oneok ONEOK and ONEOK Partners to Present at AGA Financial Forum
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  • 1. American Gas Association Financial Forum Orlando, Florida April 30, 2007 30
  • 2. John W. Gibson Chief Executive Officer ONEOK, Inc. President and Chief Executive Officer ONEOK Partners, L.P.
  • 3. Forward Looking Statement Statements contained in this presentation that include company expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. It is important to note that the actual results of company earnings could differ materially from those projected in any forward-looking statements. For additional information, refer to ONEOK’s and ONEOK Partners’ Securities and Exchange Commission filings.
  • 4. A Transforming Transaction April 2006 • Purchased 17.5 percent of general partner interest from TransCanada – Became sole general partner • ONEOK sold $3 billion in assets to Northern Border Partners – Received $1.35 billion in cash and 36.5 million units ($1.65 billion) – ONEOK owns 45.7 percent of the partnership • Partnership sold 20 percent of Northern Border Pipeline to TransCanada – Transferred operating responsibility on April 1, 2007 • Changed name to ONEOK Partners 4
  • 5. A Structural Change January 2006 Northern Border Partners ONEOK Pipelines & Storage Gathering & Gathering & Processing 70% of Northern Border Distribution Processing Pipeline Energy Services Natural Gas Liquids Interstate Pipelines Northern Border Partners • 82 5% of GP 82.5% • 500,000 units April 2006 ONEOK Partners ONEOK Distribution Energy Services Natural Gas Liquids Gathering & Pipelines & Storage Processing ONEOK Partners 50% of Northern Interstate Pipelines • 100% of GP Border Pipeline • 37 million units 5
  • 6. ONEOK and ONEOK Partners -- Key Strategies • Consistent growth and sustainable earnings • Develop and execute internally generated growth projects at ONEOK Partners • Improve profitability of ONEOK Distribution Companies • Continue focus on physical activities at ONEOK Energy Services • Execute strategic acquisitions that provide long term value long-term • Manage our balance sheet and maintain strong credit ratings at or above current level • Operate in a safe and environmentally responsible manner • Attract, develop and retain employees to support strategy execution 6
  • 7. ONEOK Partners Today 7
  • 8. ONEOK Partners Internal Growth Focus • More than $1.5 billion through 2009 • Spend approximately $824 million in capital in 2007 – Major Projects –$$759 million for Growth • Overland Pass Pipeline ($433 million) – $65 million for Maintenance • Related NGL projects ($216 million) • Arbuckle Pipeline ($260 million) • Provides significant cash flow growth * • Pi Piceance Laterall ($120 million) Lt illi ) – 2008 EBITDA contribution: >$150 million • Guardian II ($250 million) – 2009 EBITDA contribution: >$260 million • Midwestern extension ($41 million) – 2010 EBITDA contribution: >$300 million – Other projects ($267 million) * EBITDA contributions assume projects are completed on schedule * Does not include WMB exercising its 50/50 option in OPPL or Piceance Lateral 8
  • 9. Creating Value Through Acquisitions and Internal Projects Purchase of Koch’s NGL assets for $1.35 billion created a path for internal growth • Overland Pass: $433 million • Related NGL Projects: $216 million • Acquired/upgraded NGL storage: $40 million • Arbuckle Pipeline: $260 million • Piceance Lateral: $120 million Doubles the size of the business 9
  • 10. ONEOK Partners -- Strong Balance Sheet • $750 million revolver with $740 million available; expandable to $1 billion • Goal: 50/50 capital structure Capitalization: March 31, 2007 Total Debt Equity 48% 52% 10
  • 11. ONEOK Partners Distribution and Unit Price Growth • Fi di t ib ti increases with OKE as GP Five distribution i ith • Internal growth projects provide significant opportunities for future distribution growth – 24 percent growth • Unit price increase of 67 percent since 2006 – Indicated annual rate of $3.96 Distribution G Growth Unit Price Growth * $70 $1.00 0.99 69.99 67.50 0.98 $0.90 0.97 0.95 $60 63.34 0.88 0 88 $0.80 56.35 0.80 $50 $0.70 49.35 47.92 $0.60 $40 42.00 $0.50 $30 24% Growth 67% Growth $0.40 $20 $0.30 $0.20 $10 $0.10 $0 $0.00 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 2006 Q2 Q3 Q4 Q1 2007 Q2 11 2005 2006 2007 * Closing price on last day of quarter; Q2 2007 price is closing on 4/25/07
  • 12. ONEOK Partners First-quarter Results • EBITDA: $157.2 million versus $160.1 million • DCF: $116.8 million versus $52.9 million • EPU: $1.00 versus $ $ $0.67 (2007 EPU guidance: $ ( g $3.06 - $3.46 p unit) $ per ) • Strong performance in NGL business $175 EBITDA $150 157.2 160.1 157 2 160 1 $125 $100 $75 63.1 $50 47.4 43.0 36.2 36.9 37.7 $25 34.3 22.4 $0 ate P L L S G& TA NG P& rst TO Inte 12 Q1 2007 Q1 2006
  • 13. ONEOK Today 13
  • 14. ONEOK Distribution – Integrated Strategy to Improve Profitability 642,000 • Rates, regulatory and legislative customers – Synchronized filings • Growth – Efficient investment 821,000 customers • Operations and maintenance cost control 573,000 customers – Continuous process improvement – Technology • Customer service and programs – Reduce seasonality 14
  • 15. ONEOK Distribution Segment Rate Base Growth • Efficient investment in all three states • Extensions, service lines and technology deployment 4.8 % CAGR • Enhanced capital recovery mechanisms in Texas and Kansas $1,600,000 $301,855 $286,238 $269,575 $265,703 $1,400,000 $258,161 $, $261,524 $1,200,000 $249,428 $242,344 $709,904 $699,863 $702,054 $1,000,000 $687,856 $639,622 $660,421 $800,000 $545,746 $530,735 $600,000 $400,000 $675,306 $655,315 $635,393 $623,842 $504,403 $482,111 $467,116 $446,604 $200,000 $0 2000 2001 2002 2003 2004 2005 2006 2007G 15 Oklahoma Natural Gas Kansas Gas Service Texas Gas Service
  • 16. ONEOK Distribution – Continuing to Close the Gap • Significant progress since 2005 • 2006 Kansas and Texas rate cases 12 helped close the operating income gap • Work continues on: 10 – Pension and OPEB costs eturn on Equity (%) 8 – Capital recovery mechanisms 10.2 0 – Cost-of-service rate mechanisms 6 8.0 – Cost control – continuous process 4 improvement p * Re 5.3 4.9 2 0 Total Distribution Companies 2005 2006 2007 G 2007 Allowed 16 * ROE calculations are consistent with utility ratemaking in each jurisdiction and not consistent with GAAP returns
  • 17. ONEOK Energy Services Strategies • Acquire transportation and storage capacity – Connects major supply and demand centers • Deliver bundled, reliable products and services – For premium value, primarily to LDCs • Optimize storage and transportation capacity – Market knowledge and effective risk management t • Grow earnings in our retail business – Increase market share, maintain margins •E Execute trading arbitrage opportunities t t di bit t iti – Using knowledge and positions 17
  • 18. ONEOK -- Strong Cash Flow and Balance Sheet • $163 million in free cash flow ONEOK Stand-alone C h Flow St d l Cash Fl Capital Surplus Expenditures $163 million $174 million Dividends $153 million illi 2007 Guidance 18
  • 19. ONEOK -- Dividend and Share Price Growth • Ten dividend increases since January 2003 • Dividend target: 50-55 percent of recurring earnings – 119 percent increase during that period • 77 percent share price increase since 2006 – 21 percent increase since 2006 Share Price Growth* Dividend Growth $50 $0.35 $45 47.15 0.34 0.34 45.00 $0.30 0.32 0.32 0 32 43.12 43 12 $40 0.30 0.28 37.79 $35 $0.25 34.04 32.25 $30 $0.20 $25 26.63 26 63 $0.15 $20 $15 $0.10 77% Growth 21% Growth $10 $0.05 $5 $0 $0.00 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 2006 Q2 Q3 Q4 Q1 2007 Q2 19 2005 2006 2007 • Closing price on last day of quarter; Q2 2007 closing price is on 4/25/07
  • 20. ONEOK First-quarter Results • EPS:$1.36 versus $1.17 (2007 Q1 guidance: $1.31 - $1.41) • All three segments performed well • Distribution segment benefited from Kansas rate case g • Energy Services had an exceptionally strong quarter $160 Operating Income * p g 152.9 $120 129.5 120.1 103.2 104.4 100.2 93.3 $ $80 76.8 $40 $0 ers es n L* utio rvic rtn TA Pa trib Se TO Di s OK rgy 20 E e En ON Q1 2007 Q1 2006 * Total is net income
  • 21. How Growth at ONEOK Partners Benefits ONEOK CREATING VALUE ONEOK Partners ONEOK cts me Equity Incom ributions s Net Income e Capita Projec vidends BITDA IDR al EB Div Distr Share Price Appreciation Unit Price Appreciation 21
  • 22. ONEOK Is Undervalued • E i value per share: $ 91 Equity l h $57.91 • Growth at OKS benefits OKE – $0.05/quarter OKS distribution increase = $4.60/share value to OKE – $5/unit p $ price increase at OKS = $ $1.65/share value to OKE EBITDA Enterprise (Millions of Dollars and Shares) EBIT * Depreciation EBITDA Multiple Value Distribution $ 161 $ 110 $ 271 9.0 $ 2,439 Energy Services Physical $ 205 $ 2 $ 207 6.0 60 $ 1,242 1 242 Trading $ - $ - $ - $ - Total $ 205 $ 2 $ 207 $ 1,242 ONEOK Partners ** Limited Partner Units $ - $ - $ 2,590 General Partner Interest $ 53 $ - $ 53 23 $ 1,219 1 219 $ 53 $ - $ 53 $ 3,809 Total $ 419 $ 112 $ 531 $ 7,490 Long-term Debt, net of cash & gas in storage $ 1,004 Equity value $ 6,486 Outstanding shares 112 Equity value per share $ 57.91 Implied P/E 22.7 22 * 2007 Guidance Current P/E-based on closing stock price at 04/25/07 17.8 ** Based on unit price of $69.99 and annual distributions of $3.96
  • 23. 23
  • 24. Appendix A di 24
  • 25. ONEOK and ONEOK Partners Financial Summary ONEOK (stand alone) ONEOK Partners • Capital Structure: 48% debt/52% equity • Capital Structure: 48% debt/52% equity • Long-term Debt: $2 billion • Long-term Debt: $2 billion • Credit Ratings: • Credit Ratings: – S&P: BBB – S&P: BBB – Moody’s: Baa2 – Moody’s: Baa2 • 2007 Guidance: • 2007 Guidance: – $2.35 - $2.75 EPS – $3.06 - $3.46 EPU – $3.91 - $4.32 DCF • Dividend: $1.36/share annual indicated rate • Coverage Ratio: 1.05 – 1.10 • Assets: $6.8 billion • Distribution: $3.96/unit annual indicated rate • Assets: $5 billion 25
  • 26. ONEOK Partners Growth Benefits ONEOK EBITDA Growth Distribution Growth • Assumptions • Incentive Distribution Rights g – $1 million incremental EBITDA – Assumes “high splits” – Partnership is in the “high splits” – Every one cent quarterly increase results in a $3.3 million increase in ONEOK’s annual cash – All incremental cash flow is distributed flow and income before taxes – Annuall depreciation of $12 000 A d ii f $125,000 • Limited Partner Units • Impact on ONEOK income is $664,000 – ONEOK owns 37 million limited partner units (pretax) – Every one cent quarterly increase results in an –A Approximately $500 000 from Incentive Distribution i t l $500,000 f I ti Di t ib ti additional $1.5 million in ONEOK’s annual cash Rights flow – Approximately $164,000 equity earnings related to limited partner units owned by ONEOK 26
  • 27. OKS Cash Flow Diversity • Predominantly fee based – 63 percent of margin comes from fee-based business •C Commodity and spread risk is measured and managed • Cash flow stability managed within each segment Pre-AssetSpread Dropdown Post-Asset Dropdown 0% Spread Commodity 9% Fee Based Commodity 20% Fee Based 63% 28% 80% Total gross margin: $511 million Total gross margin: $809 million 2007 Guidance 2005 27
  • 28. ONEOK Partners Highlights • Integrated operations contribute to value creation – Commercial and operating synergies through a common f t i t footprint – In compliance with FERC and other regulatory rules – Shared corporate services • Stable cash flow generated from diverse asset mix – Supported by commercial and risk-management strategies • $1.5 billion in growth projects 2007 – 2009 – Grows distributions to unitholders – Efficient use of capital • Aligned interest – As ONEOK Partners grows, ONEOK grows 28
  • 29. ONEOK Partners Growth Projects -- Capital and EBITDA Timing CAPITAL EXPENDITURES *** 2007 2008 2009 TOTAL MAJOR PROJECTS * Overland Pass $ 256 $ 131 $ 387 * Related NGL projects 185 15 200 Arbuckle Pipeline 70 180 10 260 Piceance Lateral 15 105 120 * Guardian II extension 85 153 238 * Midwestern extension 27 27 Sub-total $ 1,232 OTHER PROJECTS Gathering & Processing ** $ 91 $ 58 $ 64 $ 213 Natural Gas Liquids 25 10 4 39 Pipelines & Storage 4 3 1 8 Interstate Pipelines 1 3 3 7 Sub-total $ 267 TOTAL GROWTH CAPITAL $ 759 $ 658 $ 82 $ 1,499 Investment * Capital was spent for project in 2006 29 EBITDA Contribution - assumes on-time completion ** Does not include Fort Union gas gathering project *** Does not include AFUDC/IDC
  • 30. OKS Internal Growth -- Overland Pass Pipeline • $433 million • A 99/1 percent joint venture with 50/50 option • 750 mile 14-16 inch line 750-mile, 14 16 • 110,000 bpd of raw NGL capacity – Expandable to 150,000 bpd with minimal capital • Efficient alternative due to low fuel costs • Supply growth expected primarily from new drilling • Long-term supply agreement with Williams Long term (~ 60,000 bpd) • Construction: Fall 2007 • Completion: Early 2008 30
  • 31. OKS Internal Growth -- Overland Pass-related NGL Projects • Associated with Overland Pass Pipeline project, an additional $216 million in infrastructure upgrades and expansions are underway: – Upgrade and expand the Bushton facilities from 80,000 bpd to 120,000 bpd – Upgrade the Bushton storage facility to accommodate ethane/propane mix and raw NGLs – Install 135 miles of 14-inch pipe from Bushton to Medford with a capacity of 120,000 bpd of ethane/propane mix – Expand the Sterling pipeline capacity south to Mont Belvieu by 60,000 bpd – Add additional pump capacity to increase deliveries on the Bushton-to-Conway pipeline Bushton to Conway 31
  • 32. ONEOK Partners Internal Growth -- Arbuckle Pipeline • $260 million • Marks another major expansion into one of the most active drilling areas in the U S U.S. • 160,000 bpd of raw NGL capacity • 440-mile, 12-16-inch line • Finalizing dedicated supply commitments f from a number of NGL producers – NGL basins in Oklahoma – Barnett Shale in Texas • Capability to deliver to Gulf Coast fractionators • Completion in early 2009 32
  • 33. ONEOK Partners Internal Growth -- Piceance Lateral • $120 million • A 99/1 percent joint venture with 50/50 option p • 100,000 bpd of raw NGL capacity • 150-mile, 14-inch line • D di t d supplies f Dedicated li from t two Williams plants • Other supplies being negotiated •C Completion in early 2009 33
  • 34. OKS Internal Growth -- Guardian Pipeline • $250 million • 106-mile extension from Ixonia to Green Bay, y Wisconsin • Incremental capacity of 537,000 Dth/day to eastern Wisconsin • Project anchored by two 15-year agreements with: – We Energies – Wisconsin Public Service • FERC certified in fall 2007 • Construction to begin early 2008 • November 2008 completion 34
  • 35. ONEOK Partners Internal Growth -- Grasslands Expansion • $30 million expansion • Increase processing capacity to 100 MMcfd • Increase fractionation capacity to 10 Mbpd • Keep pace with growth • Completed in phases – Summer of 2007 – First quarter 2008 • Part of $ million in gathering and processing $90 growth projects 35
  • 36. OKS Gathering & Processing Key Points • Asset diversity with balance among basins, producers and contracts • Growth opportunities in Mid-Continent and Rocky Mountains – Well connects (725 in 2006) – Internal projects – Strategic acquisitions • Basin diversity effective in offsetting naturall production d li t d ti declines • Commodity and spread risk mitigated significantly 36
  • 37. OKS Gathering and Processing Contract Mix -- Volume Weighted 3% 3% 3% 4% 6% 100% 5% 10% 6% 15% 6% 19% 90% 5% 4% 4% 80% % 3% 24% 22% 30% 70% 27% 22% 60% 12% 16% 10% 10% 10% 50% 40% 30% 49% 45% 43% 42% 41% 20% 10% Keep Whole w/ Conditioning Keep Whole w/o Conditioning 0% 2003 2004 2005 2006 2007G POP - Rocky Mountain POP - Mid-Continent Contract Mix without Texas - Volume Weighted Fee Based - Rocky Mountain (Mid-Continent and Rocky Mountain combined-all years) 37 Fee Based - Mid-Continent
  • 38. OKS Gathering & Processing Risk Mitigation • In 2007, keep-whole volumes are forecast at: 2007 – 9 percent of total contract mix (50 percent of these volumes have conditioning language) – Q1 2007: 6 percent of net margin • Hedging: – 2007: 43 percent of NGLs under POP; 52 percent of gross processing spread – 2008: 8 percent of NGLs under POP; 9 percent of gross processing spread – Ceiling: up to 75 percent of commodity position • Sensitivities, excluding hedging: 2007 2006 2005 2004 2003 COMMODITY SENSITIVITY Margin Impact ($ millions) Natural Gas 10 cent/MMBtu increase +$0.2 -$0.1 -$1.6 -$2.7 -$3.5 Natural G Li id N t l Gas Liquids 1 cent/gallon i t/ ll increase +$1.9 $1 9 +$2.1 $2 1 +$3.8 $3 8 +$4.5 $4 5 +$4.8 $4 8 Crude Oil $1/barrel increase +$0.5 +$0.4 +$1.0 +$1.3 +$1.1 38
  • 39. OKS Natural Gas Liquids -- Key Points • Growing NGL supply through an aggressive plant connection program – Connected to majority of pipeline-connected gas plants in Oklahoma, Kansas and Texas Panhandle – Many new gas processing plants are being developed in ou core area our co e a ea • Increasing value in the services provided • Primarily a fee-based business – M th 80 percent of gross margin More than tf i 39
  • 40. OKS Natural Gas Liquids -- Mid-Continent Activities • Exchange and Storage Services – Gather, fractionate and transport NGLs Isomerization from processing plants to storage and 4% market hubs Marketing – Fee-based contracts 12% Optimization • Optimization 4% Exchange & – Obtain highest p g product p price by directing y g Storage product movement between Conway and 80 Mont Belvieu • Isomerization – Converts normal butane to iso butane iso-butane – Fee-based contracts Gross Margin Contribution • Marketing 2007 Guidance: $173 million – We purchase approximately one half of one-half fee-exchange volumes in the Mid-Continent for resale on an index-related basis 40
  • 41. OKS Pipelines & Storage -- Key Points • Pipelines and Storage produces a steady earnings stream – 40 percent fixed rate (demand based) – 60 percent variable rate (commodity rate) • Overland Pass and Arbuckle pipelines are significant growth opportunities • Ab d Abundance of internall growth projects fi t th j t – Natural gas storage expansion and acquisition – Pipeline expansions – New projects 41
  • 42. OKS Interstate Pipelines -- Key Points • Provide fee-based income (demand-charge revenues) Viking Gas • Access to diverse supply sources Transmission with connections to growing markets Guardian Northern Border • High utilization rates Pipeline Pipeline • Transferred operating responsibility of Northern Border Pipeline to TransCanada affiliate – Own 50 percent Midwestern Gas Transmission 42
  • 43. OKE Distribution -- Operating Statistics 642,000 • Largest natural gas distributor in customers Oklahoma and Kansas and third largest in Texas – 2,036,000 customers 821,000 • Revenues: $1.9 billion customers 573,000 • Asset base: $2.8 billion customers • Rate base: $1.7 billion • Approximately 2,850 employees pp y, py 43 Year-end 2006 statistics
  • 44. OKE Distribution -- Rate Strategies • Synchronized rate filings • Maintain positive relationships with regulators Issue Solution Oklahoma Kansas Texas Bad Debt Commodity recovery in PGA 2/17 Fixed-price Plan 1/17 Average Payment Plan g y 17/17 Financial Hedging 6/17 Physical Hedging 17/17 Earnings Lag More frequent filings Lag in Capital Recovery Accelerated capital recovery 5/17 Capital Recovery Return on gas in storage 2/17 Volumetric sensitivity Two-tier rate plan Decoupling D li 1/17 Margin Fluctuation Weather Normalization 7/17 Optimize capacity Revenue sharing 2/17 44
  • 45. OKE Distribution -- Oklahoma Natural Gas • Three commissioners elected to six-year staggered terms • Largest customer base • 2005 rate case decision – Increased revenues by $57.5 million • Straight fixed-variable rate design • Customer Choice rate design • Weather normalization 45
  • 46. OKE Distribution -- Kansas Gas Service • Three commissioners appointed by governor to four-year terms • Coldest jurisdiction • $73.3 million rate case filed in May 2006 – $52 million approved in November pp – Adds $45 million to 2007 operating income • Bad debt recovery mechanism • W th normalization Weather li ti • Capital recovery mechanism • Revenue sharing mechanism g 46
  • 47. OKE Distribution -- Texas Gas Service • Home rule regulation in 93 communities, 17 rate jurisdictions, with Texas Railroad Commission the appellate authority – diversifies risk • Highest potential growth area • 2006 approved rate filings of $4.8 million in three jurisdictions • Annual Cost of Service Filings in six cities • El Paso rate case in 2007 • Bad debt recovery mechanism • Capital recovery mechanism in five jurisdictions • Revenue sharing mechanism • 78 percent of revenue insensitive to weather 47
  • 48. OKE Energy Services -- Operating Statistics Margin • $0.22 MMBtu in 2006 • $0.14/MMBtu in 2005 Storage g • Capacity of 96 Bcf – 23 facilities under lease – Geographic diversity • Deliverability y – 2.3 Bcf/d of withdrawal rights – 1.5 Bcf/d of injection rights Transportation • Over 1.8 Bcf/d of firm capacity O e 8 c /d o capac ty Sales • Averaged approximately 3.1 Bcf/d of natural gas Wholesale Offices sales in 2006 Leased Storage Staff Retail Offices • 17 regional wholesale and retail offices • 101 employees 48
  • 49. OKE Energy Services -- Sources of Margin • Storage: Winter/summer spread, demand revenues, storage financial arbitrage spread revenues • Transportation: basis hedging, optionality, marketing services • Optimization: daily/monthly from storage, transportation, split connect supplies • Retail: customer choice programs, LDC unbundling, small commercial and industrial • Trading: based on knowledge and opportunities to extract trading margins 2006 Operating Income 2007 G id Guidance Retail Optimization Optimization Trading Retail 7% 11% 5% 8% 7% Storage Storage 48% 48% Transportation Transportation 32% 34% $229 million $205 million 49
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