Tulsa, OK-based Oneok Inc. went where no man has gone before in second quarter 2002 earnings, marking a 56% increase for its marketing and trading operations segment, which, combined with solid returns in distribution, led to a gain in net income of 64% over the second quarter last year.

The company had net income for the second quarter of $38.8 million, or 32 cents per diluted share of common stock, compared with $23.6 million, or 20 cents per diluted share of common stock, for the same quarter of 2001. Its trading group contributed operating income of $57.6 million for the quarter, compared with $36.8 million for the same quarter of 2001. reported The company

Oneok also posted operating income of $86.8 million for the second quarter of 2002, compared with $71.9 million a year ago. The company noted that a joint stipulation approved by the Oklahoma Corporation Commission in May provided for recovery of $14.2 million in gas costs written off in the fourth quarter of 2001.

For the first six months of the year, Oneok recorded net income of $111.4 million, or 92 cents per diluted share of common stock, compared with $88.5 million, or 74 cents per diluted share of common stock, for the same period a year ago. Operating income for the six month period was $229.8 million, compared with $215 million one year ago.

“Lower energy prices had a negative impact on several of ONEOK’s business segments this quarter,” said David Kyle Oneok’s CEO. “Despite the lower-price environment, our marketing and trading operation and our distribution operations continued to perform well. Our strategy of focusing on the physical side of the business and trading around our asset base continues to yield positive results, and the distribution segment continues to provide earnings stability.”

In the first six months marketing and trade saw operating income jump 95% to $120.2 million, compared with $61.5 million one year ago. The company attributed the segment’s increase to higher margins from increased natural gas sales, trading natural gas liquids and crude oil, and capturing value from intra-month price volatility through the use of storage and transport capacity.

Oneok’s distribution operations segment also came through with a strong quarter. Operating income for distribution increased to $17.1 million from an operating loss of $6.5 million in the second quarter of 2001. For the six months, operating income increased to $75.3 million from $59.2 million in 2001. Oneok said increased volumes sold, decreased bad debt expense and the $14.2 million impact of the joint stipulation on gas costs were the primary reasons for the increase.

However, there were some segments that did underachieve for the quarter. Oneok’s production operations contributed operating income of $7.1 million, down from $19.7 million in 2001. For the first half of 2002, operating income was $10.3 million, compared with $33.6 million in 2001. The company said the decrease was primarily attributed to a significantly lower average realized price of natural gas for 2002 and a decrease in natural gas production. Despite the decline, the company reported that 6.2 Bcfe of net reserves were added during the second quarter of 2002 through successful development efforts.

Results from gathering and processing operations also declined. The segment’s operating income decreased to $28,000 for the second quarter of 2002, compared with $6.9 million in 2001. For the first half of 2002, operating income decreased to $1.3 million from $20.1 million in 2001. Oneok pointed to NGL prices that decreased by 25%, crude oil prices that decreased by 5% and the average natural gas price for the mid-continent region, which decreased by 31%.

For the fiscal year to date June 30, 2002, compared with the same period in 2001, declines in prices resulted in decreased net revenues. Composite NGL prices decreased 38%, crude oil prices decreased 21% and the average natural gas price for the mid-continent region decreased 54%. Adjustments to NGL inventories as a result of decreased prices reduced net revenues, as did losses on certain contracts. An ice storm in the first quarter of 2002 that caused gas plant outages across much of Oklahoma also negatively impacted net revenues for the fiscal year. The company added that increased operating costs and increased depreciation, depletion and amortization further reduced operating income for the segment.

Increased operating costs and increased depreciation, depletion and amortization further reduced operating income for the quarter and fiscal year to date, compared with the same periods in 2001. Increases in operating costs were related to customer charge offs, increased bad debt reserves, and costs related to the NGL facilities leased at the end of 2001.

Oneok said it is holding a conference call at 10 a.m. EDT Tuesday (Aug. 6) to discuss its results. Interested parties can listen in at www.oneok.com, or call 888-552-7850.

In other company news Monday, Oneok launched a tender offer for its $40 million aggregate principal amount of outstanding 8.44% Senior Notes due January 31, 2004 and its $24 million aggregate principal amount of outstanding 8.32% Senior Notes due July 31, 2007. In addition, the company said it is also soliciting consents to proposed amendments to the agreements for both sets of notes that would effectively eliminate most of their restrictive covenants.

Oneok said the purpose of the tender offer and consent solicitation is to acquire any and all outstanding notes and to obtain the consents to the proposed amendments. The company added that it continues to “evaluate its alternatives” with respect to the possible repurchase of its stock from Westar Industries (formerly Western Resources). The tender should not be interpreted as a decision to purchase or not purchase the shares.

In late May, Westar Industries Inc., a subsidiary of Topeka, KS-based Western Resources Inc., gave Oneok notice of its intention to sell its 45% interest — common and preferred stock — in the Tulsa, OK-based gas distributor (see Daily GPI, May 31).

Oneok said the tender offer will expire at 5:00 p.m. EDT on Aug. 20, unless extended or earlier terminated. The consent solicitation also will expire at the same time unless extended or earlier terminated.

The company clarified that “the tender offer is not conditioned upon the success of the consent solicitation and the consent solicitation is not conditioned upon the results of the tender offer.” It added that holders may tender notes without delivering consents or deliver consents without tendering notes, or they may elect to do both.

For detailed terms and conditions, note holders can obtain copies of the statement and related material from D.F. King & Co., Inc., at 800-431-9633. Questions regarding the tender offer and consent solicitation can be addressed to UBS Warburg LLC — the dealer manager — at 203-719-8035.

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