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Oneok Reports 40% Gain in 2Q Income

As it strengthens its position in the natural gas liquids (NGL) business, Oneok Inc. said its second quarter income rose 40% on strong gas, NGL and oil prices, along with higher sales and transportation volumes. Net income was $24.9 million (23 cents/share), compared with $17.8 million (17 cents) in 2Q2004.

Oneok announced in July that it is pursuing the possible sale of its oil and gas production companies as part of a strategy to finance the $1.5 billion purchase of several Koch companies' NGL businesses (see NGI, July 25).

"We had extremely positive results in several of our segments," said CEO David Kyle. "The gas processing spread continues to exceed the five-year average, contributing to our strong performance in our gathering and processing segment." He noted that Oneok's distribution segment's lower earnings were the result of higher labor and employee benefits costs, and said the lower margins in the retail and trading units reduced income in the energy services segment.

Because of the potential sale of its production operations, Oneok also revised its 2005 earnings guidance. Net earnings per share are forecast to be in the range of $2.56-2.62/share, while income from continuing operations is expected to range between $1.92-1.98.

"Our updated earnings guidance for the remainder of 2005 includes anticipated operating income contributions from the natural gas liquids business we acquired from Koch on July 1, and implementation of a customer rate increase in Oklahoma on July 28," Kyle said. The revised guidance does not include any additional margin for trading activities in the energy services segment. In March, the company provided earnings guidance in the range of $2.22-2.28/share.

"While we still expect the Koch acquisition to generate approximately $135-145 million of primarily fee-based earnings before interest, taxes, depreciation and amortization (EBITDA) in 2006, the EBITDA contribution for the second half of 2005 is expected to be $59-62 million," Kyle said. "The full benefits of renegotiated contracts and additional volumes connected to the system will not be realized until 2006."

With the completion of the Koch acquisition, Oneok has formed a new Natural Gas Liquids operating segment, which consists of the company's existing NGL marketing business, currently part of the gathering and processing segment, and the businesses acquired from Koch, excluding those assets regulated by the Federal Energy Regulatory Commission, which will be part of the company's pipelines and storage segment. VESCO Holdings, also acquired as part of the transaction, will be included in the gathering and processing segment.

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