Increased domestic natural gas supplies and infrastructure, coupled with lower gas price volatility, has led Oneok Inc. to announce that it will discontinue its energy services segment and release its nonaffiliated, third-party gas transportation and storage contracts to interested parties.
The energy services segment was launched in 1995 to purchase and store natural gas, then resell it to customers during the winter. The business leases gas pipeline and storage capacity, and it provides peak-load, no-notice premium services to Oneok and various gas utilities.
“The energy services segment continues to face challenging industry conditions that show no signs of improving,” said CEO John W. Gibson. “Increased natural gas supply and infrastructure, coupled with lower natural gas price volatility, have narrowed seasonal and location natural gas price differentials, resulting in limited opportunities to generate revenues to cover our fixed costs on this contracted storage and transportation capacity.”
Oneok’s management believes that the energy services segment “no longer fits into our long-term strategy and vision. We will continue to focus our resources on gathering, processing, transporting, storing, fractionating and distributing natural gas, natural gas liquids and other energy commodities through our Oneok Partners and natural gas distribution segments.”
The marketing activities to be continued “typically involve buy-sell arrangements that have no commodity price exposure,” he explained.
The decision to discontinue the segment, effective at the end of 1Q2014, is expected to reduce the operator’s earnings risk profile over the long term, “while removing any earnings uncertainty associated with this segment in the near-term.”
Oneok expects to record a noncash, after-tax write down of about $75 million in 2Q2013, which would result from releasing “a significant portion of energy services’ natural gas transportation and storage contracts to third parties,” management said. The company also expects to record additional noncash, after-tax write-downs of up to $25 million between July 1 and April 1, 2014, with most occurring in 2013, subject to the release or assignment of the remaining transportation and storage contracts.
The wind down should be nearly completed by the start of 2Q2014, but cash payments may continue on some of Okeok’s gas transport, storage and other contracts with terms expiring after April 2014. In addition to the one-time charges, the segment expects to record pre-tax operating losses of about $55 million this year and $15 million in 2014.
Energy services employs about 49 people, mostly in Tulsa, but most people affected are to be offered other positions, Oneok said.
The company’s updated 2013 net income guidance is expected to be $235-285 million, compared with its previously announced guidance range of $350-400 million.
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