One Gas, Inc. · NYSE:OGS
One Gas — BofA Securities Gas Utility Conference (December 2022)
55 slides from One Gas's conference presentation, December 2022
Slide 1: Investor Update December 2022
DECEMBER INVESTOR UPDATE DEC 2022
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: Our Strategy
OUR STRATEGY
Slide 4: Mission, Strategy and Core Values
Mission, 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. Ethics: We are accountable to the highest ethical standards STRATEGY – How we get
Slide 5: Sustainable Business Model
Sustainable Business Model • 100% regulated natural gas distribution utility Focused Business Strategy • Conservative financial profile with investment-grade credit ratings • 20+ year vintage pipeline replacement program using risk-based approach Capital Investments • Significant organic growth oppo
Slide 6: 100% Regulated Natural Gas Utility
100% Regulated Natural Gas Utility One of the largest publicly traded 72% market natural gas distribution companies share, the largest in Kansas • ~ 2.3 million customers 88% market share, the largest • ~ 3,700 employees in Oklahoma • ~ 64,200 miles of distribution mains, services and transmission p
Slide 7: 2023 Financial Outlook
2023 FINANCIAL OUTLOOK G ONE Gas
Slide 8: Five-Year Financial Guidance: 2023 – 2027
Five-Year Financial Guidance: 2023 – 2027 Overview The Company’s outlook remains anchored by ongoing investments in system integrity and pipeline replacement, and supported by strong customer growth and regional economic development. However, fundamental shifts in baseline economic conditions during
Slide 9: Macro Environment – Nov. 2021 vs. Nov. 2022
Macro Environment – Nov. 2021 vs. Nov. 2022 A Fundamental Shift in Baseline Economic Conditions Type Metric Nov 1, 2021 Nov 1, 2022 Year-over-Year Change 10-Yr Avg. Change vs. 10-Yr Avg. 90-Day LIBOR 0.14% 4.46% 31.9x 0.99% 4.5x Interest Rates 2-Year US Treasury 0.50% 4.54% 9.1x 1.11% 4.1x 10-Year U
Slide 10: Favorable Regional Growth Dynamics
Favorable Regional Growth Dynamics Growing Demand for Natural Gas Key drivers I-35 Corridor • Residential and commercial development, • I-35 Corridor fastest growing population in the particularly in Austin and Oklahoma City U.S metro areas, driving system expansion • ONE Gas positioned in KS, OK an
Slide 11: Constructing a Foundation for Growth and Long-term Affordability
Constructing a Foundation for Growth and Long-term Affordability Building Operational Capacity Operating investments support business expansion • Increasing operating capacities and capabilities • Addressing labor pressures through competitive market wage adjustments • Inflationary pressures impact
Slide 12: Five-Year Financial Highlights
Five-Year Financial Highlights 2023 through 2027 Capital Investments & Rate Base Average Annual Growth Rates • Capital investments of approximately $3.6 • Net income growth of 7 – 9% billion – In addition to capital investment, key drivers include: – $2.5 billion investment in system integrity and r
Slide 13: Five-Year Financing Requirements
Five-year Financing Requirements Retaining Balance Sheet Strength • Dividends and capital investments primarily funded by cash flow from operations of approximately $500 - $550 million1 – Expected 2023 short- and long-term financing need of $275 - $300 million • ~$1.8 billion net long-term financing
Slide 14: 2023 Guidance Summary
2023 Guidance Summary Initiated Nov. 30, 2022 • Net income range of $224 ‒ $238 NET INCOME & DILUTED EPS million • EPS range of $4.02 ‒ $4.26 per $231** $221** diluted share $206 $196 $187 • Estimated average rate base* $4.14** $4.08** of $5.15 billion $3.85 $3.68 – Includes $675 million in capital
Slide 15: Growing Dividends
Growing Dividends Building Shareholder Value • Annual Dividend DIVIDENDS & PAYOUT RATIO – 4% to 6% average annual growth $2.48 $2.32 $2.16 $2.00 • Target annual payout ratio – 55% to 65% of net income 60% 61% 59% 57% 2019 2020 2021 2022G ~10% CAGR since spin from ONEOK FINANCIAL OUTLOOK| 15
Slide 16: Strong Balance Sheet & Capital Structure
Strong Balance Sheet & Capital Structure Supports Investment Grade Credit Ratings Sources of Liquidity CAPITAL STRUCTURE* as of September 30, 2022 as of Sept. 30, 2022 • Revolving Credit Facility – $1 billion limit – Expires March 2027 • $575.4 million available under commercial paper Long-term Debt
Slide 17: Long-term Debt Profile
Long-term Debt Profile As of September 30, 2022 SENIOR DEBT MATURITIES (MILLIONS) $850 $600 $550 1.100% $400 $250 $300 $300 $300 4.658% 0.850% 3.610% 2.000% 4.250% 4.500% 2023 2024 2030 2032 2044 2048 Long-term debt exclusive of Winter Storm Uri financing Long-term debt associated with Winter Storm
Slide 18: Capital Investments
Ce ea ; CAPITAL r INVESTMENTS TETUUUENECED JTEUTOMEUTENUGEEONT 200, MUUUEOCUUINEENESN cea Gonees
Slide 19: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan Investments ~ 3x Depreciation CAPITAL INVESTMENTS 2023G CAPITAL INVESTMENTS BY STATE (MILLIONS) (MILLIONS) ~$675 $6501 $25 $33 $542 $515 $185 $470 $20 $21 $182 Kansas $21 $138 $176 $135 $465 $110 $435 Texas $383 $257 $339 $360 $213 $232 $191 $202 $178 Oklahoma $2
Slide 20: Vintage Pipeline Replacement Program
Vintage Pipeline Replacement Program Replaced an Average of 231 Miles of Vintage Pipe Per Year Since 2014 VINTAGE PIPELINE AS PORTION OF TOTAL PIPELINE INVENTORY (MILES) All Other Main, Service & Transmission Pipelines Risk-Mitigation & Government Relocations 1,200 750 2022-2026E 4,250 2022-2026E 5,
Slide 21: Rate Base
Rate Base AVERAGE RATE BASE* 2023G AVERAGE RATE BASE* (BILLIONS) BY STATE TOTAL: $5.15 BILLION $5.15 $4.80 $4.25 $3.91 $1.34 billion $3.62 $1.65 billion $2.16 billion 2019 2020 2021 2022G 2023G Kansas Oklahoma Texas * See Appendix for definition Over 7% growth from 2022 to 2023 CAPITAL INVESTMENTS |
Slide 22: Regulatory Update
REGULATORY UPDATE G ONE Gas
Slide 23: Securitization Update
Securitization Update KANSAS OKLAHOMA TEXAS The Company received bond proceeds of $1.3B on On November 18th, the Company received $336 August 25th and called $1.3B of its 2- and 3-year million in securitized bond proceeds and The Company continues to provide information to the Status notes with sche
Slide 24: Interim Recovery of Capital Expenditures
Interim Recovery of Capital Expenditures Annual Filings • Oklahoma Natural Gas 2023E CAPITAL EXPENDITURES RECOVERY – Performance-based rate change (PBRC) interim filing for annual rate reviews between full rate cases 9% • Kansas Gas Service – Gas System Reliability Surcharge (GSRS) for investments i
Slide 25: Filing Timeline
Filing Timeline Oklahoma & Kansas $15.3 million general rate case approved, General rate case filing new rates effective November 2021 required by June 30, 2027 2021 2022 2023 2024 2025 2026 2027 $19.6 million PBRC approved, PBRC filings annually in March 2023 – 2026 new rates effective July 2022 Co
Slide 26: Texas Filings – 2022
Texas Filings – 2022 • Central-Gulf Service Area – $9.1 million GRIP; new rates effective June 2022 • West Texas Service Area – $5.0 million GRIP; new rates effective July 2022 – $13 million general rate case filed in June; includes request to consolidate the North Texas and Borger/Skellytown servic
Slide 27: Cash Flow Stability
CASH FLOW STABILITY G ONE Gas
Slide 28: High Percentage of Residential Customers
High Percentage of Residential Customers 93% Residential 70% Fixed AVG. SALES NATURAL GAS CUSTOMER SALES COUNT REVENUES (Excludes cost of natural gas recovery) 7% Non-residential 30% Variable Note: Based on 2021 annual results. CASH FLOW STABILITY | 28
Slide 29: Total Delivered Volumes
Total Delivered Volumes 41% Sales Volumes (158 Bcf) 75% Residential (118 Bcf) TOTAL TOTAL SALES VOLUMES VOLUMES DELIVERED DELIVERED 158 Bcf 388 Bcf 25% Non-Residential (40 Bcf) 59% Transportation Volumes (230 Bcf) Note: Based on 2021 annual results. CASH FLOW STABILITY | 29
Slide 30: Average Annual Residential Customer Bill
Average Annual Residential Customer Bill AVERAGE MONTHLY • Natural gas costs RESIDENTIAL CUSTOMER BILL represent a majority of customer bills in 2022, $81 $83 * while non-commodity costs remain tightly controlled $60 $58 $55 $54 $43 $43 $50 $51 $50 $46 • Customers began to see $32 $22 $23 $22 $19 $2
Slide 31: 3.3-to-1 Average Advantage in ONE Gas Territories
3.3-to-1 Average Advantage in ONE Gas Territories 3 Natural Gas Price Advantage Over Electricity KWH EQUIVALENT ELECTRICITY VS. NATURAL GAS 12.39¢ 12.95¢ 12.04¢ 2.7x advantage3 3.6x advantage3 3.7x advantage3 4.43¢ 3.48¢ 3.47¢ Texas Oklahoma Kansas ¹ Avg. retail price of electricity/kWh ² ONE Gas de
Slide 32: Energy Transition Solutions
ENERGY TRANSITION SOLUTIONS
Slide 33: Energy Transition Solutions
Energy Transition Solutions ENERGY TRANSITION is achieved through: 1) Reducing Scope 1 emissions 2) Advancing energy efficiency 3) Developing RNG as an alternative energy source 4) Developing green tariffs 5) Participating in alternative fuels research and application - Partnering with: H2@Scale, Cl
Slide 34: Renewable Natural Gas Strategy
Renewable Natural Gas Strategy Uniquely Positioned to Optimize Assets • Strong market potential – Access to 175 Bcf of annual production feedstock within service territory and increasing developer engagement • Competitive interconnection operating costs – Interconnects to OGS allow for lower develop
Slide 35: Emissions Reduction
Emissions Reduction OUR EMISSIONS REDUCTION GOAL Further reductions in Scope 1 emissions achieved through: By 2035, we expect to achieve a • Third-party pipeline damage prevention 55% • Advanced leak detection technology reduction in Scope 1 emissions • Reduction of vented or flared methane due to l
Slide 36: Appendix
APPENDIX G ONE Gas
Slide 37: 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 *Kansas Gas Service Securitization I, LLC formed as wholly owned subsidiary of Kansas Gas Servic
Slide 38: State Statistics
State Statistics As of Dec. 31, 2021 KANSAS OKLAHOMA TEXAS GAS TOTAL GAS SERVICE NATURAL GAS SERVICE Average Number of Customers 647,000 905,000 689,000 2,241,000 Distribution – Miles* 11,700 19,200 10,700 41,600 Transmission – Miles* 1,500 600 300 2,400 Fixed Charges – Sales customers** 55% 88% 68%
Slide 39: Positive Net Migration
Positive Net Migration Post-Pandemic Migration Supports Long-term Growth Opportunity Net Population Increase Source: U.S. Census Bureau, Apr. 2020 through Jul. 2021 APPENDIX | 39
Slide 40: Pipeline Replacement
Pipeline Replacement Focusing on Maintaining Safe and Reliable Operations While Reducing Emissions PIPELINE REPLACEMENT (MILES) ACCELERATED Average Annual Est. CAST IRON 2022-2026 105 45 240 390 REPLACEMENT PROGRAM 2021 100 35 5 290 430 COMPLETED IN 2019 2020 130 44 7 289 470 2019 4 113 78 2 233 430
Slide 41: Capital Investments
Capital Investments KANSAS OKLAHOMA TEXAS 2022: 1.9X DEPRECIATION 2022: 2.9X DEPRECIATION 2022: 5.0X DEPRECIATION $247 1 $257 $243 1 $242 $176 1 $215 $160 $198 $191 $188 $188 $139 $129 $156 $123 (MILLIONS) $87 $92 $74 $76 $82 $53 $59 $40 $44 $48 $72 $75 $79 $64 $68 2019 2020 2021 2022G 2023G 2019 20
Slide 42: Authorized Rate Base
Authorized Rate Base KANSAS1,2 OKLAHOMA2 TEXAS2 $1,854 $1,726 $1,616 $1,475 $1,407 $1,261 $1,360 $1,197 $1,239 $1,133 $1,033 $1,068 $1,047 $986 $895 (MILLIONS) 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 1 Kansas Gas Service’s most recent rate case, approved in Februar
Slide 43: Rate Base Definition
Rate Base Definition Authorized Rate Base $4.48 billion (as of Nov. 30, 2022) • Includes capital investments authorized in most recent rate cases and interim filings • Excludes any capital investments since last approved rate cases or filings 2023 Estimated Average Rate Base $5.15 billion • Average
Slide 44: Regulatory Construct
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 45: 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 46: Recent Regulatory Activity
Recent Regulatory Activity EFFECTIVE RATE PRE-TAX RETURN EQUITY DIVISION JURISDICTION DATE OF LAST BASE RATE OF ON RATIO ACTION1 (MILLIONS) RETURN EQUITY Oklahoma Natural Gas2 Oklahoma July 2022 $1,854 8.95% 59% 9.40% Kansas Gas Service3 Kansas December 2022 $1,261 8.60% N/A 9.30% Texas Gas Service2
Slide 47: Kansas Gas Service
Kansas Gas Service Recent Regulatory Activity 2022 GSRS – EFFECTIVE DECEMBER 2022 Incremental Surcharge Revenue $7.7 million annual revenue Capital Expenditures $79 million Pre-Tax Carrying Charge 8.60%; ROE embedded in GSRS pre-tax carrying charge is estimated to be ~9.30% Customer Impact $0.79 per
Slide 48: Oklahoma Natural Gas
Oklahoma Natural Gas Recent Regulatory Activity 2022 PBRC – NEW RATES EFFECTIVE JULY 2022 Incremental Revenue $19.6 million increase Capital Expenditures $119 million Pre-tax Carrying Charge 8.95% $1.15 per month increase (for typical residential customer, net of one-time annual credit for excess ac
Slide 49: Texas Gas Service
Texas Gas Service Recent Regulatory Activity RIO GRANDE VALLEY SERVICE AREA COSA – WEST TEXAS SERVICE AREA GRIP – NEW RATES EFFECTIVE AUG 2022 NEW RATES EFFECTIVE JULY 2022 Incremental Revenue $2.5 million increase Incremental Revenue $5.0 million increase Capital Expenditures $17 million Capital Ex
Slide 50: Strategy Progress: ESG Highlights – Environmental
ESG Highlights Environmental Vintage Pipe Renewable Innovation & End-Use Conservation Replacement Natural Gas Technology • Reduce emissions through • Provide CNG fueling • Expand energy • Facilitate customer access • Identify & invest in new technology Strategy vintage pipeline replacement for fleet
Slide 51: Strategy Progress: ESG Highlights – Social & Governance
ESG Highlights Social & Governance Community Governance Employee Engagement Customer Care Investment Practices • Support employees through physical, • Improve customer experience through • Utilize ONE Gas Foundation • Maintain best practices in social emotional and financial programs innovation and
Slide 52: Hydrogen Technology and Innovation
Hydrogen Technology and Innovation Progress in Motion • Two internal groups are exploring technical matters • Stakeholder in H2@Scale and analyzing gas supply implications of hydrogen – Department of Energy initiative that • Working with GTI on the viability of utilizing Texas brings stakeholders Ga
Slide 53: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Key Statistics • Over half of OGS’ light-duty fleet consists of CNG- CNG VOLUME (DTH – MILLIONS) capable vehicles 151 stations 145 stations • Operating 27 fueling stations accessible to the public, 147 stations supplied 150 stations supplied 151 stations supplied 6 priva
Slide 54: Non-GAAP Information
Non-GAAP Information ONE Gas has disclosed in this presentation cash flow from operations before changes in working capital, which is a non-GAAP financial measure. Cash flow from operations before changes in working capital is used as a measure of the company's financial performance. Cash flow from
Slide 55: Non-GAAP Reconciliation
Non-GAAP Reconciliation Cash Flow From Operations Before Changes in Working Capital 2023 (MILLIONS) GUIDANCE* Net income $ 231 Depreciation and amortization 242 Deferred taxes 36 Other 21 Cash flow from operations before changes in working capital $ 530 * Amounts shown are estimated midpoints as con
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