One Gas, Inc. · NYSE:OGS
One Gas — Investor Presentation (April 2020)
52 slides from One Gas's investor presentation, Apr 27, 2020
Slide 1: Investor Update
INVESTOR UPDATE April 27, 2020
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: Response to COVID-19
RESPONSE TO COVID-19
Slide 4: Safety & Service – Employees & Customers
Safety & Service – Employees & Customers EMPLOYEES CUSTOMERS • Cross-functional task force supporting COVID-19 • Additional screening questions for service calls response – Service technicians provided with appropriate • Safety protocols established using guidelines from personal protective equipmen
Slide 5: COVID-19 Risk Matrix
COVID-19 Risk Matrix ONE Gas management continues to monitor the following risks, among others, for leading indicators and material changes: RISK CURRENT STATUS – AS OF Q1 2020 Internal labor COVID-19 related employee absences have not impacted operations Gas supply No disruptions experienced or exp
Slide 6: Value Creation Strategy
VALUE CREATION STRATEGY G ONE Gas
Slide 7: Sustainable Business Model
Sustainable Business Model • Clear vision, mission, strategy and values-driven culture • 100% regulated natural gas distribution utility Focused Business Strategy • Conservative financial profile (“A” rated) • Committed to Safety and Environmental, Social and Governance (ESG) stewardship • 20+ year
Slide 8: Focused Business Strategy
FOCUSED BUSINESS STRATEGY
Slide 9: Mission, Vision, Strategy and Core Values
Mission, Vision, Strategy and Core Values Mission – Why we exist Core Values – Our compass We deliver natural gas for a better tomorrow SAFETY We are committed to operating safely and in an environmentally responsible manner. Vision – What we want to be ETHICS To be a premier natural gas distributio
Slide 10: Operating Safely
Operating Safely • Committed to a goal of zero harm • In 2019, experienced the lowest • In 2019, added a new public safety to our employees, customers and number of safety incidents in metric with the goal of reducing the public company history response time to emergency calls TRIR AMERICAN GAS ASSO
Slide 11: Safety and ESG (Environmental, Social & Governance)
Safety and ESG (Environmental, Social & Governance) Stewardship at a Glance… SAFETY Safety is our number one core value and the foundation of what we do as a company. ENVIRONMENTAL We are thoughtful and proactive in caring for the environment. ONE Gas Corporate Responsibility Report www.onegas.com/s
Slide 12: 100% Regulated Natural Gas Utility
100% Regulated Natural Gas Utility One of the largest publicly traded natural gas distribution companies 72% market share • ~ 2.2 million customers • ~ 3,600 employees • ~ 62,340 miles of distribution mains, services and transmission pipelines 88% market share Estimated 2020 average rate base: $3.91
Slide 13: Conservative Financial Profile
Conservative Financial Profile Strong Balance Sheet & Capital Structure Strong Liquidity Position Access to Financial Markets CAPITAL STRUCTURE MARCH 31, 2020 • Stable cash flow • Debt capital markets are • Tier 1 – A1/P1 $700 million open for the issuance of commercial paper program long-term debt
Slide 14: Capital Horizon & Clarity
CAPITAL HORIZON & CLARITY
Slide 15: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan CAPITAL INVESTMENTS* 2020G CAPITAL INVESTMENTS* BY STATE (MILLIONS) (MILLIONS) $485-$525/year $470 $475 $442 $418 Texas $166 Oklahoma $181 $178 $190 $151 $158 Kansas 2017 2018 2019 2020G 2021-2024 $128 Depreciation * Capital expenditure totals include asset remov
Slide 16: Pipeline Replacement
Pipeline Replacement Focusing on Maintaining Safe and Reliable Operations PIPELINE REPLACEMENT (MILES) Average Annual Est. 2020-2024 140 60 170 370 ACCELERATED 2019 4 113 78 2 233 430 CAST IRON REPLACEMENT PROGRAM 2018 21 111 53 5 240 430 COMPLETED IN 2019 2017 23 196 61 1 144 425 2016 22 192 43 2 1
Slide 17: Vintage Pipeline Replacement Program
Vintage Pipeline Replacement Program As of December 31, 2019 VINTAGE PIPE AS PORTION OF TOTAL PIPELINE INVENTORY (MILES) Over past 5 years, averaged ~ 234 miles vintage pipe 850 1,000 replaced per year 5,240 4,240 2020-2024E 56,250 2025 & Beyond All Other Main, Service & Transmission Pipelines Risk-
Slide 18: Rate Base Growth
Rate Base Growth AVERAGE RATE BASE* 2020 ESTIMATED AVERAGE RATE BASE (BILLIONS) TOTAL: $3.91 BILLION* $3.91** $3.62 $3.18 $3.36 $2.96 $1.14 billion $1.65 billion $1.12 billion 2016 2017 2018 2019 2020G Oklahoma Kansas Texas * For definition of estimated average rate base, see Appendix ** Estimated a
Slide 19: Regulatory Construct
REGULATORY CONSTRUCT G ONE Gas
Slide 20: Comprehensive Recovery Mechanisms
Comprehensive Recovery Mechanisms DESCRIPTION OKLAHOMA KANSAS TEXAS Interim capital recovery ✓ ✓ ✓ Weather normalization ✓ ✓ ✓ Purchased gas riders (including gas cost portion of bad debts) ✓ ✓ ✓ Energy efficiency/conservation programs ✓ ✓* Pension and other post-retirement benefits trackers ✓ ✓ ✓ C
Slide 21: Interim Recovery of Capital Investments
Interim Recovery of Capital Investments Oklahoma Natural Gas 2020 CAPITAL RECOVERY TIMING • Performance-based rate change (PBRC) filing for annual rate reviews between rate cases to ensure achieved ROE is 10% within the established band of 9 – 10% Kansas Gas Service • Gas System Reliability Surcharg
Slide 22: Filing Timeline
Filing Timeline Oklahoma & Kansas General rate case application filing by mid-2021, with new rates effective early 2022, if applicable 2019 2020 2021 2022 2023 2024 PBRC filing approved PBRC filing approved PBRC filed February 2020, requesting $11.8 million PBRC filing in March 2023 January 2019, Au
Slide 23: Texas
Texas 2020 Central Texas Service Area • $15.6 million rate case filed for Central Texas and Gulf Coast service areas; new rates expected in the third quarter 2020 West Texas Service Area • $4.7 million GRIP filed March 2020; new rates expected in the third quarter 2020 Remainder of Texas • Annual CO
Slide 24: Cash Flow Stability
CASH FLOW STABILITY
Slide 25: High Percentage of Residential Customers
High Percentage of Residential Customers 83% Residential 93% Residential 72% of sales NET SALES CUSTOMER margin is fixed MARGIN COUNT (Excludes transportation and other (Excludes transportation) revenues) 17% Non-residential 7% Non-residential Note: Based on 2019 annual results. See non-GAAP informa
Slide 26: Growth in Service Territories
Growth in Service Territories MAJOR METRO POPULATIONS AVERAGE CUSTOMER COUNT (THOUSANDS) (THOUSANDS) 2,140 2,152 2,166 2,179 2,194 1,300 Austin, TX, 1,247 1,100 635 637 638 639 640 900 El Paso, TX, 837 Oklahoma City, OK, 791 877 884 861 865 871 700 Tulsa, OK, 648 Overland Park, KS, 598 500 Wichita,
Slide 27: Average Annual Residential Customer Bill
Average Annual Residential Customer Bill AVERAGE ANNUAL RESIDENTIAL CUSTOMER BILL Customers are benefiting from low and stable gas prices Customers began to see impact of tax $235 $256 $265 reform in 2018 $260 $189 Average bill estimated to remain ~$50 $362 $386 $389 $382 $346 per month in 2020 2015
Slide 28: Competitive Advantage
COMPETITIVE ADVANTAGE G ONE Gas
Slide 29: Proximity to Supply
Proximity to Supply Location Supports Sustainability Close proximity to significant natural gas reserves and transportation infrastructure • Results in lower transportation, storage and commodity costs • Multiple supply points allow for reduced operating pressures Net natural gas exports² • 54% of a
Slide 30: 3.4-to-1 Average Advantage in ONE Gas Territories
3.4-to-1 Average Advantage in ONE Gas Territories KWH EQUIVALENT ELECTRICITY VS. NATURAL GAS DTH EQUIVALENT ELECTRICITY VS. NATURAL GAS 3.9x 3.9x 3.0x 3.0x 3.1x 3.1x 12.67¢ $37.13 11.96¢ $35.05 10.12¢ $29.66 3.93¢ $11.52 3.24¢ 3.23¢ $9.49 $9.46 Texas Oklahoma Kansas Texas Oklahoma Kansas ¹ Avg. reta
Slide 31: Financial Performance & Objectives
FINANCIAL PERFORMANCE & OBJECTIVES
Slide 32: 2020 Guidance Summary
2020 Guidance Summary Initiated Jan. 21, 2020; Affirmed April 27, 2020 DILUTED EPS • Net income range of $186 ‒ $198 million $3.51 $3.56** • EPS range of $3.44 ‒ $3.68 per diluted share $3.25 • Impacts from COVID-19 could result in net $3.08 income and diluted EPS below the midpoint of the guidance
Slide 33: Growing Dividends
Growing Dividends Building Shareholder Value DIVIDENDS & PAYOUT RATIO Quarterly dividend: $2.16 $2.00 • 54 cents per share in 2020* $1.68 $1.84 • Target dividend payout ratio $1.40 61% of 55 ‒ 65% of net income 57% 57% 55% 53% *Subject to board approval 2016 2017 2018 2019 2020G Expected average ann
Slide 34: Operating Cost Control
Operating Cost Control Building a Foundation for Long-term Affordability OPERATING COSTS* (MILLIONS) $489 $496 Expense control execution through: $471 $453 $457 • Leveraging technology • Increasing efficiency and optimizing processes • Making it easier for customers to self-serve 2016 2017 2018 2019
Slide 35: Return on Equity
Return on Equity 8.1% 8.3% 8.4%* Continue to minimize the gap between allowed 7.7% 7.9% and actual returns Authorized ROE by state: • Kansas ‒ Not stated due to black box settlement; KGS estimates ROE embedded in GSRS pre-tax carrying charge is ~ 9.3% • Oklahoma ‒ 9% to 10% band, with a 9.5% midpoin
Slide 36: Financing Requirements
Financing Requirements Sources and Uses $591 $591 Financing Dividends and capital expenditures primarily requirements $174 funded by cash flow from operations Capital expenditures and (MILLIONS) asset removal costs Cash flow from $475 ~$850 ‒ $900 million net financing needs operations* $417 through
Slide 37: Manageable Debt Profile
Manageable Debt Profile Strong Liquidity Position – March 31, 2020 DEBT MATURITIES LIQUIDITY PROFILE (MILLIONS) (MILLIONS) $600 $250 ATM Program $250 364-day $400 Revolver $300 4.658% $700 4.500% Credit Facility $476 3.610% Commercial Paper and Letters of Credit 2024 2044 2048 Liquidity Sources Shor
Slide 38: Key Takeaways
KEY TAKEAWAYS K> ONE Gas
Slide 39: Key Takeaways
Key Takeaways Focused Well-defined business capital investment strategy plan Regulatory Stable construct cash flow profile Competitive advantage 39 | ONE Gas, Inc. KEY TAKEAWAYS
Slide 40: Appendix
APPENDIX G ONE Gas
Slide 41: Corporate Structure
Corporate Structure INCORPORATED ENTITY 100% regulated natural gas distribution No levered holding company; all debt issued at OGS Division capital structures match Corporate capital structure 41 | ONE Gas, Inc. APPENDIX
Slide 42: State Statistics
State Statistics As of December 31, 2019 OKLAHOMA TEXAS GAS KANSAS TOTAL NATURAL GAS SERVICE GAS SERVICE Average Number of Customers 883,985 669,985 639,956 2,193,926 Distribution – Miles* 18,900 10,400 11,500 40,800 Transmission – Miles* 700 300 1,500 2,500 Fixed Charges – Sales customers** 86% 72%
Slide 43: Capital Expenditures with Asset Removal Costs
Capital Expenditures with Asset Removal Costs OKLAHOMA TEXAS KANSAS 2020: 2.3X DEPRECIATION 2020: 3.9X DEPRECIATION 2020: 1.9X DEPRECIATION $191 $180 $181 * $173 $166 * $156 $149 $136 $128 * $122 $123 $126 $123 $106 $105 (MILLIONS) $74 $78 $64 $67 $69 $64 $67 $47 $50 $52 $40 $43 $34 $37 $29 2016 201
Slide 44: Authorized Rate Base
Authorized Rate Base OKLAHOMA¹ KANSAS² TEXAS¹ 3 $1,475 $1,407 $1,202 $1,257 $1,033 $1,068 $986 $947 $979 $925 $895 $781 $826 $745 $822 $639 (MILLIONS) 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 ¹ Rate bases presented in this table are those from the last approved
Slide 45: Rate Base Definition
Rate Base Definition Authorized Rate Base – $3.53 billion (as of Q1 2020) • Includes capital investments authorized in most recent rate case and interim filings • Does not include any capital investments since last approved rate case or filings 2020G Estimated Average Rate Base – $3.91 billion • Ave
Slide 46: Regulatory Construct
Regulatory Construct Governance KANSAS OKLAHOMA TEXAS “Home Rule” with six jurisdictions; Texas Kansas Corporation Commission Oklahoma Corporation Commission Railroad Commission has appellate authority Appointed by the governor to four-year Railroad Commission elected to six-year Elected to six-year
Slide 47: Oklahoma Natural Gas
Oklahoma Natural Gas Recent Regulatory Activity 2020 PBRC – FILED FEBRUARY 2020 Amount Requested $11.8 million rate increase Customer Impact $1.11 per month increase (for typical residential customer) Rate Base $1,616 million Return on Equity 9.5% (midpoint of allowed band) Common Equity Ratio* 56%
Slide 48: Texas Gas Service
Texas Gas Service Recent Regulatory Activity CENTRAL TEXAS/GULF COAST SERVICE AREAS WEST TEXAS SERVICE AREA GRIP – GENERAL RATE CASE HIGHLIGHTS – FILED 2019 FILED MARCH 2020 Base Rates $15.6 million increase Incremental Revenue $4.7 million increase Operating Income $12.4 million Capital Expenditure
Slide 49: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Key Statistics CNG VOLUME • Currently operate 27 fueling stations accessible (DTH – MILLIONS) to the public, 6 private stations 151 stations supplied 150 stations supplied 147 stations 143 stations • Currently transporting supply to 67 retail and 51 129 stations supplied
Slide 50: Non-GAAP Information
Non-GAAP Information ONE Gas has disclosed in this presentation cash flow from operations before changes in working capital and net margin, which are non-GAAP financial measures. Cash flow from operations before changes in working capital is used as a measure of the company's financial performance.
Slide 51: Non-GAAP Reconciliation
Non-GAAP Reconciliation Cash Flow From Operations Before Changes in Working Capital 2020 (MILLIONS) GUIDANCE* Net Income $ 192 Depreciation and amortization 190 Deferred taxes 20 Other 15 Cash flow from operations before changes in working capital $ 417 * Amounts shown are midpoints of ranges provid
Slide 52: Non-GAAP Reconciliation
Non-GAAP Reconciliation Net Margin (MILLIONS) 2019 Total revenues $ 1,652.7 Cost of natural gas 687.9 Net margin $ 964.8 (MILLIONS) 2019 Natural gas sales Residential $ 681.0 Commercial and industrial 131.5 Wholesale and public authority 7.7 Net margin on natural gas sales $ 820.2 Transportation rev