ONEOK, Inc. (OKE) Q2 2012 Earnings Conference Call August 1, 2012 11:00 AM ET Executives Dan Harrison - Senior Vice President, Administrative Services and Corporate Relations John Gibson - Chairman and Chief Executive Officer Robert Martinovich - Executive Vice President, Chief Financial Officer and Treasurer Pierce Norton - Executive Vice President and Chief Operating Officer Terry Spencer - President Analysts Steve Maresca – Morgan Stanley Carl Kirst – BMO Capital Ted Durbin – Goldman Sachs John Edwards – Credit Suisse Michael Blum – Wells Fargo Elvira Scotto – RBC Capital Markets Craig Shere – Tuohy Brothers Helen Ryoo – Barclays Ross Payne – Wells Fargo Presentation Operator
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On this morning’s call, we will review our second quarter results and discuss our rationale for our updates to 2012 earnings guidance, reaffirm our ability to continue to grow ONEOK’s dividend and ONEOK Partners distribution over the next several years even in a lower commodity price environment, and update our progress with our growth projects, including our contracting status for the Bakken Crude Express pipeline and the $1 billion of additional projects we announced just last week.Let’s start with our second quarter performance. ONEOK Partners turned in an exceptionally strong performance, driven by strong volume growth in the Natural Gas Liquids and Natural Gas Gathering and Processing businesses. Our Natural Gas Distribution segment turned in slightly higher results performing as expected and our energy services segment reported a loss because of the continuing challenges it faces in a low natural gas price environment with low price volatility. Pierce will provide more detail on each segment’s operating performance in just a few minutes. We updated our 2012 earnings guidance ranges increasing the range for ONEOK Partners to reflect our expectation of a continued strength of the natural gas liquids business. We decreased slightly the ONEOK guidance range to reflect lower than expected earnings at energy services and to a lesser extent the Natural Gas Distribution segment, partially offset by the strong contribution from the ONEOK Partners segment. As Rob will discuss in a few minutes, we remain confident in our ability to grow ONEOK’s dividends and ONEOK Partners distributions over the next several years even with lower prices. The main driver of these increases will be the volume growth from ONEOK Partners capital investments. Since our last conference call, we have made a lot of progress contracting for our Bakken Crude Express pipeline, which Pierce will discuss in a few minutes. Demand for the capacity is strong and we may have opportunities to increase the pipeline’s capacity.
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 second quarter net income was $61 million compared with $55.1 million for the same period last year, driven primarily by the solid performance of ONEOK Partners offset partially by continued challenges in the Energy Services segment. We completed a 2:1 split of the company’s common stock on June 1, making our shares more accessible to a broader base of potential investors. Also in June, ONEOK executed $150 million accelerated share repurchase agreement funded by cash-on-hand and short-term borrowings, part of a Board approved $750 million share repurchase program through 2013, of which $300 million remain. Based on the repurchase of shares, we expect the average amount of diluted shares outstanding for 2012 to be approximately 211 million. ONEOK’s year-to-date 2012 standalone cash flow report changes in working capital exceeded capital expenditures and dividend payments by $82 million. In July, we declared a dividend of $0.33 per share on a split adjusted basis, an increase of 8% from the previous quarter. With the partnership’s equity offering and private placement in March 2012, ONEOK as a general partner and significant limited partner owner is now expecting to receive $437 million in distributions from ONEOK Partners this year, a 31% increase over 2011. We also updated 2012 guidance for ONEOK. Net income is expected to be in the range of $345 million to $375 million compared with its previous range of $360 million to $410 million. The updated guidance reflects lower expected earnings in the Energy Services and Natural Gas Distribution segments, offset partially by higher expected earnings in the ONEOK Partners segment. Pierce will discuss the specific guidance updates in a moment. Read the rest of this transcript for free on seekingalpha.com