歐尼克 (OKE) 2006 Q1 法說會逐字稿

Good day, Ladies and Gentlemen, and welcome to the ONEOK first quarter earnings call. At this time all participants are in a listen-only mode. Later there will be a question-and-answer session and instructions will follow at that time. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Mr. Dan Harison. Mr. Harison, you may begin your conference.

Thank you. Good morning and welcome everyone. As we begin this morning’s conference call I want to remind you that any statements that might include ONEOK’s or Northern Border Partners’ expectations or predictions should be considered forward-look statements, and as such, are covered by the Safe Harbor provision of the Securities Acts of 1933 and 1934. It’s important to note that actual results could differ materially from those projected in such forward-looking statements. For a discussion of the factors that could cause actual results to differ, please refer to the MB&A sections of ONEOK’s and Northern Border Partners’ filings with the SEC.

And now David Kyle, who serves as Chairman and CEO of ONEOK and Northern Border Partners, will moderate this morning’s conference call. David?

Thank you Dan. Good morning everyone and thanks for joining us to discuss our first-quarter results for both Northern Border Partners and ONEOK.

Because effective January 1st we were required to consolidate results for both, we believe it more efficient to combine the conference calls and I expect that will be our practice going forward. We have a lot of ground to cover so I will be brief in my opening remarks to leave enough time for your questions.

In short, ONEOK and Northern Border Partners each had very good quarters. ONEOK’s net income was up 20% in the quarter and the Natural Gas Liquids assets we acquired last year continues to perform as expected, benefiting our Natural Gas Liquids and Pipeline and Storage segment.

The Energy Services segment was up as a result of improved natural gas basis differentials and Storage margins while Gathering and Processing and Distribution segments were down slightly. Jim Kneale, John Gibson and Sam Combs will provide more detail on ONEOK’s results in just a few minutes.

Northern Border Partners’ net income was essentially unchanged from last year’s first quarter. However, the Gathering and Processing segment performed very well, offset by somewhat lower earnings in the Interstate Pipeline segment.

I’d like to turn the call over to Bill Cordes and Jerry Peters who will discuss Northern Border Partners’ results in more detail. Bill?

Thanks David. Good morning everybody. As you review the results for the first quarter for Northern Border Partners, just let me remind you that we are discussing only the old assets of Northern Border Partners, not the drop-down assets that came to us in April, nor have we reflected in that first quarter yet sale of the 20% of Northern Border Pipeline to TC Pipelines since none of those transactions closed until after the end of the quarter.

David kind of mentioned the highlights on the financial end for the first quarter, so I won’t go back through all those. Obviously, the details are in the press release. But I would like to draw your attention though to the growth projects that we mentioned in the press release, the first one being the Chicago [Three] project.

This is an expansion of our Northern Border Pipeline asset into Chicago, which has now gone into service at the end of April and appears to be pretty much on budget and the demand revenues from that project will begin to flow now and be in service of that new expansion.

Also, on [MGT], we did get a certificate on our Eastern extension project, so that’s going to allow us to go forward in terms of building that project. We probably will be delayed a couple of months on the projected in-service date, which was originally projected to be in November of 2006. The certificate was received several months later than we had originally planned, so that will probably delay the project by several months as well.

And then finally, in terms of the growth projects, we were able to acquire the other two-thirds of the Guardian Pipeline. That means we now own 100%. And the second part of that good news is that Guardian has already announced an expansion and extension project in the 200 to $240 million range to be in service in the latter part of 2008, so we will have 100% of that project as well.

Let me turn to Northern Border Pipeline for a moment. For the first quarter in our revenues we did see the impact of some shorter hauls of some discounting on multi-month deals that caused revenues to be about $3 million lower than in 2005. I would say despite this first quarter variance we are still thinking that 2006 total revenues will probably pretty much resemble what we saw in 2005.

The level and timing of discounting from time to time may be different from last year, but in total we’re looking -- we think we are looking at about the same number. I will remind you that there are a lot of variables that affect the basis, and therefore, the rates we’re able to charge on Northern Border Pipeline and so it’s pretty difficult to predict it yet this early in the year.

On Northern Borders rate case, we’ve reported on this in the past many times. The only really new news for this quarter is that on May 1st the increased rates that we requested of about $24 million annually at 7.8%, those new rates go into effect May 1st, subject to refund.

For our financial reporting we will basically reserve all of that increase since it’s still subject to refund until the outcome of the case is known and that may be some time yet. We’re in the process of going down the parallel tracks of settlement and hearing at the moment and I don’t really have anything to report there. I will emphasize for you again that we really cannot predict the outcome of the proceeding yet or the final timing of the resolution of the proceeding at this point.

Going on to the Williston Basin, we do continue to see excellent results from the Williston Basin, both from a price perspective and maybe more importantly from a volume perspective, and volumes in the Williston Basin increased about 7% during the most recent quarter due to work that we’ve been doing over the past year in expanding the [inaudible] and Grasslands systems.

Also, other good news in the Rocky Mountain area. Our joint ventures in the Powder River Basin performed stronger in the first quarter of 2006 compared to 2005, and that’s basically due to further development of the Big George coals, which are centrally located in the Basin and feeds into those joint venture pipelines that we own.

To give you an idea of that, our joint venture earnings from those partnerships doubled on a quarter-over-quarter basis, increasing to $4 million for the quarter.

With that I’ll turn it over to Jerry Peters for some financial highlights.

Thank you and good morning everyone. I’m sure you’re all aware we recently declared a 10% increase in our quarterly distribution. We declared $0.88 per common unit for the first quarter of 2006, which is an indicated annual rate of $3.52.

We were happy to be able to deliver this distribution increase as a reflection of our confidence in the assets that we have acquired from ONEOK and the potential those transactions will give us for internally generated growth. The Partnership Policy Committee also announced that it’s targeting an indicative annual distribution rate of $3.72 to $3.80 per unit by yearend.

Turning to the first-quarter results, net income for the first quarter was flat at $34.7 million, or $0.67 per unit, compared to $34.7 million, or $0.69 per unit a year ago. I might mention the difference in the per-unit figures result from the increase in income allocated to the General Partners as a result of the increase in the Partnership’s quarterly distribution.

We had several items that I wanted to highlight for the quarter.

First, on the Interstate Pipeline segment, operating income for the segment was $55.3 million in the first quarter, which was down just slightly from 2005. Essentially the impact of lower revenue on Northern Border Pipeline, the $3 million that Bill mentioned, was fully offset by increased revenue on the western of about $2.1 million and lower operating expenses of about $700,000, primarily at Viking Gas Transmission.

In the Gathering and Processing segment, operating income, including equity earnings from non-consolidated investments, increased $5.8 million over the first quarter of 2005. Operating margins in the Williston Basin account for most of this increase, up about $5.3 million over the prior year.

With the suspension of our coal [flurry] operations at the end of 2005, we no longer report that business as a separate segment. However, all told, Black Mesa’s operating income was down just about $1 million compared with the first quarter of 2005.

The last item I wanted to mention concerning the Partnership results is a non-recurring expense that was recorded in the first quarter. $4 million of due diligence, legal and other costs related to the transactions with ONEOK and TC Pipelines were expensed in the quarter.

Finally, you’ll note the Partnership reiterated its previous 2006 guidance. Net income is expected to be 426 million to $446 million, including a gain of approximately $108 million from the sale of 20% of Northern Border Pipeline. On a per-unit basis, including the gain, that is 4.43 to $4.69 for our guidance range.

David, that concludes my remarks.

Thank you Jerry and Bill. Now, I’ll ask Jim Kneale to provide you with a summary of ONEOK’s quarterly financial performance. Jim?

Thank you David, and good morning. As David mentioned, we had a strong first quarter. Our net income increased 20% over last year to $130 million, and earnings per share were $1.17 compared with $0.97 a year ago.

As David also mentioned, beginning January 1st, we were required to consolidate Northern Border Partners in our financial statement. The consolidation is not retroactive, so 2005 amounts will not be restated. The consolidation does not change our net income, earnings per share, or shareholders’ equity, but does impact line items on our income statement and balance sheet, which will now also reflect Northern Border activities.

An example of that is operating income, which increased in the first quarter to $312 million from $186 million last year, or an increase of $126 million. About half of that increase was due to the stronger performance of the ONEOK assets and the other half was the consolidation of the Northern Border operating results.

On February 16th of this year we settled our equity units that we had issued in 2003 by issuing 19.5 million shares of ONEOK common stock and receiving $402 million in cash. This is the first time we have had a simple capital structure since 1997 when we acquired the Kansas Distribution properties, which will make calculation of our earnings per share fairly straightforward.

Our cash flow remains strong too. Cash flow from operations, before changes in working capital, exceeded capital expenditures, dividends and partnership distributions to minority holders by $138 million for the quarter.

We’ve gotten our balance sheet back in shape following the acquisition of the Coke asset in July a year ago. At March 31st, on a standalone basis, ONEOK’s long-term debt was 46% of capitalization. As of today, subsequent to the transaction with Northern Border and TransCanada, ONEOK has no short-term debt and $810 million of cash invested at a rate of 5.6%.

David, that concludes my remarks.

Thanks, Jim. Let me ask John Gibson to provide additional detail on the segments that he was responsible for in the quarter. John?

Thanks David and good morning everyone. The big news for us today is the announcement that we’ve entered into an agreement with a subsidiary of Williams to form a joint venture called Overland Pass Pipeline Company, which will build a 750-mile NGL pipeline from the Rocky Mountain region to Conway, Kansas, one of the major NGL hubs.

In addition to the Williams’ production dedicated to the new pipeline, we will aggressively be pursuing additional NGL supplies from other producers in the region. This is not only an opportunity to expand our presence into the high-growth NGL production area of the Rockies, but also is an opportunity to provide these producers with complimentary services on our existing natural gas liquids assets.

The new pipeline will be designed to initially transport up to 110,000 barrels per day and will be expandable to 150,000 barrels per day with a cost of an estimated $450 million and should be in service in early 2008. The project will benefit both our Natural Gas Liquids and Pipeline and Storage segments.

We provided in the press release today an estimate of operating income for the project. I would caution you to avoid locking in on that number because as we progress with the procurement, the construction and commercial negotiations, that number has the potential to move. The estimated figure relative to the capital expenditure illustrates that this internally generated grassroots project will generate EBITDA earnings as a multiple of capital at a lower rate than we’ve seen through acquisitions.

In our Pipelines and Storage segment, for the first quarter of 2006 operating income exceeded expectations, due primarily to higher throughput experienced on our natural gas pipelines, primarily from increased demand from the electric power generation market.

We also benefited somewhat from increased Storage revenues as a result of new and renegotiated natural gas storage agreements.

In our Natural Gas Liquids segment, operating income increased primarily due to the addition of the Coke assets. While our optimization and [inaudible] activities were better than expected, our base transportation and fractionation business was slightly lower, due mainly to the impact of ethane rejection experienced from time to time during January and February. However, the Natural Gas Liquids segment ended the quarter above our expectations at $17.2 million of operating income.

We continue to have success connecting new NGL supplies to our system. Currently, our mid-continent Gathering and Fractionation throughput is 220,000 barrels per day, well above plan, due to the addition of several new plants to our system and increased NGL production from existing plants.

Negotiations with several plant operators have resulted in long-term commitments, which, when connected to our system, may result in Mid-continent Gathering and Fractionation throughput in excess of 240,000 barrels per day during the first quarter of 2007.

Also as mentioned in the press release, we will be expanding both our Fractionation and Distribution pipelines in anticipation of the Rocky barrels.

Now, shifting to the Gathering and Processing segment, we had another solid quarter. Higher prices for natural gas, condensate, and natural gas liquids worked favorably to increase gross margins on our percent of proceeds or POP contracts as we continue to experience very favorable processing spreads on our ‘keep-whole’ contracts.

The first quarter was our first without the Texas assets, which were sold in the fourth quarter of last year. Even absent these assets, our operating income was down only 1.5%, due mainly to the previously mentioned favorable pricing and spreads.

We remain diligent in our efforts to upgrade our contract portfolio, which currently is 61% fee, 24% POP, and 15% keep-whole. The increase in the fee percentage is attributable to the conversion of one large contract from POP to fee for a term covering the remainder of 2006.

The Energy Services segment got off to an excellent start for the year. The higher-than-anticipated results for the first quarter are primarily attributable to higher transportation margins and increased demand fees from our peaking contracts.

Our transportation margins improved due to wider basis differentials between the Mid-continent and Gulf Coast regions, which we captured through either physical transactions or financial hedges. Demand fees received from peaking contracts with customers increased primarily due to higher commodity prices, which allows us to then sell these premium services at higher values.

Margins from our Storage contracts were flat when compared to the first quarter last year, even though we withdrew less gas due to warmer-than-normal temperatures experienced in January and February. Of the 86 bcf of Storage we have in the contract, we finished the Storage season at quarter’s end with 42.3 bcf of gas in the ground at a weighted average cost of around $7.80 per mmbtu.

Recently we announced that we were selected by subsidiaries of First Energy Corporation to manage their natural gas requirements for three of their gas-fired generation plants for the next three years. We will also be their agent under their existing Transportation and Natural Gas Storage Capacity contracts, which not only allows us to optimize those contracts when not using them to supply their plants, but also allows us to expand our footprint into the upper Midwest and Ohio Valley regions.

We thank you for your continued interest in ONEOK. And David, that concludes my remarks.

Thanks John. Now I’ll ask Sam Combs to review the performance for the Distribution segment. Sam?

Thank you David. The Distribution segment’s first quarter was marked by historically warmer weather that negatively affected both consumption and margins as compared with the first quarter of 2005. Historical degree date information as provided by the National Weather Service revealed that weather was 21, 26 and 27% warmer than normal in our Kansas, Oklahoma, and Texas service areas, respectively. The degree date variances indicate our service areas were among the warmest in the nation relative to the historical data.

Weather-affected volumes were off by some 7% as compared with the first quarter last year. Comparatively, operating income was down by a lesser amount, or 5%. While the reduced volumes created pressure on net margin, the effect on operating income was moderated by weather protection mechanisms, new rates in Oklahoma, cost controls, and better performance on bad debt.

In Oklahoma, the new rates that were implemented during the third quarter of 2005 increased net margins by some $14.9 million for the first quarter, but were offset by the combined impact of some $12.2 million in expiring riders and warmer-than-normal weather. Weather protection mechanisms and the new rate structure both had a positive impact on operating income.

The new front-loaded rate structure is designed to recover a larger percentage of our fixed costs through the demand charge and reduce volume metric sensitivity, thus providing more consistent earnings and cash flow. It also features a new two-tier rate plan that offers greater customer choice.

In Kansas, we were encouraged by the recent legislative approval of a new capital recovery mechanism named “The Gas Safety and Reliability Surcharge”. This important rate legislation creates a mechanism that will support investment and focus improvement in safety-related rate base by accelerating capital recovery on those investments.

The Distribution segment’s overall bad debt performance was buoyed by a significant reduction in bad debt expense in our Kansas division. This is noteworthy because Kansas is our coldest region with the most restrictive service setoff rules and was responsible for 53% of the segment’s total bad debt expense during the first quarter of 2005. We attribute this reduction to improvements in credit and collection procedures and a new approved rate mechanism that allows recovery of a fuel-related portion of bad debt through our monthly fuel rider.

Additionally, preparations continue for a general rate case we plan to file in Kansas following the expiration of a moratorium on May 15th. The rates moratorium was a provision that accompanied the Black Box settlement of the last rate case in 2003. We expect this case to be focused primarily on recovery of expenses.

In the absence of a settlement, the Kansas proceeding is a 240-day process, meaning new rates would, at the earliest, be implemented during the first quarter of 2007. Therefore, we have not factored any additional margin into our guidance for 2006.

In Texas where we have [home-ruled] rate making, we are pleased with the recent approval to implement new rates in our South Jefferson County and North Texas jurisdiction. The settlement of these proceedings, which were filed in November of 2005, will increase annual revenues by some $2.5 million, respectively.

Other highlights of the settlement include approval for increased monthly demand charges, weather normalization, GRIP capital recovery mechanisms, and recovery of the fuel-related portion of bad debts. Please note we have already projected their collective impact and factored it into the segment’s guidance for this year.

Looking forward, we have a general rate case pending approval in our Rio Grand Valley jurisdiction for approximately $3.4 million. We are also preparing for a GRIP filing in El Paso and six annual cost-of-service proceedings in various communities.

Finally, this rate activity is indicative of our commitment to a strategy of improving returns by being more current on filings. Our challenge is to deliver customer and shareholder value through a continued focus on our fully-integrated productivity and growth strategies, which include -- 1) well-timed and more synchronized rate case proceedings; 2) growth through investments and rate-based customer accounts and pipeline throughput; 3) offering unique customer choice and other complimentary programs; and, 4) cost controls from Best Practices in structure, process improvements, and by leveraging technology.

David, that concludes my remarks.

Thanks Sam. Before we open the lines up for your questions I’d like to talk a bit about Northern Border Partners and its growth prospects.

As I have said previously, we believe the Partnership has excellent growth prospects both from internally generated opportunities and through acquisitions. With the completion of the transactions last month we clearly believe our interests are aligned.

Within the last few days we’ve made several exciting announcements that have already been mentioned during the call. In my view, these provide solid evidence of our commitment to growth for both the Partnership and for ONEOK, as well as a sharp focus on delivering sustainable earnings over the long term.

We are very excited about our future and we expect that you are also.

So with that we’ll conclude the presentation portion and open this call up for your questions.

[OPERATOR INSTRUCTIONS]

Mike Heim with AG Edwards.

John, you mentioned something about don’t get too caught up in the operating income number. I don’t see anything about that in the press release. Can you tell me what number you’re referring to with the Williams joint venture pipeline?

Sure, Mike. I think it’s on page two. I’m going from memory, but we just gave a total annual operating income projection of $63 million with annual depreciation costs of $20.

Okay. Alright.

And Mike, I should -- Mike, let me clarify. Jim just pointed something out to me. That was in a separate release that was issued this morning, which announced the joint venture with Williams. It was not in the earnings release.

Okay. Now, I guess I’ve got the Williams release and it’s not in there, so --

Second question, going to the First Energy arrangement, can you -- I’m just looking for a little bit more color on that, trying to get a handle on whether that’s -- how consistent your receipts from that will be. Is a portion -- how the pricing works. Is a portion of this in annual basis? You talked about the assets being able to use some of those a little better. Just a little bit more color on that.

Sure. The first thing to capture here is that it’s a natural extension of what Energy Services has done with the existing assets, particularly here in Oklahoma and Texas and Kansas as it serves its utility customers. So, it’s managing the transportation contracts, the Storage contracts. In exchange for that, a fee plus the potential to share in some of the upsides that may come from that optimization of those contracts.

Do you see that the direction -- you’ve kind of been moving in this direction with the Marketing and Trading. Do you see more of these types of arrangements?

Yes. As we continue to focus more on customers, and in particular utility customers where we feel like we had a sense for what value we can add to utility customers.

And maybe one quick question for Sam. Looking at the Transportation margin versus the Residential/Commercial margin, the Residential/Commercial held up fine reflecting against the weather adjustment mechanisms. So why is the Transportation down? Does that not get the benefit from weather riders?

No, it doesn’t.

Okay that explains it.

Yves Siegel with Wachovia.

Just several questions. 1) John, can you talk about the -- in terms of the Overland project, what’s the thinking with Williams being able to come in later rather than at the start? 2) As you think about that pipeline, can you say how much of the volume or the capacity initially of the 110 will be Williams production?

And then, also, if you could talk about the timing on the $160 million worth of additional expansion opportunities and what do you think the timing of the expenditures would be on those projects?

Yves, I wrote as fast as I could, writing these questions down. So those that I don’t capture or don’t answer, just repeat them. It’s not the first time you’ve had to do that with me.

On Overland Pass pipeline, it is part of the Commercial negotiation. Obviously, to us it is important to get what we consider to be one of the key producers in the Rockies tied to our project. And so, also being a Tulsa company across the street we’ve had a lot of discussions on this project and so why that option? It’s primarily for Commercial reasons, in order to get the dedication of those barrels long term to that pipeline.

As far as the 110,000 barrels, initially, or I should say right now, those plants that Williams -- those plants currently produce 75,000 barrels a day and some of those are Williams’ barrels and some of them third-party barrels. And it’s anticipated by the time that this plant -- excuse me -- this pipeline starts up that the Williams’ plants will be producing around 114 or 115,000 barrels a day.

Obviously, the major producer is Williams and I’d say an order or magnitude, probably at this point in time represents about 50% of the anticipated throughput.

As I mentioned in the remarks, we’re aggressively pursuing third-party barrels from the other key producers in the Rockies.

As far as the timing on the $160 million, it’s going to be consistent or in parallel with the spending of the -- on the Overland Pass pipeline. They will be dollars spent to expand our fractionators in order to accommodate the new incremental barrels as well as adding horsepower in some line looping on our Sterling pipeline, which connects Conway to Mount Bellevue.

Did I answer your questions?

You did, John, and so I’m going to push it, just a quick follow-up. In terms of the preliminary operating income that you provided in the press release, what does that assume as it relates to the volumes going through the pipeline to get to that $63 million number? And then, and the second follow-up is, based on those numbers that you provided, the return is really terrific. Would you expect a similar return on the $160 million investment?

I’ll answer the second first, and the answer is ‘yes’. The split for just, again talking purposes at this point in time, I’d say you’re looking at two-thirds across Overland Pass and one-third across our existing infrastructure, just as a ballpark.

Gabe Noreen with Merrill Lynch.

Quick response for -- got one for John again and for all of you. But one is that converting one of those contracts from POP to fee-based I would assume that given the great environment for POP contracts today, I was wondering why that occurred. And then, is that something that you’re looking to do more of? I’d assume the margin on that POP contract was higher than the fee-based one?

Gabe, this is John. The conversion again is a Commercial issue whereby this large producer we wanted to keep them in the plant as opposed to letting them exercise an option to go someplace else. So, we maintained margin. We did give away, you could argue, some of the upside over the balance of the year through the POP, but we were able to keep the producer in a plant at an attractive fee. You could argue we gave up a little bit of upside, but we also kept the producer in the plant.

Fair enough.

Some of the loaf is better than no loaf.

True. Just in general, I noticed you didn’t layer on any additional hedges at the Gathering and Processing side since you last provided us an update. I just wondered if you’ve had any -- providing additional thoughts in terms of what your hedging policy is going forward as [inaudible] at Northern Border?

Well, let me answer your question as it relates to the assets that formerly were owned by ONEOK. We are in the process of hedging up to 50% of our keep-whole spread exposure currently. That obviously wasn’t included in the quarter because it occurred after the completion of the quarter.

Kathleen [Vigitich] with WH Reed.

First of all, for Jim, I wondered if you could -- and congratulations on having a straight-backed cap structure, Jim. It’s just wonderful. Can you talk about the cash flow a little bit? How much of that is getting gas out of storage that will be reversed in later months and how much is more like a continuing cash flow of the $138?

Kathleen, first, I don’t think there is probably anybody more happy about that cap structure than me, so it’s been a pain the last five years. But in trying to answer your question and to give you a perspective, I mentioned that we had $810 million of cash on the balance sheet. At the same time as of today we have probably $450 million of gas in storage already, so we’ve already been injecting a lot of gas. So, I would anticipate going forward we have about 56 bcf in the ground with maybe 30 more to go, so we’ll continue to see strong cash flow.

And the way we’re calculating this, it’s cash flow before changes in working capital, so our guidance for the year is to have a surplus of about $192 million. The first quarter was a little stronger than we anticipated.

Right. Are you going to take that number up then for the annual number?

I’m not yet because I’m waiting to see -- with moving all these assets around it’s just -- I feel real good about the $192 and until we get all these assets straightened out and where they’re going I’m reluctant to increase that number at the moment.

Sure, that’s fair. Could I ask a couple more quick questions?

Sure.

First of all, you mentioned that you had signed some new Storage agreements. Can you give me an idea how many years Storage agreements tend to last? Are they multi-year or single-year agreements?

The Storage agreements that we enter into in our Pipelines and Storage segment tend to be in terms of one to five years. One, three and five seem to be fairly popular of terms right now.

Talk about Energy Services also.

In Energy Services, who will be on the other side of that transaction, those deals that they enter into are likewise one, three and five-year terms.

And could you also tell me if your Storage expectations for the remainder of ’06 are comparable to what you saw in the ’05 winter, the recent winter?

I’m not sure I understand your question, Kathleen.

Okay. You guys did wonderfully this year with Storage in the last six months. I mean, you did extraordinarily well -- I don’t want to say extraordinarily well -- you did very well. And I was just wondering, as you’re contracting going forward whether or not your expectations for Storage margins are at the same level you just enjoyed, or whether you think they’re going to be higher or lower.

I think generally the year is setting up pretty comparable to the way the year set up last year. Obviously a big variable in that is what we’re going to see in terms of winter pricing, but if you just look at the forward strip it’s setting up very nicely with very wide margins to the back.

Final question, do you guys have any changes with all the projects, this is just wonderful stuff? What are you looking at for CapEx this year and next?

Kathleen, this is Jim. We really haven’t -- I think our guidance of capital spending that we put out a couple of weeks -- several weeks ago -- I don’t remember the number, it was a little over $300 million. I think if you look at some of the projects we’re talking about, I know -- Jerry’s here -- the Guardian project was about $77 million of capital.

The Overland Pass, if you look at that I think it’s anticipated that about $100 million of that would be spent this year. I’m looking at John for -- and the remainder in ’07, but I think the normal capital spending will be fairly consistent and then you just would have to factor on these big projects. Just because we’ve done just in the last couple of days I haven’t got all that put together yet.

If I might, let me make sure that we’re on the same page. The Overland Pass project is a Partnership project and a lot of the capital that we have -- when we put our guidance for the year a lot of that capital was capital for segments that now will be partnership segments. And so, we’re going through the process of separating, if you will, our capital requirements from the ONEOK perspective versus the capital requirements for the Partnership.

Most of the capital requirements we’ve talked about in terms of these projects are Partnership capital projects, not ONEOK capital requirements.

Will you be reporting a corporate CapEx number and then a separate Northern Border CapEx? Or, will you combine them? I’m just trying to understand how to look at it going forward.

I suspect we will do all of that. We will have a, obviously, a combined number, but then we’ll have numbers for the Partnership, which will be part of the overall CapEx.

Tom [Lynn] with [Inaudible].

I was wondering if Bill Cordes could remind us about the reasons for the discounted Transportation on the shorter hauls that took place.

Sure. The discounted Transportation that we really didn’t see last winter is mainly due to multi-month deals that we did that allowed us to take some of the leverage we get from people wanting winter capacity and turn that into margins throughout this coming summer. So, I think that overall we’ll see some of that coming back to us as we go through the summer months as we did those multi-month deals that you can trim the winter a little bit, but should beef up the rest of the year.

The shorter hauls are kind of a [perk] phenomenon that requires us to accept Transportation deals at points that a short-haul system is [inaudible] capacity. That should be remedied this -- starting May 1st here with the new rates because part of the rate case proposals that we did was to do kind of a postage stamp rate for those folks that were kind of in the way of short hauls, and that should allow us to not suffer from that phenomenon in the future, although we still need to make sure that gets all the way to the rate case and gets approved in the end. But it’s subject to refund right now, so that should mitigate that problem.

What is the outlook for the winter months for you given some of the comments regarding the forward strip that were made on the call just now in terms of Storage capacity, in terms of Storage being used and how that might relate to Transportation rates later this year?

On Northern Border pipeline, now specifically, not the rest of ONEOK Storage, but [inaudible] pipeline we are -- the Storage number that we watch most closely is Western Canadian Storage fields and they are ahead of schedule in terms -- ahead of last year, let me put it that way -- in terms of filling up this year.

So again, we think we will see, starting a bit later here in the summer that those fields will be filling up. The producers in western Canada will be required -- the only alternative will be to ship it on pipelines, which Northern Border Pipeline should benefit from. So, that should be similar to what we saw last year.

Kevin Gallagher with RBC Capital Markets.

Looking at the Northern Border assets, what’s your outlook for the Williston Basin lines and Powder River volumes? It looks like you had some slight declines versus the fourth quarter. And then, I guess, second, since we are in the [inaudible] environment, have you revised your ’06 outlook for the Gathering and Processing assets you bought from ONEOK? And how should we think about the long-term growth profile? Is that a flattish growth?

This is Bill. On the Williston Basin assets, I’ll address that one specifically. We had some growth projects, capital projects, that went into effect last year that are now -- we’re seeing the benefit of this year, so we’ll continue to see those.

In terms of additional growth in the Williston, we’ll probably need to see some either additional capital opportunities coming along. There will be some growth, but you won’t see it being quite as dramatic as you’re looking at from the 2005 first quarter to 2006. Maybe get back down to more than 1 or 2% would be more likely as we work through the year.

As far as the other -- yes, the [inaudible] assets on G&P, John, maybe [inaudible].

Thanks, Bill. It’s a bit early in the year to look at guidance. I mean it was a good first quarter. We see continued strong pricing, but as we have all experienced, it’s a little too early in the year to be thinking about revising our guidance.

In terms of volume, how should we think about the long-term growth profile?

As it relates to the total G&P, we look for volume to remain flat to slightly increasing, primarily due to the increased drilling activity that we’re experiencing in the Mid-continent regions where -- as well as in the Rockies where we’ve also discussed. You connect that new supply to your plants -- behind your plants into your Gathering systems and then partially that offsets some of the natural decline that exists on your system. Net net we are successful to hold flat with slightly increasing.

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Faisel Kahn with Citigroup.

I wonder -- I think I missed this -- but can you walk me through your cash balance again post the transaction and where you see it going towards the end of the year?

Yes, Faisel, this is Jim. Today in trying to separate out ONEOK on a standalone basis we have $810 million of cash invested today and no short-term debt, with between 400 and $450 million of natural gas in the ground, so that equates to about 56 bcf, so another, say, 30 to inject.

Then the rest of the -- the point I was trying to make -- for the first quarter of what I call our three cash flow, that’s cash flow from operations, and after dividends, minority distributions and CapEx, it was $138 million.

Our guidance for the year is around $192 million. The first quarter was stronger than I had anticipated, but because of all these reasons we’re talking about I’m comfortable that we’ll make that $192 million surplus cash and it could be more. I just -- as the year develops we’ll update that.

The $192 is what you would expect to be the surplus cash at the end of the year, is that right?

Yes, for the fiscal year.

Okay. And then, how did you get from the $810 to the $192? What’s going to go on from now until then to reduce that cash amount?

They’re different. $810 million is cash I have sitting on the balance sheet that when we closed the transaction we paid off short-term debt and I have cash. So, I’m just saying that by the end of the year, if I hit my $192 I expect to have the difference between $192 and $138 more cash on hand than I have now.

Okay, I’ve got you, I’ve got you.

Less what I’m going to use to fill up Storage.

Right. I understand now. Fair enough. In terms of -- I think I understand what’s going on in the Distribution side with the implementation of your two-tier plant in Oklahoma and also with your -- what you’ve gotten in Texas also, but what about Kansas? What are the opportunities there? Is there a rate moratorium that ends this month, I think?

It ends in -- yes, in the month of May, or on the 15th of May actually. And we have plans to file the rate cash closely behind that rate moratorium ending. The opportunities are, as I mentioned, that this case will be primarily about expenses. As you know, employment [inaudible] expenses have gone up around the industry.

The other noteworthy occurrence in Kansas is that performance on related to bad debt which says that recovery mechanism is working as it should.

And then, thirdly, the mentioning of this new Gas Safety and Reliability surcharge, which is going to give us accelerated recovery on non-revenue producing capital investments. So, I believe that there are some opportunities there in Kansas.

And have you -- what is the status of your relationship with the Kansas [inaudible] Commission? Have you guys been working on that over the last two years? I remember there was something two years ago that was a bit -- a little bit contentious before.

We work very diligently on our relationships with all of our regulatory bodies. At this point we have very good relationships with all of them. We don’t have any problems that I would note.

[Lawrence Brook] with Neuberger Burman.

No response.

Yves Siegel with Wachovia.

I got a little confused as it relates to the expansion project. Jim, I think you said that you thought you had spent $100 million on the Overland project this year and in the press release it said construction begins in the summer of 2007.

John?

These will start once we sign our contract with our contractor to build the pipeline. We’ll start spending money to reserve mill space to roll the pipe so there will be some dollars spent there. There will be some dollars spent as we start the internal modifications. The $100 million might be aggressive for this year, but nonetheless we will be spending some money this year on the pipeline and primarily to the contractor.

And then, lastly, can you speak of just sort of the competitive nature in terms of trying to attract third-party volumes? How does that work? Do these guys want to have the option to be able to go on your pipe, or on the Mid-America and get to Mount Bellevue? Can you just discuss how you think about that?

Well first, it’s very competitive. Producers want optionality. It’s very similar to our pipeline -- excuse me -- our Gathering Processing assets. We as Processing plant owners want to have optionality on takeaway for [inaudible] for natural gas.

One of the things we do bring to the marketplace is an alternative and some of those producers want the optionality of delivering their barrels or having their barrels in Conway. Some want to have them in Bellevue and so, we stand ready to engage the marketplace to understand the needs of those particular producers and try to meet those needs through this new pipeline as well as our existing infrastructure.

Let me supplement that a little bit, Yves. Clearly, it’s a value proposition for the plant owners and the producers that want to get their barrels to market. So, as we looked at this project, part of the due diligence, if you will, and the decision process is how competitive can we be vis-à-vis the other alternatives? And candidly, the other alternatives focus primarily on mobility.

So, we believe that the project, with the enhancements to our own systems, make us very competitive against the alternatives. That having been said, we also believe that having the additional functionality or optionality to be able to move barrels into Conway or move them into Mount Bellevue just add additional value for those producers.

So, we think this is a very attractive alternative for producers for barrels coming out of the Rockies.

There are no further questions.

Okay. Well, thank you. This concludes the ONEOK and Northern Border Partners conference call. As a reminder, our quiet period for the second quarter will start when we close our books in early July 2006, and will extend until our earnings are released. We’ll provide a reporting date and conference call information for the second quarter at a later date. A reminder that Ellen Konsdorf from Northern Border Partners and I will be available throughout the day for follow-up questions.

Thank you for joining us and have a good day.

Ladies and Gentlemen, thank you for participating in today’s conference. This concludes the conference. You may now disconnect.