ONEOK, Inc. 2021 Form 10-K Summary
Business context and reporting period
ONEOK is a U.S. midstream energy company operating three segments: Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines. Its assets gather, process, fractionate, transport, store and market natural gas and NGLs across the Rocky Mountain, Mid-Continent and Permian regions. This filing covers the fiscal year ended December 31, 2021; it does not provide a standalone fourth-quarter income statement.
- Approximately 90% of consolidated earnings were fee-based in 2021.
- Year-end employees: 2,847.
- Auditor: PricewaterhouseCoopers LLP, which reported effective internal control over financial reporting.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $16.540 billion | $8.542 billion | +$7.998 billion |
| Services revenue | $1.360 billion | $1.287 billion | +$73.0 million |
| Operating income | $2.596 billion | $1.361 billion | +$1.235 billion |
| Net income | $1.500 billion | $612.8 million | +$886.9 million |
| Diluted EPS | $3.35 | $1.42 | +$1.93 |
| Adjusted EBITDA | $3.380 billion | $2.724 billion | +$656.0 million |
| Operating cash flow | $2.546 billion | $1.899 billion | +$647.2 million |
| Capital expenditures | $696.9 million | $2.195 billion | -$1.499 billion |
- Approximate consolidated operating margin was 15.7%, net margin was 9.1%, and adjusted EBITDA margin was 20.4%. These margins are affected by gross commodity sales and cost-of-sales presentation.
- Segment adjusted EBITDA was $889.1 million for Natural Gas Gathering and Processing, $1.964 billion for Natural Gas Liquids, and $527.8 million for Natural Gas Pipelines.
- Natural gas gathered increased to 2,736 BBtu/d from 2,553 BBtu/d; natural gas processed increased to 2,515 BBtu/d from 2,364 BBtu/d.
- NGL raw feed throughput increased to 1,198 MBbl/d from 1,084 MBbl/d.
- Natural gas pipeline transportation capacity contracted was 95%, compared with 96% in 2020; storage subscription was 70%, compared with 71%.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $146.4 million at December 31, 2021, down from $524.5 million.
- Total debt, including current maturities, was $13.6 billion, compared with $14.4 billion in 2020; estimated fair value was $15.6 billion.
- Current maturities of long-term debt were $895.8 million, primarily the $900 million of 3.375% notes due October 2022.
- ONEOK had no borrowings under its $2.5 billion revolving credit agreement and had $7.7 million of letters of credit outstanding. The facility expires in June 2024.
- Working capital changed from a $525.2 million surplus to an $810.2 million deficit, primarily because of current debt maturities. Management stated that the deficit was not expected to adversely affect operations or cash flows.
- The debt-to-adjusted-EBITDA ratio under the credit agreement was 4.0 to 1, below the 5.0 to 1 covenant limit. Credit ratings remained investment grade with stable outlooks: Moody’s Baa3, S&P BBB and Fitch BBB.
- Common dividends were $3.74 per share in 2021, unchanged from 2020. Operating cash flow exceeded dividends paid by $878.8 million.
Material changes versus the prior comparable period
- Results improved substantially as producer activity recovered, gas-to-oil ratios increased in the Rocky Mountain region, 2020 production curtailments reversed, ethane production increased and commodity prices improved.
- Natural Gas Liquids adjusted EBITDA increased $346.4 million, primarily from higher volumes, wider commodity price differentials and improved optimization and marketing results. Winter Storm Uri reduced exchange-services results by $46.2 million but generated a net positive consolidated impact.
- Natural Gas Gathering and Processing adjusted EBITDA increased $239.1 million, driven by higher volumes and improved realized prices under fee-with-percent-of-proceeds contracts.
- Natural Gas Pipelines adjusted EBITDA increased $90.4 million, mainly from higher natural gas sales from storage during Winter Storm Uri and higher storage-related revenue.
- 2020 included $644.9 million of impairment charges, including impairments of long-lived assets, goodwill, intangible assets and equity investments. No impairment charges were recorded in 2021.
- Capital spending declined sharply following completion or pausing of major growth projects.
- ONEOK redeemed $536.1 million of 4.25% senior notes, repaid $11.7 million of Guardian Pipeline debt and repurchased $55.2 million principal amount of senior notes for $54.6 million.
Guidance, outlook, risks and unusual items
- Management expected 2022 volumes to increase because of continued producer activity, rising Rocky Mountain gas-to-oil ratios, the completed Bear Creek expansion and higher ethane demand.
- 2022 capital expenditure guidance was $900 million to $1.050 billion, excluding AFUDC and capitalized interest.
- Demicks Lake III, a 200 MMcf/d Williston Basin processing plant, was expected to be completed in the first quarter of 2023. The estimated cost to complete at announcement was approximately $140 million.
- The 125 MBbl/d MB-5 fractionator in Mont Belvieu was expected to be completed in the third quarter of 2023. The estimated cost to complete at announcement was approximately $250 million and the project was fully contracted.
- Winter Storm Uri caused freeze-offs, power outages, reduced processing and fractionation volumes, and higher electricity costs, but increased demand and storage withdrawals produced a net positive financial effect.
- ONEOK announced a target to reduce combined Scope 1 and Scope 2 greenhouse-gas emissions by 30%, or 2.2 million metric tons, by 2030 versus 2019.
- Key risks include commodity-price and basis volatility, producer drilling declines, weather and freeze-offs, operational outages, cyberattacks, counterparty credit risk, construction delays or cost overruns, environmental and pipeline-safety regulation, climate-related policy changes, interest rates, refinancing needs and the company’s substantial leverage.
- Legal proceedings and environmental matters were described as arising in the ordinary course; management stated that reasonably possible losses were not material. The filing text does not identify a material pending contingency.
- Level 3 commodity derivative assets were $9.3 million and liabilities were $123.6 million at year-end, requiring valuation using internally developed price curves and third-party market data.
Most important facts for an investor to verify
- Whether 2022 volume growth and the expected completion dates and budgets for Demicks Lake III and MB-5 are achieved.
- The company’s ability to refinance or repay the $895.8 million of debt maturing in 2022 while funding growth capital and dividends.
- Actual leverage, interest coverage, credit ratings and covenant headroom as commodity prices and interest rates change.
- The sustainability of NGL margins, optimization gains and fee-with-percent-of-proceeds earnings, which remain exposed to commodity and location differentials.
- Progress toward the 2030 emissions-reduction target and the potential cost of future methane, climate, environmental and pipeline-safety requirements.
- Exposure to producer activity, customer credit quality, cyber incidents, severe weather and uncontracted capacity.
- Reconciliations between GAAP net income and adjusted EBITDA, particularly because adjusted EBITDA is non-GAAP and 2021 revenue included significant gross commodity sales.