One Gas, Inc. · NYSE:OGS
One Gas — Bank of America Merrill Lynch Power, Gas and Solar Leaders Conference 2019
50 slides from One Gas's conference presentation, Mar 6, 2019
Slide 1: Investor Meetings
INVESTOR MEETINGS NYC & Boston | March 4-6, 2019
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
Slide 4: Value Creation Strategy
VALUE CREATION STRATEGY Sustainable Business Model • Clear vision, mission, values-driven strategy and safety culture Focused Business Strategy • 100% regulated natural gas distribution utility • Conservative financial profile (“A” rated) • 20+ year vintage pipeline replacement program Capital Horiz
Slide 5: Focused Business Strategy
FOCUSED BUSINESS STRATEGY
Slide 6: Mission, vision, strategy and values
FOCUSED BUSINESS STRATEGY Mission, vision, strategy and values Mission – Why we exist Core Values – Our compass • Safety: We are committed to operating safely We deliver natural gas for a better tomorrow and in an environmentally responsible manner. • Ethics: We are accountable to the highest ethica
Slide 7: Operating Safely and Environmentally Responsibly
FOCUSED BUSINESS STRATEGY Operating Safely and Environmentally Responsibly TRIR AMERICAN GAS ASSOCIATION QUARTILE DATA DART AMERICAN GAS ASSOCIATION QUARTILE DATA • Focus on culture, engagement, decision- making and processes; drive toward zero harm • Utilization of American Gas Association peer rev
Slide 8: 100% regulated natural gas utility
FOCUSED BUSINESS STRATEGY 100% regulated natural gas utility • One of the largest publicly traded natural gas distribution companies 72% market share – ~2.2 million customers – ~3,500 employees – ~61,400 miles of distribution mains, services 88% market share and transmission pipelines • Estimated 20
Slide 9: Conservative Financial Profile: Commitment to Investment-Grade Credit Ratings
FOCUSED BUSINESS STRATEGY Conservative Financial Profile: Commitment to Investment-Grade Credit Ratings • Strong liquidity position will support CAPITAL STRUCTURE capital expenditure and working capital As of December 31, 2018 needs – Stable operating cash flows – $700 million revolving credit facil
Slide 10: Capital Horizon & Clarity
CAPITAL HORIZON & CLARITY
Slide 11: Well-defined capital investment plan: $2 billion from 2019 – 2023
CAPITAL HORIZON & CLARITY Well-defined capital investment plan: Spending $2 billion from 2019 – 2023 CAPITAL INVESTMENTS 2019E CAPITAL RECOVERY TIMING (MILLIONS) $450-$500/year $442 $450 $418 $26 $15 11% $354 $360 $32 $115 $99 $22 $80 $28 $62 $65 $306 $317 $320 $264 $273 $178 $151 $158 $131 $140 89%
Slide 12: Pipeline Replacement: Focus on Safe and Reliable Operations
CAPITAL HORIZON & CLARITY Pipeline Replacement: Focus on Maintaining Safe and Reliable Operations PIPELINE REPLACEMENT EXPECT REMAINING (MILES) 4 MILES OF CAST IRON TO Average Annual Est. BE REPLACED IN 2019 2019-2023E 180 46 150 380 2018 111 53 21 5 240 430 2017 196 61 23 1 144 425 2016 192 43 22 2
Slide 13: Vintage Pipeline Replacement Program
CAPITAL HORIZON & CLARITY Vintage Pipeline Replacement Program • ~61,400 total miles of distribution VINTAGE PIPE AS PORTION OF TOTAL PIPELINE INVENTORY (MILES) mains and services and transmission pipelines • ~5,400 miles of identified vintage inventory 750 1,150 5,400 4,250 2019-2023E • Over past 5
Slide 14: Capital Investment – Rate Base Growth
CAPITAL HORIZON & CLARITY Capital Investment – Rate Base Growth RATE BASE 2019 ESTIMATED RATE BASE (BILLIONS) TOTAL: $3.61 BILLION* $3.61 $3.36 $3.18 $2.96 $2.71 $1.04 billion $2.52 $1.51 billion $1.06 billion Oklahoma Kansas Texas * Estimated average rate base; calculation consistent with utility r
Slide 15: Regulatory Construct & Update
REGULATORY CONSTRUCT & UPDATE
Slide 16: Recovery Mechanisms By State
REGULATORY CONSTRUCT Recovery Mechanisms By State COMPREHENSIVE RECOVERY MECHANISMS OKLAHOMA KANSAS TEXAS Interim capital recovery X X X Weather normalization X X X Purchased gas riders (including gas cost portion of bad debts) X X X Energy efficiency/conservation programs X X* Pension and other Pos
Slide 17: Filing Timeline: Oklahoma & Kansas
REGULATORY CONSTRUCT Filing Timeline: Oklahoma & Kansas General rate case application filing in June 2021, with new rates effective early 2022, if applicable 2017 2018 2019 2020 2021 2022 ONG Performance-based rate filing Performance-based rate filing Performance-based rate filings approved August 2
Slide 18: Texas: 2019
REGULATORY CONSTRUCT Texas: 2019 • Central Texas Service Area – GRIP filing – Rate case • West Texas Service Area – GRIP filing • Remainder of Texas – Annual cost of service adjustment or GRIP filings – Rate cases as needed • The treatment of excess ADIT will be determined through regulatory filings
Slide 19: Kansas GSRS: Expanded Gas System Reliability Surcharge
REGULATORY CONSTRUCT Kansas GSRS: Expanded Gas System Reliability Surcharge 6/30/2018 TEST YEAR CAPITAL COST PER RESIDENTIAL REVENUE EXPENDITURES CUSTOMER (MILLIONS) (MILLIONS) PER MONTH GSRS through 12/31/2018 $29.0 $2.4 $0.24 Pro Forma GSRS beginning 1/1/2019 $59.9 $5.9 $0.60 EXPANDED SCOPE OF GSR
Slide 20: Cash Flow Stability
CASH FLOW STABILITY
Slide 21: Revenue Drivers
CASH FLOW STABILITY Revenue Drivers KANSAS OKLAHOMA TEXAS TOTAL Fixed Charges – Sales customers* 54% 86% 68% 71% Weather Normalization 100% 100% 100% 100% Average Annual Heating Degree Days – Normal 4,914 3,263 1,782 - Note: Based on 2018 annual results * Percentage of total net margin on natural ga
Slide 22: High Percentage of Residential Customers
CASH FLOW STABILITY High Percentage of Residential Customers 17% Non-residential 7% Non-residential * (Excludes transportation and other revenues) 83% Residential Note: Based on 2018 annual results 22
Slide 23: Population Growth in Service Territories
CASH FLOW STABILITY Population Growth in Service Territories MAJOR METRO COUNTY POPULATION AVERAGE CUSTOMER COUNT (THOUSANDS) (THOUSANDS) 1,300 2,179 Travis County, TX 2,166 1,227 2,152 1,100 2,140 2,127 900 El Paso County, TX; 840 Oklahoma County, OK 788 700 Tulsa County, OK; 646 Johnson County, KS
Slide 24: O&M Expense Control: Building a Foundation for Long-Term Affordability
CASH FLOW STABILITY O&M Expense Control: Building a Foundation for Long-Term Affordability • Leveraging technology to control expenses by: O&M EXPENSE (MILLIONS) – Increasing efficiency and optimizing $412 $413 processes $399 – Making it easier for customers to self-serve • Forecasting average annua
Slide 25: Competitive Advantage
COMPETITIVE ADVANTAGE
Slide 26: Proximity to Supply: Location Supports Sustainability
COMPETITIVE ADVANTAGE Proximity to Supply: Location Supports Sustainability • Close proximity to significant natural gas reserves – 60% of all rigs in U.S. operating in Oklahoma and Texas1 • Net natural gas exporters² – Texas: 2.5 Tcf of 4.0 Tcf produced – Oklahoma: 1.5 Tcf of 2.4 Tcf produced • Est
Slide 27: 3.5-to-1 Average Advantage Continues in ONE Gas Territories
COMPETITIVE ADVANTAGE 3.5-to-1 Average Advantage Continues in ONE Gas Territories DTH EQUIVALENT ELECTRICITY VS. NATURAL GAS KWH EQUIVALENT NATURAL GAS VS. ELECTRICITY 4.2x 4.2x 3.0x 3.3x $0.1323 3.0x 3.3x $38.77 $0.1140 $33.41 $0.1034 $30.30 $11.01 $0.0376 $9.25 $9.24 $0.0316 $0.0315 TEXAS OKLAHOMA
Slide 28: Financial Performance & Objectives
FINANCIAL PERFORMANCE & OBJECTIVES
Slide 29: 2019 Guidance
2019 GUIDANCE Announced January 15, 2019 • Net income range of $174 ‒ $190 million DILUTED EPS • EPS range of $3.27 ‒ $3.57 $3.42 $3.25 • ROE of 8.3%, reflecting the midpoint of $3.08 earnings guidance range of $3.42 per diluted share and the forecasted 2019 $2.65 estimated rate base of $3.6 billion
Slide 30: Growing Dividends
GROWING DIVIDENDS Building Shareholder Value • Quarterly dividend of 50 cents DIVIDENDS & PAYOUT RATIO per share, resulting in an annualized dividend of $2.00 $1.84 $2.00 $1.68 per share $1.40 $1.20 • Target dividend payout ratio 57% 58% 55% of 55 ‒ 65% of net income 54% 53% • Expected average annua
Slide 31: Return on Equity: Opportunity to Improve
RETURN ON EQUITY Opportunity to Improve • Goal: Minimize the gap between 8.1% 8.3%* 7.7% 7.9% allowed and actual returns 7.4% 2015 2016 2017 2018 2019G * Reflects the midpoint of earnings guidance range of $3.42 per diluted share and the forecasted 2019 estimated average rate base of $3.61 billion.
Slide 32: 2019 Cash Flow: Sources and Uses
2019 CASH FLOW Sources and Uses • Dividends and capital expenditures $556 $556 primarily funded by cash flow from Financing operations requirements $166 • $700 million revolving credit facility Capital expenditures and asset removal supports financing needs through the (MILLIONS) costs commercial pa
Slide 33: Manageable Debt Profile
MANAGEABLE DEBT PROFILE Strong Liquidity Position – as of December 31, 2018 DEBT MATURITIES LIQUIDITY PROFILE (MILLIONS) (MILLIONS) $600 $400 $301 $300 4.658% $700 4.500% 3.610% $399 2024 2044 2048 Credit Facility Drawn Amount* Available Liquidity * Includes commercial paper and letters of credit 33
Slide 34: Key Takeaways
KEY TAKEAWAYS
Slide 35: Key Takeaways
KEY TAKEAWAYS • Focused business strategy • Well-defined capital investment plan • Stable revenue and cash flow profile • Competitive advantage supports sustainability 35
Slide 36: Appendix
APPENDIX
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
Slide 38: Customer and Asset Mix
CUSTOMER AND ASSET MIX Key Statistics as of December 31, 2018 KANSAS OKLAHOMA TEXAS GAS TOTAL GAS SERVICE NATURAL GAS SERVICE Average Number of Customers 639,410 876,635 662,496 2,178,541 Distribution – Miles* 11,400 18,600 10,300 40,300 Transmission – Miles* 1,600 700 300 2,600 * Totals do not incl
Slide 39: Regulatory Construct: Governance
REGULATORY CONSTRUCT Governance KANSAS OKLAHOMA TEXAS Kansas Corporation Commission Oklahoma Corporation Commission “Home Rule” with six jurisdictions Texas Railroad Commission has Three commissioners appointed by the Three commissioners elected to appellate authority; three governor to four-year st
Slide 40: Capital Expenditures with Asset Removal Costs by State
CAPITAL EXPENDITURES WITH ASSET REMOVAL COSTS By State OKLAHOMA KANSAS TEXAS 2019: 2.5x depreciation 2019: 1.9x depreciation 2019: 3.6x depreciation $188 * $180 $144 * $173 $136 $123 $126 $118 * $122 $148 $149 $100 $105 $106 $106 (MILLIONS) $75 $63 $63 $64 $67 $69 $52 $47 $50 $44 $40 $34 $37 $24 $29
Slide 41: Authorized Rate Base: Historical by State
AUTHORIZED RATE BASE Historical by State OKLAHOMA¹ KANSAS² TEXAS¹ 3 $1,407 $1,202 $1,257 $1,033 $979 $925 $947 $895 $938 $781 $826 $822 (MILLIONS) $760 $639 $542 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 ¹ Rate bases presented in this table are those from the last ap
Slide 42: Filing Timeline: Texas
REGULATORY CONSTRUCT Filing Timeline: Texas JURISDICTION FILING HIGHLIGHTS STATUS AMOUNT RATES EFFECTIVE West Texas • GRIP for both incorporated and environs areas Approved $3.5 million increase July 2018 • Tax reform adjustment to rates for both incorporated Approved $4.7 million reduction; July 20
Slide 43: Tax Reform – Detail by State
TAX REFORM – DETAIL BY STATE Tax Cuts and Jobs Act of 2017 • OKLAHOMA: In January 2019, ONG’s PBRC order established: – An additional $15.8 million liability for the estimated earnings (including amounts attributable to tax savings), above the 9.5% approved ROE in the 2018 review period, which are t
Slide 44: Regulatory Information
REGULATORY INFORMATION By State as of February 2019 - Authorized AUTHORIZED AUTHORIZED RATE BASE RATE BASE PER RATE OF RETURN ON (M ILLIONS) CUSTOMER RETURN EQUITY Oklahoma Natural Gas¹ $1,407 $1,605 7.169% 9-10% Kansas Gas Service² $1,033 $1,615 N/A N/A Texas Gas Service¹ $895 $1,351 7.3% 9.5% ¹ Th
Slide 45: Oklahoma Natural Gas Performance-Based Rate Change
OKLAHOMA NATURAL GAS PERFORMANCE-BASED RATE CHANGE New Rates Effective February 2019 HIGHLIGHTS Amount $11.3 million base rate reduction Customer impact $1.21 per month reduction for typical residential customer Rate base $1.4 billion Return on equity 9.5% (midpoint of allowed band) Common equity ra
Slide 46: Kansas Gas Service Rate Case
KANSAS GAS SERVICE RATE CASE New Rates Effective February 2019 HIGHLIGHTS* Base rates $21.5 million total increase, $18.6 million net increase (already recovering $2.9 million through GSRS) Operating income ~$10 million annual impact Customer impact $2.40 per month increase for average residential c
Slide 47: Compressed Natural Gas (CNG)
COMPRESSED NATURAL GAS (CNG) Incremental Transport Revenue • Growth continues, but still not material to CNG VOLUME earnings DTH – MILLIONS 151 stations supplied 147 stations • Currently operate 26 fueling stations 129 stations 143 stations supplied supplied accessible to the public, 5 private stati
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: Cash Flow From Operations
NON-GAAP RECONCILIATION Cash Flow From Operations Before Changes in Working Capital* 2019 (MILLIONS) 2018 CHANGE GUIDANCE Net Income $ 182 $ 172 $ 10 Depreciation and amortization 182 160 22 Deferred taxes 12 53 (41) Other 14 17 (3) Cash flow from operations before changes in working capital $390 $4
Slide 50: Non-GAAP Reconciliation: Net Margin
NON-GAAP RECONCILIATION Net Margin (MILLIONS) 2018 Total revenues $ 1,663.7 Cost of natural gas 714.6 Net margin $ 919.1 (MILLIONS) 2018 Natural gas sales Residential $ 644.1 Commercial and industrial 127.1 Wholesale and public authority 6.6 Net margin on natural gas sales $ 777.8 Transportation rev
ONE Gas — Bank of America Merrill Lynch Power, Gas and Solar Leaders Conference 2019 on 6ix