ONEOK, Inc. · NYSE:OKE
ONEOK — UBS MLP One-on-One Conference 2016
62 slides from ONEOK's conference presentation, Jan 12, 2016
Slide 1: UBS MLP One-on-One Conference
UBS MLP ONE-ON-ONE CONFERENCE Park City, Utah | Jan. 12-13, 2016
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 protections provided under federal securities legislation and other applicable laws. • It is imp
Slide 3: Index
INDEX ONEOK Partners Overview 4 ONEOK Partners 2016 Guidance 9 Financial Strength 23 ONEOK Overview and 2016 Guidance 25 Appendix – ONEOK Partners Business Segments 30 – 2015 Volume Outlook 34 – Natural Gas Gathering and Processing 39 – Disciplined Growth Continues 44 – Recent Projects 46 – ONEOK Pa
Slide 4: ONEOK Partners Overview
ONEOK PARTNERS OVERVIEW
Slide 5: ONEOK Partners Asset Overview
ONEOK PARTNERS ASSET OVERVIEW • Owns and operates strategically located assets in midstream natural gas liquids and natural gas businesses • Provides nondiscretionary services to producers, processors and customers • Extensive 36,000-mile integrated network of natural gas liquids and natural gas pip
Slide 6: Integration – Our Competitive Advantage
BUSINESS SEGMENTS INTEGRATION – OUR COMPETITIVE ADVANTAGE Supply Diversification Predominantly Fee-Based Value Chain Long-term Growth Opportunities Natural Gas Pipelines Natural Gas Pipelines Connected to >50 transmission • Nearly 100% fee-based earnings Growing exports pipelines and >40 processing
Slide 7: ONEOK Partners Well-Positioned to Create Long-Term Value
ONEOK PARTNERS WELL-POSITIONED TO CREATE LONG-TERM VALUE • Increasing fee-based earnings through gathering, processing, fractionation, storage and transport services – ONEOK Partners’ fee-based margin is expected to increase to approximately 85% in 2016 from approximately 75% in 2015 • Supply and ma
Slide 8: Our Key Strategies: A Premier Energy Company
OUR KEY STRATEGIES A PREMIER ENERGY COMPANY GROWTH • Increase distributable cash flow through investments in organic growth projects and strategic acquisitions – Continue to increase NGL and natural gas volume – Continue to grow/expand our integrated natural gas liquids and natural gas infrastructur
Slide 9: ONEOK Partners 2016 Guidance
ONEOK PARTNERS 2016 GUIDANCE
Slide 10: ONEOK Partners 2016 Guidance Summary
ONEOK PARTNERS 2016 GUIDANCE SUMMARY ONEOK Partners expects: • No public debt or equity offerings well into 2017 • Distribution coverage at 1.0x or better*, and distributions to remain flat compared with 2015 • Capital-growth expenditures of $460 million and maintenance capital of $140 million • GAA
Slide 11: ONEOK Partners Sources of Margin
ONEOK PARTNERS SOURCES OF MARGIN PERCENT OF MARGIN • Fee-based margin expected to increase to approximately Sources of Margin 85% in 2016 $1.6 B $1.6 B $1.7 B $2.1 B $2.3 B ~$2.5 B • Volume risk 9% ~5% 11% 12% – Exists primarily in natural gas gathering and processing and 20% ~10% natural gas liquid
Slide 12: Natural Gas Liquids Margin Profile Mix
NATURAL GAS LIQUIDS MARGIN PROFILE MIX • Exchange & Storage Services – Gather, fractionate, transport and store NGLs and Exchange & deliver to market hubs; primarily fee based 50% Storage Services 74% • Transportation 72% ~78% Transportation – Transporting raw NGL feed from supply basins 55% and NGL
Slide 13: Natural Gas Pipelines Percent of Margin
NATURAL GAS PIPELINES PERCENT OF MARGIN Sources of Margin • Nearly 100% of margin is fee- 6% 6% 4% 8% 4% ~4% based • Minimal volume risk – Backed by firm demand contracts • Roadrunner Gas Transmission 94% 94% 96% 96% ~96% pipeline project and WesTex 92% pipeline expansion to enhance export capabilit
Slide 14: Natural Gas Gathering and Processing Contract Portfolio
NATURAL GAS GATHERING AND PROCESSING CONTRACT PORTFOLIO • Achieving increased fee-based contract mix by restructuring existing percent-of-proceeds (POP) contracts to increase the fee-based component – Increasing fee-based margin while providing enhanced services to customers • Restructuring efforts
Slide 15: Natural Gas Liquids 2016 Volume Guidance
NATURAL GAS LIQUIDS 2016 VOLUME GUIDANCE • Gathered volumes expected to average approximately 800,000 – 870,000 bpd; fractionation volumes expected to average approximately 540,000 – 590,000 bpd ‒ Lonesome Creek natural gas processing plant – expected to be half full by second quarter 2016 – Bakken
Slide 16: Natural Gas Liquids Ethane Upside
NATURAL GAS LIQUIDS ETHANE UPSIDE • New world-scale petrochemical facilities expected to significantly increase ethane demand in 2017 and beyond – Incremental ethane transported and fractionated volume potential greater than 150,000 bpd • ONEOK Partners continues to build infrastructure connecting N
Slide 17: Natural Gas Pipelines 2016 Guidance
NATURAL GAS PIPELINES 2016 GUIDANCE • Earnings to remain more than 95% fee-based • 92% of transportation capacity contracted under demand-based rates • 76% of natural gas storage capacity contracted under firm, fee-based arrangements • Roadrunner Gas Transmission Pipeline – Phase I expected to be co
Slide 18: Natural Gas Gathering and Processing 2016 Volume Guidance
NATURAL GAS GATHERING AND PROCESSING 2016 VOLUME GUIDANCE Natural Gas Gathered Volumes (MMcf/d) • Gathered volumes expected to average approximately 1,700-1,800 MMcf/d or 2,200–2,300 BBtu/d; processed volumes expected to 1,700-1,800 average approximately 1,500-1,600 MMcf/d or 1,900-2,000 BBtu/d 1,49
Slide 19: Williston Basin Volume Update
WILLISTON BASIN VOLUME UPDATE • Natural gas gathered volume increases in 2016 even as natural gas production remains relatively flat – Full-year benefit of the Lonesome Creek processing plant and additional compression which was placed in service late in 2015 – Gas capture behind the OKS system is e
Slide 20: Williston Basin Volume Update
WILLISTON BASIN VOLUME UPDATE • Natural gas gathered volume expected to increase in 2016 – Higher natural gas capture percentage (reduced flaring) as a result of pipelines, compression and processing plant placed in- service in late 2015 – New well connects include sizable backlog of drilled but unc
Slide 21: Williston Basin Volume Update
WILLISTON BASIN VOLUME UPDATE • Natural gas gathered volume increases in 2016 even as natural gas production remains relatively flat – Higher natural gas capture percentage (reduced flaring) as result of pipelines, compression and processing plant placed in- service in late 2015 – New well connects
Slide 22: Williston Basin Volume Update – Basin Wide
WILLISTON BASIN VOLUME UPDATE – BASIN WIDE North Dakota Natural Gas Production, Case 1 and 2 2,400,000 • Due to high-grading of rigs to most 2,200,000 prolific areas, the natural gas 2,000,000 1,800,000 volume does not decline in step 1,600,000 with crude oil due to higher gas-to- 1,400,000 1,200,00
Slide 23: Financial Strength
FINANCIAL STRENGTH
Slide 24: OKS Strong Balance Sheet, Investment Grade
OKS STRONG BALANCE SHEET INVESTMENT GRADE ONEOK Partners • Capital structure targets GAAP Debt-to-EBITDA Ratio – 50/50 capitalization – Debt-to-Adjusted EBITDA ratio < 4.0x 4.8x 4.7x • Committed to investment-grade credit ratings 4.5x – S&P: BBB (negative) 4.2x – Moody’s: Baa2 (negative) 3.7x • $2.4
Slide 25: ONEOK Overview and 2016 Guidance
ONEOK OVERVIEW AND 2016 GUIDANCE
Slide 26: OKS Growth Benefits OKE: Value of GP Interest to ONEOK
OKS GROWTH BENEFITS OKE VALUE OF GP INTEREST TO ONEOK • ONEOK Partners capital-growth Distributions Declared to ONEOK projects and strategic ($ in Millions) 18% CAGR $790 acquisitions expected to drive $694 continued distribution growth $633 $360 • Nearly 70% of every $546 $292 $476 incremental ONEO
Slide 27: ONEOK 2016 Guidance Summary
ONEOK 2016 GUIDANCE SUMMARY ONEOK expects: • Dividend to remain flat • Cash flow available for dividends of approximately $675 million • Dividend coverage ratio of approximately 1.3x • Free cash flow after dividends and cash on hand totaling approximately $250 million available to support ONEOK Part
Slide 28: Key Investment Considerations
KEY INVESTMENT CONSIDERATIONS PREMIER ENERGY COMPANIES ONEOK • Stable cash flow – Cash flow underpinned by investment-grade MLP with fee-based business model – GP and LP distributions from ONEOK Partners drive significant cash flow generation and growth – Prudent financial practices results in finan
Slide 29: Appendix
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Slide 30: Appendix – ONEOK Partners Business Segments
APPENDIX – ONEOK PARTNERS BUSINESS SEGMENTS
Slide 31: Natural Gas Liquids Asset Overview
NATURAL GAS LIQUIDS ASSET OVERVIEW • Provides nondiscretionary, fee-based services to natural gas processors and customers – Gathering, fractionation, transportation, marketing and storage • Extensive NGL gathering system – Connected to more than 180 natural gas processing plants in the Mid-Continen
Slide 32: Natural Gas Pipelines Asset Overview
NATURAL GAS PIPELINES ASSET OVERVIEW • Primarily fee-based income • 92% of transportation capacity contracted under demand-based rates in 2015 • 85% of contracted system transportation capacity serves end-use markets in 2015 – Connected directly to end-use markets • Local natural gas distribution co
Slide 33: Natural Gas Gathering and Processing Asset Overview
NATURAL GAS GATHERING AND PROCESSING ASSET OVERVIEW • Nondiscretionary services to producers Williston Basin – Gathering, compression, treating and processing • Diverse contract portfolio – More than 2,000 contracts Powder River – Primarily percent of proceeds (POP) and fee based Basin • Converting
Slide 34: Appendix – 2015 Volume Guidance
APPENDIX – 2015 VOLUME GUIDANCE Volume Growth Continues in Challenging Environment
Slide 35: Natural Gas Liquids 2015 Quarterly Volume
NATURAL GAS LIQUIDS 2015 QUARTERLY VOLUME • Bakken NGL Pipeline and Mid-Continent volumes gathered • 2015 fractionated volumes: increased from previous target – Expected to reach 645,000* bpd in fourth quarter – Continued volume growth in the Williston Basin, STACK and – Physical and contractual vol
Slide 36: Natural Gas Pipelines Incremental Fee-Based Earnings
NATURAL GAS PIPELINES INCREMENTAL FEE-BASED EARNINGS • Converting coal-fired electric generators to Viking Gas cleaner natural gas Northern Border Transmission Pipeline – Low natural gas pricing environment providing many opportunities Guardian – EPA air emissions standards is a conversion Pipeline
Slide 37: Williston Basin Initial Production Rates and State-Wide Production
WILLISTON BASIN INITIAL PRODUCTION RATES AND STATE-WIDE PRODUCTION North Dakota Crude Oil and Natural Gas Production** 1,800,000 1,700,000 1,600,000 Max Monthly Production, Mcfd* 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 Natural gas production (Mcfd) Crude-oil production (bpd) Max Monthly Pr
Slide 38: Natural Gas Gathering and Processing 2015 Quarterly Volume
NATURAL GAS GATHERING AND PROCESSING 2015 QUARTERLY VOLUME Williston Basin – significant supply backlog • Volumes significantly increased from previous target Natural Gas Gathered Volumes* (MMcf/d) – 5% increase in Q3; 4% increase in Q4 expected 910 volumes 860 840 – 180 MMcf/d from ~825 expected ne
Slide 39: Appendix – Natural Gas Gathering and Processing
APPENDIX – NATURAL GAS GATHERING AND PROCESSING
Slide 40: Williston Basin: Drilled but Not Completed Wells
WILLISTON BASIN Significant number of drilled but not completed wells are located in our asset footprint and acreage dedications Represents 5 wells waiting on completion* Existing OKS plants Compressor Lonesome Creek plant completed in November 2015 Bear Creek plant to be complete in third quarter 2
Slide 41: Williston Basin Increased Gas Capture and Volume Backlog Benefits OKS
WILLISTON BASIN INCREASED GAS CAPTURE AND VOLUME BACKLOG BENEFITS OKS • Increased natural gas capture results in increased NGL and natural gas value uplift • 86% of North Dakota’s natural gas production was captured in October 2015 • North Dakota Industrial Commission (NDIC) policy targets: – Increa
Slide 42: Commodity Price Risk Mitigation
NATURAL GAS GATHERING AND PROCESSING COMMODITY PRICE RISK MITIGATION 2016 natural gas equity volumes are expected to be lower than in 2015 due to contract restructuring efforts. As contracts continue to become more fee-based, the partnership’s exposure to commodity prices will continue to be reduced
Slide 43: ONEOK Partners Commodity Price Assumptions and Sensitivities
ONEOK PARTNERS COMMODITY PRICE ASSUMPTIONS AND SENSITIVITIES NYMEX Crude Oil NYMEX Natural Gas NGL composite Conway/Belvieu Ethane Spread 2016 ($/Bbl) ($/MMBtu) ($/gallon) ($/gallon) $43.50 $2.35 $0.39 $0.02 Unhedged Annual Contribution Net Margin Impact of 10% Price Movement 2016 Volume ($ in milli
Slide 44: Appendix – Disciplined Growth Continues in Multiple Basins
APPENDIX – DISCIPLINED GROWTH CONTINUES IN MULTIPLE BASINS
Slide 45: Future Growth: $4 Billion – $5 Billion Backlog
FUTURE GROWTH $4 BILLION – $5 BILLION BACKLOG • Project backlog: approximately 60% natural gas liquids – primarily fee based, 25% natural gas pipelines – primarily fee based and 15% natural gas gathering and processing • Future growth across multiple supply basins and major market areas • Backlog of
Slide 46: Appendix – Recent Projects
APPENDIX —- RECENT PRO PARTNERS
Slide 47: OKS in the Permian: West Texas LPG Pipeline System
OKS IN THE PERMIAN WEST TEXAS LPG PIPELINE SYSTEM • 2,600 miles of NGL gathering pipeline – $800 million acquisition closed in November 2014 – 285,000 bpd, gross capacity • Expands NGL segment’s portfolio of assets – NGL gathering system mileage increased more than 60% – Gathered NGL volumes expecte
Slide 48: OKS in the Permian: Growing Exports to Mexico
OKS IN THE PERMIAN GROWING EXPORTS TO MEXICO Roadrunner Gas Transmission • 50-50 joint venture with Fermaca – 200 miles of 30-inch diameter pipeline – Provide up to 640 MMcf/d capacity to existing El Paso, Texas, markets and up to 570 MMcf/d to markets in northern Mexico – $450 million - $500 millio
Slide 49: Appendix – ONEOK Partners Growth Projects
APPENDIX – ONEOK PARTNERS GROWTH PROJECTS
Slide 50: Williston Basin-Related Growth Projects: ~$1.5 Billion Completed
WILLISTON BASIN-RELATED GROWTH PROJECTS ~$1.5 BILLION COMPLETED CapEx Contract Major Project Scope Completed ($ Millions) Type Bakken NGL Pipeline • Bakken NGL Pipeline: 600-mile, 12-inch NGL pipeline with initial $90 Fee based September 2014 expansion – Phase I capacity of 60,000 bpd • Phase I expa
Slide 51: Williston Basin-Related Growth Projects: ~$1.3 Billion Announced
WILLISTON BASIN-RELATED GROWTH PROJECTS ~$1.3 BILLION ANNOUNCED CapEx Contract Major Project Scope Timing ($ Millions) Type Stateline de-ethanization facilities • 26,000 barrels per day (bpd) of ethane produced at Stateline I and II $60-$80 Fee Based Third quarter through de-ethanization facilities
Slide 52: Mid-Continent and Gulf Coast-Related Growth Projects
MID-CONTINENT AND GULF COAST-RELATED GROWTH PROJECTS ~$1.8 BILLION COMPLETED Major Project Scope CapEx Contract Completed ($ Millions) Type Sterling III pipeline and • 550-mile, 16-inch NGL pipeline $808 Fee based March 2014 reconfiguration of Sterling I and II • Initial capacity of 193,000 bpd Cana
Slide 53: Permian Growth Projects ~$560 Million Announced
PERMIAN GROWTH PROJECTS ~$560 MILLION ANNOUNCED Approximate Contract Major Project Scope Costs Type Timing ($ Millions) WesTex Transmission Pipeline Expansion • Constructing two new and upgrading three $70-$100 Fee based First quarter 2017 existing compressor stations • Increasing capacity by 260 MM
Slide 54: Acquisitions ~$1.2 Billion Completed
ACQUISITIONS ~$1.2 BILLION COMPLETED Major Project Scope CapEx Contract Timing ($ Millions) Type Sage Creek natural gas • 50 MMcf/d* natural gas processing capacity $305 POP with fee September 2013 processing plant • Powder River Basin components Remaining 30 percent interest • 40 MMcf/d in addition
Slide 55: Non-GAAP Reconciliations – ONEOK
NON-GAAP RECONCILIATIONS – ONEOK
Slide 56: Non-GAAP Reconciliations ONEOK, Inc.
NON-GAAP RECONCILIATIONS ONEOK, INC. ONEOK has disclosed in this presentation anticipated cash flow available for dividends, free cash flow and dividend coverage ratio, all amounts that are non-GAAP financial measures. Management believes these measures provide useful information to investors as a m
Slide 57: OKE Financial Measures: Cash Flow Available for Dividends
OKE FINANCIAL MEASURES CASH FLOW AVAILABLE FOR DIVIDENDS ($ in Millions) 2014 2015G* 2016G Recurring cash flows: Distributions from ONEOK Partners – declared $633 $694 ~ $790 Interest expense, excluding non cash items (69) (63) ~(105) Cash income taxes - - - Released contracts from the former energy
Slide 58: OKE Non-GAAP Reconciliation: Cash Flow Available for Dividends and Free Cash Flow
OKE NON-GAAP RECONCILIATION CASH FLOW AVAILABLE FOR DIVIDENDS AND FREE CASH FLOW ($ in Millions) 2014 2015G* 2016G Net income attributable to ONEOK $314 $317 ~$360 Depreciation and amortization 15 3 ~5 Deferred income taxes 141 173 ~200 Equity in earnings of ONEOK Partners (563) (580) ~(700) Distrib
Slide 59: Non-GAAP Reconciliations – ONEOK Partners
NON-GAAP RECONCILIATIONS – ONEOK PARTNERS
Slide 60: Non-GAAP Reconciliations ONEOK Partners
NON-GAAP RECONCILIATIONS ONEOK PARTNERS ONEOK Partners has disclosed in this presentation its historical and anticipated adjusted EBITDA, distributable cash flow (DCF) and cash distribution coverage ratio, which are non-GAAP financial metrics, used to measure the partnership’s financial performance
Slide 61: OKS Non-GAAP Reconciliations: Adjusted EBITDA and Distributable Cash Flow
OKS NON-GAAP RECONCILIATIONS ADJUSTED EBITDA AND DISTRIBUTABLE CASH FLOW ($ in Millions) 2011 2012 2013 2014 2015G* 2016G Reconciliation of Net Income to Adjusted EBITDA and Distributable Cash Flow Net Income $831 $888 $804 $911 $935 ~$1,120 Interest expense 223 206 237 282 321 ~370 Depreciation and
Slide 62: > ONEOK | = PX0%2s
> ONEOK | 4 = PX0%2s