One Gas, Inc. · NYSE:OGS
One Gas — Investor Presentation (January 2014)
37 slides from One Gas's investor presentation, Jan 20, 2014
Slide 1: ONE Gas Overview
January 2014 ONE Gas Overview
Slide 2: Forward-Looking Statements
Forward-Looking Statements Statements contained in this presentation that include company expectations or predictions should be considered forward-looking statements that are covered by the safe harbor provisions of the Securities Act of 1933 and the Securities and Exchange Act of 1934. It is import
Slide 3: ONE Gas Overview: Key Points
ONE Gas Overview Key Points Leadership – Experienced management team ONE Gas overview – 100% regulated natural gas utility – Expected to be 3rd largest publicly traded natural gas distributor Financial – Capital investments result in rate base growth Create value for all stakeholders – Employees, cu
Slide 4: ONE Gas Leadership
ONE Gas Leadership Experienced Management Team Page 4
Slide 5: Overview
Overview Page 5
Slide 6: Reasons for the Separation
Reasons for the Separation Strategic Rationale • Enhance strategic, financial and operating flexibility, and the growth potential of both entities • Increase transparency of each company • Better align the businesses with each company’s relevant peer groups • Attract more focused investors to each c
Slide 7: Transaction Overview
Transaction Overview Timeline • Spin-off to create stand-alone publicly traded company – 100% regulated natural gas utility in Oklahoma, Kansas and Texas with more than 2 million customers – one of the largest in the United States – Pro-rata, tax-free distribution of OGS shares to ONEOK shareholders
Slide 8: ONE Gas Equity
ONE Gas Equity NYSE: “OGS” • When-issued market begins: Jan. 16, 2014 – Ratio of share distribution: • One share of OGS common stock for every four shares of OKE common stock • Cash will be paid in lieu of fractional shares – Symbol: OGS WI • Record date: Jan. 21, 2014 • Distribution date: Jan. 31,
Slide 9: Corporate Structure
Corporate Structure Pre and Post-Separation Pre-Distribution Post-Distribution Public Public ONEOK, Inc. ONE Gas, Inc. ONEOK, Inc. Natural Gas General Partner of Natural Gas General Partner of Distribution ONEOK Partners Distribution ONEOK Partners Business* Business* ONEOK Partners Public Public ON
Slide 10: Vision and Mission
Vision and Mission Our Vision To be a premier natural gas distribution company creating exceptional value for its stakeholders • Attract, select, develop and retain a diverse group of employees to support strategy execution Our Mission Becoming ONE: • ONE in Responsibility – safety, reliability and
Slide 11: ONE Gas: Key Investment Considerations
ONE Gas Key Investment Considerations Kansas City • Focused business strategy 70% market share – 100% regulated natural gas distribution utility Wichita – Expected to be third largest publicly traded pure-play natural gas distributor Tulsa • Constructive regulatory environment Oklahoma City 87% mark
Slide 12: ONE Gas: Margin Profile
ONE Gas Margin Profile Kansas Oklahoma Texas Total Fixed Charges- 55% 85% 81% 73% Residential Average Heating 4,800 3,334 1,799 - Degree Days – Normal Weather Normalization 100% 100% 62% 87% Residential Margin 67% 71% 68% 69% Gas System Reliability Surcharge Cost of Service Adjustments (COSA), Gas (
Slide 13: Residential Customers
Residential Customers High Percentage Net Sales Margin Customer Count 2012 2012 Customer Type Residential Commercial/Industrial Wholesale Page 13
Slide 14: ONE Gas: Key Statistics
ONE Gas Key Statistics* Kansas Oklahoma Texas Total Average Number of Customers 634,325 847,092 634,387 2,115,805 Number of Employees 995 1,138 676 2,809 Miles of Service Lines 7,318 4,267 5,312 16,897 Distribution – Miles 11,957 17,370 9,509 38,836 Transmission – Miles 1,573 727 387 2,687 Overland
Slide 15: Proximity to Natural Gas Supply
Proximity to Natural Gas Supply Location Supports Sustainability Kansas City • Close proximity to significant natural gas reserves Mississippia Wichita n Lime • Delivered natural gas costs are comprised primarily of: Granite Wash Tulsa – Cost of the commodity Oklahoma City Woodford Cana- Shale – Tra
Slide 16: Growth Strategies
Growth Strategies Identify and Pursue Growth Opportunities • Capital investments targeted toward safety, reliability and efficiency – Results in steady rate base growth – Efficiency projects reduce expenses to sustainable levels • Minimize gap between actual and allowed returns – Continued filings f
Slide 17: Regulatory Constructs
Regulatory Constructs By State Mechanism Kansas Oklahoma Texas* Performance-based rates X Capital investments; safety-related riders X X1 X Weather normalization X X X Purchase Gas Adjustment/Cost of Gas riders X X X Energy efficiency/conservation programs X X Pension and Other Post-Retirement Benef
Slide 18: Regulatory Mechanisms
Regulatory Mechanisms Highlights • Oklahoma Natural Gas – Performance-based rate structure provides annual rate reviews between rate cases to ensure achieved ROE is within the established band of 10-11 percent • Kansas Gas Service – Gas Systems Reliability Surcharge (GSRS) – for incremental safety-r
Slide 19: Comparative Highlights
Comparative Highlights Peer Group Analysis Peer Group* ONE Gas Average Range Target Regulated Business 80% 62% - 92% 100% Key credit- rating Allowed ROE 10.3% 9.5% - 11.05% ~10% factors Debt/Capitalization Ratio 48% 43 - 54% 45% Shareholder Dividend Payout Ratio 63% 44% - 81% 55% - 65% factor (as a
Slide 20: Financial Overview
Financial Overview Page 20
Slide 21: Financial Highlights
Financial Highlights Maintain Conservative Posture • Post separation, ONE Gas will continue to maintain a conservative financial posture – Prudent capital investment results in steady rate base growth – Financial metrics necessary to maintain strong investment-grade credit ratings – Prudent dividend
Slide 22: ONE Gas: 2014 Guidance
ONE Gas 2014 Guidance • Net income: range of $95-$105 million • Operating income midpoint: $217 million • Cash flows from operations midpoint: $236 million • Dividend of $0.28 cents per share per quarter following the separation – ONE Gas exchange ratio: 1 OGS share for every 4 OKE shares upon separ
Slide 23: Five-year Financial Outlook
ONE Gas Five-year Financial Outlook • Expected average annual net income growth of 4-6% comparing 2014 earnings guidance with the 2018 forecast – Driven by regulatory filings, including rate cases and capital-recovery mechanisms – Rate base expected to grow an average of 5-6% per year between 2013-2
Slide 24: Operating Income
Operating Income Opportunity to Narrow the Gap • Goal: Minimize the gap between $227 allowed and actual returns* $217 $216 – 2014 allowed return on equity (ROE): 9.9% – 2014 ROE estimate: 7.4% ($ In Millions) $200 – 2013 ROE estimate: 8.3% – 2013 ROE allowed: ~10% – 2012 ROE achieved: 8.3% 2011 2012
Slide 25: Capital Expenditures
Capital Expenditures Capital Spending Exceeds Depreciation $272 $286 • Majority of capital expenditures for $263 $241 safety, reliability and efficiency $195 $186 – System integrity and replacements – New service lines and main extensions for $130 $135 $127 $132 customer growth $6 – Efficiency $13 $
Slide 26: 2014 Sources and Uses of Cash Flow
ONE Gas 2014 Sources and Uses of Cash Flow • Target dividend payout ratio of 55- 65% of net income $321 $321 Short-term debt: $25 • Capital expenditures primarily Cash funded by cash flow from $60 ($ In Millions) operations Capital Expenditures Cash flow from $263 operations $236 Dividends $58 Sourc
Slide 27: Balance Sheet
Balance Sheet Commitment to Strong Investment-Grade Ratings • Strong investment-grade credit ratings, consistent with peers • Moody’s: A2 (Stable) • S&P: A- (Stable) • Targeted capital structure – Debt-to-capitalization ratio of 45% – Debt-to-EBITDA of 3.5x – EBIT-to-interest of 4.0x • Strong liquid
Slide 28: Appendix
Appendix Page 28
Slide 29: Stable Economic Environment
Stable Economic Environment High-Quality Service Territories • Unemployment rate below national average – 2013: 29% below national average • Population growth above national average – 2013: 32% above national average Unemployment Rate (%) Population Growth (%) 12.0 1.5 1.2 1.0 1.0 1.0 1.0 1.0 1.0 1.
Slide 30: Cost of Gas Passed Through to Customers
ONE Gas Cost of Gas Passed Through to Customers • Actual costs of the commodity, transportation and storage of natural gas are passed through to customers without markup – Natural gas used in operations is recovered in “Purchased Gas” or “Cost of Gas” riders • No direct commodity risk to ONE Gas div
Slide 31: Other Regulatory Mechanisms: Oklahoma Natural Gas
Other Regulatory Mechanisms Oklahoma Natural Gas • Purchase Gas Adjustment Clause • Temperature Adjustment Clause • Energy Efficiency Programs • Compressed Natural Gas Rebate Program Page 31
Slide 32: Other Regulatory Mechanisms: Kansas Gas Service
Other Regulatory Mechanisms Kansas Gas Service • Cost of Gas Rider and Annual Cost Adjustment • Weather Normalization Adjustment • Ad Valorem Tax Surcharge • Pension and Other Post Retirement Benefits (OPEB) Trackers • Gas System Reliability Surcharge Page 32
Slide 33: Other Regulatory Mechanisms: Texas Gas Service
Other Regulatory Mechanisms Texas Gas Service – 10 Service Areas* • Gas Reliability Infrastructure Programs (GRIP) • Cost of Service Adjustment (COSA) filings • Weather Normalization Adjustment (WNA) • Cost of Gas (COG) clause • Pension and OPEB Trackers • Pipeline-Integrity Testing Riders • Safety-
Slide 34: Regulatory Filing Timeline
Regulatory Filing Timeline Oklahoma - * Pending Oklahoma Corporation Commission approval Oklahoma - Energy-efficiency Performance-based program filing in 2013, extended to rate filing 2014* 2014-2016 Oklahoma - Performance-based rate filing in March 2013, with Kansas – GSRS Oklahoma - General no cha
Slide 35: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Current Environment • Industry – Increased interest in CNG for transportation, particularly by fleet operators – Tax incentives further contribute to positive economics – Increased industry investments in fueling stations • ONE Gas – Currently operate 27 fueling stations
Slide 36: ONE Gas Board of Directors
ONE Gas Board of Directors Experienced Leadership Board Member* John W. Gibson Non-executive Chairman Retired, ONEOK Inc. ONEOK, Inc. Board Member Pierce H. Norton II ONE Gas, Inc. President and CEO Employee Robert B. Evans Independent Retired, Duke Energy Americas Michael G. Hutchinson Independent
Slide 37: Slide 37