Q4 2012 Earnings Call Transcript
Transcript Call Date 02/26/2013

Operator: Good day, and welcome to the ONEOK and ONEOK Partners 2012 Fourth Quarter's Earnings Call. Today's conference is being recorded.

At this time, I'd like to turn the conference call over to your host Mr. Andrew Ziola. Please go ahead, sir.

Andrew Ziola - Director, IR and Communications: Thank you, Karen and welcome to ONEOK and ONEOK Partners fourth quarter and year-end 2012 earnings conference call. A reminder that statements made during this call that might include ONEOK or ONEOK Partners' expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933 and 1934. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings.

Our first speaker will be John Gibson, Chairman and CEO of ONEOK and ONEOK Partners. John?

John W. Gibson - Chairman, President and CEO: Thanks, Andrew and good morning and many thanks for joining us today. As always we appreciate your continued interest and investment in ONEOK and ONEOK Partners, Joining me today are; Derek Reiners, our newly named Chief Financial Officer, who will review our quarterly results and revised 2013 and full year earnings guidance. Terry Spencer, our President, who will review our operating performance, update you on the Partnership's growth projects which are on time and on budget and also discuss current market conditions including NGL supply and demand and the implications of lower NGL prices. Also on the call and available to answer questions are Pierce Norton, Executive Vice President of Commercial and Rob Martinovich, Executive Vice President of Operations.

I'd like at this time to thank Rob and Pierce for their contributions in their previous roles and congratulate them and others on the new assignments that we announced in December.

On this morning's call, we will review our fourth quarter and 2012 financial results, discuss our revised 2013 earnings guidance and our revised three financial forecast that had been update to reflect lower expected results in the partnership, primarily in our NGL segment due to the impact of anticipated prolonged ethane rejection.

We will review our progress on our growth projects including the projects we are about to complete and close with some comments about our future growth prospect.

Let's start with fourth quarter and year-end performance. ONEOK Partners turned in a solid performance for the year reflecting continued volume growth in both the Natural Gas Liquids and Natural Gas Gathering and Processing businesses primarily as a result of our past capital investments. However, our 2012 fourth quarter results were lower compared with the same period in 2011 when we experience historically wide NGL location price differentials.

Our Natural Gas Distribution segment turned in higher results for both the fourth quarter and the year reflecting primarily higher rates and lower share-based compensation and other employee related costs. And our Energy Services segment reported a loss due to the continued challenges it faces in a low natural gas price and oversupplied environment. Terry will provide you more detail on each segment's operating performance in just a few minutes.

We have revised our 2013 earnings guidance and our three year financial forecast which include a reduction in our ONEOK dividends and ONEOK Partners distribution growth forecast for 2013 and for the three-year period through 2015.

Half of the reduction in our revised 2013 operating income is in our NGL segment, and as a result of lower expected NGL volumes due to anticipated widespread and prolonged ethane rejection and to a lesser extent tighter NGL location price differentials and lower commodity prices. Of course, if industry conditions improve, we will reevaluate our 2013 guidance including our current dividend and distribution projections. These reductions in our distribution and dividend growth forecast are based on our commitment to not sacrifice our investment grade credit ratings at ONEOK or at ONEOK Partners or our distribution coverage ratio with the partnership for the sake of three year dividend and distribution growth rates. Our projected 2013 distribution increase allows us to maintain a coverage ratio of 1.0 to 1.05 times at ONEOK Partners. Although lower our projected distribution and dividend growth rates still rank high among our peers, and we remain confident in our ability to grow both ONEOK's dividends and ONEOK Partners' distributions over the next several years, delivering both value and wealth to our shareholders and unitholders even in a challenging industry environment.

At this time Derek will now review ONEOK's financial highlights followed by Terry who will review ONEOK's operating performance. Derek?

Derek S. Reiners - SVP, CFO and Treasurer: Thanks, John, and good morning. ONEOK's fourth quarter net income was $112 million or $0.53 per diluted share compared with $115 million or $0.55 per diluted share for the same period last year. Results in the partnership were lower in the fourth quarter compared with the same period in 2011 due to narrower NGL price differentials compared with historically wide differentials in 2011.

Natural gas and NGL volume growth at the partnership was solid as a result of several growth projects completed in 2012. Results from the Natural Gas Distribution segment were higher due to increased rates in all three states and lower operating expenses. Challenges in the Energy Services segment continue with lower storage and marketing margins and lower premium services margins.

ONEOK's full year net income was approximately $361 million unchanged from 2011 and its 2012 standalone cash flow before changes in working capital of $709 million exceeded capital expenditures and dividend payments by $141 million. In 2012, ONEOK received $437 million in distributions from ONEOK Partners, a 31% increase over 2011. As John mentioned, our 2013 net income guidance is now expected to be in the range of $350 million to $400 million due to lower anticipated earnings in the ONEOK Partners segment.

Terry will discuss the specific segment guidance provisions in a moment. As stated in our news release, ONEOK now expects its net income to increase by an average of 15% to 20% annually over the three year period ending in 2015. In January, we increased our dividend $0.03 to $0.36 per share, an 18% increase since January 2012. The expected dividend increase in July 2013 has been revised to $0.02 per share subject to Board approval. This increase will result in a total dividend increase of 17% from 2013 compared with 2012.

As John indicated, if market conditions improve, we will reevaluate our dividends. We also revised ONEOK's expectations to increase dividends by approximately 55% to 65% between 2012 and 2015 subject to Board approval, and we have affirmed ONEOK's long-term dividend target payout of 60% to 70% of recurring earnings, but expect to exceed that target in the near term.

We increased our 2013 guidance for standalone cash flow after dividends and capital expenditures to a range of $195 million to $235 million. This increase is primarily driven by lower anticipated current taxes from the impact of bonus depreciation legislation extended by congress in January.

ONEOK's liquidity position remained strong and we continue to take the necessary steps to maintain our investment grade credit rating, as John mentioned, a moment ago. At the end of the fourth quarter on a standalone basis, we had $817 million of commercial pay for outstanding, $47 million of cash and cash equivalent and $282 million of natural gas and storage with $381 million available under our $1.2 billion credit facility. And our standalone long-term debt to capitalization ratio was at 45%. ONEOK's cash flow and liquidity position continue to give us financial flexibility to further increase our dividend, purchase additional units of ONEOK Partners and/or repurchase ONEOK stock under our approved share repurchase program. We have used all three of these options and do not view them as mutually exclusive.

Now, Terry will update you on ONEOK's operating performance.

Terry K. Spencer - President: Thanks, Derek and good morning. Let me begin my comments with our Natural Gas Distribution segment. Fourth quarter and full year 2012 earnings were higher compared with the same periods last year reflecting higher rates in Oklahoma, Kansas and Texas and lower share-based compensation costs as a result of fewer shares of the Company's common stock being awarded to employees in 2012 as part of our stock award program. The Natural Gas Distribution segment's operating income guidance for 2013 remains at $227 million. On the regulatory front, the Kansas Corporation Commission in December 2012 approved an increase in Kansas Gas Services annual rate by a net amount of $10 million which became effective in January.

Energy Services continues to experience a very challenging market, and for 2012, the segment realized an operating loss of $78 million due to low natural gas prices and low natural gas price volatility and narrower location and seasonal natural gas price differentials. Energy Services segment 2013 guidance remains at an operating loss of $20 million as it continues to face tough market conditions, but we are making progress in our efforts to realign our leased storage and our transport capacity with the needs of our premium services customers.

John, that concludes my remarks to ONEOK.

John W. Gibson - Chairman, President and CEO: Thank you, Terry. Now, Derek will review ONEOK Partners' financial performance and then Terry will come back and review the partnerships operating performance, its growth projects and give you an update on our view of the current long-term NGL market dynamics.

Derek S. Reiners - SVP, CFO and Treasurer: Thanks, John. ONEOK Partners' full year 2012 net income was $888 million, a 7% increase compared with 2011's record performance. ONEOK Partners' fourth quarter net income was $210 million compared with $299 million for the same period last year. The fourth quarter results reflect natural gas and NGL volume growth as a result of several growth projects completed in 2012, that results were offset by narrower NGL location price differentials.

For 2012, distributable cash flow increased 7% compared with 2011 resulting in an annual coverage ratio 1.34 times. Quarterly distributable cash flow decreased compared with the fourth quarter of 2011 resulting in a coverage ratio 1.04 times. Our long-term annual coverage ratio target remains at 1.05 to 1.15 times, however in 2013 given ethane rejection and projected low commodity prices, our coverage ratio could be slightly below that, but we still expect to maintain a greater than 1.0 times coverage for 2013.

Again, we will not sacrifice our credit metrics for investment-grade credit ratings for the sake of holding to specific distribution growth rates. We've reduced the Partnerships' 2013 net income guidance range to $790 million from $870 million and distributable cash flow is now expected to be in the range of $910 million to $1.0 billion, both are slightly lower than 2012 actual results.

As mentioned in the new release ONEOK Partners now expect EBITDA to increase by an average of 15% to 20% annually over a three year period. We increased the distribution $0.025 per unit in the fourth quarter of 2012, an increase of 16% over the fourth quarter 2011 distribution.

Our 2013 revised guidance now includes the projected $0.005 per unit per quarter increase in unitholder distribution is subject to board approval, which would result in a total distribution increase of 7% for 2013 compared with 2012.

The partnership now estimates an average annual distribution growth rate of 8% to 12% for the period between 2012 and 2015 subject to board approval. The revision to the three year forecast are driven by expected 2013 results and also lower expected NGL exchange margins in the Rockies and lower expected commodity prices in 2014 and 2015.

In our updated hedging tables we have increased our NGL hedges to 45%, while 79% of our natural gas is hedged for 2013. Complete hedging information for 2013 and 2014 is included in the news release.

We updated our 2013 capital expenditure guidance to $2.6 billion to reflect our latest forecast that incorporates the cancellation of the Bakken crude express project, the additional growth projects we announced last month and some plan 2012 capital spending that carried into 2013. One item to quickly point out in 2013 earnings guidance is a below the line reduction of approximately $20 million and the allowance for equity funds used during construction or AFUDC. As a result of the cancellation of the Bakken crude express project and the 2012 capital spending carryover I just mentioned.

At the end of the fourth quarter the partnership had $537 million in cash and cash equivalents, no commercial outstanding or borrowings on our $1.2 billion credit facility, our long-term debt to capitalization ratio of 52% and a debt to adjusted EBITDA ratio of 3.0 times. Finally, from the financing perspective, we have multiple sources of liquidity available to us and we are confident in our ability to raise the necessary capital to fund the growth at ONEOK Partners.

A few key items to point out; we currently have cash on the balance sheet. We have full access to our $1.2 billion credit facility and the option to request an increase to $1.7 billion if necessary. We now have in place an at-the-market or ATM program that allows the partnership to offer common units up to $300 million. These items enable us to be opportunistic from a timing perspective as we look to access the public equity and debt markets.

This concludes my remarks and now Terry will update you on the partnerships' operating performance.

Terry K. Spencer - President: Thank you, Derek. As John said, the partnership performed well in 2012. The Natural Gas Gathering and Processing segments, fourth quarter financial results were higher due primarily to volume growth driven by increased well connections within our Williston Basin footprint. This volume growth was offset partially by higher compression costs and lower margins realized from new contracts as we compete for new and existing volumes in the Williston and lower realized natural gas and natural gas liquids prices.

For 2012, natural gas volumes gathered increased more than 8% and natural gas volumes processed increased more than 20% driven by the new processing plants and related infrastructure projects completed last year. The Garden Creek natural gas processing plant continues to operate near its 100 million cubic feet per day capacity. Our Stateline I plant in the Williston Basin went into service in September 2012 and is also operating near capacity. Our Stateline II plant is expect to be in service this quarter with volume steadily ramping up over the next several months, particularly after the completion of the Divide County natural gas gathering system in the third quarter of this year.

In 2013, we expect unprocessed volumes to be up 30% and gathered volumes to be up 22%. We also had a record year for new well connections, 940 wells in 2012 compared with 600 wells in 2011. This year, we expect to connect over 1,000 wells.

Crude oil production in the Williston Basin continues to grow along with the associated NGL rich natural gas and we are working hard to quickly connect new wells and build the infrastructure required to reduce the continued flaring of natural gas.

We're reduced the segments 2013 operating income guidance to $238 million compared with $253 million reflecting our expectation of lower commodity prices. We have provided our 2013 price assumptions in our earnings release. We will provide more detail on our NGL price assumption in a few moments.

The Natural Gas Pipeline segment's fourth quarter financial results were higher due primarily to lower employee related costs and a $5.7 million pre-tax gain on the sale of non-strategic natural gas pipeline lateral. Equity earnings from Northern Border pipeline were slightly lower in 2012 driven by increased maintenance expenses. In January, the FERC approved Northern Border pipeline settlement with its shippers and the lower rates became effective in January. 2013 operating income guidance has been increased $153 million compared with its previous guidance of $144 million reflecting anticipated incremental demand from shippers for services that transport their natural gas to market and increased services to electric generation customers.

Our Natural Gas Liquids segment fourth quarter results were significantly lower due primarily to narrower Conway-to-Mont Belvieu NGL location price differential which negatively impacted our optimization activity.

The fourth quarter 2012 Conway-to-Mont Belvieu ethane price differential was $0.07 compared with $0.49 in the fourth quarter 2011. This decrease was partially offset by higher NGL volumes gathered and fractionated in our fee-based exchange services activity.

For 2012 NGLs transported on our gathering lines increased almost 20% from last year, NGLs fractionated were up 7% year-over-year and included a scheduled maintenance turnaround last summer at the MBI fractionator.

We decreased our 2013 operating income guidance for the NGL segment to $545 million compared with the previous guidance of 630 million to reflect the impact of widespread and prolonged ethane rejections and to a lesser extent narrower expected NGL location price differential. Given the persistent excess inventories for ethane in the Gulf Coast, we expect our volume throughput in the Natural Gas Liquids business to be impacted by ethane rejection throughout much of 2013 with a return to normal days of ethane supply inventory level in 2013 and consistent ethane recovery in 2014 and 2015; more on ethane and propane fundamentals in a moment.

We updated our 2013 Conway-to-Mont Belvieu ethane price differentials to $0.05 per gallon compared with $0.19 previously at high Gulf Coast ethane inventories and Mid-Continent and Rockies' ethane rejection persist. As a reminder, the ethane price differential is only one component of the optimization picture. Our integrated NGL assets and marketing strategies provide us with opportunities to generate optimization margins on NGL products other than ethane. We expect 2013 NGL gathering volumes to be up 13% over last year and fractionation volumes to be up 8% as more projects are completed including the Bakken NGL pipeline and our new MB-2 fractionator.

Now an update on our projects; all of our previously announced internal growth projects are on budget and on schedule. As I previously mentioned, the Stateline II natural gas processing plant and the 60,000 barrels per day Bakken NGL pipeline are expected to be in services this quarter. While our processing plants in the Williston are fully capable of deep ethane recovery, the economic justification of our processing plants and our Bakken NGL Pipeline were based primarily upon the recovery propane and heavier NGLs with little or no ethane. When ethane pricing improves to the point of recovery in the Williston Basin, our Bakken NGL Pipeline throughput will increase.

We continue to develop and evaluate our backlog of natural gas and NGL-related infrastructure projects that still total more than $2 billion plus. It includes investments in processing plants, natural gas pipelines and NGL fractionation and storage facilities.

Now an update on the NGL market. Production growth from shale drilling continues in crude oil and NGL rich supply areas driven by relatively strong and stable crude oil prices and the uplift from the economic value of NGLs. This increased production has resulted in excessive inventory levels for propane and ethane and this oversupply has become a key factor in our ethane and propane currently being valued.

Propane inventories are still well above the five year average with almost all of the surplus on the Gulf Coast primarily from the lack of winter demand last year and increased production. While propane inventories in the Midwest and Mid-Continent are decreasing, and are much lower than last year.

The propane oversupply on the Gulf Coast and softer prices has made it more economical for many petchems to crack propane instead ethane. According to many industry reports, the amount of propane being cracked today is at record levels. The attractive economics for propane as a petrochemical feedstock has kept ethane prices low, especially at Mont Belvieu leading to historically high and prolonged ethane rejection levels in the regions we serve. Several industry experts have estimated that ethane rejection volumes are between 150,000 and 175,000 barrels per day. We believe the ethane rejection number is higher based upon what we've seen from Mid-Continent and Rockies plant connected to our NGL systems. We are currently experiencing over 90,000 barrels per day of ethane rejection across our NGL system and expect it to remain at those levels for much of this year. Ethane inventories are above historical levels due to increasing production coupled with the large number of petchem plant turnaround during the first half of 2012. However, the growth rate of ethane inventories at Conway and Mont Belvieu has been steadily decreasing due to ethane rejection and high petchem utilization rate and we expect that trend to continue.

In recent weeks, we have seen Conway-to-Mont Belvieu ethane price differentials narrow to breakeven levels due to the continued Gulf Coast ethane inventory overhang and Mid-Continent buying interest due primarily to ethane rejection in the Rockies and Mid-Continent. As we have stated many times, we expect the Conway-to-Mont Belvieu differentials to stay relative narrow as new transportation capacity between these market hubs comes online this year including our new Sterling III Pipeline.

Now, let's take a look at our NGL pricing assumption. We updated our 2013 equity NGL composite price assumption for the Natural Gas Gathering and Processing segment to $0.66 per gallon, and in our case is weighted more to the Conway basis due to the contractual commitments. To be clear, this price is at the market hub before transportation and fractionation fee deductions.

For comparative reasons, the $0.66 is calculated on a full ethane recovery basis. Assuming reduced ethane recovery in 2013; our realized NGL composite price is expected to be closer to $0.85 per gallon. The updated price assumptions for 2013 ethane at Conway are in the low $0.20 per gallon range and for propane about $0.90 per gallon.

During 2014 and 2015, our equity NGL composite price will be primarily on a Mont Belvieu basis and will range from the upper 80s to low $0.90 per gallon. The change to Mont Belvieu pricing reflects the expected completion of our Sterling III Pipeline in late 2013 providing more access to Mont Belvieu markets.

In 2014 and 2015, Mont Belvieu ethane prices are assumed in the mid-to-upper $0.40 per gallon range and propane prices are assumed in the $1.10 to $1.20 per gallon range. Additionally, we assume crude oil prices for WTI to average $88, $100 and $102 per barrel for 2013, 2014 and 2015, respectively.

Natural gas on the NYMEX is assumed to be $3.75, $3.80 and $4.20 per MMBtu for 2013, 2014 and 2013, respectively.

Because of NGL supply and demand, a number of market responses have been in play to take advantage of the attractive ethane and propane values. Propane in the near-term, demand has been created by new export terminals coming online, one in a few weeks and another this summer. This should create price strength for propane and allow ethane prices to strengthen as well.

Propane heating demand has been stronger compared with last winter, as this winter has been somewhat more normal than last year. And more importantly with the abundant supply of NGLs expected for many years to come at very competitive prices, North American petrochemical companies are in an extremely favorable competitive position around the globe for their products. This abundant NGL supply and its price advantage over oil-based feedstock is driving a significant increase in long-term petchem demand for NGLs.

With the announced expansions and new builds of ethane crackers, ethane demand is expected to increase by more than 700,000 barrels per day by 2016 to 2017.

As NGL growth continues at a rapid pace, we expect the ethane market to be oversupplied through 2013 with widespread and prolonged ethane rejection. We expect natural gas processors to resume full ethane recoveries during most of 2014 and 2015 with intermittent period of ethane rejection. As we move through 2016 into 2017, we anticipate an undersupplied position that ethane demand will increase when these cracker expansions and new world-class petrochemical facilities are completed.

While growing NGL production has moved ahead of end-use demand in the near term, our strategically unique fee-based and fully integrated midstream asset remain well positioned in basins with abundant and growing supplies of natural gas and NGLs. Over the long-term our opportunities for growth remained strong as our customer demand more of our essential services. Our NGL business remains in an attractive position even in a prolonged low ethane recovery environment as our systems are readily able to accommodate the expected NGL volume growth should the markets desire more of a lower ethane, higher propane plus blend. Although we revised our 2013 earnings guidance and three year outlook, we remain confident in our ability to continue delivering value to our shareholders and unitholders with our current assets and operation, the assets we are building and our backlog of viable projects.

John, that concludes my remarks.

John W. Gibson - Chairman, President and CEO: Thank you, Terry. Before we take your questions I'd like to provide at this time some additional comments regarding our future growth. The asset that we've built and are building increase our ability to add volumes to our system, and it is our volumes our natural gas and natural gas liquids that enable us to collect a fee when we gather, process, fractionate, store and transport these volumes for our producers, our processors and our customers. While there has been a lot of attention on the contraction of NGL differentials between the Mid-Continent and the Gulf Coast market centers and short-term ethane price softness, our business model is based on collecting a fee for the service we provide on the volumes we touch. So, while in the past, our assets have enabled us to benefit from the wider differentials experienced earlier in 2012, and in late 2011, our long-term strategy remains to convert optimization capacity to fee for service business.

A significant portion of the volumes we're adding to our systems deliver fee-based earnings, and even in an environment of lower commodity price and narrow NGL differentials, we can continue to generate stable and sustainable earnings by providing non-discretionary services to our customers. These services will provide us and our customer, producers and investors with sustainable earnings over the long-term regardless of short-term moves in differentials and prices.

The incremental earnings from our projects both past and present will continue to give the opportunity to grow our earnings at ONEOK and ONEOK Partners over the next three years. The increased distributions to ONEOK Partners unitholders this year and beyond and increase the ONEOK dividend by 55% to 65% between now and 2015. While internal growth may not be as exciting or as headline grabbing as an acquisition, our internal growth opportunity to provide investors with far better returns today than if we were to buy earnings at today's prices. And we're not done, as you've heard our internal growth backlog is in excess of $2 billion providing us with more earning growth potential in the future.

Plus before we take our questions, most important, I would like to express my thanks to more than 4,800 employees whose dedication and commitment allow us to operate our assets safely reliably and environmentally responsibly every day and create exceptional value for our investors and our customers. Our entire management team appreciates their efforts to make our company successful.

At this time, we are now ready to take your questions.

Transcript Call Date 02/26/2013

Operator: Christopher Sighinolfi, UBS.

Christopher Sighinolfi - UBS: John just curious following on your last comments around moving towards fee-for-service business, it was stated in last night's release that you are experiencing less favorable contract terms associated with the Williston Basin volume growth, just wondering what you meant by that, is it worse than what you were expecting or as it sort of interfaces with rest of your business is just lower than what was there to begin with. Can you just give more color on that?

John W. Gibson - Chairman, President and CEO: It's a term that we've used consistently in our Qs our Ks and previous press releases. It drew a bit more attention than it probably deserves and this point in time because we are reducing 2013 and everyone is trying to understand why. But the basic is as we renegotiate expiring contracts and contract for new, we're having to revise those terms to meet current market conditions, and those are less favorable than perhaps either we thought they would be or they have been in the past.

Christopher Sighinolfi - UBS: And so time to the incremental growth that you have planned in that basin it doesn't change your forecast for (indiscernible) spend versus what the returns on those projects are?

John W. Gibson - Chairman, President and CEO: That is correct.

Christopher Sighinolfi - UBS: Switching quickly I was just curious from Terry with the $0.19 spread I think the optimization was estimate to comprise about 15% of their margin for the NGL segment in 2013, I am just curious at $0.05 what the rough figure if you have on is on your expectation?

Terry K. Spencer - President: It is going to be much less than 10%.

Christopher Sighinolfi - UBS: You've been able to grow the dividend very strongly with the framework of a targeted payout ratio of 60% to 70% where a lot of peers are sort of increasingly looking towards cash flow coverage as sort of a guiding post for dividend policy and I am curious given that if there has been any internal discussion with you and the board as to maybe longer term to approach dividend growth?

John W. Gibson - Chairman, President and CEO: There has been discussion at the board about that. We will continue as we've indicated here along our current practice, I guess, there has been discussion.

Operator: Stephen Maresca, Morgan Stanley.

Stephen Maresca - Morgan Stanley: First, if you could talk John or others on your latest thoughts on oil project opportunities. How aggressive do you plan on being in that area in light of the Bakken cancellation? Can you go back to the drawing board with the different project in that region?

John W. Gibson - Chairman, President and CEO: Alright, well, I'll take that one. Of course, we were disappointed to postpone, but we all know the reasons why. Since, that time, if you look, in particular, you have written a lot about the fact that producers are putting more and more of their crude on rail as opposed to long-haul pipeline. There are also has been a recent announcement of utilizing existing pipeline to move crude from the producing region to the consuming region and that always is a smart use of capital dollars. So, when you look at those, it doesn't appear that the market is screaming quite as loudly for the Bakken NGL pipeline as it once was, but to your other point or question, we are able to quickly knock-off the dust so to speak and get engaged if the market needs that pipeline or one similar to it.

Stephen Maresca - Morgan Stanley: If you were to focus on where it would be in that region. Are there areas that you would look at oil opportunities?

John W. Gibson - Chairman, President and CEO: We'll look at other areas, but obviously where we have field, we have a competitive advantage and it's clear that we have a competitive advantage in the Bakken in Williston in that area as opposed to say in the Eagle Ford, but we have an effort within our organization focused on looking for crude oil opportunities.

Stephen Maresca - Morgan Stanley: My one follow-up on a different topic. I want to beat this horse because you have a lot of projected dividend growth, but you have a lot of extra cash flow per share at OKE and you actually raised the cash flow guidance in 2013 a little bit and I know it was due to bonus depreciation. But is there any particular reason you don't feel comfortable keeping OKE dividend growth given that what I think is a substantial cushion you have there to support it and you are worried about that being a drag on share price meaning lowering that divided growth to shareholders?

John W. Gibson - Chairman, President and CEO: Well I am concerned. I think there are other things that we in the past have chosen to do with our cash for example, we have used our cash at ONEOK to buy more equity in ONEOK Partners. That is an awfully good investment for us. We've purchased shares. We will continue. We want the flexibility to continue to do as we have in the past. I think as we look and Derek made mention of this forward, we do lose some benefit from associated with bonus depreciation. And as I read, we're prescribed to be or thought to be a very conservative. I look at it as much more long-term focus than I do momentarily conservative, but we just want to make sure we have the flexibility to do the things that we – the opportunities to execute. I am more than happy to keep going if I haven't answered your question.

Stephen Maresca - Morgan Stanley: No, I think, we can touch base offline. Thanks a lot. I'll get back in the queue.

Operator: Carl Kirst, BMO Capital Markets.

Carl Kirst - BMO Capital Markets: Sorry John I'm laughing because it's my same question. Maybe just to paraphrase or perhaps just to make clear, you know we may say conservative, you say long-term focus, but it's not a – it's from a prudency standpoint, it's not from perhaps skewing of the bias down to fundamentals perhaps deteriorating from here rather than improving. We don't want to misread this into essentially thinking that maybe you guys have a more negative outlook on the industry than we otherwise should?

Derek S. Reiners - SVP, CFO and Treasurer: Let me start saying yes and no, let me be clear. We do not have that view. We are very optimistic. We look at – continuing at the $0.03. Going forward we made a judgment of that relative to what we see in 2013 through 2015 and felt like it was prudent for us to come back to 2012, particularly given the fact that we reduced our distribution at ONEOK Partners so we will have a little bit less cash coming over from ONEOK Partners to ONEOK. So, all those things, although maybe perhaps not everyone agrees with them that do tie together and I think make good economic sense.

Carl Kirst - BMO Capital Markets: And then if I could just ask a clarification on, Terry, you made a mention of – and appreciate the better framework for the $0.66 NGL assumption for 2013 about ethane prices being in the low 20s and I am sorry did you say propane Conway at $0.90?

Terry K. Spencer - President: That's correct.

Carl Kirst - BMO Capital Markets: So essentially not too far away from what we've seen sort of year-to-date?

Terry K. Spencer - President: That's correct. You are in the range.

Carl Kirst - BMO Capital Markets: And then lastly if I could just on ONEOK Partners gathering and processing just noting that the fee-based gathering volumes were little bit lighter in the fourth quarter than we were expecting. By the same token it looks that like you bumped up the growth rate in 2013 to kind of account for a little bit lighter, and I didn't know was there something that happened in November and December that caused the growth rate not be quite as robust or is it just kind of a generic activity of well hookups? Is it possible to actually give us what the current run rate is?

Terry K. Spencer - President: Well, as far as volumes go, we are in the midst of a pretty significant weather trends that started in about November and December last year. So, we were impacted pretty significantly by that, so what you're seeing there is in the fourth quarter certainly is an impact from that. And your last question was about?

Carl Kirst - BMO Capital Markets: I didn't know if you could give us the run rate for where those gathering and processing volumes are today, if possible?

Terry K. Spencer - President: Well, we're running about in a range of about 250 million a day in the three processing plants that are currently operating there. But certainly as we bring on new plants to Stateline II plant, we'll start – we'll be ramping up those volumes as I mentioned in my comments.

John W. Gibson - Chairman, President and CEO: One of the things we have to remember is those assets have North – RF North, like we're in an operation in Canada. Of course, for those of you that are watching the weather channel we are experiencing some severe and heavy snow in Western Oklahoma which undoubtedly will impact our processing plants and pipelines. But we will report on that when we talk to you about first quarter.

Operator: Ted Durbin, Goldman Sachs & Co.

Ted Durbin - Goldman Sachs & Co.: I wanted to just ask about your commodity mix. I think you had previously said your margin composition at OKE has to be about 65% fee based with the new guidance here, sort of what component of your margin do you see is fee based now?

Terry K. Spencer - President: Ted you're going to be in about the 80% range roughly.

Ted Durbin - Goldman Sachs & Co.: Okay. Then as you…

Terry K. Spencer - President: About 70% where you're going to be.

Ted Durbin - Goldman Sachs & Co.: Okay. Then as we think about sort of a three-year forward basis, you know you've taken the Bakken Pipeline, the oil pipeline out. You've added some gathering and procession. Do you see that mix staying in that 70% range or maybe it gets a little bit more commodity heavy as you have this growth in NGL prices, kind of how you're seeing that over the three-year deal?

Terry K. Spencer - President: As we bring on the NGL projects, I mean those are all fee-based projects, so they will be pushing up our percentage of fee based margin as we go forward.

Ted Durbin - Goldman Sachs & Co.: Just on the macro, you talked about how much ethane rejection, you think it might be more than 175,000 and I guess I'm just curious if there is that much ethane that's still waiting to come in, what gives you confidence that will turn around in 2014 and not still be sort of ethane rejection or at least will have pressure on prices?

Terry K. Spencer - President: Well Ted, I mean I think the key driver in all this is strong ethane demand. I mean the petrochemicals, I mean their consumption is pushing 1 million barrels a day and we're expecting to go even higher. Once we get this ethane inventory overhang worked off, which we expect to happen in 2013, then we should be in the clear as we move into 2014 and 2015 and of course we will have some periods of ethane rejection. But we are really confident just from what we are seeing and as I indicated in my comments we think the ethane rejection is happening at a significantly greater level just as evidenced by the ethane rejection we are experiencing on our own system. But we really think this thing will get worked off this year. Many of the experts and those in the industry believe the same thing and by 2014 we should be in pretty good shape and as well as we move into 2015 and hopefully we will get to 2016 and 2017 and be in really good shape.

Ted Durbin - Goldman Sachs & Co.: And then the last one from me. You mentioned the credit metrics as being sort of descending investment grade as being a reason for the lower dividends and distribution growth. I guess, I am wondering if you can quantify those metrics that you are targeting whether (indiscernible) how you think about that mix as maybe get in a little more fee based and the ability to run a little bit more leverage.

Derek S. Reiners - SVP, CFO and Treasurer: We are talking about both equity both credit rating and we stay in contact with rating agencies. We listen to what they say and others to guide our decisions. As you know there is no specific formula for what we are trying to accomplish other than maintain that 50% level.

John W. Gibson - Chairman, President and CEO: The only thing I would add to that is a debt-to-EBITDA ratio we said before keeping that around four times or less.

Operator: Timm Schneider, Citigroup.

Timm Schneider - Citigroup: Most of my questions have actually been answered, just one quick one. What's driving the lower CapEx number in the NGL segment, if we look at old guidance versus new?

Terry K. Spencer - President: Yeah, the Bakken Crude Pipeline was in those numbers and is now out, so that's a bulk of it.

Timm Schneider - Citigroup: Then if you can, what are you guys assuming for some of the heavier end of the barrel the butanes and the nat gasolines in 2013?

Terry K. Spencer - President: You're going to be somewhere in that $1.40, $1.50 range. On (C-5s) you could be pushing $2.

Operator: Helen Ryoo, Barclays.

Helen Ryoo - Barclays: I will just start with the clarification question on your NGL price assumptions for this year. Did you say that, that was before CNF and was mostly based on Conway exposure?

Terry K. Spencer - President: That's correct, Helen.

Helen Ryoo - Barclays: What is your NGL barrel, equity barrel mix assuming full recovery of ethane? Is that being much higher than 50% level?

Terry K. Spencer - President: No, you're going to be somewhere in the neighborhood 45% to 50%. I mean, it's going to be pretty typical for the industry. 45% to 50% range is going to get to you there. On propane, Helen, you'll probably in that 30%, 35% range.

Helen Ryoo - Barclays: So, the assumption of $0.66 before CNF, are you assuming price to get lower from the current level. How should I compare that number to what the current Conway price is?

Terry K. Spencer - President: Yes, we are actually on ethane in our assumption. Ethane prices are probably a bit lower than what we're actually seeing today. Propane prices in our assumption are just -- are a bit higher is slightly higher. I mean you are in the range, so I mean it makes sense if you compare it to today's spot postings and look at the forward curve, it makes sense.

Helen Ryoo - Barclays: Then just one quick follow-up on different topic, your interest expense guidance, does that assume some of your high cost funds being called or tendered this year?

Derek S. Reiners - SVP, CFO and Treasurer: Well, it does not.

Operator: John Edwards, Credit Suisse.

John Edwards - Credit Suisse: Thanks for all the helpful comments on the NGL market. I just had a follow-up to Ted's questions there. Just looking out I think you said about a 7,000 barrel a day increase in ethane and I didn't catch through what timeframe was that 2015, 2016, I didn't catch?

Terry K. Spencer - President: 2016 to 2017.

John Edwards - Credit Suisse: Alright that's helpful and then I think you made the comment that you are expecting I guess things to swing in the possibly short supply then, what I guess I'm having trouble figuring out is if that's the case, how some of the petchems would invest in seeing crackers without secure supply, so I am trying to figure out are you really thinking the market is relatively balanced or are you really thinking it will be short?

Terry K. Spencer - President: I think that the petrochemical companies recognize that as we map this thing out and look over this timeframe that we could very well be in short supply. I don't think they truly believe that they wouldn't be making these investments as they have a lot of confidence in the development and the midstream development that's happening (indiscernible) a lot of confidence in the shale plays, they are actively engaged with midstream companies talking about with drilling and the development that's going on. So, I think they really do though have a lot of confidence. But as you look at the curve today we could very well be in short supply, but I strongly do not believe that's what they think.

John Edwards - Credit Suisse: And then, I guess, last question along those lines is what kind of increase – you are speaking about increase in consumption, I guess, this year being up 15% or 20% in consumption. What are you thinking, I guess, '14, ',15, '16 timeframe?

Terry K. Spencer - President: I guess, you are talking about consumption…

John Edwards - Credit Suisse: Consumption of ethane?

Terry K. Spencer - President: Yeah. When you look at the 2014 to 2015 timeframe we are going to be in about that 1.3 million to 1.4 million barrels per day range. There is actually a chart that we produced that would show that to you. So, we will see it ramping up in the million barrels a day pretty quickly over the 2013 as we move into 2014, 2015 will be in that – I could say 1.3 million barrels a day range or so.

Operator: Craig Shere, Tuohy Brothers.

Craig Shere - Tuohy Brothers: I want to come back to the distribution question, but kind of think about more longer-term, if I'm looking at this correct shaving, I think, it was something like 1.5 off the CAGR on EBITDA growth to 2015 results in a much lower modest EBITDA reduction maybe $60 million or so, but the distribution guidance seems much greater relative to the EBITDA adjustment and it seems like that's driving a potential extremely conservative distribution coverage ratio into 2014, 2015. Am I thinking about that wrong and as you have these fee-based projects coming online, is there any reason you'd want to be going above your targeted cap of 1.15 times coverage in outer years?

John W. Gibson - Chairman, President and CEO: Currently, as we move – we're heavily weighted towards these fee-based arrangements. We'll be more comfortable to move towards the 1.15, stay within that 1.05 to 1.15, but clearly we've been above that in the past. I believe in the '14 and '15, we're above that as well. So, I guess, you are thinking about it, correctly.

Craig Shere - Tuohy Brothers: Okay, so it sounds like without even any change in guidance, if your comfort level is that your expectations will not be worse than what you've laid out that just on current guidance, you could probably looked at producing the distribution growth rate as far as 2015?

John W. Gibson - Chairman, President and CEO: Well, I mean, as we typically do, we'll look at that the quarter before but not now on 2015. That means the message is clear that, in particular our exposure to NGL barrel, ethane rejection is taking volume off of our system and that volume as I mentioned earlier has dollars associated with it. We know we're not going to have as many dollars as we probably would in 2013, primarily because of this prolonged expected ethane rejection which is far longer than any of us with any industry experience would anticipate or did anticipate. Our view is that we spend most of the year at this level. Do we have perfect knowledge, of course not, and as those volumes come back on to our system ethane rejection in other words is not as long as we anticipated, then you may rest assured that we will look at our distribution at ONEOK Partners as well as our dividend at ONEOK, Inc. But we will also be looking at that while at the same time we look at our credit rating and those other metrics that we discussed earlier.

Craig Shere - Tuohy Brothers: In addition, if I could revisit the cash at OKE level, you mentioned that you've obviously historically used the kind of one-time annual free cash flow to buy back shares and for other things besides committing to long-term dividend growth that may not be there in outer years trying to be a little more conservative. If my math is correct you are now guiding 215 million of free cash flow for 2013 up about $50 million because of the tax benefits. And you've still got $300 million on your share repurchase program that expires this year. Is it fair to say that that dovetails very well and what the weakness today in the shares but that's an active consideration?

John W. Gibson - Chairman, President and CEO: I mentioned earlier about what we've done historically with our cash in the past increasing the dividend is certainly one of the things we've done and we've obviously are going to continue to do; investments in ONEOK Partners, we bought back shares, we still have as you point out the ability to buyback more. So, we have all of those available to us and as indicated earlier we want to retain the flexibility to do those things if we think make good economic sense for the company and its shareholders and unitholders.

Craig Shere - Tuohy Brothers: Last question probably for Terry. The recontracting that you were talking about did that relate to the condensate keep-whole volumes being down so much from third quarter and year-over-year?

Terry K. Spencer - President: No, it did not.

Craig Shere - Tuohy Brothers: What was driving that if I could ask?

Terry K. Spencer - President: Greg, it is just the growth in the POP business and it is – we're ending up with the keep-wholes around 3% down from like 6%. So, it is just growth in the other contracts is what (indiscernible).

Craig Shere - Tuohy Brothers: The keep-whole volumes aren't stable against the growing pie because the total volumes were down.

John W. Gibson - Chairman, President and CEO: Well, I think, it's just fair to say that the Keep Whole is not material, it's probably the best way to look at it for gathering and processing in our company less than 5%. So, you may not want to spend a lot of time on that one.

Operator: Michael Blum, Wells Fargo.

Michael Blum - Wells Fargo: First question just, as you have this new processing capacity coming online over the next couple of years. Once that's all built out, what does your contract mix look like? Does it change much in terms of POP versus Keep Whole versus fee?

Terry K. Spencer - President: It will actually increase. If you're looking at just the G&P segment as we bring on these new plants in the Bakken. I mean, we will become more commodity price sensitive and so I can't remember what the percentage maxes out at least in the 2015 timeframe, but it's not a huge increase, but it will go slightly as you look at just the G&P segment. But you got to remember much of that at the partnership level gets offset because in our NGL segment all of our growth projects are fee-based.

Michael Blum - Wells Fargo: Then in terms of your new forecast or assumptions for the Conway-to-Mont Belvieu spread, have you changed your fundamental view of what that spread will look like? I think historically, your view was and correct if I am wrong that it would move ultimately to you know effectively the transport cost, but it seems like you at least for 2013 expect not to be tighter even than that. I'm just trying to reconcile those.

Terry K. Spencer - President: Well, Mike you just got to understand there are more products than just ethane and we've given you this $0.05 to $0.06 ethane forward view. But there are other products that will be optimized that could be above that. So, when you look at the overall average barrel which we don't advertise the number for competitive reasons, you know you could be more than that cost to build range. So, I mean our view really hasn't changed. I mean we expect the spread to narrow. We've got an unusual situation with very high ethane inventories and this heavy rejection that's happening has really brought the spreads in, but our long-term view is that the spreads would narrow because of the capacity that others and ourselves are bringing online over the course of the next couple of years.

Michael Blum - Wells Fargo: Then last quick question from me, in the release you have a table that shows the percentage of NGLs you've hedged for 2013 at 45%. I'm assuming based on the price that you show there that there is no ethane that's hedged today in that, I was wondering if there is also any propane in the number, for instance all heavier than that?

Terry K. Spencer - President: That's correct. There is little to no ethane in that number and there is some propane and heavier.

Andrew Ziola - Director, IR and Communications: Thank you for joining us everybody. For ONEOK Partners unitholders, K-1s are now available online and will be mailed out by tomorrow Wednesday February 27. Our quiet period for the first quarter starts when we close our books in early April and extended core earnings are released after the market closes on April 30, followed by our conference call at 11.00 am Eastern, 10 a.m. Central on May 1st. We'll provide details on the conference call at a later date. T.D. Eureste and I will be available throughout the day to answer your follow-up questions. Thank you for joining us and have a good day.

Operator: And again ladies and gentlemen, that does conclude today's conference. We thank you for your participation. Have a great day.