ONEOK, Inc.
Q4 2014 Earnings Call Transcript

Published: 24 Feb 2015

[Operator:]

Please standby. Good day and welcome to the Fourth Quarter and Year-End 2014 ONEOK and ONEOK Partners’ Earnings Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mr. T.D. Eureste. Please go ahead, sir.

[T.D. Eureste:]

Thank you and welcome to ONEOK and ONEOK Partners’ fourth quarter and year-end 2014 earnings 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 provisions 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 is Terry Spencer, President and CEO of ONEOK and ONEOK Partners. Terry?

[Terry Spencer:]

Thank you, T.D. Good morning and many thanks for joining today and for your continued interest and investment in ONEOK and ONEOK Partners. On this conference call is Derek Reiners, our Chief Financial Officer. Also with us and available to answer your questions are Rob Martinovich, who is recently appointed Executive Vice President and Chief Administrative Officer, responsible for Human Resources, Corporate Services and Information Technology. During his years with the company, Rob has served in a number of key leadership roles and without exception performed at a high level. Once again, Rob will step in to provide needed leadership in another important role for our company. I along with our employees will continue to rely upon his deep industry experience and leadership in this new role. Also on the call is Wes Christensen, our Senior Vice President of Operations; Sheridan Swords, our Senior Vice President of Natural Gas Liquids; and Kevin Burdick, Vice President, Natural Gas Gathering and Processing. On this morning’s call, Derek will start with a review of our 2014 financial results and then I will elaborate on our 2015 outlook and discuss ONEOK and ONEOK Partners revised financial guidance. Before I hand the call over to Derek, I would like to discuss ONEOK and ONEOK Partners’ accomplishments in 2014 and more importantly review our 2015 outlook and financial guidance. At ONEOK Partners, our 36,000-mile integrated natural gas and natural gas liquids pipeline network generated record EBITDA of 1.56 billion in 2014, which is a result of completing a significant number of capital growth projects and acquisitions since 2006. Additionally, all three of our segments experienced double digit operating income growth compared with 2013. Our most recent fourth quarter 2014 distribution declared represents a 98% increase since April 2006 when ONEOK became the sole general partner of ONEOK Partners. Since that time, our industry has experienced a wide range of market conditions both headwinds and tailwinds. And regardless of the conditions, the partnership is facing, we continue to believe it’s in the partnerships and our unit holder’s best interest to manage responsibly every dollar that comes in and goes out of the business. As we leave 2014, I believe the partnership with its significant platform of feed-based business in growing basins in major market areas is well positioned to weather the current uncertain commodity price environment. At ONEOK, we successfully completed the separation of our Natural Gas Distribution assets and became a pure-play general partner and provided ONEOK Partners, management and resources to execute on its growth strategies. In April 2014, the board approved a 40% dividend increase clearly demonstrating the benefit of becoming a pure-play general partner. We remain committed to paying out the majority of our cash in the form of dividends, but we also intend to continue making prudent financial decisions that are in the long term interest of ONEOK and its shareholders. Derek now will review ONEOK’s and ONEOK Partners’ financial highlights. Derek?

[Derek Reiners:]

Thanks, Terry and good morning. Fourth quarter 2014 net income attributable to ONEOK was approximately $95 million or $0.45 per diluted share. 2014 net income attributable to ONEOK was approximately - I am sorry - 2014 net income attributable to ONEOK was approximately $314 million or $1.49 per diluted share which includes a loss of $5.6 million or $0.03 per diluted share from discontinued operations. ONEOK continues to benefit from its pure-play general partner strategy with $633 million and distributions declared by ONEOK Partners in 2014, a 16% increase from the same period last year. Cash flow available for dividends for the fourth quarter was $142 million providing 1.13 times coverage of the ONEOK dividend. 2014 cash flow available for dividends was $621 million providing 1.28 times coverage. ONEOK increased its quarterly 2014 dividend for the fourth quarter 2014 by $1.05 per share to $60.5 per share, 51% higher than the fourth quarter 2014. Moving on the ONEOK Partners, fourth net income attributable to ONEOK Partners was approximately $263 million or $0.67 per unit. The full year 2014 net income attributable to ONEOK Partners was $910 million or $2.33 per unit. As Terry mentioned, all three of our business segments experienced significant operating income growth in 2014 compared with 2013. Operating increased in the natural gas gathering and processing segment by nearly 40% benefiting from higher natural gas gathering and processing volumes. Natural gas liquids increased 26% benefiting from higher margin NGL volumes from new natural gas processing plant connections and natural gas pipelines increased 19% benefiting from increased natural gas volumes transported. Distributable cash flow was $306 million for the fourth quarter provided coverage of 1.06 times and approximately $1.17 billion for the full year, an increase of 23% providing coverage of 1.10 times. The partnership’s fourth quarter distribution increased to $0.79 per unit, an increase of approximately 8% from the fourth quarter of 2013. In the fourth quarter, approximately 3.5 million units were issued through our aftermarket equity program, generating net proceeds of $157 million. For the year, approximately 21.8 million common units issued, generating net proceeds of approximately $1.1 billion included approximately 7.9 million units issued through the aftermarket program. The partnership has a strong balance sheet and we are increasing our liquidity and financial flexibility as we notified our lenders of our intend exercise the option to increase the size of the partnerships revolving credit facility to $2.4 billion from $1.7, pending lenders approval which we expect to finalize in the next few weeks. At the end of 2014, the partnership had $1.1 billion of commercial paper outstanding and no borrowings outstanding on our credit facility, total debt-to-capitalization ratio of 54% and a debt-to-adjusted EBITDA ratio of 3.7 times as calculated under the terms of our credit facility. As discussed in yesterday’s earnings release, we significantly reduced our debt and equity financing needs in 2015 by reducing plant capital expenditures to approximately $1.2 billion from our previous estimate of $2.8 billion. Terry will provide more color in a moment, but this reduction in capital expenditure reflects slower production growth outlook by our producer customers than originally planned. We expect to continue financing our capital expenditures with debt and equity through the use our aftermarket equity program, overnight equity offerings, long and short term debt, while targeting a 50-50 debt-to-equity capital structure over the long term. These multiple sources of liquidity enables to be prudent and opportunistic from a timing perspective as we look to access the equity and debt markets. We continue to remain confident and our ability to raise the necessary capital to fund the capital needs at ONEOK Partners. Terry, that concludes my remarks.

[Terry Spencer:]

Thank you, Derek. That’s a good setup to begin discussing our 2015 outlook and guidance. Our previous 2015 financial forecast and guidance was developed in November leading into our investor conference in early December. Since then, natural gas liquids prices are lower by nearly 40%, natural gas is down 13% and crude oil is down nearly 38%. This reduced commodity price environment has significantly impacted our producer customers 2015 capital expenditure programs and has created less clarity into 2016 and beyond. Additionally the lower natural gas and natural gas liquids prices have impacted the partnership. Accordingly, we have lowered our ONEOK Partners’ 2015 adjusted EBITDA guidance approximately 14% to a range of 1.15 billion to 1.73 billion. Our updated 2015 financial guidance is based on a $0.54 per gallon NGL composite price, a $3.50 per MMBtu for natural gas and $50 per barrel for WTI crude oil. We expect ONEOK Partners earnings to grow significantly in the second half of the year relative to the first half due to continued volume growth in the natural gas gathering and processing and natural gas liquids segments. A significant ramp up in natural gas gathered volumes across our systems is expected to occur especially in the Williston Basin as we connect additional wells and complete field compression projects and in the Mid-Continent as a key Oklahoma producer drills wells in the first half of the year and completes those wells in the second half of the year. We also revised our expected partnership distribution growth rate to 3% to 5% or a range of $3.16 per unit to $3.22 per unit in 2015 from the previous 8% with an expected coverage ratio of 0.87 to 0.97 times in 2015. Although the partnership has slow the expected distribution growth rate in 2015 to reflect the current market, we will continue to closely monitor market conditions and our operating performance and reevaluate our distribution growth outlook each quarter. Additionally, while our prospects for volume growth continued to look favorable, due to the current uncertain commodity price environment, we will not be providing financial forecast beyond 2015. While we continue to have a long term view in perspective, we believe it’s prudent to show in our time horizon and communicate our financial forecast, distributions and guidance only for the current year and ability returns to the commodity markets. We will discuss our longer term thoughts on volumes in a moment. Our track record of discipline growth continues and we are adjusting capital spending to reflect our producer customers’ needs and their reduced volume growth expectation. We are suspended our Demicks Lake, Bronco and Knox natural gas processing plants in the Williston Basin in North Dakota, Powder River Basin in Wyoming and the Mid-Continent region of Oklahoma respectively. We expect no more spending on these capital growth projects until market conditions improve and when they do, we will quickly reestablish completion dates. As a reminder, all three of those plants were originally scheduled to be completed at the end of 2016. Our completed growth projects and our capital projects in progress will allow us to meet the current growth expectations of our producer customers in the basins where we operated and continue to ride us with growth opportunities. In the Williston as we outlined at our Investor Day, our producer customers are focusing their drilling in their most economic areas. In addition, December production statistics showed statewide flaring was approximately 360 million cubic feet per day and there was an estimated 750 wells waiting on completion services. We expect 2015 Williston Basin natural gas gathered volumes to increase 39% over 2014 only 3% lower than our previous expectations. In the Williston Basin, we had 3 million acres dedicated to us with approximately 1 million acres in northeast McKenzie, north Dunn and southern Williams Counties, which are considered core areas for many producers in the Williston. We expect to complete our 200 million cubic feet per day Lonesome Creek processing plant and the additional field compression needed to take advantage of increased processing capacity and our Stateline I and Stateline II plants and the Garden Creek, Garden Creek II and Garden Creek III plants in the fourth quarter 2015. This additional 300 million cubic per day in processing capacity is expected to help meet the flaring targets of 23% by January, 2015 and 15% by January 1, 2016. The Powder River Basin is a more challenged basin in this lower commodity price environment but some of our producers are incentivized to drill to avoid losing their leases. While the Powder River Basin development is in the early states and are currently providing significant natural gas or natural gas liquids volumes to our systems, we remain excited about the potential of this integrated opportunity. Similar to the Bakken, producers in the Mid-Continent are concentrating their drilling in their most economic acreage. We expect natural gas gathered volumes to be down approximately 4% in 2015 compared with our previous volume guidance with well completions weighted more heavily toward the back half of the year. Producers are concentrating drilling in the best performing areas of the Cana-Woodford, Stack and SCOOP plays. Additionally improved well performance and better well completion results are positively impacting producer drilling economics. Now for our longer term thoughts on volume; in the Williston based on dialog we are having with producers, we are expecting natural gas gathered volume growth of 27% in 2016 over 2015. For the natural gas gathering and processing segment, we expect natural gas gathered volume growth of 16% in 2016 over 2015. Now for a quick update on our recently acquired West Texas LPG pipeline system. While it has only been a few months since we closed the acquisition, we are making progress with our super customers in the development of future system expansion. As a reminder, this pipeline was essentially full when it was acquired. Based upon discussions with our super customers, our expectations have not changed to reach a six to eight times EBITDA multiple between 2017 and 2020. Now brief outlook on the NGL markets; the current ethane rejection by natural gas process and plants connected to our NGL system is approximately 155,000 barrels per day. Current ethane demand is nearly 1.1 million barrels per day and is expected to push ethane inventories lower through June. The Conway and Mont Belvieu location price differential per ethane is under $0.02 per gallon in favor of mobility and we expect these narrow differentials to continue for the rest of this year. Propane exports are steady and we are seeing more propane buying in Conway for winter demand. As a result, we expect propane location price differentials between Conway and Mont Belvieu to be in the minus $0.02 per gallon to plus $0.06 per gallon range for the remainder of 2015. At ONEOK, we revised our expected dividend growth rate to 4% to 8% in 2015 or $2.42 per share to $2.52 per share from the previous 14% and slightly lowered guidance midpoint for cash flow available for dividends to 610 million from 620. In these uncertain times, we believe it is prudent to retail additional cash. I would like to briefly touch on cost reductions. Regardless of the environment we may be operating in, we are also focused on managing our costs and operating safely and efficiently. On an ongoing basis, our employees are constantly challenging themselves to find new ways to be more efficient and reduce costs while maintaining safety, reliability and environmental responsibility. While the current market conditions, creates challenges, it also presents opportunity. Recently, we’ve seen decreases in service rates, reduced chemical costs, lower fuel prices, reductions in third party contractor costs and other lower service rates. Before I close, I would like to welcome and introduce Walt Hulse. Walt, who have known and worked with for many years, brings a tremendous amount of investment banking in energy industry experience to our company. As Executive Vice President of Strategic Planning and Corporate Affairs, he has tremendous value as we identify and assess strategic opportunities as well as enhance our relationships with the investor community. Walt if very familiar to ONEOK story and has provided a counsel to us on a number of strategic acquisitions, the most recent was the separation of the distribution business into ONE Gas. Walt and his family will soon be relocating to Tulsa from New Jersey; we’d like to welcome Walt to the ONEOK family. In closing, this is not the first time that we experienced management team and skilled employees have faced a challenging and uncertain market environment. We’ve been here before with our assets, experienced people, financial flexibility and discipline and our legacy of doing the right things to create value for our customers, we are confident that we will emerge as better and stronger company, continuing to deliver value to our shareholder and unit holder. And finally, I would like to thank our many dedicated and hardworking employees for delivering on the many accomplishments achieved throughout 2014. And in particular, many thanks for conducting our business in a safe, reliable and environmentally responsible manger each and every day. Operator, we’re now ready for questions.

[Operator:]

Thank you. [Operator Instructions] And we’ll take our first question from Tim Schneider.

[Tim Schneider:]

Hey, good morning, it’s Tim Schneider with Evercore ISI. Quick question for your guys and I appreciate the color on some of the 2016 volumes. In terms of thinking about your integrated nature of our system, should we kind of think of the processing volume increase in running through on the NGL side as well, what I am saying is, is that show off on NGL volumes and fractionation volumes?

[Terry Spencer:]

Tim, that’s exactly the way to think about it. As we increase volumes particularly from our gathering and processing segment that will positively impact volumes that we fractionate and volumes that we transport through our NGL network.

[Tim Schneider:]

Okay and can you talk a little bit about the contract structure of that, is that mostly under the bundled contracts that you’ve had in the most.

[Terry Spencer:]

Yeah, most of those contracted and those, the NGLs that we transport out of our affiliated plants as well as third party plants. Their fee based contracts they are bundled where you refer to them is exchange contracts and in those contracts, we provide the fractionation, gathering and transportation services to the market - to the market hubs.

[Tim Schneider:]

Got it and last question for me is just on with respect to coverage, obviously OKS incrementally higher on OKE, I was just wondering what the thoughts were around that, that you are running negative coverage at OKS and why not you know maybe it supports OKS with bringing the coverage down a little bit at the OKE level?

[Terry Spencer:]

Yeah, Tim, we think about those things - as we think about 2015 from a coverage standpoint at OKS, we’re going to be below one or expected to be below one in the early part of year. But as we actually more through the year, we expect the coverage to be well above the one, okay. So our - the reason why we’re carrying reported a negative coverage, we don’t think we’re going to be in a below one coverage for an extended period of time.

[Tim Schneider:]

Okay, guys, thank you.

[Operator:]

We’ll hear next from Carl Kirst - BMO Capital Markets.

[Carl Kirst:]

Thank you. Good morning, everybody. I think I actually hit kind of on the question that I was going to get to and I think you perhaps answered it. And so but I guess as you look as sort of philosophically longer term, you have headwinds were to continue the tension between resetting distributions, running sort of sub one times coverage versus perhaps using OKE and IDR wavers, this should be basically just think of that you are willing to go under one times coverage but really only for very short periods of time?

[Terry Spencer:]

Yeah, I think that’s fair, that’s been in the past, we’ve been comfortable keeping our coverage below one at the partnership really for relatively short period of time.

[Carl Kirst:]

Okay, thank you.

[Terry Spencer:]

And it gets fair.

[Carl Kirst:]

You know couple of other questions is from a base case standpoint, with respect to OKS and equity requirements with a much lower CapEx, should we still be expecting sort of use of GPM or is it down to where you think you don’t even need equity for 2015 or any more color there would be helpful.

[Terry Spencer:]

Carl, let Derek take that question.

[Derek Reiners:]

Yeah, Carl, this is Derek. We do expect to continue to use the ATM program as we’ve done in the past certainly been a program that has worked well for us in the last year and as we still do have $1.2 billion or so of capital in 2015 plan, we do expect to need to issue some equity.

[Carl Kirst:]

Derek, can you - did you have a target range with respect to that 1.2 billion or should we think of it is roughly on far with 2014 as far as the ATM equivalents?

[Derek Reiners:]

Well I think we’ll continue to look at our credit metrics much the way we have in the past of course maintaining investment grade, credit ratings is extremely important to us at OKS. So that really will be our guidance to how much we would plan to issue either under the ATM or an overnight for that matter.

[Carl Kirst:]

Okay, that’s helpful. And maybe last question if I could, just with respect to and then I think these are similar numbers but just want to make sure I’ve got sense of the colors. If we look at the maintenance capital spend for OKS, there is a 20% reduction. Is that something that is more reflective of the lower service cost you are seeing and thus is a new baseline or is that more sort of project deferrals that will just be done at later date?

[Terry Spencer:]

Well I’ll make a couple of comments and then Wes Christensen, if he has anything to add will jump in. You know in our maintenance capital, yeah first the short answer is yes, we’re seeing some impact from the lower cost environment. But also there is also a trench of projects and our maintenance that are kind of more discretionary, okay. And so I think you are seeing some of those projects that are not really related to asset integrity. We will from time to time particularly in an environment like this, we’ve got those discretionary project that we can dial out the maintenance capital, I think that’s what you seeing. Wes, you got anything?

[Wes Christensen:]

I think that would carry.

[Terry Spencer:]

Okay.

[Carl Kirst:]

Great, thank you, guys.

[Terry Spencer:]

You bet. Thanks, Carl.

[Operator:]

And next we’ll hear from Craig Shere with Tuohy Brothers.

[Craig Shere:]

Good morning, guys.

[Terry Spencer:]

Hey, Craig.

[Craig Shere:]

Terry, in your prepared comments you said that you thought was prudent to retail cash at the OKE level with more conservative dividend coverage ratio, I know you’ve already had a question to on this. But I wonder what purposes you might foresee cash and available balance sheet capacity at OKE, is it simply a backstop if necessary in worst case scenario to support OKS or are you keeping your mind open for other things?

[Terry Spencer:]

Craig, yesterday what you inferred as far as okay. Yeah, we’re keeping our minds open to other things, obviously we could, we could, we’ll have that cash available to issue dividends in the future potentially. Obviously we have a cash tax low that could be coming down the road, that cash could be used for. OKE share repurchases is a possibility, the OKS support as you inferred and you many have opportunities there and it seems like in times like these there is always opportunity that presents itself, there may be some very compelling asset acquisitions that might present themselves and certainly that would provide us some liquidity for that. And of course obviously you could reduce - you could potentially reduce them debt. So those are all the things you could conceivably do in all the levels that we can potentially pull at OKE with that cash.

[Craig Shere:]

Great and assuming full capacity utilization, I understand there is a question is to how quickly the growth CapEx portfolio when online will ramp up given the flaring and market conditions. But assuming full capacity utilization in current commodity pricing, what kind of updated EBITDA to CapEx multiples due or CapEx to EBITDA multiples due fee for the ongoing projects?

[Terry Spencer:]

Yeah, in this environment from a stated multiple range that we’ve - for all these projects that we’ve historically indicated was the 5X to 7X and we’re probably now north, if you looked at kind of what the average multiple would be on these projects, in this environment you know you’ll be little a bit north of six times. So still very viable projects but from a multiple base, it had bases they have been effected someone.

[Craig Shere:]

Okay, that’s good to hear. And are there any specific sign forces or market changes you be looking before we starting the three differed projects?

[Terry Spencer:]

Yes, probably a bit more fundamental is that we would really like to see some meaningful industry crude oil supply reductions, okay and if we if and when we really start to see that and I think we could feel like that the foundation for higher cured prices is much more viable. We see prices popping at $654, $70, $75 barrel range here. As we move into the 2016 timeframe, it’s very possible, we could fire those projects back. And I think we see those kinds of markers out there, more confidence is going to be much improved. And certainly that would drive more communications with the producers and certainly - and hopefully increase drilling activity over and above what we are already hearing.

[Craig Shere:]

Great, last question, obviously suspending the long term guidance, probably make some sense given the uncertainty but always made stuff not have a good roadmap. If things do recover in that range you said the mid-$60 to $70 oil and CapEx spending in the industry kind of I guess back to more of a steady state. From this reduced 2015 level, can you provide some color to what we could see in terms of growing back towards or close to the prior 2017 targets?

[Terry Spencer:]

Yeah, Craig I think if we could see prices in that $70 to $80 a barrel range and consistently in that range, we could very well head back toward that and get back toward that dividend and distribution guidance range, kind of get back on that old growth - dividend growth and distribution growth target range.

[Craig Shere:]

Great, I appreciate it.

[Terry Spencer:]

Thank you, Craig.

[Operator:]

Our next question comes from Christine Cho with Barclays.

[Christine Cho:]

Good morning, everyone. Thanks for all the color.

[Terry Spencer:]

Hi, Christine.

[Christine Cho:]

So if I look at your operating income guidance for the NGL segment, it looks like it went down 60 million from original guidance. Would you be able to give us an idea of roughly how much of that is from your own equity volumes being revised down as a GMP segment and falling through your NGL asset versus how much is from third parties? And also how did you guys determined how much to reduce third party volume, is that you going by customer forecast or have you haircut it further, any color that would be helpful?

[Terry Spencer:]

Christine, I am going to let Sheridan take that question.

[Sheridan Swords:]

On the answer about how much of the 63 million is attributable to our own equity volume, I would it’s a little bit more than half. And then as we look at volumes going forward that is multiple ways that we look at, a lot is talking to the producers and the gathering a processing segments out there. Determine what they are seeing and we also look like at what we are seeing through our own plants in the same region to be able to determine what we think is a fair volume forecast for those plants.

[Christine Cho:]

Okay, thank you. And then just continuing on the NGL segment, you guys previously expected about 12% of the margin to come from marketing and optimization, is that still you are expecting with their revised guidance?

[Terry Spencer:]

Christine, I think it’s closer to 15%.

[Christine Cho:]

If you include the amortization I think.

[Terry Spencer:]

If you include - if you include the amortization adds, it’s…

[Wes Christensen:]

It’s marketing and optimization is still around 12%.

[Christine Cho:]

Okay.

[Terry Spencer:]

So if you include the amortization, what is that.

[Wes Christensen:]

14%.

[Terry Spencer:]

There you go.

[Christine Cho:]

Okay, perfect and then…

[Terry Spencer:]

That’s the number I was trying to say.

[Christine Cho:]

And then so I understand why processing plants in the SCOOP and Powder River would get pushed out, but I was a little surprise it also went there just given McKenzie County houseful lowest breakevens in the Bakken, can you talk about the slowdown you are seeing and even the sweet sports and what are the utilizations that frequency line plans, are they full or is there some capacity left there, any volumes that would gone to them?

[Terry Spencer:]

Christine, clearly it is a function of the drilling plants of the producers in that Demicks Lake area and some of those well lot out on the edge and not quite in the sweet spot of the play. And I’ll let Kevin add some color to that.

[Kevin Burdick:]

Yeah Christine, we definitely have seen a movement of rigs into the core as we kind of premise back at our Analyst Day. As far as capacities and utilizations, we still have available capacity in our existing plant and then as we add like Terry referenced addition compression throughout ’15 and lump sum creep coming on at the end of the year, that provides us with an additional 300 million a day of capacity that will be able to handle the continued drilling and the completions that are being worked in the first half of ’15 and will give us headroom for growth on into ’16 as well.

[Christine Cho:]

Okay, great, thanks. And then last question from me, can you remind us if you have any minimum volume commitments on any of your assets and if so are you expecting any payments this year?

[Terry Spencer:]

Christine, we do have some and we referred to is MVAs in the gathering and processing segment, most of those I think have run their term. Then of course in the NGL business, we’ve got those, we don’t refer to those as minimum volume agreements, we referred those as just from shipper pay or from fracker agreements. And we have certainly those in the NGL segment, more of those contracts were entered into to support many of the capital investments that we made, the new fractionation and this new Sterling pipeline and won’t have it [ph].

[Christine Cho:]

I know you guys expecting any payment side to that this year?

[Terry Spencer:]

Yes, we are and I don’t know how granular we’re going to be able to get on that.

[Christine Cho:]

Okay. Thank you.

[Operator:]

And next we’ll hear from Becca Followill with US Capital Advisors.

[Becca Followill:]

Hey, guys.

[Terry Spencer:]

Hey, Becca,

[Becca Followill:]

I just want to clarify the change in guidance on gathering and processing volumes, I think it was up 17% and now it’s up 10% and 8% respectively. Yeah, you said that Williston Basin was only down 3%, can you reconcile that change where that’s coming from?

[Terry Spencer:]

Kevin, I’ll let Kevin.

[Kevin Burdick:]

That is coming from obviously the other basin, but the Mid-Continent we saw some initial pullback there in our volume forecast and then also some coming out of the power.

[Becca Followill:]

Okay, I’ll follow-up to get some more specifics. And then in the guidance for volumes up 16% in 2016, it seems kind of contrary to the rig count reductions that we are seeing, so can you help us get to how you get that increase of 16% in ’16?

[Terry Spencer:]

Well Becca, just at a high level and I’ll some of these other guys address the question as well. But when we think about what’s happening, producers are pulling into these much higher and much more productive areas. Certainly you are seeing the impact of that. I think the other thing that you don’t always hear about is that fact they are enhancing this, they are continuing to enhance their completion techniques and getting more production per well. So I think that’s got to be a key. And you guys got anything else you want to add to that, I mean.

[Wes Christensen:]

No, I mean that…

[Terry Spencer:]

Okay.

[Becca Followill:]

Okay. And I got three more quick ones. You talked about the flow through of gathering to the frac, I think you guys are looking at basically flat frac volumes in ’15 versus ’14 versus the gathering and processing volumes up 8% to 10%, so do we look at it as a multiple or are you looking for that at some uptick in frac ’16 may be different in the pattern in ’15?

[Terry Spencer:]

Becca, the reason you are seeing in your frac line is flat between ’14 and ’15 is that we had quite a bit spot frac contracts that we did in ’14 that we are not predicting we will do again in ’15, so there were just frac only contracts. And so a lot of the gathering volume, they will now look like the gathering fee plus the frac, we continue to go forward, that’s why you are seeing the flat volume there.

[Becca Followill:]

Okay. And then the second half pickup that you are looking at, where the coverage ratio is going to get thicker, is that - you assuming any pickup in commodity prices?

[Terry Spencer:]

No, pretty flat - pretty flat prices throughout the year that $50 scenario.

[Becca Followill:]

Gotcha and last question, if the $0.54 composite NGL barrel, I know in the wording that seemed I think reduction but you’ve got pour some of your barrel roughly 10% of that thing, so built into that $0.54 does that include some ethane in there?

[Terry Spencer:]

Yeah, there would be a small amount of ethane. Kevin, do you have anything you could add that.

[Kevin Burdick:]

No, it should be small amount of ethane that includes in there as well.

[Terry Spencer:]

Less than 10%.

[Kevin Burdick:]

Around 10-ish.

[Becca Followill:]

Wonderful. Thank you, guys.

[Terry Spencer:]

Thanks, Becca.

[Operator:]

Our next question comes from Ted Durbin with Goldman Sachs.

[Ted Durbin:]

Thank you. Question on the OKE cash tax rate down in ‘15, but as you look forward to ’16 with a lower CapEx at OKS plus maybe the impact of bonus depreciation, I am just wondering if you can give us some help on where the ’16 cash tax rate is shaping up, especially I think guidance performance around 20% to 25%?

[Derek Reiners:]

That’s right. We actually I think had guided kind of 18% to 24% in the future years, but since we’re not forecasting out the OKS distribution providing financial guidance, really I can’t give you any more color beyond that. Of course bonus depreciation as you know in was passed for 2014 which rolled into 2015 for us as we carried over our net operating loss, so we don’t expect to be a cash tax payer in 2015. If bonus depreciation were to be in active again that would certainly favorably impact 2016’s cash taxes.

[Ted Durbin:]

Got it. Next one from me, just coming back to these plans or preplans that are being suspended, I guess where there contracts associated with those, I mean kind of what was the old versus the new the change that’s you are no longer moving forward those plans, what do you maybe giving up in competitor who is coming in and build over top of you?

[Terry Spencer:]

Well Ted, first of all we don’t believe we given up anything, but suspending these projects until market conditions improve, okay. So - and from a contractual standpoint, it’s the same contracts that have been out there for sometime this large acreage dedication there, they are part of this 3 million acreage dedication that we continue we talk about. So those contracts were in place. This just now a matter of when is the drilling going to occur, when do they going to get this production out of the ground. So it’s a timing issue. And so how you have to think about the suspension of these projects is not a cancelation but a push to the right, a shift to the right of the curve if you will. It’s really all about timing. When we all believe that the commodity price environment is going to improve and as it improves and as these producers provide more clarity about their drilling activity, we’re not given up really anything by suspending these projects, okay.

[Ted Durbin:]

Got it. The percentage of fee based margins now you’re looking into ’15, I think before you’d said 66%, where does that shakeout now within your guidance?

[Terry Spencer:]

It is going to be more in the 75% range fee based.

[Ted Durbin:]

Got it, thank you. And then last one from me is just the - it is really kind of the same question in terms of the backlog, you have the on enough backlog of $4 billion to $5 billion, should we assume that is the similar size but just takes longer to implement or is that actual backlog come down?

[Terry Spencer:]

No, that’s exactly right. Those projects are all still viable projects and it really Ted, as you indicate, it’s more function of timing, okay. The curve being shifted to the right a bit as these producers get more confident in their drilling and have provide more clarity on their forecast, these projects will come back into the tray.

[Ted Durbin:]

Perfect, I’ll leave at that, thank you.

[Terry Spencer:]

Thank you.

[Operator:]

[Operator Instructions] We’ll hear from Carl Kirst with BMO Capital Markets.

[Carl Kirst:]

Thank you. Sorry, guys, just two quick follow-ups, one I need to know if there are any GNP price hedges for 2016 we should be aware of? And I also just wanted to confirm if we just let the current slate of projects play out, what is that imply 2016 growth CapEx to be?

[Terry Spencer:]

Well I guess both of those question, Carl, first of all on the hedging, no updates for ’16 and then as far as CapEx for 2016, we have not guided in the out years as far as capital spend. We provide pretty much when we do guide we guide in the current year and we remain with that.

[Carl Kirst:]

Is there way to ask just what’s left to spent at the end of this year on just those projects?

[Terry Spencer:]

I don’t know if we can get.

[Carl Kirst:]

Okay, fair enough.

[Derek Reiners:]

I don’t have the number in front of me and I don’t think we really guide to that at this point.

[Carl Kirst:]

Okay, I appreciate it.

[Terry Spencer:]

Thanks, Carl.

[Operator:]

And we’ll hear from [indiscernible] with RBC Capital Markets.

[Unidentified Analyst:]

Hi good morning. On the three plants that have been suspended, have you spent any capital on those plants here and if you did want to kind of bring them back, you know how quickly could you kind of turn them on I guess?

[Terry Spencer:]

I’m going to let Wes Christensen to take that question.

[Wes Christensen:]

Yeah, each one of the plants were in different places, but as we put them kind of into a part position, we have spent some money for long time items for Demicks and for Knox but we will have them all position, so that when the timing is right for them to be restarted that will be well prepared to do that.

[Unidentified Analyst:]

Okay, great, thanks a lot.

[Operator:]

And next we’ll hear from Jeremy Tonet with JPMorgan.

[Jeremy Tonet:]

Good morning.

[Terry Spencer:]

Good morning.

[Derek Reiners:]

Good morning.

[Jeremy Tonet:]

Thanks for the color this morning, very helpful. I was just curious if you might be able to comment now, you’ve seen a competitor out there collapse the GP and LP structure for different reasons, I was just wondering if that’s something that you guys had look that at all and if you see any benefits or how you think about the give and take on that type of transaction?

[Terry Spencer:]

Well Jeremy, you know this company as we say last year, it was willing to entertain and execute on structural changes and it’s no different here, we’re certainly thinking about structural alternatives and we’ll continue to think about it. From a timing standpoint, we’re not ready to do anything that yet, so we’ll just continue to look at it, it definitely had some merit and it might sense for that party to do it. And certainly we have to determine if it makes sense for us, but we’re not at that point yet.

[Jeremy Tonet:]

Great, thank you for the color.

[Operator:]

And next we’ll hear from Andy Gupta with High Hedge.

[Andy Gupta:]

Hi good morning. So I just want to follow-up on the previous question, have you guys have any numbers on the taxes if you were to consolidate the GPLP and particularly with the ONE Gas unit sell [indiscernible], how does those that play into your thinking?

[Terry Spencer:]

Well we have run numbers, but as far as trying to provide you some indication numbers probably would not be a good thing at this point in time.

[Andy Gupta:]

Understood. Okay, thank you.

[Operator:]

Next we’ll hear from Craig Shere with Tuohy Brothers.

[Craig Shere:]

Hi, and last two question ticking up on that, I think the industry competitor that was referred to was thing very high tax even on distributions from the retained LP units of at least one of their large MLPs, are you still in the position for the foreseeable future that almost all of the OKS LP distributions are tax differed for still some years to go?

[Derek Reiners:]

Yeah, Craig, there is still a fair amount of shield there. We’ve been pretty well 100% shielded for a number of years and given that large capital that you’ve us imply over the last several years, there is - that carries forward for a while. Of course in order to LP - the GP the IDRs are fully taxable the corporate rate but the LPs are do have that shield.

[Craig Shere:]

Right, now I understand that, but a lot of your peers they lot more than zero on their LP distributions.

[Derek Reiners:]

Sure.

[Craig Shere:]

And since this particular industry competitor was brought up, they also happen to make a $3 billion acquisition in the Bakken right in your territory perhaps a little more spread out then what you got in terms of those concentrated three core county areas and it’s also a little more focused on oil. So the fact is somebody is going to make an acquisition in this troubled market in your backyard kind of speak some value, but could you talk about your competitive strength and maybe the advantages of begin in gas processing and gathering in the Bakken versus primarily oil, if volumes were to fall off from even the current levels?

[Terry Spencer:]

Yeah, like from a natural gas perspective, we have a lot of backlog, okay and that’s one of the advantages - one of the things that provides us energy through this downturn or momentum if you will through this downturn. So you don’t have quite that same phenomenon with the oil, okay. This flaring backlog is inventory, it’s well connect inventory, now you got all this - in addition to that you got these uncompleted well. So it just gives us a lot of energy and momentum as we move into 2016. With our size, we’ve got tremendous scale and so we cover a light area and certainly there are others in the GNP business and you indicated one, there are others there, most of the asset footprints though have kind of their own core acres dedication that they are very focused on. And so we do have some overlap, but when you look at the dense part of each one of our systems, we kind of have our own areas so to speak our own backyards if you will. And we actually tend to collectively actually work together to take advantage of capacity on our gathering systems that might be available at certain times of the month where offload gas between companies to help reduce the players. Through - we’ve actually work together solving problem. So it’s really worked well, I don’t see the landscape changing significantly as a result of the acquisition that you indicated, so - and primarily because I think that we - with those assets we’ve had a pretty damp good relationship.

[Craig Shere:]

And last question, I am sorry taking so much time, but you had mentioned Terry the possibility which is I think the first in a while with the separation utility business of buying back shares at OKE and there is a lot of M&A and people talk about M&A in the market now and some deep pocketed people out there. If somebody came along offered immediate 20% bump in the value to OKE of current market, would you see as attractive, how do you view value for the company right now?

[Terry Spencer:]

I think if somebody came in and offered an attractive value, we certainly would have - the prudent think is to consider it, so certainly we have to open minded, okay. Our focus remains on organic growth in this company and the best way to create value is to continue to prudently and appropriately deploy this capital and earn as high return on invested capital as we possibly can and then structure the business and manage the business with reduced commodity price exposure and we’ll have. So those are the ways in which we really - those are things we can control and those are thing we’ve remained focused on. But I mean if somebody were to come in here and put an attractive number on the table, the prudent things we would have to - we have to look at it.

[Craig Shere:]

Great, thank you.

[Operator:]

And our final question today comes from Tim Schneider with Evercore ISI.

[Tim Schneider:]

Hi guys, just one quick follow-up. In terms of the margin guidance, the lower margin guidance, how of that is from volume declines versus, are you baking in any reduction in tariffs or any renegotiations with your E&P customers, are they pushing back in you guys a little bit?

[Terry Spencer:]

Well at a higher level of say this team is we are really not having any pushback, if anything we’re thinking about restructuring our contracts with certain of our customers, there are some customers who want to go more to fee based types of structures. And so yeah, we are having some discussions.

[Tim Schneider:]

Then lastly from me, did you guys take a look at Highland?

[Terry Spencer:]

I can’t really comment and we generally Tim, we don’t comment about our participation or non-participation in processes.

[Tim Schneider:]

Okay, got it, thank you.

[Operator:]

And there are no additional questions at this time, I’ll turn the conference back over to your speakers to any additional or closing remarks.

[T.D. Eureste:]

Thank you for joining us. Our quite period for the first quarter starts when we close our books in early April and extends to earnings released after market closes on May 5th followed by conference call on May 6th. We'll provide details in the conference call at a later date. Thank you for joining us.

[Operator:]

Ladies and gentlemen that does conclude our conference for today. We thank you for your participation.