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Oneok's 3Q Earnings Soar with NGL Purchase

The acquisition of Koch's natural gas liquids (NGL) business in July, coupled with higher prices, volumes and margins, lifted Tulsa-based Oneok Inc.'s third quarter earnings up significantly, with net income soaring to $184.5 million ($1.70/share) from $20.8 million (19 cents) in 3Q2004.

Income from continuing operations was $52.7 million (49 cents/share), versus $16.6 million (15 cents) a year earlier. Quarterly results include a net after-tax gain of $151.4 million ($1.39/share) on the sale of the oil and gas production business, partially offset by the loss of $32.9 million (minus 30 cents) from discontinued operations related to the sale of the company's Spring Creek, OK power plant.

CEO David Kyle credited the $1.35 billion purchase of NGL assets from Koch for the company's "exceptional operating performance" (see Daily GPI, July 5). Another reason for the rise in earnings was the "implementation of new rates in Oklahoma, which contributed to our distribution segment's performance. Gas processing spreads showed improvement, which also positively affected our gathering and processing segment." In late July, the Oklahoma Corporation Commission approved a $57.5 million annual rate increase for Oneok subsidiary Oklahoma Natural Gas, which contributed $14.8 million in the quarter.

All of Oneok's businesses improved in the quarter, said Kyle, but the energy services segment, whose income increased $44.4 million, "posted significant gains related to natural gas marketing and storage activity, and increases in transportation and storage basis spreads."

The gathering and processing segment's operating income was $39.3 million, compared with $34.0 million a year earlier. In mid-October, Oneok entered into an agreement to sell its gas gathering and processing assets in Texas for $528 million. The transaction is expected to close Dec. 1, 2005, and the company will record an estimated after-tax gain of $162 million ($1.49/share). The gain will be recorded in income from continuing operations in the fourth quarter.

Oneok said the assets represent the smallest geographical region in terms of throughput; are the least integrated with other company entities; and represent the company's most significant exposure to keep-whole contracts without conditioning language.

The NGL segment had operating income of $17.5 million, compared with $7.3 million in the same quarter a year earlier. The company experienced some lost revenue caused by the hurricane-related shutdown of MB-1, the fractionator in which it holds an 80% interest. However, "these lost revenues were more than offset by gains in the company's optimization efforts -- where it was able to take advantage of price differences between Conway, Kansas, and Mont Belvieu, TX -- and increased margins from its isomerization operation."

The pipelines and storage segment reported operating income of $24.0 million, more than double the $11.8 million for the same period last year. The increase is primarily related to the acquisition of the Koch system, as well as an increase in natural gas throughput caused by higher gas demand from power plants due to warmer weather.

Oneok has scheduled a conference call at 11 a.m. EST on Thursday to discuss the earnings, which can be accessed at http://www.oneok.com.

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