One Gas, Inc. · NYSE:OGS
One Gas — American Gas Association Financial Forum 2019
50 slides from One Gas's conference presentation, May 21, 2019
Slide 1: American Gas Association Financial Forum
AMERICAN GAS ASSOCIATION FINANCIAL FORUM Fort Lauderdale, Florida | May 21-22, 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 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 • ~ 3,500 employees • ~ 61,400 miles of distribution mains, services and transmission pipelines 88% market share Estimated 2019 average rate base: $3.61
Slide 10: Conservative Financial Profile
Conservative Financial Profile Strong liquidity position will support capital expenditure and working capital needs CAPITAL STRUCTURE • Stable operating cash flows MARCH 31, 2019 • $700 million revolving credit facility • Commercial paper program Investment-grade credit ratings Long-term Debt 38% Eq
Slide 11: Capital Horizon & Clarity
CAPITAL HORIZON & CLARITY
Slide 12: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan CAPITAL INVESTMENTS* 2019E CAPITAL RECOVERY TIMING (MILLIONS) $450-$500/year $442 $450 $418 $15 $32 $26 11% $354 $360 $99 $115 $22 $80 $28 $62 $65 $306 $317 $320 $264 $273 $178 $151 $158 $131 $140 89% 2015 2016 2017 2018 2019G 2020-2023 Subject to annual filings
Slide 13: Pipeline Replacement
Pipeline Replacement Focusing on Maintaining Safe and Reliable Operations PIPELINE REPLACEMENT (MILES) Average Annual 2019-2023E 180 46 150 380 EXPECT REMAINING 4 MILES OF 2018 21 111 53 5 240 430 CAST IRON TO BE REPLACED 2017 23 196 61 1 144 425 IN 2019 2016 22 192 43 2 131 390 2015 24 194 25 2 180
Slide 14: Vintage Pipeline Replacement Program
Vintage Pipeline Replacement Program VINTAGE PIPE AS PORTION OF TOTAL PIPELINE INVENTORY (MILES) Over past 5 years, averaged 750 1,150 ~ 265 miles vintage pipe 2019-2023E replaced per year 5,400 4,250 55,250 2024 & Beyond All Other Main, Service & Transmission Pipelines Risk-Mitigation & Government
Slide 15: Rate Base Growth
Rate Base Growth ESTIMATED AVERAGE RATE BASE* 2019 ESTIMATED AVERAGE 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 2014 2015 2016 2017 2018 2019G Oklahoma Kansas Texas * See slide 42 for definition of estimated average rate b
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 in June 2021, with new rates effective early 2022, if applicable 2018 2019 2020 2021 2022 2023 Performance-based rate filing Performance-based rate Performance-based rate filing Performance-based rate approved January 2019, chang
Slide 19: Kansas GSRS
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 after 12/31/2018 $59.9 $5.9 $0.60 EXPANDED SCOPE OF GSRS – FILINGS AFTER DECEMB
Slide 20: Texas
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 20 | ONE Gas, Inc. REGULATORY
Slide 21: Cash Flow Stability
CASH FLOW STABILITY
Slide 22: High Percentage of Residential Customers
High Percentage of Residential Customers 83% Residential 93% Residential 71% 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 2018 annual results. See non-GAAP informa
Slide 23: Growth in Service Territories
Growth in Service Territories MAJOR METRO POPULATIONS AVERAGE CUSTOMER COUNT (THOUSANDS) (THOUSANDS) 1,300 2,127 2,140 2,152 2,166 2,179 Austin, TX, 1,249 1,100 634 635 637 638 639 900 El Paso, TX, 841 Oklahoma City, OK, 793 853 861 865 871 877 700 Tulsa, OK, 648 Overland Park, KS, 598 500 Wichita,
Slide 24: O&M Expense Control
O&M Expense Control Building a Foundation for Long-Term Affordability O&M EXPENSE Expense control execution through: (MILLIONS) • Leveraging technology $412 $413 • Increasing efficiency and optimizing processes $403 $397 $399 $388 • Making it easier for customers to self-serve Forecasting average an
Slide 25: Average Residential Customer Bill
Average Residential Customer Bill AVERAGE RESIDENTIAL CUSTOMER BILL Customers are benefiting from low and stable gas prices $715 $621 $645 $606 $551 Customers began to see impact of tax reform in $369 $235 $256 2018 $260 $189 Average bill estimated to be ~$50 per month in $362 $386 $389 $346 $346 20
Slide 26: Competitive Advantage
COMPETITIVE ADVANTAGE G ONE Gas
Slide 27: Proximity to Supply
Proximity to Supply Location Supports Sustainability Close proximity to significant natural gas reserves and transportation infrastructure • 60% of all rigs in U.S. operating in Oklahoma and Texas1 Net natural gas exports² • Texas: 2.5 Tcf of 8.0 Tcf produced • Oklahoma: 1.6 Tcf of 2.5 Tcf produced
Slide 28: 3.5-to-1 Average Advantage in ONE Gas Territories
3.5-to-1 Average Advantage in ONE Gas Territories KWH EQUIVALENT ELECTRICITY VS. NATURAL GAS DTH EQUIVALENT ELECTRICITY VS. NATURAL GAS 4.2x 4.2x 3.0x 3.2x 3.0x 3.2x 13.13¢ $38.48 11.39¢ $33.38 10.23¢ $29.98 3.76¢ 3.16¢ 3.15¢ $11.01 $9.25 $9.24 Texas Oklahoma Kansas Texas Oklahoma Kansas ¹ Avg. reta
Slide 29: Financial Performance & Objectives
FINANCIAL PERFORMANCE & OBJECTIVES
Slide 30: 2019 Guidance
2019 Guidance Announced January 15, 2019 Net income range of $174 ‒ $190 million DILUTED EPS $3.42 $3.25 EPS range of $3.27 ‒ $3.57 $3.08 ROE of 8.3%, reflecting the midpoint of $2.65 earnings guidance range of $3.42 per diluted share and the estimated rate base for 2019 of $3.61 billion $2.24 $2.07
Slide 31: Growing Dividends
Growing Dividends Building Shareholder Value Quarterly dividend of 50 cents per share DIVIDENDS & PAYOUT RATIO for 2019 $2.00 $1.84 Target dividend payout ratio of 55 ‒ 65% $1.68 of net income $1.40 $1.20 58% 57% 55% 53% 54% 2015 2016 2017 2018 2019G Expected average annual growth of 7 – 9% between
Slide 32: Return on Equity
Return on Equity 8.1% 8.3%* Continue to minimize the gap between allowed 7.7% 7.9% 7.4% 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 33: 2019 Cash Flow
2019 Cash Flow Sources and Uses $556 $556 Dividends and capital expenditures primarily funded by cash flow from operations Financing requirements $166 Capital $700 million revolving credit facility supports financing expenditures and (MILLIONS) needs through the commercial paper program asset remova
Slide 34: Manageable Debt Profile
Manageable Debt Profile Strong Liquidity Position – March 31, 2019 DEBT MATURITIES LIQUIDITY PROFILE (MILLIONS) (MILLIONS) $600 $400 $297 $300 4.658% $700 4.500% 3.610% $403 2024 2044 2048 Credit Facility Short-term Available Liquidity Borrowings* * Includes commercial paper and letters of credit 34
Slide 35: Key Takeaways
KEY TAKEAWAYS K> ONE Gas
Slide 36: Key Takeaways
Key Takeaways Focused Well-defined business capital investment strategy plan Regulatory Stable construct cash flow profile Competitive advantage 36 | ONE Gas, Inc. KEY TAKEAWAYS
Slide 37: Appendix
APPENDIX G ONE Gas
Slide 38: 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 38 | ONE Gas, Inc. APPENDIX
Slide 39: State Statistics
State Statistics As of December 31, 2018 OKLAHOMA TEXAS GAS KANSAS TOTAL NATURAL GAS SERVICE GAS SERVICE Average Number of Customers 876,635 662,496 639,410 2,178,541 Distribution – Miles* 18,600 10,300 11,400 40,300 Transmission – Miles* 700 300 1,600 2,600 Fixed Charges – Sales customers** 86% 68%
Slide 40: Capital Expenditures with Asset Removal Costs
Capital Expenditures with Asset Removal Costs OKLAHOMA TEXAS KANSAS 2019: 2.5X DEPRECIATION 2019: 3.6X DEPRECIATION 2019: 1.9X DEPRECIATION $188 * $180 $144 * $173 $136 $123 $126 $148 $149 $122 $118 * $106 $106 $100 $105 (MILLIONS) $75 $63 $63 $64 $67 $69 $52 $47 $50 $44 $37 $40 $29 $34 $24 2015 201
Slide 41: Authorized Rate Base
Authorized Rate Base OKLAHOMA¹ KANSAS² TEXAS¹ 3 $1,407 $1,202 $1,257 $1,033 $979 $925 $947 $895 $938 $826 $781 $822 $760 $639 $542 (MILLIONS) 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 approved rate filings
Slide 42: Rate Base Definition
Rate Base Definition Authorized Rate Base – $3.33 billion • 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 Estimated Average Rate Base – $3.61 billion • Average of rate base per
Slide 43: 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 44: Kansas Gas Service
Kansas Gas Service Rate Case Concluded in February 2019 HIGHLIGHTS Base Rates Effective February 2019, $21.5 million total increase, $18.6 million net increase; reflects credit for amortization of excess ADIT, which is offset in income tax expense Operating Income ~ $10 million annual impact Rate Ba
Slide 45: Oklahoma Natural Gas
Oklahoma Natural Gas Recent Regulatory Activity NEW RATES EFFECTIVE FEBRUARY 2019 FILED MARCH 15, 2019 (Pending Approval) $11.3 million base rate reduction, reflects lower federal Amount $15.4 million credit represents earnings over 9.5% Amount corporate income tax rate $1.46 per month reduction for
Slide 46: Texas Gas Service
Texas Gas Service Recent Regulatory Activity HIGHLIGHTS West Texas GRIP filed in March 2019 requesting $4.1 million increase; new rates expected July 2019 Central Texas GRIP filed in March 2019 requesting $5.5 million increase; new rates expected July 2019 Rate Base $895 million authorized Return on
Slide 47: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Key Statistics • Currently operate 27 fueling stations accessible CNG VOLUME (DTH – MILLIONS) to the public, 5 private stations 151 stations supplied 147 stations 143 stations • Currently transporting supply to 66 retail and 51 129 stations supplied supplied supplied pri
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* 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 $
Slide 50: Non-GAAP Reconciliation
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
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