ONE Gas, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. ONE Gas is a regulated natural gas distributor serving approximately 2.3 million customers in Oklahoma, Kansas and Texas. Results are seasonal and the quarter is not necessarily indicative of full-year performance.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $971.5 million | $625.3 million | +55% |
| Operating income | $140.8 million | $130.3 million | +8% |
| Net income | $98.9 million | $95.6 million | +4% |
| Diluted EPS | $1.83 | $1.79 | +$0.04 |
| Capital expenditures | $113.3 million | $99.1 million | +14% |
| Cash from operations | $107.6 million | $(1,659.3) million | +$1,766.9 million |
- Natural gas cost was $639.9 million, up 104%, while natural gas sales revenue rose 59%. Gas costs are generally passed through to customers without profit; management said these fluctuations do not affect operating income.
- Operating income increased mainly due to $15.1 million from new rates, $2.4 million lower bad-debt expense and $2.6 million from residential customer growth. These gains were partly offset by higher outside services and employee costs. Other expense increased $3.7 million, primarily reflecting lower values of investments associated with nonqualified employee benefit plans.
- Operating cash flow improved substantially from the prior-year period, which included financing and regulatory-accounting effects of Winter Storm Uri. Q1 2022 cash flow was also affected by working-capital movements, including a $154.3 million increase in accounts receivable. Investing cash outflow was $113.4 million; financing cash inflow was $9.3 million.
- At March 31, 2022, cash was $12.4 million. Debt comprised $2.284 billion long-term debt, $1.400 billion current maturities and $505.2 million commercial paper, approximately $4.189 billion in total. The current-maturities balance largely reflects upcoming senior-note maturities.
- The company had a $1.0 billion revolving credit facility, with $998.8 million available and no borrowings under it; the facility supports repayment of commercial paper. The debt-to-capital ratio was 63%, within the 70% covenant limit, and the company reported covenant compliance.
- Current assets were $2.274 billion versus current liabilities of $2.369 billion. The declared dividend was $0.62 per share for Q1; a further $0.62 per share dividend was declared in May for payment in June.
Material changes and developments
- Winter Storm Uri costs remained a major balance-sheet and financing matter. ONE Gas had deferred approximately $1.9 billion of extraordinary costs at quarter-end: about $1.3 billion in Oklahoma, $335.6 million in Kansas and $248.3 million in Texas. Some purchase invoices remained disputed, and deferred balances may be adjusted.
- Oklahoma’s financing order was approved in January 2022, allowing recovery through securitization over 25 years; Supreme Court validation and bond issuance remained pending. Texas’s financing order was issued in February, with bonds required by statute by August 7, 2022. Kansas filed for a financing order on March 31, with a regulatory decision deadline of September 27, 2022.
- The revolving credit agreement was amended in March 2022 to extend maturity to March 16, 2027, with two additional one-year extensions subject to lender consent, and to use SOFR as its benchmark rate.
- ONE Gas issued 403,792 shares through its at-the-market program during the quarter for $35.0 million gross proceeds and $34.7 million net proceeds. $180.0 million remained available under the program.
- Customer count averaged 2.265 million, up 20,000 year over year. Total volumes delivered rose to 148,201 MMcf from 146,868 MMcf, despite lower total sales volumes and higher transportation volumes.
Outlook, commentary and risks
- Management expected 2022 capital expenditures and asset-removal costs of approximately $650 million. No full-year earnings or EPS guidance is provided in the supplied filing text.
- Management anticipated securitized-bond proceeds would help repay or refinance senior notes due in March 2023 and March 2024; any remaining notes were expected to be called using commercial paper. Timing and completion depend on regulatory and other approvals.
- Oklahoma’s March 2022 PBRC application requested a $19.7 million base-rate revenue increase, a $2.3 million energy-efficiency incentive and a $9.1 million estimated EDIT customer credit; a hearing was scheduled for August 4, 2022.
- Key risks include the timing and amount of recovery for Uri costs, disputed supplier invoices and penalty collections, refinancing and interest-rate exposure, access to capital, regulatory outcomes, pipeline-safety and environmental requirements, cybersecurity, and weather, commodity supply and demand. ONE Gas reported Moody’s A3 with a stable outlook and S&P BBB+ with a negative outlook.
- The Kansas MGP remediation reserve was $20.3 million at March 31, 2022; future remediation costs may differ from estimates and could be material if not recovered through insurance or rates. Management judged ordinary-course litigation losses not material.
Important facts for investors to verify
- Whether Oklahoma, Kansas and Texas securitizations receive all required approvals, issue on schedule and provide proceeds consistent with the company’s refinancing plans.
- Whether the approximately $1.9 billion Uri regulatory asset is ultimately recoverable in full, including resolution of disputed invoices, penalties and cost true-ups.
- How the $1.4 billion of current debt maturities and $505.2 million of commercial paper are refinanced or repaid, and the effect on interest costs and liquidity.
- Progress against the approximately $650 million 2022 capital-spending forecast and the returns or rate recovery associated with infrastructure investment.
- Outcomes of pending rate and surcharge proceedings, including the Oklahoma PBRC filing and Kansas securitization application.