TULSA, Okla., Aug. 4 /PRNewswire-FirstCall/ -- ONEOK Partners, L.P. (NYSE: OKS) today announced second-quarter 2009 earnings of 81 cents per unit, compared with $1.46 per unit for the second quarter 2008. Net income attributable to ONEOK Partners was $97.5 million in the second quarter 2009, compared with $154.5 million in the same period in 2008.
Year-to-date 2009 net income attributable to ONEOK Partners was $197.1 million, or $1.66 per unit, compared with $299.5 million, or $2.94 per unit, in the prior year.
The partnership also updated its 2009 limited partners' net income per unit guidance to the range of $3.25 to $3.65 per unit from its previous range of $3.15 to $3.75 per unit. The partnership's distributable cash flow is expected to be in the range of $505 million to $545 million.
"The partnership posted solid results in the second quarter, benefiting from continued volume growth in both the natural gas and natural gas liquids businesses, despite significantly lower commodity prices," said John W. Gibson, chairman and chief executive officer of ONEOK Partners. "We also raised $241 million of equity through a common unit offering, providing the partnership with additional financial flexibility to fund its growth and maintain a balanced capital structure.
"We are nearing completion of the $2 billion of internal growth projects that we started in 2007, as we have just completed construction on the Arbuckle natural gas liquids pipeline in late July," Gibson said. "The committed throughput from these projects will continue to increase over the next few years as additional supplies are connected to our natural gas liquids infrastructure," Gibson added.
Cash flow, as measured by earnings before interest, taxes, depreciation and amortization (EBITDA), was $182.0 million in the second quarter 2009, compared with $212.0 million in 2008. Distributable cash flow (DCF) for the second quarter 2009 was $130.9 million, or $1.17 per unit, compared with $176.9 million, or $1.72 per unit, in the second quarter 2008.
Year-to-date 2009 EBITDA was $366.3 million, compared with $420.2 million in the same period last year. DCF for the first six months of 2009 was $265.4 million, or $2.40 per unit, compared with $335.8 million, or $3.37 per unit, in the same period last year.
Operating income for the second quarter 2009 was $124.8 million, compared with $163.7 million for the second quarter 2008. For the first six months of 2009, operating income was $249.6 million, compared with $314.3 million the prior year. The decreases in both the three- and six-month periods were due primarily to significantly lower realized commodity prices in the natural gas gathering and processing segment and lower realized NGL product price differentials in the natural gas liquids gathering and fractionation segment. These decreases were partially offset by increased NGL throughput in the natural gas liquids businesses, primarily associated with the completion of the Overland Pass Pipeline, and incremental natural gas transportation margins as a result of the Guardian Pipeline expansion and extension.
Operating costs were $100.5 million in the second quarter 2009, compared with $87.2 million in the same period last year. Operating costs for the six months ended June 30, 2009, were $190.0 million, compared with $175.2 million in the same period last year. Operating costs for the three- and six-month 2009 periods increased due to higher operating expenses at fractionation facilities, including incremental expenses associated with the recently expanded Bushton fractionator that began operations in the third quarter 2008; and incremental expenses associated with the Overland Pass Pipeline.
SECOND-QUARTER 2009 SUMMARY INCLUDES:
- Operating income of $124.8 million, compared with $163.7 million in the second quarter last year;
- Natural gas gathering and processing segment operating income of $40.9 million, compared with $76.2 million in the second quarter 2008;
- Natural gas pipelines segment operating income of $31.7 million, compared with $37.7 million in the second quarter 2008;
- Natural gas liquids gathering and fractionation segment operating income of $34.5 million, compared with $41.7 million in the second quarter 2008;
- Natural gas liquids pipelines segment operating income of $17.8 million, compared with $9.9 million in the second quarter 2008;
- Equity earnings from investments of $14.2 million, compared with $17.6 million in the second quarter 2008;
- Capital expenditures of $129.4 million, compared with $257.5 million in the second quarter 2008;
- Completing a public offering of common units, generating net proceeds of approximately $241.3 million;
- Having $360.0 million outstanding under the partnership's $1.0 billion revolving credit facility at June 30, 2009;
- Declaring a quarterly cash distribution of $1.08 per unit payable on Aug. 14, 2009, to unitholders of record as of July 31, 2009; and
- Announcing the retirement of James C. Kneale, president and chief operating officer, effective Jan. 1, 2010, and the promotion of Terry K. Spencer to chief operating officer, effective July 16, 2009.
SECOND-QUARTER AND YEAR-TO-DATE 2009 BUSINESS UNIT RESULTS
Natural Gas Gathering and Processing Segment
The natural gas gathering and processing segment reported second-quarter 2009 operating income of $40.9 million, compared with $76.2 million in the second quarter 2008.
Second-quarter 2009 results decreased $34.0 million due to lower realized natural gas, NGL and condensate prices. Operating costs in the second quarter 2009 were $34.0 million, compared with $32.8 million in the same period last year.
Operating income for the six months was $80.6 million in 2009, compared with $135.2 million in the same period last year.
Six-month 2009 results decreased primarily due to $61.4 million in lower realized natural gas, NGL and condensate prices, partially offset by a $7.4 million increase from higher volumes processed and sold. Operating costs for the segment were unchanged from the six-month period in 2008.
Depreciation and amortization expense increased for both the three- and six-month periods ended June 30, 2009, compared with 2008, primarily as a result of completed capital projects.
Equity earnings from investments decreased for both the three- and six-month periods ended June 30, 2009, compared with the prior year, primarily as a result of lower volumes in various gathering system investments.
The following table contains margin information for the periods indicated. NGL shrink, plant fuel and condensate shrink refer to the Btus that are removed from natural gas through the gathering and processing operation.
Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
------------------- ---- ---- ---- ----
Percent of proceeds
Wellhead purchases (MMBtu/d) 56,788 69,389 58,632 69,960
NGL sales (Bbl/d) 5,346 5,111 5,210 4,960
Residue gas sales (MMBtu/d) 41,054 36,947 38,979 36,776
Condensate sales (Bbl/d) 1,825 1,844 1,925 1,833
Percentage of total net
margin 49% 64% 49% 62%
Fee-based
Wellhead volumes (MMBtu/d) 1,130,169 1,184,654 1,146,681 1,188,169
Average rate ($/MMBtu) $0.31 $0.26 $0.30 $0.26
Percentage of total net
margin 36% 21% 36% 22%
Keep whole
NGL shrink (MMBtu/d) 18,874 22,433 18,528 22,970
Plant fuel (MMBtu/d) 2,166 2,313 2,174 2,400
Condensate shrink (MMBtu/d) 2,042 2,242 2,113 2,127
Condensate sales (Bbl/d) 413 454 428 430
Percentage of total net
margin 15% 15% 15% 16%
------------------------- -- -- -- --
The natural gas gathering and processing segment is exposed to commodity price risk, primarily NGLs, as a result of receiving commodities in exchange for services. The following table provides updated hedging information in the natural gas gathering and processing segment for the remainder of 2009 and for 2010:
Six Months Ending December 31, 2009
-------------------------------------
Volumes Percentage
Hedged Average Price Hedged
----------- ------- ------------- ----------
NGLs (Bbl/d) (a) 6,445 $1.08 / gallon 75%
Condensate
(Bbl/d) (a) 1,449 $2.18 / gallon 72%
---------- ----- ----- -------- ---
Total
(Bbl/d) 7,894 $1.29 / gallon 74%
======== ===== ===== ======== ===
Natural
gas (MMBtu/d) 8,753 $4.20 / MMBtu 45%
-------------- ----- ----- ------- ---
(a) - Hedged with fixed-price swaps.
Year Ending December 31, 2010
--------------------------------------
Volumes Percentage
Hedged Average Price Hedged
----------- -------- ------------- ---------
NGLs (Bbl/d) (a) 451 $1.37 / gallon 5%
Condensate
(Bbl/d) (a) 1,072 $1.70 / gallon 49%
---------- ----- ----- -------- ---
Total
(Bbl/d) 1,523 $1.60 / gallon 14%
======== ===== ===== ======== ===
Natural
gas (MMBtu/d) 7,828 $5.71 / MMBtu 37%
-------------- ----- ----- ------- ---
(a) - Hedged with fixed-price swaps.
The partnership currently estimates that a 1 cent per gallon decrease in the composite price of NGLs would decrease annual net margin by approximately $1.2 million. A $1.00 per barrel decrease in the price of crude oil would decrease annual net margin by approximately $1.0 million. Also, a 10 cent per MMBtu decrease in the price of natural gas would decrease annual net margin by approximately $0.7 million. All of these sensitivities exclude the effects of hedging and assume normal operating conditions.
Natural Gas Pipelines Segment
The natural gas pipelines segment reported second-quarter 2009 operating income of $31.7 million, compared with $37.7 million for the second quarter 2008.
Second-quarter 2009 results include an $8.3 million increase in transportation margins, primarily as a result of the Guardian Pipeline expansion and extension being placed into service in February 2009, partially offset by a $7.4 million decrease from the effect of lower natural gas prices on retained fuel.
Operating costs were $24.5 million in the second quarter 2009, compared with $20.5 million in 2008, primarily due to increased general taxes. Depreciation and amortization expense was $10.6 million in the second quarter 2009, compared with $8.5 million in the same period last year, primarily as a result of the completed Guardian Pipeline expansion and extension project.
Operating income for the six months 2009 was $64.3 million, compared with $69.4 million in the same period in 2008.
Six-month 2009 results reflect $13.2 million from increased transportation margins, primarily as a result of the Guardian Pipeline expansion and extension project, partially offset by an $11.7 million decrease from the effect of lower natural gas prices on retained fuel.
Operating costs for the six-months 2009 were relatively unchanged from the same period last year. Depreciation and amortization expense was $23.4 million for the six-month period 2009, compared with $17.0 million in the same period last year, primarily as a result of the completed Guardian Pipeline expansion and extension project.
Equity earnings from investments were $5.6 million in the second quarter 2009, compared with $9.2 million in the same period in 2008. Six-month 2009 equity earnings from investments were $21.8 million, compared with $29.2 million in the same period in 2008. The decreases were primarily due to lower subscription volumes and rates on the Northern Border Pipeline, in which the partnership has a 50 percent interest.
Natural Gas Liquids Gathering and Fractionation Segment
The natural gas liquids gathering and fractionation segment reported second-quarter 2009 operating income of $34.5 million, compared with $41.7 million for the second quarter 2008.
Second-quarter 2009 results benefited $20.3 million from higher volumes, primarily associated with the Overland Pass Pipeline, as well as new supply connections; offset by $14.8 million in higher tariff costs paid to the natural gas liquids pipelines segment; and a $7.1 million decrease as a result of narrower NGL product price differentials.
Operating income for the six months 2009 was $64.5 million, compared with $87.0 million in 2008.
Six-month 2009 results benefited $41.6 million from higher volumes, primarily associated with the Overland Pass Pipeline, as well as new supply connections; but was more than offset by $25.6 million in higher tariff costs paid to the natural gas liquids pipelines segment; and a $28.0 million decrease as a result of narrower NGL product price differentials.
Operating costs were $25.5 million in the second quarter 2009, compared with $20.0 million in the second quarter 2008. Six-month 2009 operating costs were $48.3 million, compared with $38.6 million in the same period last year. The increases resulted primarily from higher operating costs at fractionation facilities, which included incremental expenses associated with the recently expanded Bushton fractionator that began operations in the third quarter 2008.
The Conway-to-Mont Belvieu average price differential for ethane in the second quarter 2009, based on Oil Price Information Service (OPIS) pricing, was 12 cents per gallon, compared with 13 cents per gallon in the same period in 2008. For the six months 2009, the average OPIS price differential for ethane was 10 cents per gallon, compared with 11 cents per gallon in the same period last year.
Natural Gas Liquids Pipelines Segment
The natural gas liquids pipelines segment reported second-quarter 2009 operating income of $17.8 million, compared with $9.9 million for the second quarter 2008.
Second-quarter 2009 results increased $18.0 million due to increased volumes, primarily associated with the Overland Pass Pipeline including tariffs received from the natural gas liquids gathering and fractionation segment, as well as new supply connections. Operating costs were $19.1 million in the second quarter 2009, compared with $13.8 million in the same period last year. Depreciation and amortization expense was $7.1 million in the second quarter 2009, compared with $3.7 million in 2008. These increases were due primarily to incremental operating expenses associated with the Overland Pass Pipeline.
Operating income for the six months 2009 was $40.1 million, compared with $23.7 million in 2008.
Six-month 2009 results increased $31.6 million due to increased volumes, primarily from the Overland Pass Pipeline including tariffs received from the natural gas liquids gathering and fractionation segment, as well as new supply connections.
Six-month 2009 operating costs for the segment were $34.7 million, compared with $27.2 million in the same period last year. Depreciation and amortization expense was $13.4 million for the six months 2009, compared with $7.8 million in the same period in 2008. These increases were due primarily to incremental operating expenses associated with the Overland Pass Pipeline.
GROWTH ACTIVITIES
The partnership is nearing completion of approximately $2 billion of internally generated growth projects. Following is a status report on current projects (all cost estimates exclude allowance for funds used during construction, or AFUDC):
In late July 2009, construction on the Arbuckle Pipeline was completed. The 440-mile NGL pipeline extends from southern Oklahoma through the Barnett Shale of north Texas and on to the partnership's fractionation and storage facilities at Mont Belvieu on the Texas Gulf Coast. The pipeline has the capacity to transport 160,000 barrels per day (bpd) of unfractionated NGLs, expandable to 210,000 bpd with additional pump facilities. The estimated cost for the pipeline is approximately $490 million. During the third quarter 2009, flow on the pipeline is expected to reach 65,000 bpd, and supply commitments from producers are sufficient to fill the expanded 210,000 bpd capacity level over the next three to five years.
In March 2009, the $70 million D-J Basin Lateral Pipeline, a 125-mile pipeline connecting the Denver-Julesburg Basin with the Overland Pass Pipeline, was placed into service. The pipeline has the capacity to transport as much as 55,000 bpd of unfractionated NGLs. Volumes are expected to exceed 31,000 bpd on this pipeline during the third quarter 2009, with an additional 10,000 bpd in the next two years.
In November 2008, the Overland Pass Pipeline - the $575 million, 760-mile NGL pipeline extending from Opal, Wyo., to Conway, Kan. - was placed into full service with the capacity to transport approximately 110,000 bpd of unfractionated NGLs. The Overland Pass Pipeline Company is a joint venture with a subsidiary of The Williams Companies, Inc., which owns 1 percent. Currently, approximately 98,000 bpd are flowing on Overland Pass, and the pipeline's capacity can be increased to approximately 255,000 bpd with additional pump facilities. By the end of the third quarter 2009, when the Piceance Lateral Pipeline is anticipated to be in service, volumes are expected to be approximately 140,000 bpd on Overland Pass.
In October 2008, the partnership began construction on the Piceance Lateral Pipeline, a 150-mile pipeline connecting the Piceance Basin with the Overland Pass Pipeline. The project is expected to cost in the range of $110 million to $140 million and be completed in the third quarter 2009. The pipeline will have the capacity to transport as much as 100,000 bpd of unfractionated NGLs. Initial flow on this pipeline is expected to be approximately 37,000 bpd.
The partnership has identified approximately $300 million of potential growth projects per year between 2010 and 2015, two-thirds of which are in the natural gas liquids businesses.
2009 EARNINGS GUIDANCE
The partnership updated its 2009 limited partners' net income per unit guidance to the range of $3.25 to $3.65 per unit from its previous range of $3.15 to $3.75 per unit. The partnership's distributable cash flow is expected to be in the range of $505 million to $545 million. Exhibits A and B include updated information on the partnership's 2009 earnings guidance.
The average unhedged prices used in the updated 2009 guidance for the remaining six months of 2009 are $64 per barrel for New York Mercantile Exchange (NYMEX) crude oil, $4 per MMBtu for NYMEX natural gas and 67 cents per gallon for composite natural gas liquids. The average Conway-to-Mont Belvieu OPIS average price differential used for ethane for the remaining six months of 2009 is 10 cents per gallon.
The earnings-per-unit calculation has been updated as a result of the June equity offering. The guidance also reflects additional interest expense associated with a $500 million debt offering in March, which was partially offset by lower interest on the partnership's revolving credit facility. This higher expense was offset by increased other income from higher equity AFUDC than in previous guidance.
