One Gas, Inc. · NYSE:OGS
One Gas — Investor Presentation (August 2021)
63 slides from One Gas's investor presentation, Aug 30, 2021
Slide 1: Resilient and Reliable Energy For a Better Tomorrow – Investor Update
Resilient and Reliable Energy For a Better Tomorrow INVESTOR UPDATE August 30, 2021
Slide 2: Forward-Looking Statements
Forward-Looking Statements Statements contained in this presentation that include or refer to Company expectations, our business outlook, our future plans or predictions relating to any matters should be considered forward-looking statements that are covered by the safe harbor provisions of the Priv
Slide 3: Value Creation Strategy
24,413.84 | 26,275.30 (-21.87) | (+762) 137.04 143,653.64 | 150,028.94 aen68) | (4.44)
Slide 4: Sustainable Business Model
Sustainable Business Model • Clear vision, mission, strategy and values-driven culture Focused Business Strategy • 100% regulated natural gas distribution utility • Conservative financial profile (investment-grade credit ratings) • 20+ year vintage pipeline replacement program Capital Horizon & Clar
Slide 5: Mission, Vision, Strategy and Core Values
Mission, Vision, Strategy and Core Values Mission – Why we exist Core Values – Our compass SAFETY We deliver natural gas for a better tomorrow 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 6: 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 • ~ 3,700 employees • ~ 63,300 miles of distribution mains, services and 88% market share transmission pipelines Estimated 2021 average rate base: $4.23
Slide 7: Capital Horizon & Clarity
) CAPITAL HORIZON & CLARITY “N : G one Gas
Slide 8: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan CAPITAL INVESTMENTS 2021G CAPITAL INVESTMENTS BY STATE (MILLIONS) (MILLIONS) ~$540 $515 $19 $470 $20 $442 $21 $418 $151 $26 $135 $32 $110 Kansas $99 $80 $360 $370 $135 $317 $339 Texas $306 $201 $191* $201 $178 $151 $158 Oklahoma $204 2017 2018 2019 2020 2021G Sys
Slide 9: Rate Base Growth
Rate Base Growth AVERAGE RATE BASE* 2021 ESTIMATED AVERAGE RATE BASE* (BILLIONS) TOTAL: $4.23 BILLION $4.23 $3.91 $3.62 $3.18 $3.36 $1.16 billion $1.32 billion $1.75 billion 2017 2018 2019 2020 2021G Kansas Oklahoma Texas * For definition of average rate base, see Appendix Expected 8% growth from 20
Slide 10: Pipeline Replacement
Pipeline Replacement Focusing on Maintaining Safe and Reliable Operations While Reducing Emissions PIPELINE REPLACEMENT (MILES) ACCELERATED CAST IRON Average Annual Est. 2021-2025 120 60 220 400 REPLACEMENT PROGRAM 2020 130 44 7 289 470 COMPLETED IN 2019 2019 4 113 78 2 233 430 2018 21 111 53 5 240
Slide 11: Vintage Pipeline Replacement Program
Vintage Pipeline Replacement Program Replaced an Average of 244 Miles of Vintage Pipe Per Year Since 2014 VINTAGE PIPE AS PORTION OF TOTAL PIPELINE INVENTORY (MILES) All Other Main, Service & Transmission Pipelines Risk-Mitigation & Government 1,100 Relocations 2021-2025E 900 5,180 4,280 2021-2025E
Slide 12: Regulatory Construct
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Slide 13: Comprehensive Regulatory Mechanisms
Comprehensive Regulatory Mechanisms DESCRIPTION KANSAS OKLAHOMA 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 ✓ ✓ ✓
Slide 14: Interim Recovery of Capital Investments
Interim Recovery of Capital Investments Annual Filings • Oklahoma Natural Gas 2021E CAPITAL RECOVERY TIMING – Performance-based rate change (PBRC) Interim filing for annual rate reviews between full rate cases to ensure achieved ROE is within the established band of 9 – 10% 7% • Kansas Gas Service –
Slide 15: Filing Timeline Oklahoma & Kansas
Filing Timeline Oklahoma & Kansas $28.7 million general rate case application filed May 2021, with new rates effective fourth quarter 2021, if applicable 2020 2021 2022 2023 2024 2025 PBRC filing approved July 2020, Pending outcome of rate Pending outcome of rate Pending outcome of rate $9.7 million
Slide 16: Texas Filings – 2021
Texas Filings – 2021 • Central-Gulf Service Area – $10.7 million GRIP approved with new rates effective June 2021 • West Texas Service Area – $9.7 million GRIP approved with new rates effective in August 2021 for the city of El Paso and July 2021 for all other municipalities • Rio Grande Valley Serv
Slide 17: Winter Storm Uri
WINTER STORM URI G ONE Gas
Slide 18: Additional Liquidity Secured
Financial Impact and Response Additional Liquidity Secured Extraordinary Costs Incurred Sources of Liquidity As of June 30, 2021 • ~ $2.0 billion extraordinary costs (gas purchases and related financing and operational costs) deferred as a • Revolving Credit Facility regulatory asset as of June 30,
Slide 19: Winter Storm Uri Financing
Securitization Update Winter Storm Uri Financing KANSAS OKLAHOMA TEXAS A bill permitting individual utilities to issue A bill permitting the Oklahoma A bill permitting the Texas Public Finance securitized bonds was signed into law by the Development Finance Authority Authority (TPFA) to issue securi
Slide 20: Cash Flow Stability
| CASH FLOW STABILITY G ONE Gas
Slide 21: High Percentage of Residential Customers
High Percentage of Residential Customers 83% Residential 92% Residential 72% of sales NET SALES CUSTOMER margin is MARGIN COUNT fixed (Excludes transportation and other (Excludes transportation) revenues) 17% Non-residential 8% Non-residential Note: Based on 2020 annual results. Net Sales Margin is
Slide 22: Growth in Service Territories
Growth in Service Territories POPULATION GROWTH IN LARGEST AREAS SERVED AVERAGE CUSTOMER COUNT (THOUSANDS) (THOUSANDS) 2,152 2,166 2,179 2,194 2,220 2,400 Austin-Round Rock- 2,200 Georgetown, TX MSA, 2,295 680 2,000 650 657 663 670 1,800 1,600 Oklahoma City, OK MSA, 1,400 877 884 895 1,425 865 871 1
Slide 23: Average Annual Residential Customer Bill
Average Annual Residential Customer Bill AVERAGE ANNUAL RESIDENTIAL CUSTOMER BILL • Over the past 5 years, customers have benefitted from low and stable gas prices $235 $256 $265 • Customers began to see impact $177 $189 of federal tax reform in 2018 and elimination of Kansas state income taxes in 2
Slide 24: Financial Performance & Objectives
FINANCIAL PERFORMANCE & OBJECTIVES
Slide 25: Five-Year Financial Outlook
Five-Year Financial Outlook For the Five Years Ending Dec. 31, 2025 Expected average annual growth rates: (2020 base year) • 7 – 8% Rate base • 6 – 8% Net income • 5 – 7% Earnings per diluted share • 6 – 8% Dividend • ~3% Operations & maintenance expenses $3 billion in total capital investments • ~6
Slide 26: 2021 Guidance Summary
2021 Guidance Summary Reaffirmed Aug. 2, 2021 • Net income range of $198 ‒ $210 DILUTED EPS & NET INCOME million $3.68 $3.80** • EPS range of $3.68 ‒ $3.92 per $3.51 diluted share $3.25 $3.08 $204** • Estimated average rate base* of $187 $196 $4.23 billion $172 $163 – Includes $540 million in capita
Slide 27: Growing Dividends
Growing Dividends Building Shareholder Value • Quarterly Dividend* DIVIDENDS & PAYOUT RATIO – 58 cents per share in 2021 $2.32* $2.16 $2.00 $1.84 • Target annual payout ratio $1.68 61%** 59% – 55 – 65% of net income 57% 57% 55% 2017 2018 2019 2020 2021G 7.4% increase over 2020 * Subject to board app
Slide 28: Operating Cost Control
Operating Cost Control Building a Foundation for Long-term Affordability OPERATING COSTS* • Managing expenses: (MILLIONS) $509 – Leveraging technology $471 $489 $494 $457 – Increasing efficiency and optimizing processes – Making it easier for customers to self- serve Expected average annual operatin
Slide 29: Return on Equity
Return on Equity • Continue to minimize the gap Earned ROE between allowed and actual 8.3% 8.6% 7.9% 8.1% 8.1%* returns • Authorized ROE by state: – Oklahoma ‒ 9% to 10% band, with a 9.5% midpoint – Texas ‒ ~ 9.5% weighted average – Kansas ‒ Not stated due to black box settlement; Kansas Gas Service
Slide 30: Financing Requirements
Financing Requirements Excluding Winter Storm Uri Financing • Dividends and capital $665 $665 Financing investments primarily funded Financing requirements Financing by cash flow from operations requirements $210 requirements $210$174 Capital • ~$1 billion net financing needs (MILLIONS) expenditures
Slide 31: Long-term Debt Profile
Long-term Debt Profile As of June 30, 2021 $1,800 SENIOR DEBT MATURITIES (MILLIONS) $1,000 0.850% $1,000 $700 $600 $800* 1.100% $400 Floating $300 3ML+61bps $300 4.658% 2.000% 4.500% 3.610% 2023 2024 2030 2044 2048 Long-term debt exclusive of Winter Storm Uri financing Long-term debt associated with
Slide 32: Competitive Advantage
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Slide 33: Proximity to Supply Location Supports Sustainability
Proximity to Supply Location Supports Sustainability • Close proximity to significant MAIN NORTH AMERICAN GAS BASINS 3 SHALE PLAYS IN OGS SERVICE AREAS natural gas reserves and transportation infrastructure – Results in lower transportation, storage and commodity costs – Multiple supply points allow
Slide 34: 3.7-to-1 Average Advantage in ONE Gas Territories
3.7-to-1 Average Advantage in ONE Gas Territories Natural Gas Price Advantage Over Electricity KWH EQUIVALENT ELECTRICITY VS. NATURAL GAS 4.2x 3.5x 3.5x 12.73¢ 11.96¢ 9.97¢ 2.86¢ 3.42¢ 3.00¢ Oklahoma Texas Kansas ¹ Avg. retail price of electricity/kWh ² ONE Gas delivered cost of natural gas/kWh ³ Na
Slide 35: U.S. Energy Consumption 2005 to 2020
U.S. Energy Consumption 2005 to 2020 Lawrence Livermore National Laboratory SOURCE of U.S. ENERGY CONSUMPTION • On average, the U.S. has (QUADS) consumed ~100 quads of energy 2005 2020 CHANGE every year (quad = quadrillion Btu) Natural Gas 22.6 31.5 8.9 • Since 2005, natural gas (+39%) Wind 0.2 3.0
Slide 36: The Crucial Role of Hydrocarbons
The Crucial Role of Hydrocarbons Hydrocarbons provide a competitive and COMMON USES OF NGL COMPONENTS* strategic advantage for the U.S. Natural Gas Liquids Typical Use economically and geopolitically – Low energy costs have boosted domestic Polyethylene, PVC & other Ethane plastics manufacturing and
Slide 37: Safety & ESG
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Slide 38: Operating Safely
Operating Safely TRIR AGA QUARTILE DATA DART AGA QUARTILE DATA PVIR AGA QUARTILE DATA 1.26 2.70 1.53 1.19 1.04 1.02 0.46 0.25 1.75 0.68 0.43 0.28 1.80 1.75 1.76 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 1ST 2ND 3RD 4TH OGS 1ST 2ND 3RD 4TH OGS 1ST 2ND 3RD 4TH OGS Tota
Slide 39: Strategy Progress: Moving Toward a Clean Energy Future
Moving Toward a Clean Energy Future Vintage Pipe Renewable Innovation & End-Use Conservation Disclosures Replacement Natural Gas Technology • Reduce emissions through • Expand • Provide CNG • Optimize existing • Identify & invest in • Align with SASB, GRI, vintage pipeline energy fueling for fleet p
Slide 40: Renewable Natural Gas Technology and Innovation
Renewable Natural Gas Technology and Innovation Current Initiatives • Potential impact of RNG – Identified opportunities within ONE Gas’ service territory which, if captured, provide the potential path to achieving net zero methane emissions – More work remains to determine feasibility • Vanguard Re
Slide 41: Hydrogen Technology and Innovation
Hydrogen Technology and Innovation Looking to the Future • Commissioned two actively working • Stakeholder in “Demonstration and hydrogen groups: Framework for H2@Scale in – Exploring technical matters Texas and Beyond” • Engineering – U.S. Department of • Policies and procedures Energy-funded proje
Slide 42: Compressed Natural Gas (CNG) Key Statistics
Compressed Natural Gas (CNG) Key Statistics • Over half of OGS’ light-duty fleet consists of CNG- CNG VOLUME capable vehicles (DTH – MILLIONS) 151 stations • Operating 27 fueling stations accessible to the supplied 150 stations 147 stations supplied 151 stations public, 6 private stations 143 statio
Slide 43: Social Responsibility & Governance
Social Responsibility & Governance SOCIAL RESPONSIBILITY CORPORATE GOVERNANCE Engage our employees Uphold strong governance • Employee engagement improved for the sixth consecutive year, placing OGS practices in the top 20% of Gallup’s company database • 75% of directors are independent • Support em
Slide 44: Appendix
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Slide 45: COVID-19 Update
COVID-19 Update As of June 30, 2021 EMPLOYEES CUSTOMERS • COVID-19 related employee absences not • Customer disconnects resumed in all areas as of significantly impacting operations June 2021 • Cross-functional task force supporting COVID-19 • Relative to 2020, bad debt expense was lower while respo
Slide 46: Corporate Structure
Corporate Structure INCORPORATED ENTITY 100% regulated natural gas distribution No levered holding company; all debt issued by ONE Gas, Inc Division capital structures match Corporate capital structure APPENDIX | 46
Slide 47: State Statistics
State Statistics As of Dec. 31, 2020 KANSAS OKLAHOMA TEXAS GAS TOTAL GAS SERVICE NATURAL GAS SERVICE Average Number of Customers 645,049 894,227 680,181 2,219,457 Distribution – Miles* 11,600 19,000 10,600 41,200 Transmission – Miles* 1,500 700 300 2,500 Fixed Charges – Sales customers** 55% 87% 70%
Slide 48: Capital Expenditures
Capital Expenditures Including Asset Removal Costs KANSAS OKLAHOMA TEXAS 2021: 1.9X DEPRECIATION 2021: 2.5X DEPRECIATION 2021: 4.2X DEPRECIATION $198 $204 $201 $191 $188 $180 $173 $156 $135 $136 $123 $126 $123 $129 $122 (MILLIONS) $76 $81 $68 $72 $69 $74 $64 $67 $50 $52 $44 $48 $34 $37 $40 2017 2018
Slide 49: Authorized Rate Base
Authorized Rate Base KANSAS1 OKLAHOMA2 $1,616 TEXAS2 $1,475 $1,407 $1,202 $1,257 $1,133 $1,033 $1,068 $986 $1,047 $925 $947 $895 $822 $745 (MILLIONS) 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 1 Kansas Gas Service’s most recent rate case, approved in February 2019, wa
Slide 50: Rate Base Definition
Rate Base Definition Authorized Rate Base $3.99 billion (as of June 30, 2021) • Includes capital investments authorized in most recent rate cases and interim filings • Excludes any capital investments since last approved rate cases or filings 2021 Estimated Average Rate Base $4.23 billion • Average
Slide 51: Regulatory Construct Governance
Regulatory Construct Governance KANSAS OKLAHOMA TEXAS “Home Rule” with five jurisdictions; Texas Kansas Corporation Commission Oklahoma Corporation Commission Railroad Commission has appellate authority Appointed by the governor to four-year staggered Railroad Commission elected to six-year Elected
Slide 52: Recent Regulatory Activity
Recent Regulatory Activity EFFECTIVE RATE RETURN RATE OF EQUITY DIVISION JURISDICTION DATE OF BASE2 ON RETURN2 RATIO2 LAST ACTION1 (MILLIONS) EQUITY2 Oklahoma Natural Gas Oklahoma June 2020 $1,616 7.06% 56% 9.50% Kansas Gas Service3 Kansas December 2020 $1,133 8.60% N/A 9.30% Texas Gas Service Centr
Slide 53: Kansas Gas Service Recent Regulatory Activity
Kansas Gas Service Recent Regulatory Activity 2021 GSRS – FILED AUGUST 2021 Incremental Surcharge Revenue $7.6 million annual revenue Capital Expenditures $76.4 million Pre-Tax Carrying Charge 8.6%; Kansas Gas Service estimates ROE embedded in GSRS pre-tax carrying charge is ~9.3% Customer Impact $0
Slide 54: Oklahoma Natural Gas Recent Regulatory Activity
Oklahoma Natural Gas Recent Regulatory Activity GENERAL RATE CASE HIGHLIGHTS – FILED MAY 2021 Base Rates $28.7 million rate increase Operating Income $129.1 million Customer Impact $1.45 per month increase (for typical residential customer, including one-time annual credit for excess accumulated def
Slide 55: Texas Gas Service Recent Regulatory Activity
Texas Gas Service Recent Regulatory Activity CENTRAL-GULF SERVICE AREA GRIP – WEST TEXAS SERVICE AREA GRIP – NEW RATES EFFECTIVE JUNE 2021 NEW RATES EFFECTIVE JULY/AUGUST 2021 Incremental Revenue $10.7 million increase Incremental Revenue $9.7 million increase Capital Expenditures $97 million Capita
Slide 56: Economic Snapshot – Austin
Economic Snapshot – Austin NET MIGRATION OF U.S. 50 LARGEST METROS UNEMPLOYMENT RATES BY METRO AREA PER 10,000 POPULATION, 2010-2019 AUSTIN 1,600 NOT SEASONALLY ADJUSTED, AS OF JUNE 2021 • #1 fastest growing major Domestic International metro in the U.S. 1 1,200 National Average: 5.9% • #3 best-perf
Slide 57: Economic Snapshot – El Paso
Economic Snapshot – El Paso 2020-2021 BUSINESS ANNOUNCEMENTS Company Employees • #1 exporting state for the Wiwynn (2021) Unknown UNEMPLOYMENT RATES BY METRO AREA 19th consecutive year1 Everest Rehabilitation Hospital expansion (2021) ~120 NOT SEASONALLY ADJUSTED, AS OF JUNE 2021 Eastlake Marketplac
Slide 58: Economic Snapshot – Oklahoma City
Economic Snapshot – Oklahoma City NET MIGRATION OF U.S. 50 LARGEST METROS 1,600 2020-2021 NEW BUSINESSES/EXPANSIONS PER 10,000 POPULATION, 2010-2019 • 14th fastest growing major Company Description Jobs Domestic International metro in the U.S. (+1.1%)1 1,200 Created 800 Wheeler Bio (2021) Start-up 1
Slide 59: Economic Snapshot – Tulsa
Economic Snapshot – Tulsa UNEMPLOYMENT RATES BY METRO AREA MAJOR EMPLOYERS BY INDUSTRY • #2 most affordable big city NOT SEASONALLY ADJUSTED AS OF JUNE 2021 in the U.S. (Rocket Homes, National Average: 5.9% Industry 1,000+ Employees 2021) Tulsa 3.9% Unemployment rate (%) • #5 top metro for job 4.4 t
Slide 60: U.S. Energy Flowchart
U.S. Energy Flowchart APPENDIX | 60
Slide 61: 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 62: Non-GAAP Reconciliation Cash Flow From Operations Before Changes in Working Capital
Non-GAAP Reconciliation Cash Flow From Operations Before Changes in Working Capital 2021 (MILLIONS) GUIDANCE* Net income $ 204 Depreciation and amortization 206 Deferred taxes 35 Other 10 Cash flow from operations before changes in working capital $ 455 * Amounts shown are estimated midpoints as con
Slide 63: Non-GAAP Reconciliation Net Margin
Non-GAAP Reconciliation Net Margin (MILLIONS) 2020 Total revenues $ 1,530.3 Cost of natural gas 537.4 Net margin $ 992.9 (MILLIONS) 2020 Natural gas sales Residential $ 711.1 Commercial and industrial 132.8 Other 7.9 Net margin on natural gas sales (net sales margin) $ 851.8 Transportation revenues