oneok 2006 Wachovia Pipeline Conference

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oneok 2006 Wachovia Pipeline Conference

  1. 1. Wachovia Securities 5th Annual Pipeline & MLP Symposium New York City December 5, 2006
  2. 2. John W. Gibson Chief Executive Officer-elect ONEOK. Inc. ONEOK Partners, L.P.
  3. 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. 4. Agenda • Strategy Gibson • ONEOK Partners Gibson • Distribution Kneale • Energy Services Kneale • Financial Review Kneale • Questions and Answers Gibson/Kneale 4
  5. 5. Key Strategies • Consistent growth and sustainable earnings, manage our balance sheets • Strategic acquisitions that provide long-term value • ONEOK Partners anticipated to be ONEOK’s primary growth vehicle • Improve profitability at ONEOK Distribution Companies • Continue focus on physical activities in ONEOK Energy Services • Operate in a safe and environmentally responsible manner • Attract, develop and retain employees to support strategy execution 5
  6. 6. ONEOK Partners Today • Gathering & Processing 6
  7. 7. ONEOK Partners Today • Gathering & Processing • Natural Gas Liquids 7
  8. 8. ONEOK Partners Today • Gathering & Processing • Natural Gas Liquids • Pipelines & Storage 8
  9. 9. ONEOK Partners Today • Gathering & Processing • Natural Gas Liquids • Pipelines & Storage • Interstate Pipelines 9
  10. 10. ONEOK Partners Key Points • Integrated operations contribute to value creation – Commercial and operating synergies through a common 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 • The partnership is well positioned to grow • Operating philosophy reduces asset reliability risks 10
  11. 11. Cash Flow Diversity • Predominantly fee based – 65 percent of margin comes from fee-based business • Commodity and spread risk is measured and managed • Cash flow stability managed within each segment Pre-AssetSpread Dropdown Post-Asset Dropdown 0% Spread Commodity 7% 20% Commodity Fee Based Fee Based 28% 65% 80% Total gross margin: $511 million Total gross margin: $834 million 2005 Actual 2006 Guidance 11
  12. 12. Internal Growth • Significant growth opportunities • Efficient use of capital • Projects underway in excess of $1.1 billion – Overland Pass Pipeline ($433 million) – Related NGL projects ($173 million) – Guardian II ($260 million) – Midwestern extension ($37 million) – Other projects ($240 million) • More than 25 active projects announced, under evaluation or negotiation • Capital guidance for 2006 – $178 million for Growth – $63 million for Maintenance 12
  13. 13. Growth Projects – Capital and EBITDA Timing • Over $1.1 billion of internally generated growth projects • EBITDA contributions begin in 2006 • Attractive returns – CAPEX as a multiple of EBITDA in the 3-6 times range • 2008 EBITDA contribution greater than $150 million; increasing in 2009 and beyond CAPITAL EXPENDITURES 2006 2007 2008 2009 + TOTAL MAJOR PROJECTS Overland Pass 38 251 144 433 Related NGL projects 22 113 38 173 Guardian II extension 8 90 162 260 Midwestern extension 18 19 37 Sub-total 903 OTHER PROJECTS Gathering & Processing 65 65 58 188 Natural Gas Liquids 17 11 6 34 Pipelines & Storage 7 1 1 9 Interstate Pipelines 3 3 3 9 Sub-total 240 TOTAL GROWTH CAPITAL 178 553 412 1143 13 Investment EBITDA Contribution
  14. 14. Internal Growth – Overland Pass Pipeline • A 99/1 percent joint venture with Williams for $433 million with 50/50 option • 110,000 bpd capacity – easily expandable to 150,000 bpd • Efficient alternative due to low fuel costs • Supply growth expected primarily from new drilling – Current pipeline infrastructure expected to be at capacity • Long-term supply agreement with Williams (~ 60,000 bpd) • In negotiations for additional supplies • 750 miles, 14-16 inch line • Construction: Summer 2007 • Completion: Early 2008 14
  15. 15. Internal Growth – Overland Pass-related NGL Projects • Associated with Overland Pass Pipeline project, an additional $173 million in other downstream infrastructure upgrades and expansions are underway: – Upgrade and expand the Bushton facilities from 80,000 bpd to 160,000 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 ONEOK Partners Bushton-to-Conway pipeline 15
  16. 16. Internal Growth – Guardian Pipeline • 106-mile extension from Ixonia to Green Bay, Wisconsin • Incremental capacity of 537,000 Dth/day to eastern Wisconsin • Capital expenditures estimated to be $260 million • Project anchored by two 15-year agreements with: – Wisconsin Energy – WPS Resources • Construction to begin after FERC approval, expected early 2008 • Target completion November 2008 16
  17. 17. Acquisition – Natural Gas Liquids Storage • $40 million to purchase and invest in related infrastructure improvements in Mont Belvieu, Texas • Adds 14.6 million barrels of capacity • Currently connected to existing NGL infrastructure • Enhances value of our existing assets and allows us to provide our customers with additional services 17
  18. 18. Jim Kneale President and Chief Operating Officer-elect ONEOK, Inc.
  19. 19. Distribution Distribution Strategies 647,000 Improve profitability through: customers • Rate filings • Cost Control 820,000 • Business Process Improvement customers 576,000 • Customer programs customers 19
  20. 20. Distribution Rate Strategies • More frequent and synchronized rate filings • Maintain positive relationships with regulators Issue Solution Oklahoma Kansas Texas Bad Debt Commodity recovery in PGA 2/17 Fixed-price Plan Average Payment Plan 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 Volumetric sensitivity Two-tier rate plan Decoupling 1/17 Margin Fluctuation Weather Normalization 7/17 Optimize capacity Revenue sharing 2/17 20
  21. 21. Distribution Kansas Gas Service – Rate Case • $52.0 million settlement approved November 16th – Adds $44-47 million in 2007 operating income • Implementation January 1, 2007 • As a result, the Distribution segment will now earn 8.5 percent return on equity 21
  22. 22. Energy Services Energy Services Key Points • Deliver bundled, reliable products and services in exchange for premium value, primarily to LDCs • Lease transportation and storage capacity, connecting the industry’s major supply and demand centers • Optimize our storage and transportation capacity through the daily application of market knowledge and effective risk management techniques • Grow earnings in our retail business by increasing market share, while maintaining current per-unit margins • Execute trading arbitrage opportunities around our knowledge and positions 22
  23. 23. Energy Services Energy Services: Sources of Margin • Storage: Winter/summer spread, demand revenues, storage financial arbitrage • 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 Operating Income Operating Income 2006 Guidance 2007 Guidance Trading Retail Retail 8% Optimization 7% 7% Optimization 8% Storage Storage 12% 41% 50% Transportation Transportation 35% 32% 23
  24. 24. 2007 Guidance: • Increased 2006 guidance – Includes gain on sale • Announced preliminary guidance for 2007 2006 2006 2007 Previous Revised Preliminary ONEOK, Inc. $2.50 - $2.60 $2.60 - $2.70 $2.35 - $2.75 Gain on sale $0.28 $0.28 - $2.22 - $2.32 $2.32 - $2.42 $2.35 - $2.75 Adjusted ONEOK Partners, L.P. $4.77 - $4.90 $4.92 - $5.02 $3.06 - $3.46 Gain on sale $1.51 $1.51 - $3.26 - $3.39 $3.41 - $3.51 $3.06 - $3.46 Adjusted 24
  25. 25. ONEOK Partners Distribution Growth to Unit Holders • Three increases in 2006; first increase since 2002 • 21 percent growth in 2006 $4.00 $0.97 $3.00 $0.80 $0.80 $0.80 $0.80 $0.7625 $0.95 $2.00 $0.80 $0.80 $0.80 $0.80 $0.7625 $0.88 $0.80 $0.80 $0.80 $0.80 $0.7625 $1.00 $0.80 $0.80 $0.80 $0.80 $0.80 $0.70 $0.00 2001 2002 2003 2004 2005 2006 Q1 Q2 Q3 Q4 25
  26. 26. ONEOK Partners Growth Benefits ONEOK EBITDA Growth Distribution Growth • Assumptions • Limited Partner Units – $1 million incremental EBITDA – ONEOK owns 37 million limited partner units – Partnership is in the “high splits” – Every one cent increase results in an additional $1.5 in ONEOK’s annual cash flow – All incremental cash flow is distributed • Incentive Distribution Rights – Annual depreciation of $125,000 – Assumes “high splits” • Impact on ONEOK income is $664,000 (pretax) – Every one cent increase results in a $3.3 million increase in ONEOK’s annual cash flow and – Approximately $500,000 from Incentive income before taxes Distribution Rights – Approximately $164,000 equity earnings related to limited partner units owned by ONEOK 26
  27. 27. ONEOK Is Undervalued • Enterprise value of $7.1 billion; equity value of $6.1 billion • Equity value per share: $55.08 • Implied P/E of 21.6 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 6.5 1,346 Trading - - - - Total 205 2 207 1,346 ONEOK Partners ** Limited Partner Units - - 2,223 General Partner Interest 46 - 46 23 1,058 46 - 46 3,281 Total $ 412 $ 112 $ 524 $ 7,065 Long-term Debt, net of cash & gas in storage 1,007 Equity value $ 6,058 Outstanding shares 110 Equity value per share $ 55.08 Implied P/E 21.6 Current P/E-based on closing stock price at 11/27/06 16.3 27 * 2007 Guidance ** Based on price of $60.08 and annual distributions of $3.88.
  28. 28. Appendix 28
  29. 29. Gathering & Processing Gathering & Processing Key Points • Asset diversity with balance between basins, producers and contracts • Growth opportunities in Mid-Continent and Rocky Mountains – Well connects – Internal projects – Strategic acquisitions • Basin diversity effective in offsetting natural production declines • Contract restructuring program has helped mitigate commodity price risk 29
  30. 30. Gathering & Processing Contract Mix – Volume Weighted 3% 4% 4% 6% 100% 10% 9% 14% 19% 5% 4% 3% 3% 80% 23% 30% 33% 24% 60% 10% 9% 9% 8% 40% 47% 41% 40% 40% 20% Keep Whole w/ Conditioning Keep Whole w/out Conditioning 0% POP - Rocky Mountain 2003 2004 2005 2006G POP - Mid-Continent Fee Based - Rocky Mountain Fee Based - Mid-Continent Contract Mix with Texas 30
  31. 31. Gathering & Processing Gathering & Processing Risk Mitigation • Year to date, reduced keep-whole volumes to: – 11 percent of total contract mix (47 percent of these volumes have conditioning language) – 16 percent of net margin for 9 months 2006 • Hedging: – 2006: 75 percent of margin associated with POP and keep-whole contracts – 2007: 25 percent of keep-whole spread – Ceiling: up to 75 percent of POP and keep-whole exposure • Sensitivities: 2006 2005 2004 2003 COMMODITY SENSITIVITY Margin Impact ($ millions) Natural Gas 10 cent/MMbtu increase -$0.1 -$1.6 -$2.7 -$3.5 Natural Gas Liquids 1 cent/gallon increase +$2.3 $3.8 $4.5 $4.8 Crude Oil $1/barrel increase +$0.3 $1.0 $1.3 $1.1 31
  32. 32. Natural Gas Liquids Natural Gas Liquids Key Points • Growing NGL supply through an aggressive plant connection program – Connected to 90% of pipeline-connected gas plants in Oklahoma, Kansas and Texas Panhandle • Increasing value in the services provided • Is primarily a fee-based business – More than 80% of gross margin 32
  33. 33. Natural Gas Liquids Mid-Continent Activities • Exchange and Storage Services – Gather, fractionate and transport NGLs from Gross Margin Contribution processing plants to storage and market hubs Isomerization Marketing – Fee-based contracts 5% 9% Optimization Exchange & • Optimization 9% Storage – Obtain highest product price by directing 77% product movement between Conway and Mont Belvieu • Isomerization – Converts normal butane to iso-butane – Fee-based contracts 9 Months 2006 YTD • Marketing – We purchase approximately one-half of fee- exchange volumes in our Mid-Continent for resale on an index-related basis 33
  34. 34. Pipelines & Storage Pipelines & Storage Key Points • Pipelines and Storage produces a steady earnings stream – 48% fixed rate (demand based) – 52% variable rate (commodity rate) • Overland Pass is a significant growth opportunity • Abundance of internal growth projects – Natural gas storage expansion and acquisition – Pipeline expansions – New projects 34
  35. 35. Interstate Pipelines Interstate Pipelines Key Points • Provide fee-based income (demand-charge Viking Gas revenues) Transmission • Access to diverse supply sources with connections to growing markets Northern Border Pipeline • High utilization rates Guardian Pipeline Midwestern Gas Transmission 35
  36. 36. 36

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