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Oneok Exits Power Business, Puts 3Q Income Well Ahead of Forecasts

With a revamped business model designed to focus on natural gas processing, Oneok Inc. has officially exited the power business with the sale of its Spring Creek plant in Logan County, OK to Westar Energy Inc. for $53 million. The transaction will result in a 3Q loss in discontinued operations, but improved gas processing spreads and higher commodity prices will push Oneok's quarterly income and earnings well ahead of forecasts.

The sale of the power business is in keeping with moves by Oneok to focus on natural gas liquids (NGL) in the Midcontinent region, after Oneok paid $1.35 billion for Koch's NGL business in July (see NGI, July 25). To pay for the Koch business and reduce debt, Oneok earlier this month sold its Texas gathering and processing assets (see NGI, Oct. 17), and in September, it sold its oil and natural gas production assets (see NGI, Sept. 26).

Oneok said 3Q2005 earnings per share from continuing operations now are expected to be 47-51 cents/share, well ahead of a previous forecast of 4 cents/share. Net earnings per share are expected to be $1.67-1.71/share; the previous earnings outlook was 51 cents/share.

"Each of our businesses performed well in the third quarter," said CEO David Kyle. "We saw higher commodity prices, volumes and margins, and improved gas processing spreads. Our energy services segment turned in exceptional performance, benefiting from increased natural gas storage activity and wider basis spreads. The newly acquired natural gas liquids segment continues to perform as expected."

The power plant sale will result in a 3Q2005 loss in discontinued operations of $34 million (31 cents/share). However, after-tax cash proceeds are estimated to be $61 million, which Oneok plans to use to reduce short-term debt. The transaction requires Federal Energy Regulatory Commission approval, and it is expected to be completed in 2006.

"With the completion of this transaction, we are exiting the power-generation business," said Kyle. "We evaluated several alternatives and concluded a sale is the best option."

For 2005, Oneok raised its full-year guidance to a range of $4.92-4.96/share, and earnings from continuing operations to a range of $3.59-3.63. Earlier guidance put net income in a range of $2.56-2.62/share, with income from continuing operations $1.92-1.98. Preliminary 2006 earnings guidance is $1.97-2.03/share.

The Oklahoma City-based gas distributor will issue its 3Q earnings report on Wednesday (Nov. 2).

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