One Gas, Inc. · NYSE:OGS
One Gas — Non-Deal Roadshow (March 2020)
50 slides from One Gas's roadshow presentation, March 2020
Slide 1: Investor Update
INVESTOR UPDATE NYC & Boston | March 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: Value Creation Strategy
VALUE CREATION STRATEGY G ONE Gas
Slide 4: 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 5: Focused Business Strategy
FOCUSED BUSINESS STRATEGY G ONE Gas
Slide 6: 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 7: Operating Safely
Operating Safely • Focus on culture, engagement, • Utilization of AGA peer review • Ongoing program to replace aging decision-making and processes; safety process assets and the quality control of drive toward zero harm those replacements TRIR AMERICAN GAS ASSOCIATION QUARTILE DATA DART AMERICAN GAS
Slide 8: 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 9: 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 10: Conservative Financial Profile
Conservative Financial Profile Strong liquidity position will support capital CAPITAL STRUCTURE expenditure and working capital needs DECEMBER 31, 2019 • Stable operating cash flows • $700 million revolving credit facility • Commercial paper program Long-term Debt 38% Equity 62% RATING AGENCY RATING
Slide 11: Capital Horizon & Clarity
CAPITAL HORIZON & CLARITY
Slide 12: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan CAPITAL INVESTMENTS* 2020 CAPITAL RECOVERY TIMING (MILLIONS) $485-$525/year $470 $475 10% $442 $418 $178 $190 $151 $158 90% 2017 2018 2019 2020G 2021-2024 Subject to annual filings Other Depreciation * Capital expenditure totals include asset removal costs. Total
Slide 13: 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 14: 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 15: 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 16: Regulatory Construct
REGULATORY CONSTRUCT G ONE Gas
Slide 17: Comprehensive Recovery Mechanisms
Comprehensive Recovery 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 ✓ ✓ ✓ C
Slide 18: 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 Performance-based rate Performance-based Performance-based rate change filed February Performance-based rate change approved January ra
Slide 19: Texas
Texas 2019 Central Texas Service Area • $5.5 million Gas Reliability Infrastructure Program (GRIP) filing effective June 2019 • $15.6 million rate case filed for Central Texas and Gulf Coast service areas; expected to conclude by July 2020 West Texas Service Area • $4.1 million GRIP filing effective
Slide 20: Cash Flow Stability
CASH FLOW STABILITY
Slide 21: 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 22: 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, 1,249 1,100 635 637 638 639 640 900 El Paso, TX, 841 Oklahoma City, OK, 793 861 865 871 877 884 700 Tulsa, OK, 648 Overland Park, KS, 598 500 Wichita,
Slide 23: Operating Cost Control
Operating Cost Control Building a Foundation for Long-Term Affordability OPERATING COSTS* (MILLIONS) Expense control execution through: $496 $489 $471 • Leveraging technology $453 $457 • Increasing efficiency and optimizing processes • Making it easier for customers to self-serve 2016 2017 2018 2019
Slide 24: 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 25: Competitive Advantage
COMPETITIVE ADVANTAGE G ONE Gas
Slide 26: Proximity to Supply
Proximity to Supply Location Supports Sustainability Close proximity to significant natural gas reserves and transportation infrastructure • 57% of all rigs in U.S. operating in Oklahoma and Texas1 Net natural gas exports² • Texas: 2.7 Tcf of 8.9 Tcf produced • Oklahoma: 1.7 Tcf of 2.9 Tcf produced
Slide 27: 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 3.2x 3.0x 12.73¢ 3.2x $37.31 11.84¢ $34.70 10.22¢ $29.95 3.93¢ $11.52 3.24¢ 3.23¢ $9.49 $9.46 Texas Oklahoma Kansas Texas Oklahoma Kansas ¹ Avg. reta
Slide 28: Financial Performance & Objectives
FINANCIAL PERFORMANCE & OBJECTIVES
Slide 29: 2020 Guidance Summary
2020 Guidance Summary Initiated Jan. 21, 2020 DILUTED EPS 2020 $3.51 $3.56** • Net income range of $186 ‒ $198 million $3.25 • EPS range of $3.44 ‒ $3.68 per diluted share $3.08 • Estimated average rate base* of $3.91 billion $2.65 • Average rate base growth of 7% between 2019 ‒ 2024 2016 2017 2018
Slide 30: 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 31: 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 32: Cash Flow
Cash Flow Sources and Uses $591 $591 Dividends and capital expenditures primarily funded by Financing cash flow from operations requirements $174 Capital expenditures and (MILLIONS) $700 million revolving credit facility supports financing asset removal needs through the commercial paper program cos
Slide 33: Manageable Debt Profile
Manageable Debt Profile Strong Liquidity Position – December 31, 2019 DEBT MATURITIES LIQUIDITY PROFILE (MILLIONS) (MILLIONS) $600 $700 $400 $300 4.658% $518 4.500% 3.610% 2024 2044 2048 Credit Facility Short-term Borrowings* * Includes commercial paper and letters of credit 33 | ONE Gas, Inc. FINAN
Slide 34: Key Takeaways
KEY TAKEAWAYS K> ONE Gas
Slide 35: Key Takeaways
Key Takeaways Focused Well-defined business capital investment strategy plan Regulatory Stable construct cash flow profile Competitive advantage 35 | ONE Gas, Inc. KEY TAKEAWAYS
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 at OGS Division capital structures match Corporate capital structure 37 | ONE Gas, Inc. APPENDIX
Slide 38: 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 39: 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 $126 $128 * $149 $123 $123 $136 $122 $105 $106 $67 $64 (MILLIONS) $74 $78 $50 $52 $67 $69 $47 $64 $40 $43 $34 $37 $29 2016 201
Slide 40: 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 41: Rate Base Definition
Rate Base Definition Authorized Rate Base – $3.53 billion (as of December 2019) • 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
Slide 42: 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 43: Kansas Gas Service
Kansas Gas Service Recent Regulatory Activity GENERAL RATE CASE – NEW RATES EFFECTIVE GAS SYSTEM RELIABILITY SURCHARGE (GSRS) – FEBRUARY 2019 NEW RATES EFFECTIVE DECEMBER 2019 Base Rates Effective February 2019, $21.5 million total increase, Incremental Surcharge $4.2 million annual revenue $18.6 mi
Slide 44: Oklahoma Natural Gas
Oklahoma Natural Gas Recent Regulatory Activity 2019 PBRC – NEW RATES EFFECTIVE SEPTEMBER 2019 2020 PBRC – FILED FEBRUARY 2020 Amount $15.6 million credit represents earnings over 9.5% Amount Requested $11.8 million rate increase $1.47 per month reduction for 12 months beginning $1.11 per month incr
Slide 45: Texas Gas Service
Texas Gas Service Recent Regulatory Activity CENTRAL TEXAS SERVICE AREA GRIP – WEST TEXAS SERVICE AREA GRIP – NEW RATES EFFECTIVE JUNE 2019 NEW RATES EFFECTIVE JULY 2019 Incremental $5.5 million increase Incremental $4.1 million increase Revenue Revenue Capital $43.6 million Capital $31.2 million Ex
Slide 46: Texas Gas Service
Texas Gas Service Recent Regulatory Activity CENTRAL TEXAS/GULF COAST SERVICE AREAS GENERAL RATE CASE – HIGHLIGHTS Base rates $15.6 million increase Operating income $12.4 million Rate base $460 million Rate of return 7.93% Capital expenditures $145 million Return on equity 10.0% Common equity ratio
Slide 47: 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 143 stations 147 stations • Currently transporting supply to 67 retail and 50 129 stations supplied
Slide 48: 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 49: 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 50: 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