ONEOK Partners' CEO Discusses Q2 2012 Results - Earnings Call Transcript

ONEOK Partners, L.P. (OKS)

Q2 2012 Earnings Call

August 1, 2012, 11:00 am ET

Executives

Dan Harrison - SVP, Administrative Services & Corporate Relations

John Gibson - Chairman & CEO

Rob Martinovich - EVP, CFO & Treasurer

Pierce Norton - EVP & COO

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

Presentation

Operator

Good day and welcome to the ONEOK and ONEOK Partners 2012 second 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 and thanks to everyone 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, John Gibson, Chairman and CEO of ONEOK and ONEOK Partners; John?

J ohn Gibson

Thanks Dan. Good morning and many thanks for joining us today. As always, we appreciate your continued interest and investment in ONEOK and ONEOK Partners. Joining me today are Rob Martinovich, our Chief Financial Officer who will review our quarterly financial performance and discuss our updated earnings guidance. Pierce Norton, Chief Operating Officer, who will review the operating performance of ONEOK and ONEOK Partners and update you on the partnership’s growth projects which I am pleased to say are on time, on budget and growing and Terry Spencer, our President who will update our NGL supply and demand outlook.

On this mornings call, we will review our second quarter results and discuss our rationale for our update 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 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 the 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 growth 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?

Rob 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 two for one split of the company’s common stock on June 1st, making our shares more accessible to a broader base of potential investors.

Also in June, ONEOK executed a $150 million accelerated share repurchase agreement funded by cash-on-hand and short-term borrowings part of the 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 before 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 Partnerships 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 segment guidance updates in a moment.

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