||||||||||||
| Sept. 30, | Sept. 30, | 2024 vs. 2023 | 2024 vs. 2023 | ||||||||||||||||||||||||||
| Financial Results | 2024 | 2023 | 2024 | 2023 | $ Increase (Decrease) | $ Increase (Decrease) | |||||||||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||||||||||||||
| NGL and condensate sales | $ | 648 | $ | 641 | $ | 1,912 | $ | 1,835 | 7 | 77 | |||||||||||||||||||
| Residue natural gas sales | 219 | 279 | 732 | 1,066 | (60) | (334) | |||||||||||||||||||||||
|
Gathering, compression, dehydration
and processing fees and other revenue |
38 | 45 | 117 | 131 | (7) | (14) | |||||||||||||||||||||||
|
Cost of sales and fuel (exclusive of
depreciation and operating costs) |
(464) | (527) | (1,479) | (1,787) | (63) | (308) | |||||||||||||||||||||||
|
Operating costs, excluding noncash
compensation adjustments |
(122) | (114) | (349) | (326) | 8 | 23 | |||||||||||||||||||||||
| Adjusted EBITDA from unconsolidated affiliates (a) | — | — | 3 | 2 | — | 1 | |||||||||||||||||||||||
| Other | (1) | (1) | 59 | — | — | 59 | |||||||||||||||||||||||
| Adjusted EBITDA (a) | $ | 318 | $ | 323 | $ | 995 | $ | 921 | (5) | 74 | |||||||||||||||||||
| Capital expenditures | $ | 102 | $ | 126 | $ | 319 | $ | 308 | (24) | 11 | |||||||||||||||||||
(a) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. As a result of this change, adjusted EBITDA for the three and nine months ended Sept. 30, 2023, remained relatively unchanged.
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.
30
Adjusted EBITDA decreased $5 million for the three months ended Sept. 30, 2024, compared with the same period in 2023, primarily as a result of the following:
•
a decrease of $8 million due primarily to lower realized NGL prices, net of hedging, offset partially by higher average fee rates;
•
an increase of $8 million in operating costs due primarily to higher materials and supplies expenses and outside services due primarily to the growth of our operations;
and
•
a decrease of $4 million due to the impact of the sale of certain Kansas assets in the second quarter of 2024;
offset by
•
an increase of $17 million from higher volumes due primarily to increased production in the Rocky Mountain region.
Adjusted EBITDA increased $74 million for the nine months ended Sept. 30, 2024, compared with the same period in 2023, primarily as a result of the following:
•
an increase of $81 million from higher volumes due primarily to increased production in the Rocky Mountain region;
and
•
an increase of $49 million from the sale of certain Kansas assets in 2024;
offset by
•
a decrease of $30 million due primarily to lower realized NGL prices, net of hedging, offset partially by higher average fee rates and higher realized condensate prices, net of hedging;
and
•
an increase of $23 million in operating costs due primarily to higher outside services, employee-related costs and materials and supplies expenses due primarily to the growth of our operations.
Changes in capital expenditures for the three and nine months ended Sept. 30, 2024, compared with the same periods in 2023, relate to the timing of routine capital projects.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| Sept. 30, | Sept. 30, | |||||||||||||||||||
| Operating Information (a) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||
|
Natural gas processed (
BBtu/d
) (b)
|
3,236 | 3,085 | 3,078 | 2,935 | ||||||||||||||||
|
Average fee rate (
$/MMBtu
)
|
$ | 1.20 | $ | 1.17 | $ | 1.21 | $ | 1.17 | ||||||||||||
(a) - Includes volumes for consolidated entities only.
(b) - Includes volumes we processed at company-owned and third-party facilities.
Our natural gas processed volu
mes
increased f
or the
three and nine months ended Sept. 30, 2024,
compared with the same periods in 2023, due primarily to
increased production in the Rocky Mountain region.
Our average f
ee ra
te increased
for the
three and nine months ended Sept. 30, 2024, com
pared with the same periods in 2023, due primarily to
inflation-based escalators in our contracts.
Commodity Price Risk
- Our Natural Gas Gathering and Processing segment is exposed to commodity price risk as a result of retaining a portion of the commodity sales proceeds associated with our fee with POP contracts. We have hedged approximately 70% of our forecasted equity volumes for our Natural Gas Gathering and Processing segment for the remainder 2024.
31
Natural Gas Liquids
During the nine months ended Sept. 30, 2024, we connected one third-party natural gas processing plant in the Permian Basin. In addition, two third-party natural gas processing plants connected to our system were expanded, one in the Permian Basin and one in the Mid-Continent region.
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 | Nine Months Ended | Three Months | Nine Months | |||||||||||||||||||||||||||||
| Sept. 30, | Sept. 30, | 2024 vs. 2023 | 2024 vs. 2023 | |||||||||||||||||||||||||||||
| Financial Results | 2024 | 2023 | 2024 | 2023 | $ Increase (Decrease) | $ Increase (Decrease) | ||||||||||||||||||||||||||
| (Millions of dollars) | ||||||||||||||||||||||||||||||||
| NGL and condensate sales | $ | 3,496 | $ | 3,432 | $ | 10,104 | $ | 10,103 | 64 | 1 | ||||||||||||||||||||||
| Exchange service and other revenues | 133 | 154 | 400 | 423 | (21) | (23) | ||||||||||||||||||||||||||
| Transportation and storage revenues | 50 | 48 | 141 | 143 | 2 | (2) | ||||||||||||||||||||||||||
|
Cost of sales and fuel (exclusive of
depreciation and operating costs) |
(2,906) | (2,875) | (8,352) | (8,597) | 31 | (245) | ||||||||||||||||||||||||||
|
Operating costs, excluding noncash
compensation adjustments |
(172) | (161) | (519) | (461) | 11 | 58 | ||||||||||||||||||||||||||
|
Adjusted EBITDA from unconsolidated
affiliates (a) |
26 | 19 | 70 | 46 | 7 | 24 | ||||||||||||||||||||||||||
| Other | (3) | (1) | 3 | 775 | (2) | (772) | ||||||||||||||||||||||||||
| Adjusted EBITDA (a) | $ | 624 | $ | 616 | $ | 1,847 | $ | 2,432 | 8 | (585) | ||||||||||||||||||||||
| Capital expenditures | $ | 247 | $ | 189 | $ | 785 | $ | 495 | 58 | 290 | ||||||||||||||||||||||
(a) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $
2
million and $
7
million of adjusted EBITDA for the three and nine months ended Sept. 30, 2023, respectively.
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 $8 million for the three months ended Sept. 30, 2024, compared with the same period in 2023, primarily as a result of the following:
•
an increase of $36 million in exchange services due primarily to higher volumes and higher average fee rates in the Rocky Mountain region, offset partially by lower volumes in the Mid-Continent region, primarily ethane, and higher transportation costs;
•
an increase of $18 million related to the Medford incident due to lower third-party fractionation costs in the current quarter;
and
•
an increase of $7 million in adjusted EBITDA from unconsolidated affiliates due primarily to higher volumes delivered to the Overland Pass Pipeline;
offset by
•
a decrease of $45 million in optimization and marketing due primarily to lower earnings on sales of Purity NGLs held in inventory. We expect an earnings benefit on the forward sales of inventory over the next two quarters;
and
•
an increase of $11 million in operating costs due primarily to higher outside services and higher employee-related costs due to the growth of our operations.
Adjusted EBITDA decreased $585 million for the nine months ended Sept. 30, 2024, compared with the same period in 2023, primarily as a result of the following:
•
a decrease of $716 million related to the Medford incident, due primarily to an insurance settlement gain in 2023 of $779 million, offset partially by $63 million of lower third-party fractionation costs in the current year;
•
an increase of $58 million in operating costs due primarily to planned asset maintenance and higher employee-related costs due to the growth of our operations;
and
•
a decrease of $43 million in optimization and marketing due primarily to lower earnings on sales of Purity NGLs held in inventory. We expect an earnings benefit on forward sales of inventory over the next two quarters;
offset by
•
an increase of $200 million in exchange services due primarily to higher volumes in the Rocky Mountain region and higher average fee rates, offset partially by lower volumes in the Gulf Coast and Mid-Continent regions, and higher transportation costs;
and
32
•
an increase of $24 million in adjusted EBITDA from unconsolidated affiliates due primarily to higher volumes delivered to the Overland Pass Pipeline.
Capital expenditures increased for the three and nine months ended Sept. 30, 2024, compared with the same periods in 2023, due primarily to capital projects, which includes our MB-6 fractionator and pipeline expansion projects.
| Three Months Ended | Nine Months Ended | |||||||||||||
| Sept. 30, | Sept. 30, | |||||||||||||
| Operating Information | 2024 | 2023 | 2024 | 2023 | ||||||||||
|
Raw feed throughput (
MBbl/d
) (a)
|
1,324 | 1,413 | 1,310 | 1,357 | ||||||||||
|
Average Conway-to-Mont Belvieu OPIS price differential - ethane in ethane/propane mix (
$/gallon
)
|
$ | (0.01) | $ | 0.08 | $ | 0.01 | $ | 0.04 | ||||||
(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.
While earnings increased, volumes decreased for the three and nine months ended Sept. 30, 2024, compared with the same periods in 2023, due primarily to a contract expiration and low-margin short-term fractionation contracts in the prior year, offset partially by increased production in the Rocky Mountain region at higher fee rates. The three months ended Sept. 30, 2024, was also impacted by lower ethane volumes in the Mid-Continent region.
Natural Gas Pipelines
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 | Nine Months Ended | Three Months | Nine Months | ||||||||||||||||||||||||||
| Sept. 30, | Sept. 30, | 2024 vs. 2023 | 2024 vs. 2023 | ||||||||||||||||||||||||||
| Financial Results | 2024 | 2023 | 2024 | 2023 | $ Increase (Decrease) | $ Increase (Decrease) | |||||||||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||||||||||||||
| Transportation revenues | $ | 131 | $ | 106 | $ | 372 | $ | 315 | 25 | 57 | |||||||||||||||||||
| Storage revenues | 40 | 37 | 119 | 119 | 3 | — | |||||||||||||||||||||||
| Residue natural gas sales and other revenues | — | 3 | 28 | 29 | (3) | (1) | |||||||||||||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | (1) | (2) | (18) | (17) | (1) | 1 | |||||||||||||||||||||||
| Operating costs, excluding noncash compensation adjustments | (50) | (49) | (151) | (140) | 1 | 11 | |||||||||||||||||||||||
| Adjusted EBITDA from unconsolidated affiliates (a) | 45 | 40 | 133 | 120 | 5 | 13 | |||||||||||||||||||||||
| Other | 1 | 1 | — | 1 | — | (1) | |||||||||||||||||||||||
| Adjusted EBITDA (a) | $ | 166 | $ | 136 | $ | 483 | $ | 427 | 30 | 56 | |||||||||||||||||||
| Capital expenditures | $ | 56 | $ | 70 | $ | 187 | $ | 155 | (14) | 32 | |||||||||||||||||||
(a) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $11 million and $31 million of adjusted EBITDA for the three and nine months ended Sept. 30, 2023, respectively.
Adjusted EBITDA increased $30 million for the three months ended Sept. 30, 2024, compared with the same period in 2023, primarily as a result of an increase of $25 million in transportation services due primarily to higher firm and interruptible rates.
Adjusted EBITDA increased $56 million for the nine months ended Sept. 30, 2024, compared with the same period in 2023, primarily as a result of the following:
•
an increase of $57 million in transportation services due primarily to higher firm and interruptible rates;
and
•
an increase of $13 million in adjusted EBITDA from unconsolidated affiliates due primarily to increased volumes on Northern Border;
offset by
•
an increase of $11 million in operating costs due primarily to planned asset maintenance and employee-related costs.
33
Capital expenditures decreased for the three months ended Sept. 30, 2024, compared with the same period in 2023, due primarily to completion of growth projects. Capital expenditures increased for the nine months ended Sept. 30, 2024, compared with the same period in 2023, due primarily to our project to reactivate previously idled storage in Texas.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| Sept. 30, | Sept. 30, | |||||||||||||||||||
| Operating Information (a) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||
|
Natural gas transportation capacity contracted (
MDth/d
)
|
8,231 | 7,704 | 8,103 | 7,684 | ||||||||||||||||
| Transportation capacity contracted | 97 | % | 96 | % | 97 | % | 95 | % | ||||||||||||
(a) - Includes volumes for consolidated entities only.
Natural gas transportation capacity contracted increased for the three and nine months ended Sept. 30, 2024, compared to the same periods in 2023, due primarily to the completion of expansion projects on our assets.
In July 2023, Viking filed a proposed increase in rates pursuant to Section 4 of the Natural Gas Act with the FERC. In February 2024, Viking reached a settlement with the participants in the Section 4 rate case, which was approved by the FERC in July 2024, resulting in an increase in rates for Viking.
Refined Products and Crude
Selected Financial Results and Operating Information
- The following tables set forth certain selected financial results and operating information for our Refined Products and Crude segment for the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||
| Sept. 30, | Sept. 30, | ||||||||||
| Financial Results | 2024 | 2024 | |||||||||
|
(
Millions of dollars
)
|
|||||||||||
| Product sales | $ | 407 | $ | 1,250 | |||||||
| Transportation revenues | 383 | 1,083 | |||||||||
|
Storage, terminals and other revenues
|
173 | 488 | |||||||||
|
Cost of sales and fuel (exclusive of depreciation and operating costs)
|
(352) | (1,017) | |||||||||
|
Operating costs, excluding noncash compensation adjustments
|
(207) | (626) | |||||||||
|
Adjusted EBITDA from unconsolidated affiliates
|
41 | 117 | |||||||||
| Other | (4) | (6) | |||||||||
| Adjusted EBITDA | $ | 441 | $ | 1,289 | |||||||
| Capital expenditures | $ | 45 | $ | 120 | |||||||
Financial results and operating information for our Refined Products and Crude segment for the period subsequent to the closing of the Magellan Acquisition in 2023 were not material.
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.
| Three Months Ended | Nine Months Ended | ||||||||||
| Sept. 30, | Sept. 30, | ||||||||||
|
Operating Information (a)
|
2024 | 2024 | |||||||||
|
Refined Products volume shipped (
MBbl/d
)
|
1,580 | 1,509 | |||||||||
|
Crude oil volume shipped (
MBbl/d
)
|
816 | 765 | |||||||||
34
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 | Nine Months Ended | |||||||||||||||||||||||||
| Sept. 30, | Sept. 30, | |||||||||||||||||||||||||
| (Unaudited) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Reconciliation of net income to adjusted EBITDA |
(
Millions of dollars)
|
|||||||||||||||||||||||||
| Net income | $ | 693 | $ | 454 | $ | 2,112 | $ | 1,971 | ||||||||||||||||||
| Interest expense, net of capitalized interest | 325 | 215 | 923 | 561 | ||||||||||||||||||||||
| Depreciation and amortization | 274 | 177 | 790 | 509 | ||||||||||||||||||||||
| Income taxes | 219 | 141 | 670 | 616 | ||||||||||||||||||||||
| Adjusted EBITDA from unconsolidated affiliates (b) | 112 | 63 | 323 | 172 | ||||||||||||||||||||||
| Equity in net earnings from investments (b) | (92) | (49) | (256) | (132) | ||||||||||||||||||||||
| Noncash compensation expense and other | 14 | 14 | 48 | 32 | ||||||||||||||||||||||
| Adjusted EBITDA (a)(b)(c) | $ | 1,545 | $ | 1,015 | $ | 4,610 | $ | 3,729 | ||||||||||||||||||
| Reconciliation of segment adjusted EBITDA to adjusted EBITDA | ||||||||||||||||||||||||||
| Segment adjusted EBITDA: | ||||||||||||||||||||||||||
| Natural Gas Gathering and Processing | $ | 318 | $ | 323 | $ | 995 | $ | 921 | ||||||||||||||||||
| Natural Gas Liquids (a) | 624 | 616 | 1,847 | 2,432 | ||||||||||||||||||||||
| Natural Gas Pipelines | 166 | 136 | 483 | 427 | ||||||||||||||||||||||
| Refined Products and Crude | 441 | 41 | 1,289 | 41 | ||||||||||||||||||||||
| Other (c) | (4) | (101) | (4) | (92) | ||||||||||||||||||||||
| Adjusted EBITDA (a)(b)(c) | $ | 1,545 | $ | 1,015 | $ | 4,610 | $ | 3,729 | ||||||||||||||||||
(a) - The nine months ended Sept. 30, 2023, includes $667 million related to the Medford incident, including a settlement gain of $779 million, offset partially by $112 million of third-party fractionation costs.
(b) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $14 million and $40 million of adjusted EBITDA for the three and nine months ended Sept. 30, 2023, respectively.
(c) - Includes transaction costs related to the Magellan Acquisition of $123 million, offset partially by interest income of $26 million, for the three months ended Sept. 30, 2023, and transaction costs related to the Magellan Acquisition of $133 million, offset partially by interest income of $42 million, for the nine months ended Sept. 30, 2023.
CONTINGENCIES
See Note J of the Notes to Consolidated Financial Statements in this Quarterly Report for discussion of regulatory and legal 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.
We expect our sources of cash inflows to provide sufficient resources to finance our operations, acquisitions, capital expenditures, quarterly cash dividends, maturities of long-term debt, share repurchases and contributions to unconsolidated affiliates. We believe we have sufficient liquidity due to our $2.5 Billion Credit Agreement, which expires in June 2028, and access to $1.0 billion available through our “at-the-market” equity program. As of Oct. 21, 2024, no shares have been issued through our “at-the-market” equity program.
Cash Management
- At Sept. 30, 2024, we had $6.5 billion of cash and cash equivalents, including cash held to fund the EnLink Controlling Interest Acquisition and the Medallion Acquisition. 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
35
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 -
ONEOK, ONEOK Partners, the Intermediate Partnership and Magellan have cross guarantees in place for ONEOK’s and ONEOK Partners’ indebtedness. The guarantees in place for our and ONEOK Partners’ indebtedness are full, irrevocable, unconditional and absolute joint and several guarantees to the holders of each series of outstanding securities. Liabilities under the guarantees rank equally in right of payment with all existing and future senior unsecured indebtedness. The Intermediate Partnership holds all of ONEOK Partners’ interests and equity in its subsidiaries, which are nonguarantors, and substantially all the assets and operations reside with nonguarantor operating subsidiaries. Magellan holds interests in its subsidiaries, which are nonguarantors, and substantially all the assets and operations reside with nonguarantor operating subsidiaries. Therefore, 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 issuers and parent guarantor, excluding our ownership of all the interests in ONEOK Partners and Magellan, 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 H of the Notes to Consolidated Financial Statements in our Annual Report and Note F 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 unconsolidated affiliates, proceeds from our commercial paper program and our $2.5 Billion Credit Agreement. As of Sept. 30, 2024, we had no borrowings under our $2.5 Billion Credit Agreement, and we are in compliance with all covenants.
As of Sept. 30, 2024, we had a working capital (defined as current assets less current liabilities) deficit of $681 million, due primarily to current maturities of long-term debt. Generally, our 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. We may have working capital deficits in future periods as our long-term debt becomes current. We do not expect a working capital deficit of this nature to have a material adverse impact to our cash flows or operations.
For additional information on our $2.5 Billion Credit Agreement, see Note F 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.
We may, at any time, seek to retire or purchase our or ONEOK Partners’ outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market repurchases, privately negotiated transactions or otherwise. Such repurchases and exchanges, if any, will be on such terms and prices as we may determine, and will depend on prevailing market conditions, or liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Debt Issuances
- In September 2024, we completed an underwritten public offering of $7.0 billion senior unsecured notes consisting of $1.25 billion, 4.25% senior notes due 2027; $600 million, 4.4% senior notes due 2029; $1.25 billion, 4.75% senior notes due 2031; $1.6 billion, 5.05% senior notes due 2034; $1.5 billion, 5.7% senior notes due 2054; and $800 million, 5.85% senior notes due 2064. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $6.9 billion. In October 2024, we used a portion of the net proceeds from this offering to fund the EnLink Controlling Interest Acquisition and related fees and expenses. We intend to use the remaining net proceeds to fund the Medallion Acquisition and related fees and expenses, purchase additional interests in a Medallion joint venture owned by a separate third party and for general corporate purposes, which may include the repayment of outstanding indebtedness, including the repurchase or redemption of existing notes.
Debt Repayments
- In September 2024, we repaid the remaining $484 million of our $500 million, 2.75% senior notes at maturity with cash on hand.
Share Repurchase Program
- In January 2024, our Board of Directors authorized a share repurchase program to buy up to $2.0 billion of our outstanding common stock and targets the program to be largely utilized over the next four years. We expect shares to be acquired from time to time in open-market transactions or through privately negotiated transactions at our
36
discretion, subject to market conditions and other factors. We expect any purchases to be funded by cash on hand, operating cash flows and short-term borrowings. The program will terminate upon completion of the repurchase of $2.0 billion of common stock or on Jan. 1, 2029, whichever occurs first. As of Oct. 21, 2024, no shares have been repurchased under the program.
Capital Expenditures
- We proactively monitor lead times on materials and equipment used in constructing capital projects, and we enter into procurement agreements for long-lead items for potential projects to plan for future growth. Our capital expenditures are financed typically through operating cash flows and short- and long-term debt.
Capital expenditures, excluding the equity portion of AFUDC, were $1.5 billion and $992 million for the nine months ended Sept. 30, 2024 and 2023, respectively.
We expect total capital expenditures, excluding AFUDC and capitalized interest, of $1.75-$1.95 billion in 2024. This range excludes EnLink’s capital expenditure expectations.
Credit Ratings
- Our long-term debt credit ratings as of Oct. 21, 2024, 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. 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 2028. 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, May and August 2024, we paid a common stock dividend of 99 cents per share ($3.96 per share on an annualized basis), an increase of 3.7% compared with the same quarter in the prior year. A common stock dividend of 99 cents per share was declared in October 2024, for the shareholders of record at the close of business on Nov. 1, 2024, payable Nov. 14, 2024.
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, May and August 2024. Dividends totaling $0.3 million were declared in October 2024, for the Series E Preferred Stock and are payable Nov. 14, 2024.
For the nine months ended Sept. 30, 2024, our cash flows from operations exceeded dividends paid by $1.5 billion. 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
37
funds used during construction, gain or loss on sale of assets, net undistributed earnings from unconsolidated affiliates, 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 | |||||||||||||||||
| Nine Months Ended |
2024 vs. 2023
|
||||||||||||||||
| Sept. 30, |
$ Increase
(Decrease) in Cash |
||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
|
(
Millions of dollars
)
|
|||||||||||||||||
| Total cash provided by (used in): | |||||||||||||||||
| Operating activities | $ | 3,277 | $ | 2,913 | $ | 364 | |||||||||||
| Investing activities | (1,832) | (5,759) | 3,927 | ||||||||||||||
| Financing activities | 4,681 | 2,910 | 1,771 | ||||||||||||||
| Change in cash and cash equivalents | 6,126 | 64 | 6,062 | ||||||||||||||
| Cash and cash equivalents at beginning of period | 338 | 220 | 118 | ||||||||||||||
| Cash and cash equivalents at end of period (a) | $ | 6,464 | $ | 284 | $ | 6,180 | |||||||||||
(a) - Includes cash held for acquisitions, which is included within other assets on our Consolidated Balance Sheet as of Sept. 30, 2024.
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 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 nine months ended Sept. 30, 2024, increased $627 million compared with the same period in 2023, due primarily to the impact of the Magellan Acquisition in our Refined Products and Crude segment, as discussed in “Financial Results and Operating Information,” offset partially by insurance proceeds received from the Medford settlement in 2023.
The changes in operating assets and liabilities decreased operating cash flows $233 million for the nine months ended Sept. 30, 2024, compared with an increase of $30 million for the same period in 2023. This change is due primarily to changes in accounts payable, which vary from period to period with changes in commodity prices and from the timing of payments to vendors, suppliers and other third parties and changes in our legal liability as discussed in Note J of the Notes to Consolidated Financial Statements in this Quarterly Report. These changes were offset partially by changes in accounts receivable resulting from the receipts of cash from counterparties and from inventory, both of which vary from period to period, and with changes in commodity prices.
Investing Cash Flows
- Cash used in investing activities for the nine months ended Sept. 30, 2024, decreased $3.9 billion, compared with the same period in 2023, due primarily to the $5.0 billion of cash paid for the Magellan Acquisition, net of cash received in 2023, offset partially by an increase in capital expenditures related to our capital projects in 2024, and due to insurance proceeds received from the Medford settlement in 2023.
Financing Cash Flows
- Cash provided by financing activities for the nine months ended Sept. 30, 2024, increased $1.8 billion, compared with the same period in 2023, due primarily to the increase in issuance of senior unsecured notes associated with acquisitions and the decrease in repayment of long-term debt in 2024, offset partially by increased dividends paid in 2024.
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.
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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 Estimates,” in our Annual Report.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements in reliance on the safe harbor protections of the Securities Act of 1933, as amended, and the Exchange Act, which involve substantial risk and uncertainties. Such forward-looking statements include, but are not limited to, statements relating to our anticipated financial performance, liquidity, management’s plans and objectives for our future capital projects and other future operations, our business prospects, the outcome of regulatory and legal proceedings, market conditions, potential or pending strategic transactions, including the Medallion Acquisition, the timing thereof and our ability to achieve the intended and projected operational, financial and strategic benefits from any such transactions, our intent to pursue the Potential EnLink Transaction and the timing thereof, and other matters. 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 paragraphs, the information concerning possible or assumed future results of our operations and other statements contained in this Quarterly Report identified by words such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expect,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “might,” “outlook,” “plans,” “potential,” “projects,” “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 on drilling and production by factors beyond our control, including the demand for natural gas, NGLs, Refined Products and crude oil; producers’ desire and ability to drill and obtain necessary permits; regulatory compliance; reserve performance; and capacity constraints and/or shut downs on the pipelines that transport crude oil, natural gas, NGLs, and Refined Products from producing areas and our facilities;
•
the impact of unfavorable economic and market conditions, 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 of the volatility of natural gas, NGL, Refined Products and crude oil prices on our earnings and cash flows, which is impacted by a variety of factors beyond our control, including international terrorism and conflicts and geopolitical instability;
39
•
our dependence on producers, gathering systems, refineries and pipelines owned and operated by others and the impact of any closures, interruptions or reduced activity levels at these facilities;
•
the impact of increased attention to ESG issues, including climate change, and risks associated with the physical and financial impacts of climate change;
•
risks associated with operational hazards and unforeseen interruptions at our operations;
•
the inability of insurance proceeds to cover all liabilities or incurred costs and losses, or lost earnings, resulting from a loss;
•
the risk of increased costs for insurance premiums or less favorable coverage;
•
demand for our services and products in the proximity of our facilities;
•
risks associated with our ability to hedge against commodity price risks or interest rate risks;
•
a breach of information security, including a cybersecurity attack, or failure of one or more key information technology or operational systems;
•
exposure to construction risk and supply risks if adequate natural gas, NGL, Refined Products and crude oil supply is unavailable upon completion of facilities;
•
the accuracy of estimates of hydrocarbon reserves, which could result in lower than anticipated volumes;
•
our lack of ownership over all of the land on which our property is located and certain of our facilities and equipment;
•
the impact of changes in estimation, type of commodity and other factors on our measurement adjustments;
•
excess capacity on our pipelines, processing, fractionation, terminal and storage assets;
•
risks associated with the period of time our assets have been in service;
•
our partial reliance on cash distributions from our unconsolidated affiliates on our operating cash flows;
•
our ability to cause our joint ventures to take or not take certain actions unless some or all of our joint-venture participants agree;
•
our reliance on others to operate certain joint-venture assets and to provide other services;
•
increased regulation of exploration and production activities, including hydraulic fracturing, well setbacks and disposal of wastewater;
•
impacts of regulatory oversight and potential penalties on our business;
•
risks associated with the rate regulation, challenges or changes, which may reduce the amount of cash we generate;
•
the impact of our gas liquids blending activities, which subject us to federal regulations that govern renewable fuel requirements in the U.S.;
•
incurrence of significant costs to comply with the regulation of greenhouse gas emissions;
•
the impact of federal and state laws and regulations relating to the protection of the environment, public health and safety on our operations, as well as increased litigation and activism challenging oil and gas development as well as changes to and/or increased penalties from the enforcement of laws, regulations and policies;
•
the impact of unforeseen changes in interest rates, debt and equity markets and other external factors over which we have no control;
•
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;
•
an event of default may require us to offer to repurchase certain of our or ONEOK Partners’ senior notes or may impair our ability to access capital;
•
the right to receive payments on our outstanding debt securities and subsidiary guarantees is unsecured and effectively subordinated to any future secured indebtedness and any existing and future indebtedness of our subsidiaries that do not guarantee the senior notes;
•
use by a court of fraudulent conveyance to avoid or subordinate the cross guarantees of our or ONEOK Partners’ indebtedness;
•
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;
•
our ability to pay dividends;
•
our exposure to the credit risk of our customers or counterparties;
•
a shortage of skilled labor;
•
misconduct or other improper activities engaged in by our employees;
•
the impact of potential impairment charges;
•
the impact of the changing cost of providing pension and health care benefits, including postretirement health care benefits, to eligible employees and qualified retirees;
•
our ability to maintain an effective system of internal controls;
•
disruptions to our business due to acquisitions and other significant transactions, including the EnLink Controlling Interest Acquisition and the Medallion Acquisition;
40
•
the risk that our, EnLink’s and Medallion’s businesses will not be integrated successfully;
•
the risk that cost savings, synergies and growth from the EnLink Controlling Interest Acquisition and the Medallion Acquisition may not be fully realized or may take longer to realize than expected;
•
our ability to successfully negotiate a definitive agreement for and complete the Potential EnLink Transaction; and
•
the risk factors listed in the reports we have filed and may file with the SEC.
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.
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 Dec. 31, 2023, in Part II, Item 7A in our Annual Report.
See Note E 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 (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
-
There have been no changes in our internal control over financial reporting during the quarter ended Sept. 30, 2024, 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
We have elected to use a $1 million threshold for disclosing environmental proceedings.
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 risk factors set forth in Part I, Item 1A, Risk Factors, of our Annual Report that could affect us and our business. Except as set forth below, those risk factors have not materially changed.
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.
We may be unable to integrate the businesses of EnLink and Medallion successfully or realize the anticipated benefits of the EnLink Controlling Interest Acquisition and the Medallion Acquisition (collectively, the “Transactions”).
The success of the Transactions will depend, in part, on our ability to realize the anticipated benefits from combining the businesses of ONEOK, EnLink and Medallion. If the businesses are not successfully combined, the anticipated benefits of the Transactions may not be realized fully or at all or may take longer to realize than expected. In addition, the integration may
41
result in additional and unforeseen expenses and potential unknown liabilities, which could reduce the anticipated benefits of the Transactions. It is possible that the integration process could result in the loss of key employees, as well as the disruption of our ongoing businesses or inconsistencies in our standards, controls, procedures and policies. Any or all of those occurrences could affect adversely the combined company’s ability to maintain relationships with customers and employees after the Transactions or to achieve the anticipated benefits of the Transactions. Integration efforts between the three companies will also divert management attention and resources. These integration matters could have an adverse effect on us.
We may not be able to reach an agreement for the Potential EnLink Transaction or successfully consummate such transaction if an agreement is reached, and we are likely to incur significant transaction costs pursuing the Potential EnLink Transaction. Should we consummate the Potential EnLink Transaction, execution of the integration strategy will involve considerable risks and may not be successful.
In connection with the announcement of the EnLink Controlling Interest Acquisition, we announced our intention, subsequent to the EnLink Controlling Interest Acquisition, to pursue the acquisition of the publicly held EnLink Units in a tax-free transaction. However, there can be no assurances that we will be able to reach an agreement for the Potential EnLink Transaction on terms that are acceptable to us or that we will be able to successfully consummate the transaction should we enter into a definitive agreement related to the transaction. If we are unable to reach an agreement for the acquisition of the publicly held EnLink Units, EnLink will continue to operate as a separate company, which could have a material adverse effect on our ability to implement our growth strategy and, ultimately, our business, financial condition and results of operations. Pursuing the Potential EnLink Transaction is likely to require the incurrence of a number of significant, non-recurring costs, including diversion of management resources, associated with negotiating and completing such transaction, combining the operations of the companies and achieving desired synergies. Such costs and diversions of resources, many of which will be borne by us whether or not the Potential EnLink Transaction is completed, could have an adverse effect on our financial condition and operating results.
Following the EnLink Controlling Interest Acquisition, certain aspects of EnLink’s business and operations will be integrated with ours, but EnLink will continue to operate as a separate public company. If completed, following the Potential EnLink Transaction, it is anticipated that EnLink will cease to operate as a separate public company, at which point we can begin full integration with our business. This integration process is expected to be subject to some or all of the challenges discussed under the risk factor captioned “We may be unable to integrate the businesses of EnLink and Medallion successfully or realize the anticipated benefits of the Transactions,” many of which may be more complex as a result of having to fully integrate the EnLink business. Further, this integration process may pose additional difficulties inherent with fully integrating the EnLink business and the discontinuation of its operation as a separate public company. If we are unable to successfully execute our integration strategy, we may be unable to realize some or all of the anticipated benefits of the Potential EnLink Transaction which could materially and adversely affect our business, operating results and financial condition.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid Per Share
|
Total Number of Shares Purchased as Part of the Publicly Announced Program (a) |
Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
(
Millions of dollars
)
|
||||||||||||||||||||||
| July 1 - July 31, 2024 | — | $ | — | — | $ | 2,000 | ||||||||||||||||||||
|
Aug. 1 - Aug. 31, 2024
|
— | $ | — | — | $ | 2,000 | ||||||||||||||||||||
|
Sept. 1 - Sept. 30, 2024
|
— | $ | — | — | $ | 2,000 | ||||||||||||||||||||
|
Total
|
— | — | ||||||||||||||||||||||||
(a) - In January 2024, our Board of Directors authorized a share repurchase program to buy up to $2.0 billion of our outstanding common stock. The program will terminate upon completion of the repurchases, or on Jan. 1, 2029, whichever occurs first.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
Not applicable.
42
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:
43
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 and nine months ended Sept. 30, 2024 and 2023; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended Sept. 30, 2024
a
nd 2023; (iv) Consolidated Balance Sheets at Sept. 30, 2024, and Dec. 31, 2023; (v) Consolidated Statements of Cash Flows for the nine months ended Sept. 30, 2024 and 2023; (vi) Consolidated Statements of Changes in Equity for the three and nine months ended Sept. 30, 2024 and 2023; and (vii) Notes to Consolidated Financial Statements.
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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: Oct. 30, 2024
|
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) | ||||||||
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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