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ONEOK, Inc. Q2 2010 Earnings Call Transcript

ONEOK, Inc. Q2 2010 Earnings Call Transcript


Q2 2010 Earnings Call

August 04, 2010 11:00 a.m. ET


Dan Harrison - IR

John Gibson - President & CEO

Curtis Dinan - SVP & CFO

Terry Spencer - COO, ONEOK Partners

Rob Martinovich - COO, ONEOK


John Tyson - Citi

Ted Durbin - Goldman Sachs

Andrew Gundlach - ASB

Xin Liu - JPMorgan

Mark Reichman - Madison Williams

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Michael Blum - Wells Fargo

Helen Ryoo - Barclays Capital

Tim Schneider - Citigroup

Louis Shamie - Zimmer Lucas



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Good day ladies and gentlemen and welcome to your Second Quarter 2010 ONEOK and ONEOK Partners earnings call. At this time, all participants are in a listen only mode. Later we will conduct the question and answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to introduce your host for today's conference call, Mr. Dan Harrison. You may begin, sir.

Dan Harrison

Thank you. Good morning and thanks to everyone for joining us. Any statements made during this call that might include ONEOK or ONEOK Partners expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933 and 1934. Please note that actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings.

And now, let me turn the call over to John Gibson, ONEOK President and CEO and ONEOK Partners Chairman, President and CEO. John?

John Gibson

Thanks Dan. Good morning. Thanks for joining us and for your continued interest and investment in ONEOK and ONEOK Partners. Joining me on the call today are Curtis Dinan, Chief Financial Officer for both ONEOK and ONEOK Partners; Terry Spencer, Chief Operating Officer of ONEOK Partners and Rob Martinovich, Chief Operating Officer of ONEOK.

ONEOK and ONEOK Partners again posted solid operating performances with all of our business segments performing well. We are reaffirming our 2010 earnings guidance for both entities and increasing ONEOK Partners 2010 capital expenditures to reflect our planned spending this year for the projects we've announced.

During the quarter we continued to deliver on our commitments. ONEOK Partners is benefitting from the growth projects we completed last year and will continue to grow and generate attractive returns from the investments we've just announced.

Our distribution segments, operating income and returns are the result of a very deliberate and innovative approach to rate making is paying off. Energy services continues to make progress on reducing its contracted storage and transportation capacity, reducing annual earnings volatility and with a renewed focus on its premium services customers who are the lynchpin of this very important business.

ONEOK's and ONEOK Partners' financial position is solid with the structure and flexibility to fund growth, either organically or through acquisitions and as Terry will discuss in a few minutes, we've taken the necessary steps to resolve the short term NGL bottlenecks that have limited our ability to capture additional NGL optimization margins. Now a lot has been written and concluded about Williams' decision to acquire 50% ownership of Overland Pass.

As we have said many times over the past several years, we do not expect Williams' increased ownership and potential operatorship to affect Overland Pass's ability to add new volumes and grow. Had we believed otherwise, we would not have agreed to the option. Agreeing to the option, with a recognized world class pipeline operator and company in exchange for barrels dedicated to Overland Pass was frankly a pretty good trade.

The ability for Williams' to increase its ownership in and potentially become operator of Overland Pass was willingly negotiated four years ago. We believe then as we do now that it was important that NGL take away capacity from the Rockies be built and that it would be built to our NGL infrastructure in the mid-continent.

Williams, willingness to be the anchor shipper of Overland Pass

and to


future barrels to the pipeline seal the deal and led to its construction and its continued success. Williams decision to increase it's over Overland Pass ownership I believe reinforces it's positive view and the long-term viability of their upstream assets connected to the pipeline and as a strong vote of confidence for Overland Pass's future growth.

Our announcement last week to expand Overland Pass to accommodate additional NGL volumes from our newly announced Bakken pipeline is a testament to our strong partnership with Williams and our shared commitment to grow and how well aligned we are and in a moment, Curtis will explain why the earnings impact is not significant.

So, at this time I will turn it over Curtis who will provide us with a financial highlight of ONEOK partners and then Terry will review the operating performance along with some industry dynamics. Curtis?

Curtis Dinan

Thanks John and good morning everyone. John has already provided a brief summary of the partnerships second quarter results and Terry will provide additional detail in a moment. My remarks will focus on the financial results and our expectations. In the second quarter ONEOK partners reported net income of $105 million or $0.75 per unit compared with last years second quarter net income of $98 million or $0.81 per unit.

In the second quarter, we had a 101.9 million units outstanding compared with 91.4 million units in the same period last year. Our two equity offerings in July 2009 and February 2010 added approximately 11 million additional units.

Distributable cash flow in the second quarter was a $140 million compared with $131 million in the second quarter 2009.

While the coverage ratio for the first six months was slightly below one time we continue to expect the annual coverage ratio will be in our targeted range of 1.05 to 1.15 times.

As Terry will describe in more detail we expect margins to improve in the second half of 2010 especially in the natural gas liquid segment where a significant frac only contract expires in the third quarter. The exploration of that contract will free up capacity at our Mont Belvieu fractionator which will be used to provide additional bundled services to our customers and we will create additional optimization opportunities.

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