ONEOK's CEO Discusses Q1 2012 Results - Earnings Call Transcript

ONEOK, Inc. (OKE)

Q1 2012 Earnings Call

May 2, 2012 11:00 AM ET

Executives

Dan Harrison – VP, IR and Public Affairs

John Gibson – Chairman, President and CEO

Robert Martinovich – SVP, CFO and Treasurer

Pierce Norton – COO

Terry Spencer – COO, ONEOK Partners

Analysts

John Tysseland – Citigroup

Carl Kirst – BMO Capital Markets

Ted Durbin – Goldman Sachs

Michael Blum – Wells Fargo

Helen Ryoo – Barclays Capital

Becca Followill – US Capital Advisors

Yves Siegel – Credit Suisse

Ross Payne – Wells Fargo

Bernie Colson – Global Hunter

Christine Cho – Barclays

Craig Shere – Tuohy Brothers

Louis Shamie – Zimmer Lucas

Christopher Sighinolfi – UBS

Mark Reichman – Simmons

Presentation

Operator

Good day and welcome to the ONEOK and ONEOK Partners 2012 First Quarter Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Dan Harrison. Please go ahead, sir.

Dan Harrison

Thank you very much. Good morning, everyone, and thanks for joining us. A reminder that 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. 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, I’ll turn the call over to John Gibson, Chairman and CEO of ONEOK and ONEOK Partners. John?

John Gibson

Thanks, Dan. Good morning and many thanks to you all for joining us today. We always appreciate your continued interest and investment in ONEOK and ONEOK Partners. Joining me this morning are Rob Martinovich, our Chief Financial Officer, who will review our quarterly financial performance and update our three-year growth forecast; Pierce Norton, our Chief Operating Officer, who will review the operating performance of ONEOK and ONEOK Partners and update you on the partnership’s growth projects; and Terry Spencer, our President, who will discuss our NGL supply and demand outlook, followed by an update on our new Bakken Crude Express Pipeline.

On this morning’s call, I will briefly review our first quarter results, discuss our rationale for building the crude oil pipeline out of the Bakken and then conclude with some perspective on our updated three-year growth forecast.

Let’s start with our first quarter performance. Again, ONEOK Partners turned in an exceptionally strong performance, while our Natural Gas Distribution segment turned in slightly lower results, and our Energy Services segment reported a loss because of the continued decline in natural gas prices. Pierce will provide more detail on each segment’s operating performance in just a few minutes. We remain confident with our 2012 earnings guidance ranges for both ONEOK and ONEOK Partners. Although it’s still early in the year, we expect the continued strong performance at the partnership to offset the weaker performance at Energy Services.

Now, a few comments about our Bakken Crude Express Pipeline. Building this crude oil line is consistent with our vision statement, which includes applying our core capabilities of gathering, processing, fractionating, storing, marketing and distributing the natural gas, natural gas liquids, and other energy commodities. Our physical presence in the Bakken provides us a unique opportunity to apply our capabilities to crude oil. It’s very similar to what we did when we entered the NGL business more than a decade ago.

Whenever we evaluate opportunities, whether they’re capital projects or new business ventures, we answer three questions. First, how does the opportunity fit with our vision? Second, what is our competitive advantage? And finally, are we creating value for others besides ourselves? In this case, the opportunity fits our vision very well. We believe our unique knowledge of the Bakken, the presence of our existing assets, our relationships with producers and our strong commercial, construction and operating capabilities represent a competitive advantage that will create value, not only for investors, but also for producers and refiners.

For producers, this new pipeline provides a reliable mode of transportation at a lower cost versus other alternatives. It allows them to increase their net backs and receive the benefits of their high-quality crude oil. Demand for light, sweet crude has never been greater. Despite improved technology to refine heavier, sour crudes, light sweet crude is still refiners’ preferred feedstock.

This new platform also is a – excuse me, this new pipeline also is a platform for future growth, creating additional opportunities to provide services to producers and refiners. As Terry will discuss later, we are well on our way to securing the supply commitments to make this pipeline economically viable. Consistent with our past practice, we only announce projects in which we have a high degree of confidence that we can secure producer commitment.

Rob will now review ONEOK’s financial highlights, and then Pierce will review ONEOK’s operating performance. Rob?

Robert Martinovich

Thanks, John, and good morning, everyone. ONEOK’s first quarter net income was $122.9 million compared with $130.9 million for the same period last year, due mostly to losses in the Energy Services segment as a result of the continued decline in natural gas prices.

This quarter included a non-recurring, non-cash $10.3 million or $8.5 million after-tax goodwill impairment charge that reduced Energy Services’ goodwill balance to zero, and a required $29.9 million non-cash reclassification of deferred losses to earnings on certain financial contracts related to our Storage business. This loss is similar to an LCM, or lower of cost or market charge on inventory that you may be familiar with. However, this charge relates to losses on purchase hedge contracts rather than on physical inventory. We still have gains that will be recognized in earnings during the 2012, 2013 heating season.

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