One Gas, Inc. · NYSE:OGS
One Gas — Investor Presentation (September 2022)
52 slides from One Gas's investor presentation, September 2022
Slide 1: September Investor Update
SEPTEMBER INVESTOR UPDATE SEPT 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, 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: We are accountable to the highest eth
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 • ~ 3,650 employees in Oklahoma • ~ 64,200 miles of distribution mains, services and transmission p
Slide 7: Capital Investments
Ce ea ; CAPITAL r INVESTMENTS TETUUUENECED JTEUTOMEUTENUGEEONT 200, MUUUEOCUUINEENESN cea Gonees
Slide 8: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan Investments Exceed 3x Depreciation CAPITAL INVESTMENTS 2022G CAPITAL INVESTMENTS BY STATE (MILLIONS) ~$650 (MILLIONS) $25 $542 $515 $470 $21 $190 $442 $20 $21 $138 Kansas $26 $135 $145 $110 $435 $99 $360 $383 Texas $339 $317 $250 $202 $213 $178 $191 $158 Oklahoma
Slide 9: Capital Investments – Customer Growth
Capital Investments – Customer Growth Growing Demand for Natural Gas Key drivers GROWTH CAPITAL (MILLIONS) $190 • Residential and commercial development, particularly in Austin and Oklahoma City metro areas, driving system expansion $138 $97 • Projecting five-year average annual customer $67 growth
Slide 10: 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 11: Rate Base
Rate Base AVERAGE RATE BASE* 2022G AVERAGE RATE BASE* (BILLIONS) BY STATE TOTAL: $4.80 BILLION $4.80 $4.25 $3.91 $1.29 billion $3.62 $1.49 billion $3.36 $2.02 billion 2018 2019 2020 2021 2022G Kansas Oklahoma Texas * See Appendix for definition Over 13% growth from 2021 to 2022 CAPITAL INVESTMENTS |
Slide 12: Regulatory Update
REGULATORY UPDATE G ONE Gas
Slide 13: Securitization Update
Securitization Update KANSAS OKLAHOMA TEXAS The Company received bond proceeds of $1.3B on The Kansas Corporation Commission issued a August 25th and called $1.3B of its 2- and 3-year notes financing order on August 18th authorizing a The Company continues to provide information to the Status with s
Slide 14: Interim Recovery of Capital Expenditures
Interim Recovery of Capital Expenditures Annual Filings • Oklahoma Natural Gas 2022E CAPITAL EXPENDITURES RECOVERY – Performance-based rate change (PBRC) interim filing for annual rate reviews between full rate cases 8% • Kansas Gas Service – Gas System Reliability Surcharge (GSRS) for investments i
Slide 15: 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, new rates effective July 2022, PBRC filings annually in March 2023 – 2026 p
Slide 16: 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 17: Cash Flow Stability
CASH FLOW STABILITY G ONE Gas
Slide 18: 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 | 18
Slide 19: 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 | 19
Slide 20: Average Annual Residential Customer Bill
Average Annual Residential Customer Bill • Since spinoff, customers have AVERAGE MONTHLY RESIDENTIAL CUSTOMER BILL benefitted from low and stable gas prices $60 • Customers began to see impact $55 $58 $54 of federal tax reform in 2018 and $50 $51 $50 $46 elimination of Kansas state $32 $23 $19 $22 $
Slide 21: 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 22: Financial Performance & Objectives
FINANCIAL PERFORMANCE & OBJECTIVES
Slide 23: Five-Year Financial Guidance
Five-Year Financial Guidance 2022 through 2026 Capital Investments & Rate Base Average Annual Earnings Growth Rates • Capital investments of approximately • Net income of 8 – 10% $3.5 billion, a 19% increase over • Earnings per diluted share of 6 – 8% previous five-year plan – $2.4 billion investmen
Slide 24: 2022 Guidance Summary
2022 Guidance Summary Initiated Jan. 18, 2022 • Net income range of $215 ‒ $227 DILUTED EPS & NET INCOME million • EPS range of $3.96 ‒ $4.20 per $4.08** diluted share $3.68 $3.85 $3.51 $3.25 • Estimated average rate base* of $4.80 billion $221** $196 $206 – Includes $650 million in capital investme
Slide 25: Growing Dividends
Growing Dividends Building Shareholder Value • Quarterly Dividend DIVIDENDS & PAYOUT RATIO – 62 cents per share in 2022* $2.48* $2.32 $2.16 $2.00 $1.84 • Target annual payout ratio 61%** – 55 to 65% of net income 59% 60% 57% 57% 2018 2019 2020 2021 2022G 6.9% increase over 2021 * Subject to board ap
Slide 26: Strong Balance Sheet & Capital Structure
Strong Balance Sheet & Capital Structure Supports Investment Grade Credit Ratings Sources of Liquidity CAPITAL STRUCTURE* Pro Forma as of June 30, 2022 PRO FORMA AS OF JUNE 30, 2022** • Revolving Credit Facility – $1 billion limit – Expires March 2027 • $804.8 million available under commercial pape
Slide 27: Financing Requirements
Financing Requirements Excluding Winter Storm Uri Securitizations $784 $784 Financing • Dividends and capital Financing Financing requirements requirements investments primarily funded requirements $280 $210 by cash flow from operations $174 Capital (MILLIONS) expenditures and asset removal • ~$1.6
Slide 28: Long-term Debt Profile
Long-term Debt Profile Pro Forma as of June 30, 20221 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
Slide 29: Operating Cost Control
Operating Cost Control Building a Foundation for Long-term Affordability Managing operating expenses: • Leveraging technology • Increasing efficiency and optimizing processes • Making it easier for customers to self-serve • Growing customer base lowers cost per customer • Managing inflationary press
Slide 30: Energy Transition Solutions
ENERGY TRANSITION SOLUTIONS
Slide 31: 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 32: 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 33: 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 34: Appendix
APPENDIX G ONE Gas
Slide 35: 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 | 35
Slide 36: 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 37: 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 38: Capital Investments
Capital Investments KANSAS OKLAHOMA TEXAS 2022: 1.9X DEPRECIATION 2022: 2.9X DEPRECIATION 2022: 5.0X DEPRECIATION $255 $250 $215 $198 $191 $188 $188 $145 $180 $139 $126 $129 $156 $123 $136 (MILLIONS) $82 $87 $69 $74 $76 $44 $48 $51 $75 $37 $40 $64 $68 $72 $52 2018 2019 2020 2021 2022G 2018 2019 2020
Slide 39: Authorized Rate Base
Authorized Rate Base KANSAS1 OKLAHOMA2 TEXAS2 $1,726 $1,616 $1,475 $1,407 $1,197 $1,257 $1,239 $1,068 $1,133 $1,047 $1,033 $986 $947 $895 $822 (MILLIONS) 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 1 Kansas Gas Service’s most recent rate case, approved in February 2019
Slide 40: Rate Base Definition
Rate Base Definition Authorized Rate Base $4.28 billion (as of June 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 2022 Estimated Average Rate Base $4.80 billion • Average
Slide 41: 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 42: 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 43: 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 20224 $1,854 8.95% 59% 9.40% Kansas Gas Service3 Kansas December 2021 $1,197 8.60% N/A 9.30% Texas Gas Service
Slide 44: Kansas Gas Service
Kansas Gas Service Recent Regulatory Activity 2022 GSRS – FILED AUGUST 2022 Incremental Surcharge Revenue $7.8 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 $0.80 per month
Slide 45: 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 a
Slide 46: 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 47: 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 48: 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 49: 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 50: 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 51: 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 52: Non-GAAP Reconciliation
Non-GAAP Reconciliation Cash Flow From Operations Before Changes in Working Capital 2022 (MILLIONS) GUIDANCE* Net income $ 221 Depreciation and amortization 220 Deferred taxes 43 Other 20 Cash flow from operations before changes in working capital $ 504 * Amounts shown are estimated midpoints as con