Oklahoma's Oneok posts Q2 net income of US$55.1M, up 32% from year ago, as revenues grow 25% to US$3.51B on Oneok Partners' operating income rising by almost 40%, NGL business results almost doubling

TULSA, Oklahoma , August 3, 2011 (press release) – Net Income Rises More than 30 Percent in the Quarter; Led by Significantly Higher ONEOK Partners Operating Results

ONEOK, Inc. (NYSE: OKE) today announced second-quarter 2011 earnings of 51 cents per diluted share, compared with 39 cents per diluted share for the same period last year. Net income attributable to ONEOK was $55.1 million in the second quarter 2011, compared with $41.7 million for the same period in 2010.

Net income attributable to ONEOK for the six-month period ended June 30, 2011, was $185.3 million, or $1.71 per diluted share, compared with $196.3 million, or $1.82 per diluted share, for the same period last year.

ONEOK also updated its 2011 net income guidance to the range of $325 million to $345 million compared with the previous guidance of $325 million to $360 million.

"We continued to build on our solid first-quarter results and performed well in the second quarter," said John W. Gibson, ONEOK chairman, president and chief executive officer. "The ONEOK Partners segment turned in an exceptional quarter, increasing operating income by almost 40 percent, with its natural gas liquids business results almost doubling from the same period last year."

"Our distribution segment delivered a solid quarter, while our energy services segment continues to face a challenging market," Gibson said.

ONEOK's second-quarter 2011 operating income was $216.9 million, compared with $178.7 million for the second quarter 2010.

Second-quarter 2011 operating income benefited from higher natural gas liquids (NGL) optimization, isomerization and exchange margins resulting from favorable NGL price differentials and increased NGL fractionation and transportation capacity available for optimization activities; and higher NGL volumes gathered and fractionated, offset partially by the deconsolidation of Overland Pass Pipeline in September 2010 in the natural gas liquids business in the ONEOK Partners segment.

These increases were offset by lower margins in the energy services segment due primarily to lower transportation margins, net of hedging activities, resulting from narrower realized natural gas price location differentials offset partially by increased storage and marketing margins, net of hedging activities; and increased operating costs and depreciation and amortization expense in the distribution segment.

Year-to-date 2011 operating income was $547.0 million, compared with $516.0 million for the same period last year.

The increase in year-to-date 2011 results was driven primarily by higher NGL optimization, isomerization and exchange margins resulting from favorable NGL price differentials and increased NGL fractionation and transportation capacity available for optimization activities; and higher NGL volumes gathered and fractionated, offset partially by the deconsolidation of Overland Pass Pipeline in September 2010 in the natural gas liquids business in the ONEOK Partners segment.

These increases were offset by lower margins in the energy services segment due primarily to lower transportation margins, net of hedging activities, resulting from narrower realized natural gas price location differentials and lower storage and marketing margins, net of hedging activities.

Results in the distribution segment were lower as a result of higher operating costs and higher depreciation expense.

In addition, second-quarter 2011 operating costs were $225.7 million, compared with $203.6 million in the same period in 2010. Operating costs for the six-month 2011 period were $449.3 million, compared with $406.9 million in the same period last year. The increases for both the three- and six-month 2011 periods were due primarily to higher share-based compensation and other employee-benefit costs.

Share-based compensation costs primarily relate to the company's employee stock award program that awards eligible employees with a share of company stock whenever the stock closes at a new one-dollar high. Through June 30, 2011, the company awarded 19 shares of company stock to each employee at a cost of $8.9 million, which includes taxes paid on behalf of employees.

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SECOND-QUARTER 2011 SUMMARY:

Operating income of $216.9 million, compared with $178.7 million in the second quarter 2010;
ONEOK Partners segment operating income of $202.0 million, compared with $146.0 million in the second quarter 2010;
Distribution segment operating income of $20.9 million, compared with $32.3 million in the second quarter 2010;
Energy services segment operating loss of $5.8 million, compared with operating income of $0.9 million in the second quarter 2010;
ONEOK Partners increasing its 2011 to 2014 growth program to a range of approximately $2.7 billion to $3.3 billion by announcing in May investments of $910 million to $1.2 billion for additional NGL projects including:
The construction of a new 570-plus-mile, 16-inch diameter NGL pipeline, the Sterling III Pipeline, with the initial capacity to transport 193,000 barrels per day (bpd) and the ability to expand to 250,000 bpd of either unfractionated NGLs or NGL purity products from the Mid-Continent region to the Texas Gulf Coast;
The reconfiguration of its existing Sterling I and II NGL distribution pipelines to transport either unfractionated NGLs or NGL purity products; and
The construction of a new 75,000-bpd natural gas liquids fractionator, MB-2, at Mont Belvieu, Texas;
The Oklahoma Corporation Commission approving Oklahoma Natural Gas Company's annual performance-based rate filing with no modification of customer rates; and its application to implement an energy-efficiency program;
ONEOK repaying in April $400 million of senior notes with available cash and short-term borrowings;
ONEOK renewing in April its $1.2 billion, five-year revolving credit facility that expires in April 2016;
Distributions declared from the company's general partner interest in ONEOK Partners of $34.7 million for the second quarter 2011; distributions declared from the company's limited partner interest in ONEOK Partners of $49.6 million;
ONEOK announcing in May it entered into a $300 million accelerated share repurchase agreement with Barclays Capital. ONEOK received 3.7 million shares in May and expects to receive the remaining shares upon settlement of the repurchase agreement by November 2011;
ONEOK Partners completing a two-for-one split of the partnership's common units and Class B units on July 12, 2011, with the distribution of one unit for each unit outstanding. As a result, ONEOK now owns 11,800,000 common units and 72,988,252 Class B units. ONEOK Partners adjusted its minimum quarterly distribution and target distribution levels proportionately;
ONEOK, on a stand-alone basis, ending the quarter with $526.6 million of commercial paper outstanding, $2.0 million in letters of credit, $45.4 million of cash and cash equivalents, $302.3 million of natural gas in storage, with $671.4 million available under its new credit facilities;
ONEOK stand-alone cash flow from continuing operations, before changes in working capital, of $378.2 million for 2011, which exceeded capital expenditures and dividends of $225.0 million by $153.2 million;
Declaring a quarterly dividend of 56 cents per share payable on Aug. 12, 2011, to shareholders of record at the close of business Aug. 1, 2011, an increase of 8 percent from the previous quarter; and
John W. Gibson becoming chairman of ONEOK, replacing David L. Kyle, who retired as non-executive chairman in May.

BUSINESS-UNIT RESULTS:

ONEOK Partners

ONEOK Partners' second-quarter 2011 operating income was $202.0 million, compared with $146.0 million in the same period last year.

The increase in second-quarter 2011 operating income, compared with the same period in 2010, reflects:

A $64.6 million increase in the natural gas liquids business due to higher NGL optimization margins as a result of favorable NGL price differentials and increased NGL fractionation and transportation capacity available for optimization activities between the Mid-Continent and Gulf-Coast markets;
A $7.3 million increase from higher NGL volumes gathered and fractionated, and contract renegotiations associated with exchange services activities in the natural gas liquids business;
A $7.1 million increase from higher net realized commodity prices in the natural gas gathering and processing business;
A $4.7 million increase due to favorable changes in contract terms in the natural gas gathering and processing business; and
A $4.0 million increase from higher isomerization margins in the natural gas liquids business.

These increases were offset partially by a $16.7 million decrease due to the September 2010 deconsolidation of Overland Pass Pipeline in the natural gas liquids business.

For the first six months 2011, the ONEOK Partners segment posted operating income of $379.6 million, compared with $266.1 million in the same period a year earlier.

Six-month 2011 results reflect a $118.2 million increase due to higher NGL optimization margins as a result of favorable NGL price differentials and increased NGL fractionation and transportation capacity available for optimization activities between the Mid-Continent and Gulf-Coast markets and a $27.2 million increase from higher NGL volumes gathered and fractionated, and contract renegotiations associated with storage and exchange services activities in the natural gas liquids business; and a $15.1 million increase from higher net realized commodity prices and a $8.8 million increase due to favorable changes in contract terms in the natural gas gathering and processing business.

These increases were offset partially by a $32.3 million decrease due to the September 2010 deconsolidation of Overland Pass Pipeline in the natural gas liquids business.

Second-quarter 2011 operating costs were $113.6 million, compared with $97.9 million in the second quarter 2010. Six-month 2010 operating costs were $222.3 million, compared with $194.3 million in the same period a year earlier. The increases for both the three- and six-month 2011 periods are due primarily to higher employee-related costs associated with incentive and benefit plans, which includes share-based compensation costs and higher property taxes. These increases were offset partially by the deconsolidation of Overland Pass Pipeline, which is now accounted for under the equity method of accounting in ONEOK Partners' natural gas liquids business.

Equity earnings from investments were $29.5 million in the second quarter 2011, compared with $20.7 million in the same period in 2010. For the six-month 2011 period, equity earnings from investments were $61.6 million, compared with $41.8 million in the same period in 2010. These increases were due primarily to higher contracted capacity on Northern Border Pipeline, in which the partnership owns 50 percent. Additionally, ONEOK Partners' 50-percent interest in Overland Pass Pipeline is now included in equity earnings from investments, effective September 2010.

Key Statistics: More detailed information is listed in the financial tables.

Natural gas gathered totaled 1,026 billion British thermal units per day (BBtu/d) in the second quarter 2011, down 6 percent compared with the same period last year due to continued production declines in the Powder River Basin in Wyoming, offset partially by increased drilling activity in the Williston Basin; and up 3 percent compared with the first quarter 2011;
Natural gas processed totaled 682 BBtu/d in the second quarter 2011, down 1 percent compared with the same period last year due to natural production declines in western Oklahoma and Kansas, offset partially by increased drilling activity in the Williston Basin; and up 6 percent compared with the first quarter 2011;
The realized composite NGL net sales price was $1.09 per gallon in the second quarter 2011, up 21 percent compared with the same period last year; and unchanged compared with the first quarter 2011;
The realized condensate net sales price was $82.43 per barrel in the second quarter 2011, up 30 percent compared with the same period last year; and up 8 percent compared with the first quarter 2011;
The realized residue gas net sales price was $5.77 per million British thermal units (MMBtu) in the second quarter 2011, up 7 percent compared with the same period last year; and down 5 percent compared with the first quarter 2011;
The realized gross processing spread was $8.38 per MMBtu in the second quarter 2011, up 141 percent compared with the same period last year; and up 1 percent compared with the first quarter 2011;
Natural gas transportation capacity contracted totaled 5,295 thousand dekatherms per day in the second quarter 2011, down 4 percent compared with the same period last year due primarily to lower contracted capacity on Midwestern Gas Transmission resulting from narrower natural gas price location differentials; and down 6 percent compared with the first quarter 2011;
Natural gas transportation capacity subscribed was 82 percent in the second quarter 2011 compared with 85 percent subscribed for the same period last year; and down from 87 percent in the first quarter 2011;
The average natural gas price in the Mid-Continent region was $4.18 per MMBtu in the second quarter 2011, up 3 percent compared with the same period last year; and up 2 percent compared with the first quarter 2011;
NGLs fractionated totaled 541 thousand barrels per day (MBbl/d) in the second quarter 2011, up 3 percent compared with the same period last year due primarily to increased production through existing supply connections in Texas and the Mid-Continent and Rocky Mountain regions, and new supply connections in the Mid-Continent and Rocky Mountain regions; and up 11 percent compared with the first quarter 2011;
NGLs transported on gathering lines totaled 432 MBbl/d in the second quarter 2011, up 15 percent compared with the same period last year, after adjusting for the September 2010 deconsolidation of Overland Pass, due primarily to increased production through existing supply connections in Texas and the Mid-Continent and Rocky Mountain regions, and new supply connections in the Mid-Continent and Rocky Mountain regions; and up 9 percent compared with the first quarter 2011;
NGLs transported on distribution lines totaled 462 MBbl/d in the second quarter 2011, down 4 percent compared with the same period last year due primarily to managing the transportation of NGL volumes across the system by placing additional unfractionated NGL volumes on the Arbuckle gathering pipeline to Mont Belvieu to capture additional margins from favorable NGL price differentials; and unchanged compared with the first quarter 2011; and
The Conway-to-Mont Belvieu average price differential for ethane, based on Oil Price Information Service (OPIS) pricing, was 20 cents per gallon in the second quarter 2011, up 25 percent compared with the same period last year; and up 33 percent compared with the first quarter 2011.

Distribution

The distribution segment reported operating income of $20.9 million in the second quarter 2011, compared with $32.3 million in the second quarter 2010.

Second-quarter 2011 results reflect higher operating costs due primarily to $5.5 million in higher share-based compensation costs, $1.2 million in increased pension costs and $1.0 million in higher employee-benefit costs.

For the six months 2011, operating income was $125.7 million, compared with $146.1 million in the same period in 2010.

Six-month 2011 results decreased as a result of higher operating costs due primarily to $11.2 million in higher share-based compensation costs, $2.4 million in increased pension costs and $1.9 million in higher employee-benefit costs.

Net margin for both the three- and six-month 2011 periods were relatively unchanged compared with the same periods last year.

Depreciation and amortization expense was $34.5 million for the second quarter 2011, compared with $30.9 million for the same period in 2010. For the six-month 2011 period, depreciation and amortization expense was $70.4 million, compared with $64.2 million in the same period of 2010. These increases were due primarily to increased regulatory amortization expense associated with previously deferred costs that were approved for recovery in the segment's revenues; and higher depreciation expense associated with the investment in automated meter-reading in Oklahoma during 2010.

Key Statistics: More detailed information is listed in the financial tables.

Residential natural gas sales totaled 12.3 billion cubic feet (Bcf) in the second quarter 2011, relatively unchanged compared with the same period last year;
Total natural gas volumes sold were 17.4 Bcf in the second quarter 2011, down 15 percent compared with the same period last year due to lower wholesale volumes, which had minimal impact on margins; and
Total natural gas volumes delivered were 63.8 Bcf in the second quarter 2011, down 7 percent compared with the same period last year.

Energy Services

The energy services segment reported a second-quarter 2011 operating loss of $5.8 million, compared with operating income of $0.9 million in the same period in 2010.

Second-quarter results reflect a $19.3 million decrease in natural gas transportation margins, net of hedging, due primarily to narrower realized natural gas price location differentials resulting from lower hedge settlements in 2011; and a $1.5 million decrease in financial trading margins compared with the same period last year. These decreases were offset by a $12.5 million increase in storage and marketing margins, net of hedging activities, compared with the same period last year.

Operating income for the six-month 2011 period was $42.0 million, compared with operating income of $104.0 million in the same period in 2010.

Six-month 2011 results, compared with the same period last year, reflect:

A $34.3 million decrease in natural gas transportation margins, net of hedging, due primarily to narrower realized natural gas price location differentials resulting from lower hedge settlements in 2011;
A $19.1 million decrease in storage and marketing margins due primarily to lower realized seasonal natural gas storage price differentials, net of hedging;
A $6.4 million decrease in premium-services margins associated with lower demand fees; and
A $3.1 million decrease in financial trading margins compared with the same period last year.

Key Statistics: More detailed information is listed in the financial tables.

Total natural gas in storage at June 30, 2011, was 43.3 Bcf, compared with 50.4 Bcf a year earlier; at Aug. 1, 2011, total natural gas in storage was approximately 42.4 Bcf;
Total natural gas storage capacity under lease at June 30, 2011, was 72.6 Bcf, compared with 74.6 Bcf a year earlier; at Aug. 1, 2011, natural gas storage capacity under lease was 74.1 Bcf; and
Total natural gas transportation capacity under lease at June 30, 2011, was 1.2 billion cubic feet per day (Bcf/d), of which 1.2 Bcf/d was contracted under long-term natural gas transportation contracts, compared with 1.4 Bcf/d of total capacity and 1.3 Bcf/d of long-term capacity a year earlier; at Aug. 1, 2011, total long-term natural gas transportation capacity under lease was 1.2 Bcf/d.

2011 EARNINGS GUIDANCE UPDATED

ONEOK's 2011 net income is expected to be in the range of $325 million to $345 million, compared with its previously announced range of $325 million to $360 million that was provided on Jan. 18, 2011. The updated guidance reflects higher expected earnings in the ONEOK Partners segment, offset partially by lower earnings in the distribution and energy services segments. Additional information is available in the guidance tables on the ONEOK website.

The midpoint for ONEOK's 2011 operating income guidance increased to $1,012 million, compared with its previous guidance midpoint of $977 million. The midpoint for ONEOK's 2011 net income guidance is $335 million, compared with its previous guidance of $343 million.

The midpoint of the ONEOK Partners segment's 2011 operating income guidance has been updated to $752 million, compared with its previous guidance of $656 million. The updated 2011 guidance reflects higher expected earnings in the natural gas liquids business.

The midpoint of the distribution segment's 2011 operating income guidance has been updated to $218 million, compared with its previous guidance of $231 million, reflecting higher operating costs, primarily share-based compensation costs incurred in the first six months of 2011.

The midpoint of the energy services segment's 2011 operating income guidance has been updated to $42 million, compared with its previous guidance of $91 million. Updated 2011 guidance primarily reflects lower transportation margins, net of hedging activities. Additional information on the energy services segment's revised guidance is available in the guidance tables on the ONEOK website.

The midpoint for equity earnings from investments guidance increased to $123 million, compared with previous guidance of $106 million. This increase reflects higher anticipated earnings from Northern Border Pipeline and Overland Pass Pipeline, in which ONEOK Partners owns a 50-percent interest in each.

The increase in Northern Border Pipeline equity earnings is due to wider natural gas price location differentials between the markets it serves. The increase in Overland Pass Pipeline equity earnings is due to lower interest expense as the result of financing the Overland Pass Pipeline at the partnership level versus the joint-venture level that was assumed in the initial 2011 financial guidance.

Capital expenditures for 2011 are expected to be approximately $1.55 billion, comprised of approximately $1.3 billion at ONEOK Partners and $258 million on a stand-alone basis.

On a stand-alone basis, the midpoint of ONEOK's 2011 guidance for cash flow before changes in working capital has been updated to $680 million, compared with its previous guidance of $727 million. Cash flow before changes in working capital is expected to exceed capital expenditures and dividends by $180 million to $210 million. Additional information is available in the guidance tables on the ONEOK website.

EARNINGS CONFERENCE CALL AND WEBCAST:

ONEOK and ONEOK Partners management will conduct a joint conference call on Wednesday, August 3, 2011, at 11 a.m. Eastern Daylight Time (10 a.m. Central Daylight Time). The call will also be carried live on ONEOK's and ONEOK Partners' websites.

To participate in the telephone conference call, dial 866-206-6509, pass code 1541976, or log on to http://www.oneok.com/ or http://www.oneokpartners.com/.

If you are unable to participate in the conference call or the webcast, the replay will be available on ONEOK's website, http://www.oneok.com/, and ONEOK Partners' website, http://www.oneokpartners.com/, for 30 days. A recording will be available by phone for seven days. The playback call may be accessed at 866-837-8032, pass code 1541976.

LINK TO EARNINGS TABLES:

http://www.oneok.com/Investor/FinancialInformation/~/media/ONEOK/EarningsTables/OKE_Q2_2011_Earnings_Hd58Pj1.ashx

NON-GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES) FINANCIAL MEASURE

ONEOK has disclosed in this news release stand-alone cash flow, before changes in working capital, which is a non-GAAP financial measure. Stand-alone cash flow, before changes in working capital, is used as a measure of the company's financial performance. Stand-alone cash flow, before changes in working capital, is defined as net income less the portion attributable to non-controlling interests, adjusted for equity in earnings and distributions received from ONEOK Partners, and ONEOK's stand-alone depreciation and amortization, deferred income taxes, net of the change in taxes receivable, and certain other items.

The non-GAAP financial measure described above is useful to investors because the measurement is used as a measurement of financial performance of the company's fundamental business activities. ONEOK stand-alone cash flow, before changes in working capital, should not be considered in isolation or as a substitute for net income or any other measure of financial performance presented in accordance with GAAP.

This non-GAAP financial measure excludes some, but not all, items that affect net income. Additionally, this calculation may not be comparable with similarly titled measures of other companies. A reconciliation of stand-alone cash flow, before changes in working capital, to net income is included in the financial tables.

ONEOK, Inc. (NYSE: OKE) is a diversified energy company. We are the general partner and own 42.8 percent of ONEOK Partners, L.P. (NYSE: OKS), one of the largest publicly traded master limited partnerships, which is a leader in the gathering, processing, storage and transportation of natural gas in the U.S. and owns one of the nation's premier natural gas liquids (NGL) systems, connecting NGL supply in the Mid-Continent and Rocky Mountain regions with key market centers. ONEOK is among the largest natural gas distributors in the United States, serving more than two million customers in Oklahoma, Kansas and Texas. Our energy services operation focuses primarily on marketing natural gas and related services throughout the U.S. ONEOK is a FORTUNE 500 company and is included in Standard & Poor's (S&P) 500 Stock Index.

For information about ONEOK, Inc., visit the website: http://www.oneok.com/.

Industry Intelligence Editor’s Note: In an omitted table, the company reported Q2 revenues of US$3.51 billion. For the same period a year ago, the company reported revenues of US$2.81 billion.

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