oneok 2000 Annual Report


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oneok 2000 Annual Report

  2. 2. SURPR!S ONEOK IS A DIVERSIFIED ENERGY COMPANY. We the wellhead to the marketplace. We also market w
  3. 3. E move natural gas products from holesale electricity.
  5. 5. TO OUR SHAREHOLDERS When was the last time you took a good look at ONEOK? If more than a year has gone by, who we are today may come as a surprise. Mostly known for our distribution business, distribution now accounts for less than 30 percent of ONEOK’s income. In fact, for the first time in our history, contributions from a single, nonregulated segment exceed those from distribution. ONEOK has become a large, diversified energy corporation with an asset stronghold that lies across the prolific Mid Continent region of the United States. During the past two years, our midstream acquisitions have vaulted us into the top 10 nationally for natural gas liquids production. Our marketing efforts reach more than 28 states, and the company is a key player in the retail natural gas markets in Oklahoma and Kansas. PROFITABLE STRATEGY ONEOK’s transition has been purposeful, achieved through a series of events intentionally choreographed to generate earnings growth.
  6. 6. We set a course of action, executed that plan and now are reaping the rewards. ONEOK’s year-end numbers epitomize an incredible 2000 with momentum that continues into 2001. Diluted earnings per share were $2.96 compared with $2.09 one year ago, up 42 percent over 1999. In last year’s annual report, we announced ONEOK’s spring 2000 purchase of midstream assets from Dynegy Inc. and Kinder Morgan, Inc. Those assets, valued at nearly $878 million, enhance our Mid Continent position and expand our marketing and trading presence to California, the upper Midwest, Rocky Mountains and Gulf Coast. Although these acquisitions only contributed for nine months to our year-end earnings, their impact on our numbers is impressive. ONEOK’s overall revenues grew from $2.1 billion in 1999 to $6.6 billion. Operating income generated by our gas gathering and processing operations was $110.8 million, up 410.6 percent when compared with last year’s results. T O TA L E N E R G Y PA C K A G E A strong team effort by our entire business mix, blending nonregulated with regulated opportunities, is necessary if ONEOK is to deliver shareholder value; and that’s exactly what our organization is doing. Our marketing and trading and gathering and processing activities are complemented by the successes of ONEOK Resources, our
  8. 8. production business. Focused on natural gas and oil reserve development rather than riskier exploration efforts, it posted a 96 percent success rate for completed wells during the year and has proved reserves totaling 254.7 billion cubic feet of natural gas and 4.3 million barrels of oil. At the same time, our regulated distribution businesses rank us ninth nationally in terms of customers served. Those operations, managed by Kansas Gas Service and Oklahoma Natural Gas, serve a total of 1.4 million customers and provide ONEOK stable earnings and predictable cash flow. The company’s total energy package will become even stronger this summer when ONEOK Power, our sixth business segment, begins generating electricity. Natural gas fired generation represents one more way that ONEOK can extract value from natural gas. Without a doubt, ONEOK segments accomplish more working together for our shareholders than each could do standing alone. TERMINATED MERGER ONEOK continues to be engaged in litigation related to the cancelled merger with Southwest Gas Corporation. We remain committed to vigorously defending the claims against our company, yet we have not let them distract us from pursuing our business objectives. In December 2000, ONEOK was cleared of unfounded racketeering charges associated with the litigation. We believe
  9. 9. ONEOK ultimately will be vindicated of all allegations and emerge as a stronger company because of the experience. EMPLOYEE SHAREHOLDERS We are ever mindful that it is you, our shareholders, for whom we work. To enable all ONEOK employees to better understand your perspective, each became a shareholder during January 2001 as the result of a new incentive program. Last fall, we set a benchmark of $45 per share for our company and promised all 3,700 employees one share of stock when that goal was met, plus an additional share each time the price reaches another $5 level beyond the $45 mark. The first celebration came December 19 when ONEOK stock closed at $45.312. The second reward was earned just nine days later when the stock closed at $50.5625. STOCK SPLIT PROPOSED On January 18, 2001, ONEOK directors recommended that shareholders increase the number of authorized common stock shares from 100 million to 300 million, effecting a two-for-one split. The proposed record date for the split is May 23, 2001, with share distribution taking place on June 11, 2001. If approved, the action will increase the number of common stock shares outstanding from 29.6 million shares to 59.2 million. The quarterly dividend also
  10. 10. would be divided in half to reflect the split. The dividend is currently paid at a rate of 31 cents per common share. ONEOK 2001 Intrinsic opportunities are driving ONEOK’s growth during 2001. Where possible, operations are being consolidated, allowing the company to make the best use of its assets. We continue to innovate, producing better options for our customers. We are enhancing operations, including those in the natural gas liquids markets. As always, we will review acquisition possibilities that could stimulate future earnings growth. While ONEOK’s 2000 earnings are impressive, there are several reasons why our management team expects 2001 to be 20 percent higher. Among those are: * A full year of contributions from our new midstream assets, * Completion of our 300-megawatt power plant in June 2001, * Weather-normalized rates in Kansas effective December 1, 2000, * Improved prices for production sales. ONEOK TOMORROW ONEOK is designed with a dynamic structure, and that means it will always be evolving, changing to create new opportunities for
  11. 11. shareholders, employees and customers. What will remain constant are the values upon which we were founded: integrity in business, respect for the individual and commitment to excellence. The success ONEOK has attained is the result of careful planning and hard work on the part of many people. We are controlling our own destiny and expect exciting results to continue. ONEOK is not your average energy company. We hope you take time to get reacquainted with us. DAVID L. KYLE C h a i r m a n , Pre s i d e n t a n d Chief Executive Officer Tulsa, Oklahoma March 15, 2001
  12. 12. PERSONAL NOTE that allowed him to touch our entire Company Chairman Larry W. industry. Larry not only had a brilliant Brummett lost his two-year battle mind, he also had a giving heart. with cancer on August 24, 2000, just His tireless work for a myriad of one week short of his 50th birthday. charitable causes impacted countless Certainly, time will prove him to be lives. I am humbled to serve in the among the most creative chairmen in position that Larry so admirably filled. ONEOK’s history. Larry played a sig- He challenged us all to be better. nificant role in designing the strategy He was my best friend. that makes ONEOK so successful today. His work ethic, ambition, —David knowledge and humanity were gifts
  13. 13. 2000 FINANCIAL HIGHLIGHTS (UNAUDITED) Percent Year Ended December 31 2000 1999 Incr. (Decr.) Consolidated Financial Information ($000) Operating revenues $6,642,858 $2,065,360 222% Operating income $ 333,933 $ 232,400 44% Net income $ 145,607 $ 106,873 36% Capital expenditures $ 311,403 $ 274,245 19% Number of employees at year end 3,664 3,215 14% Common Stock Data Shares outstanding at year end 29,588,275 29,554,623 — Data per common share Earnings - diluted $ 2.96 $ 2.09 42% Dividends paid $ 1.24 $ 1.24 — Book value at year end $ 24.63 $ 19.87 24% Market price range High $ 50.56 $ 37.19 36% Low $ 21.75 $ 24.50 (11%) Market price at year end $ 48.13 $ 25.13 92% Return on common equity 23.0% 17.78% 29% Business Segments ($000) Operating income Marketing $ 51,274 $ 24,180 112% p. 03 Gathering and processing 110,819 21,679 411% Transportation and storage 62,158 60,448 3% Distribution 97,931 103,289 (5%) Production 15,243 18,078 (15%) Other and eliminations (3,492) 4,726 (174%) ONEOK is a diversified energy company. * Founded in 1906 as a pipeline business. * Markets and trades energy commodities, including wholesale electricity. * Involved in all aspects of the natural gas industry. * Listed on the New York Stock Exchange under the symbol OKE. CONTENTS 18 Summar y Financial Information 24 Corporate Officers 25 Board of Directors 26 Glossar y 27 Segment Profile 29 Corporate Data
  15. 15. p. 05 EYE.
  16. 16. + p. 06 + 240% +36% ( 2000 VS 1995 NET INCOME ) ( 2000 VS 1999 NET INCOME )
  17. 17. ONEOK is markedly different than it was two years ago. What’s been the driver? Growth in nonregulated earnings. The evolution that began methodically in 1995 came into its own during 2000, positioning us for anticipated growth in 2001 and beyond. ONEOK purchased prime Mid Continent region assets, valued at nearly $878 million, from Dynegy Inc. and Kinder Morgan, Inc. that stretch from Texas to Kansas and cross the natural gas-rich Hugoton, Anadarko and Panhandle Basins. These gathering, processing and marketing jewels are already proving their worth. ONEOK’s marketing and trading business was especially boosted by the acquisition. Gas marketing volume, which averaged 1.1 billion cubic feet per day in 1999 increased to 2.7 billion cubic feet per day. Storage capacity was up from 29.5 billion cubic feet to 64 billion cubic feet. Helping drive our momentum is the fact that ONEOK now has access to five major U.S. marketing hubs. Those hubs, p. 07 plus storage capabilities and contracted pipeline capacity, enable ONEOK’s marketing and trading segment to serve customers from coast to coast and border to border. Gathering and processing, for years a secondary segment of ONEOK’s business mix, finally made its way into the spotlight this year. We added 13,400 miles of gathering pipeline and natural gas processing plants with a combined capacity of approximately 1.6 billion cubic feet per day. The result? The company’s total daily processing capacity jumped to 2.2 billion cubic feet by year-end. Our natural gas liquids production increased by 230 percent to 69 thousand barrels per day, clearly placing us in the top 10 nationally. In just a few months, ONEOK will make its debut as an electricity provider, with the completion of the $120 million Spring Creek Power Plant. Located just outside of Oklahoma City, the 300-megawatt, natural-gas-fired generating facility will operate as a peaking plant — supplying customers with the additional power they need during summertime high electricity demand. To ensure reliable natural gas supply, the plant is located near the company’s Edmond natural gas storage field. Five years ago, at the beginning of ONEOK’s transition, our net income was almost $43 million. Today the company’s net income exceeds $145 million, and that number continues to grow. Without a doubt, ONEOK is one company worth watching.
  18. 18. ONEOK’s operating groups are dedicated to performance and profitability as a whole. Business units in many diversified corporations operate as stand-alone entities that rarely, if ever, interact with the others. ONEOK shareholders, however, benefit more when our company segments come together to form a cohesive team. The result is much more valuable than the sum of individual successes. Few natural gas marketing and trading companies, for example, are able to quickly respond to daily market changes. Our storage capacity, however, allows ONEOK Energy Marketing and Trading to buy or sell large packages of gas over short time horizons — even on an hour-to-hour basis. Referred to as serving the “optionality market,” this business requires a strong balance sheet. ONEOK’s primary operational location, the Mid Continent region of the U.S., is another critical part of our united strategy. The region is a treasure trove of prime acreage, industry technology and a skilled workforce. ONEOK Resources, our production company, increased its development drilling in the Mid Continent as natural gas prices recovered during 2000 and rose to unprecedented highs. It p. 08 participated in drilling more than 90 wells during the year — the most activity in its history. ONEOK Resources is among the lowest-cost producers in the country and was ranked among the top U.S. small independent producers in a survey of 2000 industry trends conducted by a national consulting firm. In order to maintain a strategy of investing in assets that strengthen and complement each other, we occasionally divest the company of holdings that no longer are solid strategic fits. That happened twice during 2000. During the first quarter, ONEOK sold its 42.4 percent interest in the Indian Basin Gas Processing Plant and gathering system for $55 million. Although the plant was very successful, its New Mexico location prevented it from supporting our other operations. In June, ONEOK Resources sold $6 million of non-core, non-strategic gas and oil producing properties. The sale involved 143 wells that were scattered in isolated fields throughout Texas and parts of Oklahoma and Kansas. What provides ONEOK balance for its higher-risk, upstream and midstream activities? Our regulated distribution operations, Oklahoma Natural Gas Company and Kansas Gas Service Company. These businesses have an almost $2.0 billion asset base. ONG serves 80 percent of Oklahoma, while KGS customers represent about two-thirds of the Kansas retail gas market. During 2000, ONG and KGS provided ONEOK a stable 11.6 percent return on investment and were responsible for 29.3 percent of corporate operating income. Nonregulated with regulated. Wellhead to burner tip. It’s a smart, powerful asset mix, and no one else in the Mid Continent can match it.
  19. 19. + 42% ( 2000 VS 1999 EARNINGS PER DILUTED COMMON SHARE ) ALL FOR ONE. p. 09 ONE FOR ALL.
  21. 21. ALLY p. 11 W.
  22. 22. + 92% ! p. 12
  23. 23. p. 13 ( 2000 VS 1999 YEAR END COMMON STOCK MARKET PRICE )
  25. 25. OUR WTH...
  26. 26. Admittedly, the full meaning of our fast-paced 2000 is a lot to absorb in one sitting. But don’t think for one minute that any part of ONEOK is like those flash-in-the-pan dot coms. What happened here is the result of measured, strategic efforts to improve earnings. To ensure ONEOK’s overall risk exposure is kept in line, we established a Corporate Risk Control p. 16 Group. The effort formalized our procedures that identify, manage, measure and monitor overall risk exposures. It set parameters for our marketing and trading business and created a buffer between those making trades and those who account for them. We also implemented mark-to-market accounting, a method specific to trading contracts and trading companies. During 2000, we selected and began installing new Enterprise Resource Planning software that links all ONEOK accounting and human resources systems. The change will provide unprecedented efficiency and accuracy. Each of those attributes is a critical factor in today’s marketplace. As the natural gas industry continues to unbundle downstream operations, more and more end-use customers are leaning toward companies with strong balance sheets and good credit ratings. That’s one reason why significantly all of ONEOK’s long-term debt is fixed-rate: It does not jeopardize earnings or cash flow resulting from changes in market interest rates. Additionally, the company has a $900 million credit line. During May, we filed a $460 million registration statement with the Securities and Exchange Commission that allows us to issue debt or common stock securities. It provides us with access to additional funds for working capital, refinancing debt and making acquisitions. Meanwhile to expand and keep our assets in shape, we invested $311 million for capital expenditures during 2000. Another $300.8 million has been budgeted for the same purposes in 2001.
  27. 27. The energy business is one segment of the economy that can be impacted by, among other things, weather, government pricing, regulation, supply and demand issues, and competition. To minimize some of these risks, ONEOK uses derivative instruments like future contracts and hedges. This past year, hedges protected many of our positions as gas prices soared to all-time highs. In the case of our p. 17 production company, protective hedges actually limited its earning potential. Are we sorry we hedged? No. It was smart business. ONEOK Resources still had a great year and will benefit from higher prices and hedges during 2001. Our growth strategy is successful for two reasons: We seek opportunities that will maximize existing assets and operations, and we recognize that expansion must have a positive impact on earnings performance. ONEOK is in a very attractive position with an excellent mix of hard and soft assets. We know who we are and where we are headed. We believe ONEOK’s bottom line will continue to We’re in the right place, with the right assets grow by double-digit percentages. and the right people. In our book, that’s not average, that’s WOW!
  28. 28. FINANCIAL SUMMARY p. 18 MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING The management of ONEOK, Inc., is responsible for all information included in the Summary Annual Report, whether audited or unaudited. These consolidated financial statements were prepared by management in conformity with accounting principles generally accepted in the United States of America. The company’s system of internal controls is designed to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and that the financial records are reliable for preparing financial statements that present fairly the financial position and operating results of the company. The company’s internal auditors evaluate and test the system of internal controls. Both KPMG LLP and the company’s internal auditors have free access to the audit committee of the Board of Directors, without the presence of management, to discuss accounting, auditing and financial reporting matters. Jim Kneale Senior Vice President, Treasurer and Chief Financial Of ficer
  29. 29. C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E (Thousands of Dollars except per share amounts) (UNAUDITED) Year Ended December 31, 2000 1999 Operating Revenues 6,642,858 2,065,360 Cost of gas 5,845,726 1,318,362 Net revenues 797,132 746,998 Operating Expenses Operations and maintenance 266,545 341,418 Depreciation, depletion, and amortization 143,351 131,195 General taxes 53,303 41,985 Total Operating Expenses 463,199 514,598 Operating Income 333,933 232,400 Other income, net 18,475 7,269 Interest expense 118,630 65,739 Income taxes 90,286 67,057 Income before cumulative effect of a change in accounting principle 143,492 106,873 Cumulative effect of a change in accounting principle, net of tax 2,115 — Net Income 145,607 106,873 Preferred stock dividends 37,100 37,182 Income Available for Common Stock $ 108,507 $ 69,691 Earnings Per Share of Common Stock Basic $ 3.71 $ 2.24 Diluted $ 2.96 $ 2.09 Average Shares of Common Stock (Thousands) Basic 29,224 31,127 Diluted 49,194 51,153 p. 19 This Summary Annual Report contains statements concerning company expectations or predictions of the future that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities and Exchange Act of 1934. It is important to note that actual results of company earnings could differ materially from those projected in such forward-looking statements.
  30. 30. C O N S O L I D AT E D B A L A N C E S H E E T S (Thousands of Dollars) (UNAUDITED) December 31, 2000 1999 Assets Current Assets Cash and cash equivalents $ 249 $ 72 Trade accounts and notes receivable 1,627,714 371,313 Materials and supplies 18,119 10,360 Gas in storage 57,800 124,511 Deferred income taxes 10,425 8,383 Purchased gas cost adjustment 1,578 8,105 Assets from price risk management activities 1,416,368 — Customer deposits 120,800 40,928 Other current assets 71,906 31,714 Total Current Assets 3,324,959 595,386 Property, Plant and Equipment 4,206,129 3,143,693 Accumulated depreciation, depletion, and amortization 1,110,616 1,021,915 Net Property 3,095,513 2,121,778 Deferred Charges and Other Assets Regulatory assets, net 238,605 247,486 Goodwill 93,409 80,743 Assets from price risk management activities 405,666 — Investments and other 210,984 195,847 Total Deferred Charges and Other Assets 948,664 524,076 Total Assets $7,369,136 $3,241,240 Liabilities and Shareholders’ Equity Current Liabilities p. 20 Current maturities of long-term debt $ 10,767 $ 21,767 Notes payable 824,106 462,242 Accounts payable 1,256,310 237,653 Accrued taxes 8,735 359 Accrued interest 24,161 16,628 Customers’ deposits 18,319 18,212 Liabilities from price risk management activities 1,296,041 — Other 96,913 29,852 Total Current Liabilities 3,535,352 786,713 Long-term Debt, excluding current maturities 1,336,082 775,074 Deferred Credits and Other Liabilities Deferred income taxes 382,363 349,883 Liabilities from price risk management activities 543,278 — Lease obligation 137,131 — Other deferred credits 209,973 178,046 Total Deferred Credits and Other Liabilities 1,272,745 527,929 Total Liabilities 6,144,179 2,089,716 Shareholders’ Equity Convertible Preferred Stock, $0.01 par value: Series A authorized 20,000,000 shares; issued and outstanding 19,946,448 shares at December 31, 2000 and 1999 199 199 Common stock, $0.01 par value: authorized 100,000,000 shares; issued 31,599,305 shares and outstanding 29,588,275 shares at December 31, 2000; issued 31,599,305 shares and outstanding 29,554,623 shares at December 31, 1999 316 316 Paid in capital 895,668 894,976 Unearned compensation (1,128) (1,846) Retained earnings 387,789 317,985 Treasury stock at cost: 2,011,030 shares at December 31, 2000; 2,044,682 shares at December 31, 1999 (57,887) (60,106) at August 31, 1999 1,224,957 1,151,524 Total Liabilities and Shareholders’ Equity $7,369,136 $ 3,241,240
  31. 31. C O N S O L I D AT E D C O N D E N S E D S TAT E M E N T S O F C A S H F L O W S (Thousands of Dollars) (UNAUDITED) Year Ended December 31, 2000 1999 Operating Activities Net income $ 145,607 $ 106,873 Depreciation, depletion, and amortization 143,351 131,195 Gain on sale of assets (27,050) (1,646) Net income from equity investments (4,025) (5,623) Deferred income taxes 26,143 48,116 Changes in assets and liabilities (379,213) (135,008) Cash Provided by (Used in) Operating Activities (95,187) 143,907 Investing Activities Changes in other investments, net 68 (60,241) Acquisitions (494,904) (259,516) Capital expenditures (311,403) (274,245) Proceeds from sale of property 60,659 3,000 Cash Used in Investing Activities (745,580) (591,002) Financing Activities Borrowing of notes payable, net 361,864 152,242 Issuance of debt 590,000 496,254 Payment of debt (39,992) (60,599) Issuance of common stock — 1,380 Acquisition of treasury stock, net (453) (62,578) Dividends paid (70,475) (76,234) Acquisition and cancellation of preferred stock — (3,298) Cash Provided by (Used in) Financing Activities 840,944 447,167 p. 21 Change in Cash and Cash Equivalents 177 72 Cash and Cash Equivalents at Beginning of Period 72 — Cash and Cash Equivalents at End of Period $ 249 $ 72
  32. 32. FIVE YEAR SUMMARY 1996-2000 (UNAUDITED) Year Ended Year Ended December 31 August 31 2000 1999 1998 1997 1996 Financial Data (Millions of dollars, except per share amounts) Operating revenues $ 6,642.9 $ 2,065.4 $ 1,820.8 $ 1,161.6 $ 1,218.6 Operating expenses, before income taxes 6,309.0 1,833.0 1,632.0 1,033.8 1,103.6 Operating income 333.9 232.4 188.8 127.8 115.0 Other income 18.5 7.3 14.6 0.3 6.0 Interest 118.6 65.7 35.1 34.0 35.2 Income taxes 90.3 67.1 66.5 34.8 33.0 Income before cumulative effect of a change in accounting principle 143.5 106.9 101.8 59.3 52.8 Cumulative effect of change in accounting principle, net of tax 2.1 — — — — Net Income 145.6 106.9 101.8 59.3 52.8 Dividends on preferred stock 37.1 37.2 27.0 0.3 0.4 Earnings applicable to common stock $ 108.5 $ 69.7 $ 74.8 $ 59.0 $ 52.4 Earnings per share of common stock-basic $ 3.71 $ 2.24 $ 2.44 $ 2.13 $ 1.93 Earnings per share of common stock -diluted $ 2.96 $ 2.09 $ 2.23 $ 2.13 $ 1.93 Total assets at end of year $ 7,369.1 $ 3,241.2 $ 2,422.5 $ 1,237.4 $ 1,219.9 Capital expenditures $ 311.4 $ 274.2 $ 140.8 $ 112.0 $ 95.4 Capitalization at Year End (Millions of dollars) Long-term debt 1,346.8 796.8 329.3 347.1 351.9 Short-term debt 824.1 462.3 212.0 45.0 50.2 Total debt 2,170.9 64% 1,259.1 52% 541.3 32% 392.1 46% 402.1 49% Shareholders’ equity 1,225.0 36% 1,151.5 48% 1,168.9 68% 462.6 54% 423.7 51% Total capitalization $ 3,395.9 $2 ,410.6 $ 1,710.2 $ 854.7 $ 825.8 p. 22 Coverages Times interest earned 3.0 3.6 5.8 3.7 3.4 Ratio of earnings to fixed charges 2.88 3.46 5.50 3.51 3.28 Ratio of earnings to fixed charges and preferred stock dividend requirement 1.93 1.84 2.52 3.48 3.24 Common Stock Data Return on common equity 23.30% 17.78% 19.14% 13.52% 13.15% Dividends paid per share 1.24 $1.24 $1.20 $1.20 $1.18 Percent payout 41.9% 55.4% 53.8% 56.2% 61.1% Book value per share at year end 24.63 $19.87 $22.64 $16.47 $15.21 Market price High $ 50.563 $ 37.188 $ 44.250 $ 35.313 $ 28.875 Low $ 21.750 $ 24.500 $ 29.750 $ 24.875 $ 20.000 Close $ 48.125 $ 25.125 $ 30.063 $ 32.375 $ 27.375 Market price to book value at year-end 2.0 1.3 1.3 2.0 1.8 Market price to earnings at year end 16.3 12.0 13.5 15.2 14.5 Common dividend yield at year-end 2.6% 4.9% 4.0% 3.7% 4.2% Shares outstanding at year end-basic (Thousands) 29,588 29,555 31,576 28,080 27,261 Shares outstanding at year end-diluted (Thousands) 49,736 49,504 51,633 28,080 27,261 Number of shareholders at year end 12,067 12,797 11,768 13,189 13,267
  33. 33. O P E R AT I N G S TAT I S T I C S (UNAUDITED) Year Ended December 31, 2000 December 31, 1999 August 31, 1998 Marketing and Trading Natural gas volumes (Billions of cubic feet) 990.0 411.0 334.4 Gross margin (Mcf) 0.06 0.08 0.05 Capital expenditures (Thousands) $ 59,512 $ 17,045 $ — Total assets (Thousands) $ 3,112,653 $ 306,705 $ 130,100 Gathering and Processing Average NGL’s price ($/Gal) $ 0.500 $ 0.320 $ 0.302 Average gas price ($/Mcf) $ 3.70 $ 2.42 $ 2.30 Total gas gathered (Mcf/D) 1,186,900 229,300 219,971 Total gas processed (Mcf/D) 1,111,400 187,000 198,172 Natural gas liquids sales (Millions of gallons) 1,007,343 278,838 194,580 Gas sales (MMcf) 115,180 19,675 5,771 Natural Gas Liquids by Component (%) Ethane 37 48 42 Propane 32 27 31 Iso butane 5 5 4 Normal butane 12 9 10 Natural gasoline 14 11 13 Contracts % Percent of Proceeds 44 64 54 Fuel and Shrink 32 36 46 Fee 24 — — Capital expenditures (Thousands) $ 32,383 $ 31,696 $ 2,235 Total assets (Thousands) $ 1,507,546 $ 368,904 $ 86,955 Transportation and Storage Volumes transported (Billions of cubic feet) 557.1 336.7 394.8 Working gas in storage (Billions of cubic feet) 21.6 41.5 47.0 Capital expenditures (Thousands) $ 37,701 $ 25,393 $ 38,271 Total assets (Thousands) $ 661,894 $ 437,561 $ 351,692 p. 23 Distribution Volumes (Millions of cubic feet) Gas sales 153,449 152,724 153,490 Pipeline capacity leases and end use customer transportation 192,881 197,269 241,262 Total 346,330 349,993 394,752 Average Number of Customers at Year End Oklahoma 784,746 757,500 739,684 Kansas 633,698 627,937 652,330 Degree days Oklahoma 3,652 2,865 3,634 Percent colder (warmer) than normal (0.2)% (20.9)% (0.4)% Kansas 4,959 4,411 3,771 Percent colder (warmer) than normal 0.3% (11.8)% (6.2)% Capital expenditures (Thousands) $ 124,983 $ 113,043 $ 77,198 Total assets (Thousands) $ 2,007,351 $1,776,273 $1,771,999 Customers per employee Oklahoma 586 563 475 Kansas 555 527 489 Gross Margin per Mcf Oklahoma Residential $ 2.76 $ 2.99 $ 2.99 Commercial $ 1.97 $ 2.44 $ 2.40 Industrial $ 1.09 $ 1.11 $ 1.13 Pipeline capacity leases $ 0.27 $ 0.27 $ 0.24 Kansas Residential $ 2.44 $ 2.43 $ 2.24 Commercial $ 1.91 $ 1.86 $ 1.75 Industrial $ 1.85 $ 2.13 $ 1.92 Pipeline capacity leases $ 0.63 $ 0.53 $ 0.56 Production Proved reserves at year end Gas (Billions of cubic feet) 254.7 247.0 178.0 Oil (Thousands of barrels) 4,339 4,160 3,272 Production Gas (Billions of cubic feet) 26.7 28.4 16.8 Oil (Thousands of barrels) 400 453 330 Average price Gas (Mcf) $ 2.28 $ 2.25 $ 2.21 Oil (Bbls) $ 21.43 $ 15.54 $ 15.70 Capital expenditures (Thousands) $ 34,035 $ 63,104 $ 16,650 Total assets (Thousands) $ 364,248 $352,912 $282,765
  34. 34. C O R P O R AT E O F F I C E R S David D. Arnold, 42 Stephan R. Guy, 46 Vice President - Customer Service Vice President, Engineering and Oklahoma Natural Gas and Kansas Operations - Oklahoma Region ONEOK, INC. Gas Service David L. Kyle, 48 Donald T. Jacobsen, 52 Chairman of the Board, President and William G. Eliason, 48 Vice President - Gathering Chief Executive Officer Vice President - Gas Strategy ONEOK Producer Services, L.L.C. Oklahoma Natural Gas and John A. Gaberino Jr., 59 Kansas Gas Service Sam H. McVay Jr., 56 Senior Vice President and General Vice President - Business Development Counsel Daniel C. Walker, 47 Vice President - Operations Greg A. Phillips, 38 James C. Kneale, 49 Oklahoma Natural Gas and Kansas Vice President, Engineering and Senior Vice President, Treasurer and Chief Gas Service Operations - Texas Region Financial Officer John L. Sommer, 45 Deborah B. Barnes, 46 KANSAS GAS SERVICE COMPANY Vice President, Gathering Vice President, Secretary and Associate and Processing - Supply Joseph B. Diskin, 58 General Counsel Vice President - Northern Operations Sherman W. “Pete” Walker, 49 James M. Fallon, 44 Vice President, Commercial Larry L. Fischer, 57 Vice President - Corporate Services ONEOK Gas Transportation, L.L.C. Vice President - Western Operations William S. Maxwell, 40 Phyllis S. Worley, 50 Vice President - Financial Trading MARKETING AND TRADING Vice President - Southern Operations ONEOK ENERGY MARKETING AND D. Lamar Miller, 41 T R A D I N G C O M PA N Y Vice President and Risk Control Officer p. 24 OKLAHOMA NATURAL GAS COMPANY Christopher R. Skoog, 37 President Charles O. Moore, 38 Samuel Combs III, 43 Vice President - Information Technology Vice President - Western Region Patrick J. McDonie, 40 Vice President - Trading David E. Roth, 45 Carl J. Holliday, 57 Vice President - Human Resources Vice President - Eastern Region Weldon L. Watson, 53 PRODUCTION Vice President - Investor Relations and ONEOK RESOURCES COMPANY G AT H E R I N G A N D P R O C E S S I N G Communications T R A N S P O R TAT I O N A N D S T O R A G E J. D. Holbird, 51 POWER President John W. Gibson*, 48 President - Energy George W. Drake, 51 O P E R AT I O N S O F F I C E R S Vice President - Marketing J. Brian Boulter, 48 DISTRIBUTION Vice President, Engineering and Kenneth D. Lovell, 46 Operations - Kansas Region Eugene N. Dubay*, 52 Vice President - Acquisitions and President Exploration William R. DeWare, 45 Kansas Gas Service Company Vice President - Marketing and W. Clark Southmayd Jr., 42 Business Development Edmund J. Farrell*, 57 Vice President - Engineering and ONEOK Power Marketing Company President Operations Oklahoma Natural Gas Company *Also a ONEOK Corporate Officer Officer Retirements James T. Clark, 60, Kansas Gas Service Company Vice President - Administration, retires effective April 1, 2001, following 22 years of service. Roy L. Clymer, 62, Oklahoma Natural Gas Company Vice President - Customer Service, retired September 1, 2000, following 38 years of service. Barry D. Epperson, 56, ONEOK Vice President, Controller and Chief Accounting Officer, retires effective April 1, 2001, following 30 years of service.
  35. 35. DIRECTORS Douglas T. Lake Edwyna G. Anderson Executive Vice President and Retired General Counsel Chief Strategic Officer Duquesne Light Company Western Resources, Inc. Pittsburgh, Pennsylvania Topeka, Kansas William M. Bell Bert H. Mackie President and Director President and Director Bank One Oklahoma, N.A. Security National Bank Oklahoma City, Oklahoma Enid, Oklahoma Douglas R. Cummings Douglas Ann Newsom, Ph.D. Chairman Professor, Department of Journalism Cummings Oil Company Texas Christian University Oklahoma City, Oklahoma Fort Worth, Texas John B. Dicus Gary D. Parker President and Chief Operating Officer President Capitol Federal Savings Bank Moffitt, Parker & Company, Inc. Topeka, Kansas Muskogee, Oklahoma William L. Ford J. D. Scott President Retired Chairman of the Board Shawnee Milling Company ONEOK, Inc. Shawnee, Oklahoma Tulsa, Oklahoma David L. Kyle p. 25 Chairman, President and Chief Executive Officer ONEOK, Inc. Tulsa, Oklahoma Chairman Emeritus C. C. Ingram Chairman Emeritus ONEOK, Inc. Tulsa, Oklahoma B o a r d Tr a n s i t i o n s Stanton L. Young retired from ONEOK’s Board of Directors on April 20, 2000. Young, president of The Young Companies in Oklahoma City, tirelessly contributed his expertise to our Board for more than 28 years. We especially appreciate his service to ONEOK during our period of major transformation. Howard R. Fricke, chairman of the board and chief executive officer of The Security Benefit Group of Companies, resigned from the ONEOK Board of Directors on February 14, 2001. Fricke served as a director for four years. He will be missed, and we wish him the best. John B. Dicus joined ONEOK’s board of directors effective February 15, 2001. Dicus, 39, is president and chief operating officer and director of Capitol Federal Savings Bank in Topeka, Kansas. He brings financial expertise and experience to our board, along with knowledge of Kansas where ONEOK distributes natural gas to more than two-thirds of the state.
  36. 36. GLOSSARY Dekatherm (Dt or Dth): A measure of heating value roughly equivalent to one thousand cubic feet of natural gas. Exploitation: The optimal development of an oil and gas reservoir to extract its hydrocarbons. p. 26 Hedging: The process of reducing financial risk to adverse natural gas, oil or other commodity price movements by entering into offsetting transactions. Fuel and Shrink Contract: Also referred to as “keep whole.” Contract in which the processor replaces NGLs extracted with natural gas to maintain the BTU content at the tailgate of the plant. It allows the owner of the gas to be “kept whole” in terms of BTUs and allows the processor to sell the recovered NGLs. Mark-to-Market: The daily adjustment of a transaction to reflect its fair value. Often required to calculate variations of margins and to indicate market prices for positions. Natural Gas Liquids (NGL): Liquid hydrocarbons that are extracted and separated from the natural gas stream. NGL products include ethane, propane, iso butane, butane and natural gasoline. Percent-of-Proceeds Contract: Contract in which the processor is paid a percentage of the market value of the natural gas and NGLs that are processed. Units of Measure: Mcf Thousand cubic feet MMcf Million cubic feet Bcf Billion cubic feet Bbl Barrels (42 U.S. gallons) MBbl Thousand barrels MGal Thousand gallons When -e follows any of the above, the oil and natural gas liquids components have been converted to their equivalents in cubic feet at a rate of 6 Mcf per barrel.
  37. 37. SEGMENT PROFILE p. 27
  38. 38. ONEOK FIELD SERVICES MAJOR MARKETING HUBS PROCESSING PLANTS MARKETING PRESENCE MARKETING AND TRADING G AT H E R I N G A N D P R O C E S S I N G C O M PA N I E S L O C AT I O N S ACTIVITIES C O M PA N I E S L O C AT I O N S ACTIVITIES ONEOK Energy Major marketing Markets natural gas to ONEOK Field Oklahoma, Kansas, Conducts gas gathering Marketing & hubs in the U.S. wholesale and retail Services Texas and processing. Also Trading Company including the Waha, customers in the United Company fractionates, stores Mid Continent, States, leases gas and markets natural Katy, Rockport storage from others with ONEOK Gas gas liquids (NGL) and Chicago. direct access to the Processing, L.L.C. products. West Coast and the Texas intrastate market, trades wholesale elec- Results tricity on a limited scale. (For The Year Ended Dec. 31) 2000 1999 Natural gas liquids (NGL) and condensate sales ($000) $ 536,470 $ 87,097 p. 28 Conducts wholesale ONEOK Power Oklahoma NGL sales (MGal) 1,007,343 278,838 trading of electricity. Marketing NGL average price realized ($/gal) $ 0.50 $ 0.32 Building ONEOK’s Spring Company (a) Gas sales ($000) $ 426,364 $ 47,699 Creek Power Plant, Gas sales (MMMbtu) 115,180 19,675 scheduled to be opera- Gathering revenues ($000) $ 51,734 $ 13,192 tional June 1, 2000. Capital expenditures ($000) $ 32,383 $ 31,696 Operating income ($000) $ 110,819 $ 21,679 Results Highlights (For The Year Ended Dec. 31) 2000 1999 Natural gas sales ($000) $ 4,658,787 $ 960,764 * Acquired 13,400 miles of gathering pipeline and natural gas Natural gas volumes (MMcf) 990,033 411,002 processing plants with a combined capacity of 1.6 billion cubic Daily Natural gas volumes (Bcf) 2.7 1.1 feet per day, expanding our system to West Texas. Capital expenditures ($000) (b) $ 59,512 $ 17,045 * Produced one million barrels of brine at Bushton NGL storage facility Operating income ($000) $ 51,274 $ 24,180 in order to sell more natural gas liquids from storage during the winter 2000-2001 heating season. Highlights * Sold the Indian Basin Processing Plant and gathering system * Signed three major supply agreements of more than 100 million for $55 million. cubic feet per day for terms of 2 to 5 years. * Increased processing capacity in Oklahoma by about 25 million cubic * Signed a new 100 million cubic feet a day two-year agreement on feet a day by connecting several plants together with piping and supply side of business with a major producer that has multiple using previously unprocessed gas to fill that capacity. pipeline deliveries. * Shut down five gas plants through consolidation to better utilize * Signed several new peaking contracts with local distribution capacity and reduce operating costs. customers around the country that are within the confines of our storage deliverability. Top 2001 Strategy * Exceeded $1 billion in gross revenues for the first time. * Seek “back-yard” acquisitions that will facilitate consolidation and * Implemented new online portal system that provides interface optimization of assets while increasing percent-of-proceeds and fee- with customers and streamlines operations. based contracts, thereby reducing exposure to keep whole contracts. Top 2001 Strategy * Exploit trading opportunities between supply basins and market centers. (a) On January 1 2001, the company created a new segment, “Power,” which will include the operating results of ONEOK Power Marketing Company. (b) The majority of capital expenditures relate to the construction of the Spring Creek Power Plant
  39. 39. ONEOK GAS TRANSPORTATION,L.L.C. ONEOK GAS TRANSPORTATION — GATHERING MID CONTINENT MARKET CENTER MID CONTINENT TRANSPORTATION CO. ONEOK WESTEX TRANSMISSION CO. STORAGE KANSAS GAS SERVICE TERRITORY OKLAHOMA NATURAL GAS SERVICE TERRITORY DISTRIBUTION T R A N S P O R TAT I O N A N D S T O R A G E C O M PA N I E S L O C AT I O N S ACTIVITIES C O M PA N I E S L O C AT I O N S ACTIVITIES Oklahoma Oklahoma Provides natural gas ONEOK Gas Oklahoma, Kansas, Provides affiliated and distribution services Natural Transportation Texas nonaffiliated compa- to 80 percent of L.L.C., Mid Company nies access to key Oklahoma, including Continent Market natural gas producing residential, commercial Center, Mid areas through 9,600 and industrial cus- Continent miles of integrated tomers. Operations Transportation pipeline systems. are regulated by the Company, Oklahoma Corporation ONEOK WesTex Commission. Transmission Company Provides natural gas Kansas Gas Kansas distribution services Service Company Owns 10 underground ONEOK Gas Oklahoma, to approximately two- storage facilities and Storage, L.L.C.. Kansas, Texas thirds of Kansas, leases capacity to third including residential, parties. commercial and industrial customers. Operations are Helps producers ONEOK Producer Oklahoma regulated by the Kansas through the steps Services, L.L.C. Corporation Commission. involved in getting natural gas from the field to transportation Results systems and storage (For The Year Ended Dec. 31) 2000 1999 facilities. Total throughput (MMcf) 346,330 349,993 Capital expenditures ($000) $ 124,983 $ 113,043 Number of customers (Average) 1,418,444 1,435,647 Results Customers per employee (Average) Oklahoma 586 563 (For The Year Ended Dec. 31) 2000 1999 Volumes transported (MMcf) 557,052 336,658 Kansas 555 527 Capital expenditures ($000) $ 37,701 $ 25,393 Operating income ($000) $ 97,931 $ 103,289 Operating income ($000) $ 62,158 $ 60,448 Highlights Highlights * Adjusted operations following deregulation of gas storage and * Added 5,000 miles of transmission pipeline and 10 billion cubic feet gathering in Oklahoma. of additional storage capacity to assets through acquisition, and also * Implemented weather-normalization rate adjustment in Kansas on expanded system into West Texas. December 1, 2000. * Entered into a long-term agreement with a major power producer to * Implemented field scheduling management system in Kansas. provide firm natural gas transportation service of up to 85,000 * Test pilot global positioning in Oklahoma. dekatherms per day to its new 500 megawatt generating plant * Installed low-cost remote meter reading equipment for larger in Oklahoma. Oklahoma commercial customers. Top 2001 Strategy * Coordinating efforts through best practices. * Grow throughput while operating as the lowest cost provider in all Top 2001 Strategy operational locations. * Use best practices to continue reducing overhead and maintenance expense.
  40. 40. PRODUCTION AREAS PRODUCTION C O M PA N I E S L O C AT I O N S ACTIVITIES ONEOK Oklahoma, Kansas, Produces natural Resources Texas gas and oil. Company Participates as operator of some projects and as a nonoperator, interest partner in others. Results ONEOK, Inc. Senior Management Team (left to right) (For The Year Ended Dec. 31) 2000 1999 (1) Christopher R. Skoog, President, ONEOK Energy Natural gas sales ($000) $ 60,966 $ 63,808 Marketing and Trading Company Natural gas production (MMcf) 26,746 28,379 Oil sales ($000) $ 8,571 $ 7,040 (2) David L. Kyle, Chairman of the Board, President Oil production (MBbls) 400 453 and Chief Executive Officer, ONEOK, Inc. Capital expenditures ($000) $ 34,035 $ 63,104 (3) Edmund J. Farrell, President, Oklahoma Natural Operating income ($000) $ 15,243 $ 18,078 Gas Company Other income, net ($000) (a) $ 10,600 $ 5,300 Proved reserves at year end (4) John A. Gaberino Jr., Senior Vice President Gas (Bcf) 250.5 247.0 and General Counsel, ONEOK, Inc. Oil (MBbl) 4,311 4,160 (5) John W. Gibson, President — Energy, ONEOK, Inc. Highlights (6) J.D. Holbird, President, ONEOK Resources Company * Increased development drilling by 140 percent. (7) James C. Kneale, Senior Vice President, Treasurer * Divested 143 non-strategic, under performing wells for $6 million. and Chief Financial Officer, ONEOK, Inc. * Reduced company’s lifting costs by 4 cents per Mcf. (8) Eugene N. Dubay, President, Kansas Gas * Participated in the acquisition of $2.2 million in wells and associated Service Company leaseholds near existing production in Grady County, Oklahoma. Top 2001 Strategy * Maximize earnings by continuing to participate in acquisition activities, developing acreage and prospects from our existing inventory, and increasing production through the drill bit. (a) Increased dividends from the Magnum Hunter investment led to the increase in “other income, net.”
  41. 41. C O R P O R AT E I N F O R M AT I O N Annual Meeting ONEOK Shareholder Information The annual meeting of shareholders will be held A shareholder communication service is available by Thursday, May 17, 2001, at 10:00 a.m. at ONEOK Plaza, phone at (800) 653-8083. 100 West Fifth Street, Tulsa, Oklahoma. The following information may be accessed: * Faxed news releases Auditors * Transfer agent requests KPMG LLP * Requests for mailed copies of: 100 West Fifth Street, Suite 310 (1) Annual report Tulsa, OK 74103-9919 (2) News releases (3) 10-K Direct Stock Purchase and Dividend Reinvestment Plan (4) 10-Q The company’s Direct Stock and Dividend Reinvestment (5) Proxy statement Plan provides investors the opportunity to purchase (6) Direct Stock Purchase and Dividend Reinvestment Plan shares of common stock without payment of any (7) Prospectus brokerage fees or service charges. Investor Relations Contact Transfer Agent, Registrar and Dividend Disbursing Agent Weldon Watson, vice president - investor relations and First Chicago Trust Company of New York, communications, by phone at (918) 588-7158 or by a division of EquiServe e-mail at P.O. Box 2500 Jersey City, New Jersey 07303 Corporate Web Site Phone: (888) 764-5595 ONEOK business and financial information is available at: Website: Hearing Impaired: TDD: 201-222-4955 Credit Rating Standard & Poor’s A Moody’s Investors Service A2 Stock Trading The common stock is listed on the New York Stock Exchange. The ticker symbol for ONEOK common stock is OKE. The corporate name ONEOK is used in newspaper stock listings.
  42. 42. W W W. O N E O K . C O M ONEOK, INC. 100 WEST FIFTH STREET POST OFFICE BOX 871 TULSA, OK 74102-0871