Oneok posted a 370% increase in net income for the first quarter to $105.2 million, or $1.04/share, compared to 1Q2003 results because of the impact of an accounting change in the first quarter of 2003 that reduced 1Q2003 results by about $144 million. Income from continuing operations actually was lower during the first quarter, $105.2 million ($1.04/share) compared to $125.6 million ($1.20/share) in 1Q2003, and missed Wall Street estimates by 3 cents/share. OKE shares slipped 2% Thursday to $20.97.
CEO David Kyle highlighted the positive performance of the company’s new gas and oil production assets, the authorized rate relief in two distribution operations and the continuing success of the company’s efforts to mitigate unfavorable price spreads in gathering and processing. “Lower natural gas volatility led to reduced margins in our marketing and trading segment, but the benefits of our diversification throughout the natural gas value chain is evident by our overall results,” said Kyle.
“Total earnings for the quarter are in line with our expectations, and our earnings guidance for 2004 has not changed. We continue to believe our 2004 earnings will range from $2.12 to $2.18 per diluted share of common stock.” Wall Street is forecasting $2.07/share for the year.
Operating income from the company’s production segment increased to $11.9 million for the first quarter compared to $5.7 million in 1Q2003 primarily as a result of the acquisition Texas gas and oil properties in December 2003. The acquired properties produced 2.5 Bcf of natural gas and 35,000 bbl of oil during the first quarter of 2004. Operating income also benefited from an increase in average natural gas prices, after hedges, to $5.36 per Mcf in 2004 from $5.23 per Mcf in 2003.
For the remainder of 2004, Oneok has hedged 87% of its anticipated gas production at $5.28/Mcf at the wellhead and 92% of anticipated oil production at a $30.35/bbl.
Operating income for the gathering and processing segment increased by 158% to $20.4 million because of improved spread conditions due to the high value of natural gas liquids relative to natural gas, and because of improved contractual terms. The segment currently has a processing capacity of 1.9 Bcf/d, and only 0.1 Bcf/d is currently idle.
Operating income in the transportation and storage segment fell to $13.5 million from $15.1 million for 2003 because of milder weather and other factors. Oneok’s distribution segment reported higher operating income of $85.7 million, compared to $75 million for 2003 because of Kansas and Oklahoma rate relief.
But operating income from marketing and trading was cut in half, falling to $63.4 million for the first quarter of 2004, compared to $126.9 million in 2003 due to a number of factors: reduced natural gas volatility resulting in a decrease in natural gas options margin; reduced spreads between the Rockies and Midcontinent regions; and reduced gas sales primarily from storage.
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