ONEOK Announces Higher Second-quarter 2018 Financial Results and Updates 2018 Financial Guidance

TULSA, Okla., July 31, 2018 /PRNewswire/ -- ONEOK, Inc. (NYSE: OKE) today announced higher second-quarter 2018 financial results, compared with the second quarter 2017, and updated 2018 financial guidance. Results primarily benefited from natural gas volume growth in the STACK and SCOOP areas and the Williston Basin, natural gas liquids (NGL) volume growth in the STACK and SCOOP areas and Permian Basin, and higher optimization and marketing activities in the natural gas liquids segment.

SUMMARY

• Second-quarter 2018 operating income and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 40 and 30 percent, respectively, compared with the second quarter 2017;
• Second-quarter 2018 net income attributable to ONEOK totaled $281.0 million, or 68 cents per diluted share;
• Second-quarter 2018 distributable cash flow (DCF) increased 37 percent compared with the second quarter 2017, providing a dividend coverage ratio of 1.39 times;
• Debt-to-EBITDA ratio on an annualized run-rate basis of 3.4 times as of June 30, 2018;
• Second-quarter 2018 natural gas volumes processed increased 19 percent, and NGL volumes gathered and fractionated each increased 12 percent, compared with the second quarter 2017; and
• ONEOK increases its 2018 net income guidance midpoint to $1,085 million from $1,055 million and its adjusted EBITDA guidance midpoint to $2,350 million from $2,315 million, and narrows its 2018 financial guidance ranges. Updated financial guidance is listed in the tables.

SECOND-QUARTER 2018 FINANCIAL HIGHLIGHTS

"ONEOK's second quarter natural gas and NGL volume growth continues to demonstrate the consistent long-term productivity of the basins in which our facilities safely and reliably operate," said Terry K. Spencer, ONEOK president and chief executive officer. "We continue to return value to our shareholders and have increased our dividend by 11 percent since July 2017.

"Our more than $4 billion of organic growth projects are progressing as planned, and we expect the West Texas LPG expansion in the Delaware Basin and our Sterling III pipeline expansion projects to be completed later this year," he added. "These projects, and others we've announced in the past year, will provide critical takeaway capacity for our customers in some of the country's most active basins."

SECOND-QUARTER 2018 FINANCIAL PERFORMANCE

ONEOK's operating income and adjusted EBITDA increased 40 and 30 percent, respectively, in the second quarter 2018, compared with the second quarter 2017. Higher results were driven primarily by natural gas and NGL volume growth and increased optimization and marketing activities due primarily to wider location price differentials.

Results were offset partially by higher operating costs associated with the growth of ONEOK's operations in the natural gas gathering and processing segment, higher employee-related costs in all three segments, and higher property taxes in the natural gas liquids segment. Operating income for the second quarter 2018 also was impacted by higher noncash share-based compensation expense associated with ONEOK's increased share price in 2018, and higher depreciation expense due to capital-growth projects placed in service, compared with the second quarter 2017.

EARNINGS PRESENTATION AND KEY STATISTICS:

Additional financial and operating information that will be discussed on the second-quarter 2018 conference call is accessible on ONEOK's website, www.oneok.com, or from the links below.

>View earnings presentation

>View earnings tables 

FINANCIAL HIGHLIGHTS:

• Declaring in July 2018 a quarterly dividend of 82.5 cents per share, or $3.30 per share on an annualized basis, an increase of 11 percent compared with July 2017;
• DCF in excess of dividends paid of $126.5 million, a 95 percent increase compared with the second quarter 2017;
• Debt-to-EBITDA ratio on an annualized run-rate basis of 3.4 times as of June 30, 2018;
• Having $15.3 million of cash and cash equivalents and $2.3 billion of borrowing capacity available under its $2.5 billion credit agreement, as of June 30, 2018;
• Completing in July 2018 a $1.25 billion public offering of senior notes, consisting of $800 million of 10-year senior notes at a coupon of 4.55 percent and $450 million of 30-year senior notes at a coupon of 5.20 percent, generating net proceeds of $1.23 billion; and
• Completing in July 2018 the acquisition of the remaining 20 percent interest in the West Texas LPG Pipeline Limited Partnership from Martin Midstream Partners L.P.

BUSINESS-SEGMENT RESULTS:

Key financial and operating statistics are listed in the tables.

Natural Gas Liquids Segment

The natural gas liquids segment's second-quarter 2018 adjusted EBITDA increased 29 percent, compared with the same period in 2017, due primarily to higher earnings from optimization and marketing activities, and increased volumes gathered in the Mid-Continent region, primarily in the STACK and SCOOP areas, and the Permian Basin. Second-quarter 2018 NGLs gathered and fractionated each increased 12 percent, compared with the same period in 2017.

The segment connected two third-party natural gas processing plants in the STACK and SCOOP areas to its system in the second quarter 2018.

Ethane volumes on ONEOK's system increased 60,000 barrels per day (bpd) in the second quarter 2018, compared with the same period in 2017. Ethane rejection levels on ONEOK's system averaged more than 140,000 bpd in the second quarter 2018, compared with more than 150,000 bpd in the second quarter 2017, despite an increase in overall NGL volumes. ONEOK expects ethane rejection levels across its system to continue to fluctuate during the second half of the year as petrochemical companies complete expansion projects and NGL exports increase.

The increase in second-quarter 2018 adjusted EBITDA, compared with the second quarter 2017, primarily reflects:

• A $48.7 million increase in optimization and marketing due primarily to wider location price differentials and the sale of purity NGL inventory previously held; and
• A $38.2 million increase in exchange services due to increased volumes, including higher ethane recovery in the Mid-Continent region, primarily in the STACK and SCOOP areas, and increased volumes in the Permian Basin, offset partially by the timing of earnings associated with higher unfractionated NGL inventory levels and lower volumes in the Barnett Shale; offset partially by
• A $6.1 million increase in operating costs due primarily to higher property taxes and higher employee-related costs.

The increase in adjusted EBITDA for the six-month 2018 period, compared with the same period last year, primarily reflects:

• An $81.6 million increase in exchange services due to increased volumes, including higher ethane recovery in the Mid-Continent region, primarily in the STACK and SCOOP areas, and increased volumes in the Williston and Permian basins, offset partially by the timing of earnings associated with higher unfractionated NGL inventory levels, lower volumes in the Barnett Shale and the impact of severe winter weather in the first quarter 2018;
• A $73.6 million increase in optimization and marketing due primarily to wider location price differentials and the sale of purity NGL inventory previously held; and
• A $4.2 million increase in equity in net earnings from investments due primarily to higher volumes delivered to the Overland Pass Pipeline; offset partially by
• A $12.2 million increase in operating costs due primarily to higher employee-related costs, the timing of routine maintenance projects and higher property taxes.

Natural Gas Gathering and Processing Segment

The natural gas gathering and processing segment's second-quarter 2018 adjusted EBITDA increased 30 percent, compared with the same period in 2017, primarily from higher volumes due to continued drilling activity across ONEOK's significant asset footprint and improved producer efficiencies.

Volume growth in the Williston Basin and STACK and SCOOP areas contributed to a 19 percent increase in natural gas volumes processed in the second quarter 2018, compared with the same period in 2017.

The segment also continues to benefit from higher fee-based earnings, with an average fee rate of 89 cents per Million British thermal units (MMBtu) in the second quarter 2018, compared with 87 cents per MMBtu in the second quarter 2017.

Second-quarter 2018 adjusted EBITDA increased, compared with the second quarter 2017, which primarily reflects:

• A $47.9 million increase due primarily to natural gas volume growth in the Williston Basin and the STACK and SCOOP areas, offset partially by natural production declines;
• An $8.2 million increase due to contract settlements; and
• A $4.9 million increase due primarily to higher realized NGL and condensate prices; offset partially by
• A $16.3 million increase in operating costs due primarily to the growth of ONEOK's operations and higher employee-related costs; and
• A $4.6 million decrease due primarily to lower equity in net earnings from ONEOK's Powder River Basin equity investments.

The increase in adjusted EBITDA for the six-month 2018 period, compared with the same period last year, primarily reflects:

• An $89.0 million increase due primarily to natural gas volume growth in the Williston Basin and the STACK and SCOOP areas, offset partially by natural production declines;
• An $8.2 million increase due to contract settlements; and
• A $6.3 million increase due primarily to higher realized NGL and condensate prices; offset partially by
• A $30.5 million increase in operating costs due primarily to the growth of ONEOK's operations and higher employee-related costs; and
• A $5.5 million decrease due primarily to lower equity in net earnings from ONEOK's Powder River Basin equity investments.

Natural Gas Pipelines Segment

The natural gas pipelines segment's adjusted EBITDA increased 6 percent in the second quarter 2018, compared with the same period in 2017, primarily due to increased interruptible transportation volumes.

In June 2018, the segment announced plans to expand its natural gas pipeline infrastructure to provide additional takeaway capacity in the Permian Basin and STACK and SCOOP areas by up to 1.7 billion cubic feet per day (Bcf/d).

The increase in adjusted EBITDA for the second quarter 2018, compared with the second quarter 2017, primarily reflects:

• A $6.7 million increase from higher transportation services due primarily to increased interruptible transportation volumes; offset partially by
• A $2.2 million increase in operating costs due primarily to higher employee-related costs.

The increase in adjusted EBITDA for the six-month 2018 period, compared with the same period last year, primarily reflects:

• An $11.5 million increase from higher transportation services due primarily to increased interruptible transportation volumes;
• A $5.9 million increase from natural gas storage services; and
• A $2.6 million increase from higher net retained fuel; offset partially by
• A $2.5 million increase in operating costs due primarily to higher employee-related costs.

CAPITAL-GROWTH ACTIVITIES:

Since June 2017, ONEOK has announced more than $4.3 billion of organic capital-growth projects to support increasing production across ONEOK's operating footprint. These projects are backed by a combination of long-term fee-based contracts, volume commitments or acreage dedications. The natural gas liquids and natural gas gathering and processing projects are expected to generate adjusted EBITDA multiples of four to six times.

Since June 2017, the natural gas liquids segment has announced approximately $3.7 billion of capital-growth projects, which include the following:

Since June 2017, the natural gas gathering and processing segment has announced approximately $600 million of capital-growth projects, which include the following:

In June 2018, the natural gas pipelines segment announced the following projects:

EARNINGS CONFERENCE CALL AND WEBCAST:

ONEOK executive management will conduct a conference call at 11 a.m. Eastern Daylight Time (10 a.m. Central Daylight Time) on Aug. 1, 2018. The call also will be carried live on ONEOK's website.

To participate in the telephone conference call, dial 877-260-1479, pass code 1138733, or log on to www.oneok.com.

If you are unable to participate in the conference call or the webcast, the replay will be available on ONEOK's website, www.oneok.com, for 30 days.  A recording will be available by phone for seven days.  The playback call may be accessed at 888-203-1112, pass code 1138733.

LINKS TO EARNINGS TABLES AND PRESENTATION:

Tables:
http://ir.oneok.com/~/media/Files/O/OneOK-IR/financial-reports/2018/q2-2018-earnings-results-financial-news.pdf

Presentation:
http://ir.oneok.com/~/media/Files/O/OneOK-IR/financial-reports/2018/q2-2018-earnings-results-presentation.pdf

NON-GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES) FINANCIAL MEASURES:

ONEOK has disclosed in this news release adjusted EBITDA, distributable cash flow, dividend coverage ratio and projected adjusted EBITDA multiples, which are non-GAAP financial metrics, used to measure the company's financial performance and are defined as follows:

• Adjusted EBITDA is defined as net income adjusted for interest expense, depreciation and amortization, noncash impairment charges, income taxes, noncash compensation expense, allowance for equity funds used during construction (equity AFUDC), and other noncash items;
• Distributable cash flow is defined as adjusted EBITDA, computed as described above, less interest expense, maintenance capital expenditures and equity earnings from investments, excluding noncash impairment charges, adjusted for cash distributions received from unconsolidated affiliates and certain other items;
• Dividend coverage ratio is defined as ONEOK's distributable cash flow to ONEOK shareholders divided by the dividends paid for the period; and
• Adjusted EBITDA multiples for the announced capital-growth projects reflect the expected adjusted EBITDA to be generated by the projects relative to the capital investment being made.

These non-GAAP financial measures described above are useful to investors because they, and similar measures, are used by many companies in the industry as a measure of financial performance and are commonly employed by financial analysts and others to evaluate ONEOK's financial performance and to compare ONEOK's financial performance with the performance of other companies within ONEOK's industry.  Adjusted EBITDA, distributable cash flow and dividend coverage ratio should not be considered in isolation or as a substitute for net income, earnings per share or any other measure of financial performance presented in accordance with GAAP.

These non-GAAP financial measures exclude some, but not all, items that affect net income.  Additionally, these calculations may not be comparable with similarly titled measures of other companies.  Reconciliations of net income to adjusted EBITDA, distributable cash flow and dividend coverage ratio are included in the tables. A reconciliation of estimated adjusted EBITDA multiples to GAAP net income is not provided because the GAAP net income generated by the projects is not available without unreasonable efforts.

ONEOK, Inc. (pronounced ONE-OAK) (NYSE: OKE) is a leading midstream service provider and owner of one of the nation's premier natural gas liquids (NGL) systems, connecting NGL supply in the Mid-Continent, Permian and Rocky Mountain regions with key market centers and an extensive network of natural gas gathering, processing, storage and transportation assets.

ONEOK is a FORTUNE 500 company and is included in the S&P 500.

For information about ONEOK, visit the website: www.oneok.com.

For the latest news about ONEOK, find us on LinkedIn, Facebook and Twitter.

Some of the statements contained and incorporated in this news release are forward-looking statements as defined under federal securities laws.  The forward-looking statements relate to ONEOK's anticipated financial performance (including projected operating income, net income, capital expenditures, cash flows and projected levels of dividends), liquidity, management's plans and objectives for ONEOK's future capital-growth projects and other future operations (including plans to construct additional natural gas and natural gas liquids pipelines and processing facilities and related cost estimates), ONEOK's business prospects, the outcome of regulatory and legal proceedings, market conditions and other matters.  ONEOK makes these forward-looking statements in reliance on the safe harbor protections provided under federal securities legislation and other applicable laws.  The following discussion is intended to identify important factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements.

Forward-looking statements include the items identified in the preceding paragraph, the information concerning possible or assumed future results of ONEOK's operations and other statements contained or incorporated in this news release identified by words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "should," "goal," "forecast," "guidance," "could," "may," "continue," "might," "potential," "scheduled" 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 ONEOK's 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 ONEOK's 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 ONEOK's actual results to differ materially from those contemplated in any forward-looking statement include, among others, the following:

• the effects of weather and other natural phenomena, including climate change, on ONEOK's operations, demand for ONEOK's services and energy prices;
• competition from other United States and foreign energy suppliers and transporters, as well as alternative forms of energy, including, but not limited to, solar power, wind power, geothermal energy and biofuels such as ethanol and biodiesel;
• the capital intensive nature of ONEOK's businesses;
• the profitability of assets or businesses acquired or constructed by us;
• ONEOK's ability to make cost-saving changes in operations;
• risks of marketing, trading and hedging activities, including the risks of changes in energy prices or the financial condition of ONEOK's counterparties;
• the uncertainty of estimates, including accruals and costs of environmental remediation;
• the timing and extent of changes in energy commodity prices;
• the effects of changes in governmental policies and regulatory actions, including changes with respect to income and other taxes, pipeline safety, environmental compliance, climate change initiatives and authorized rates of recovery of natural gas and natural gas transportation costs;
• the impact on drilling and production by factors beyond ONEOK's control, including the demand for natural gas and crude oil; producers' desire and ability to obtain necessary permits; reserve performance; and capacity constraints on the pipelines that transport crude oil, natural gas and NGLs from producing areas and ONEOK's facilities;
• difficulties or delays experienced by trucks, railroads or pipelines in delivering products to or from ONEOK's terminals or pipelines;
• changes in demand for the use of natural gas, NGLs and crude oil because of market conditions caused by concerns about climate change;
• the impact of unforeseen changes in interest rates, debt and equity markets, inflation rates, economic recession and other external factors over which we have no control, including the effect on pension and postretirement expense and funding resulting from changes in equity and bond market returns;
• ONEOK's indebtedness and guarantee obligations could make us vulnerable to general adverse economic and industry conditions, limit ONEOK's ability to borrow additional funds and/or place us at competitive disadvantages compared with ONEOK's competitors that have less debt, or have other adverse consequences;
• actions by rating agencies concerning ONEOK's credit;
• the results of administrative proceedings and litigation, regulatory actions, rule changes and receipt of expected clearances involving any local, state or federal regulatory body, including the Federal Energy Regulatory Commission (FERC), the National Transportation Safety Board, the Pipeline and Hazardous Materials Safety Administration (PHMSA), the U.S. Environmental Protection Agency (EPA) and the U.S. Commodity Futures Trading Commission (CFTC);
• ONEOK's ability to access capital at competitive rates or on terms acceptable to us;
• risks associated with adequate supply to ONEOK's gathering, processing, fractionation and pipeline facilities, including production declines that outpace new drilling or extended periods of ethane rejection;
• the risk that material weaknesses or significant deficiencies in ONEOK's internal controls over financial reporting could emerge or that minor problems could become significant;
• the impact and outcome of pending and future litigation;
• the ability to market pipeline capacity on favorable terms, including the effects of:
• future demand for and prices of natural gas, NGLs and crude oil;
• competitive conditions in the overall energy market;
• availability of supplies of Canadian and United States natural gas and crude oil; and
• availability of additional storage capacity;
• performance of contractual obligations by ONEOK's customers, service providers, contractors and shippers;
• the timely receipt of approval by applicable governmental entities for construction and operation of ONEOK's pipeline and other projects and required regulatory clearances;
• ONEOK's ability to acquire all necessary permits, consents or other approvals in a timely manner, to promptly obtain all necessary materials and supplies required for construction, and to construct gathering, processing, storage, fractionation and transportation facilities without labor or contractor problems;
• the mechanical integrity of facilities operated;
• demand for ONEOK's services in the proximity of ONEOK's facilities;
• ONEOK's ability to control operating costs;
• acts of nature, sabotage, terrorism or other similar acts that cause damage to ONEOK's facilities or ONEOK's suppliers' or shippers' facilities;
• economic climate and growth in the geographic areas in which we do business;
• the risk of a prolonged slowdown in growth or decline in the United States or international economies, including liquidity risks in United States or foreign credit markets;
• the impact of recently issued and future accounting updates and other changes in accounting policies;
• the possibility of future terrorist attacks or the possibility or occurrence of an outbreak of, or changes in, hostilities or changes in the political conditions throughout the world;
• the risk of increased costs for insurance premiums, security or other items as a consequence of terrorist attacks;
• risks associated with pending or possible acquisitions and dispositions, including ONEOK's ability to finance or integrate any such acquisitions and any regulatory delay or conditions imposed by regulatory bodies in connection with any such acquisitions and dispositions;
• the impact of uncontracted capacity in ONEOK's assets being greater or less than expected;
• the ability to recover operating costs and amounts equivalent to income taxes, costs of property, plant and equipment and regulatory assets in ONEOK's state and FERC-regulated rates;
• the composition and quality of the natural gas and NGLs we gather and process in ONEOK's plants and transport on ONEOK's pipelines;
• the efficiency of ONEOK's plants in processing natural gas and extracting and fractionating NGLs;
• the impact of potential impairment charges;
• the risk inherent in the use of information systems in ONEOK's respective businesses, implementation of new software and hardware, and the impact on the timeliness of information for financial reporting;
• ONEOK's ability to control construction costs and completion schedules of ONEOK's pipelines and other projects; and
• the risk factors listed in the reports ONEOK has filed and may file with the Securities and Exchange Commission (the "SEC"), which are incorporated by reference.

These reports are also available from the sources described below.  Forward-looking statements are based on the estimates and opinions of management at the time the statements are made. ONEOK undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or changes in circumstances, expectations or otherwise.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the Risk Factors included in the most recent reports on Form 10-K and Form 10-Q and other documents of ONEOK on file with the SEC. ONEOK's SEC filings are available publicly on the SEC's website at www.sec.gov.

 

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SOURCE ONEOK, Inc.