歐尼克 (OKE) 2006 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the ONEOK Second Quarter 2006 Earnings Call. [OPERATOR INSTRUCTIONS] As a reminder ladies and gentlemen, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Dan Harrison.

Thank you and 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 or ONEOK Partners expectations or predications should be considered forward-looking statements and as such are covered by the Safe Harbor Provisions Securities Acts of 1933 and 1934. It is important to note that actual results could differ materially from those projected in such forward-looking statements for discussions of the factors that could cause actual results to differ, please refer to the MD&A sections of ONEOK and ONEOK Partners filings with the Securities and Exchange Commission. And now David Kyle who serves as both Chairman and CEO of both ONEOK and ONEOK Partners will moderate this morning's conference call.

Thanks Dan and good morning everyone. Today's call is a combined call for both ONEOK and ONEOK Partners LP. This morning we'll discuss the second quarter results for both and I'll start with a quick review of the highlights for each. Jim Kneale will follow with the discussion of financial highlights and the updated guidance were providing for both entities. Sam Combs will review ONEOK's Distribution segment.

Joining us for the first time, will be Billy Maxwell, who was President and now serves as -- or now has responsibility to lead the Energy Services segment. John Gibson will be reviewing the operating performance for ONEOK Partners. And we really can't begin a discussion of the quarterly results without acknowledging that for ONEOK and ONEOK Partners the completion of the transaction in April of this year was not only I believe the largest drop-down in terms of value, but truly, a transforming event for both entities that I believe is just beginning to demonstrate the benefit.

ONEOK's second quarter was highlighted by a continued strong performance in energy services, which had higher marketing margins primarily due to optimization activities and increased transportation basis spreads. While slightly positive, ONEOK's distribution business had higher operating income primarily because of the new rates in Oklahoma, partially offset by warmer than average weather during the quarter.

The purchase of assets from ONEOK drove ONEOK Partners increased second quarter performance, resulting in $96 million and pre-tax income for ONEOK. Along with higher gross-processing spreads in the Partnership scattering processing segment and inclusion of the natural gas liquid assets that were acquired in July of last year.

ONEOK Partners also increased its distribution to unit holders for the second time since ONEOK became general partner, a 19% increase reflecting our confidence in the performance of these assets and their growth prospects and allowing us to reach the high-end of the indicated target range and above the high split threshold of $3.74. ONEOK Partners also announced more than $1 billion in internally generated gross projects over the next few years.

Now let me turn to our CFO, Jim Kneale, who will review the financial performance and guidance for ONEOK and ONEOK Partners.

Thank you David and good morning everybody. As David mentioned, both ONEOK Partners and ONEOK had strong quarters, but both were affected by transactions that had impact on reporting especially as we look at last quarter and last year. As most of you know, ONEOK began consolidating ONEOK Partners on January 1st. The sale or drop-down of the three segments to the Partnership in April, had some impact on the ONEOK consolidated financial statements, but the impact of the drop-down and other transactions on the Partnership was much more dramatic.

The press releases and the 10Q's for ONEOK and ONEOK Partners, which will be filed tomorrow, contain a lot of additional data and explanations, which we hope, will help you understand all of these changes. That said there's a few things I want to cover this morning, maybe to add some clarity.

Looking at the quarter, ONEOK Partners had an excellent one. Excluding the $114 million gain on the sale of the 20% of Northern Border Pipeline, net income increased $54 million over last year to $82 million. And net income per unit was $0.87 versus $0.55. ONEOK Partners cash flow was very strong with distributable cash flow of $1.32 per unit as compared with the recent increase in the distribution to $0.95 per unit and last year's distributable cash flow of $0.66.

The results generated by the asset drop-down account for most of the Partnerships increase performance. However, the results also include the consolidation of Guardian Pipeline as a result of the Partnerships purchase of the remaining 66 and 2/3% interest in the pipeline and the deconsolidation of Northern Border Pipeline due to the sale of a 20% interest in the pipeline to an affiliate TransCanada resulting in the Partnership now owning 50% of the pipeline. Earnings from Northern Boarder Pipeline are now reported as equity earnings.

All three of these transactions, the asset drop-down, the consolidation of Guardian, and the deconsolidation of Northern Boarder Pipeline are accounted for at the Partnership, as if they occurred on January 1, 2006. Financial statements for 2005 have not been re-stated to reflect these transactions. However, we provided prior year narrative information on the drop-down assets in the Partnership earnings release and the 10Q that will give you a good indication on how these assets performed.

The Partnership second quarter also included an after-tax non-cash impairment of $10.5 million related to our Black Mesa Pipeline and higher interest expenses primarily related to the bridge loan that was used to financed the cash portion of the asset drop-down.

We also confirmed the Partnerships' 2006 net income guidance of $4.43 to $4.69 per unit and updated expected segment results and capital expenditures. Estimated maintenance capital expenditures were increased from $52 million to $61 million and growth capital expenditures, which John Gibson will discuss later, are estimated at $232 million.

Turning to ONEOK. ONEOK also had a great quarter reporting increased income of $78 million compared with $25 million last year. Earnings per share increased to $0.65 from $0.23. Outstanding shares for the second quarter were 10 million shares higher than last year as a result of the conversion of the equity units to common stock earlier this year.

ONEOK's results include and increase in energy services operating income to $54 million from $3 million last year due to improved marketing margins and transportation basis spreads. An increase in the pretax income contribution from ONEOK Partners to $96 million from $2.5 million last year reflecting the impact of the drop down assets and ONEOK now owning 100% of the general partner interest and 43.7% of the Limited Partner interest.

Included in the $96 million contribution from the Partnership is $52 million or about $0.27 per share which is ONEOK's share of the Partnership's gain on the sale of the 20% of Northern Border Pipeline. At the end of the quarter on a stand alone basis, ONEOK had no short term borrowing, cash invested of $620 million and $670 million of natural gas and storage.

The last item I want to mention is that ONEOK raised its consolidated 2006 earning guidance to a range of $2.36 to $2.44 per share. The increase in guidance is primarily related to higher expected earnings from our energy services business and ONEOK Partners. Looking at the guidance, I would caution you about the third quarter. Last year, energy services had operating income of $55 million in the third quarter and $3 million in the second quarter. This year, the second quarter was $54 million and we do not expect the third quarter to repeat last year's levels. We also lowered ONEOK's consolidated cash flow estimates to reflect a number of factors including; higher capital spending related to growth capped with the Partnership and higher expected current income taxes on the Partnership distributions received by ONEOK. As a result on a consolidated basis, we expect expenditures, dividends, and distributions to minority interests to exceed cash flow from operations by about $73 million. Excluding the Partnership growth capital, the consolidated cash would actually be a surplus of about $159 million. On a ONEOK stand alone basis, we expect cash flow from operations before changes in working capital to exceed dividends and capital expenditures by $108 million reflecting the higher income taxes and the timing of the fourth quarter cash distribution from the Partnership which will not be received until early 2007. David, that's all I have to say.

Thanks, Jim. Now I will ask Sam Combs President of ONEOK's Distribution Companies to review their quarterly performance. Sam.

Thank you, David. The distribution segment recorded higher operating income and net margins for the second quarter of 2006 as compared with 2005. The segment also achieved better results for the six month period of 2006 versus the same period in 2005. Our stronger performance was due primarily through the implementation of new rates in Oklahoma partially offset by the effect of warmer-than-normal weather. We also benefited from cost controls, improved bad debt performance in our Kansas division that is a direct result of approval we received last year to recover the fuel related portion of bad debts through our monthly fuel rider mechanism and the implementation of new rates in two Texas jurisdictions that were consistent with expectations.

In Kansas, we filed for a general rate increase of $73.3 million on May 15th following the expiration of a three year moratorium. The rate moratorium was a provision of the last case in Black Box settlement in 2003. Our gross plant and rate based investments has increased from $170 million and $130 million respectively, while expenses have grown approximately $27 million since 2003. This case will focus on the recovery of those expenses and an innovative two option customer choice rate design similar to the one we introduced in Oklahoma last year. If approved, this new structure would reduce volumetric sensitivity and provide more consistent earnings and cash flow. The case is in the discovery phase and in the absence of a settlement it would proceed as a 240 day process by statute. This means that new rates would, at the earliest, be implemented during the first quarter of 2007. We are seeking an 8.87% return on rate base and an 11.25% return on equity.

In Texas, where we have home-rule regulation, we have been pleased with the implementation of new rates in our North Texas and South Jefferson County Port Arthur jurisdictions that included improved returns on equity and demand charges, weather normalization, the Gas Reliability Infrastructure Capital Recovery mechanism, better known as GRIP, and recovery of the fuel related portion of bad debts through the monthly fuel rider. The collective $2.5 million annual impact of these two cases has already been factored into our guidance for this year.

Also, we have reached a settlement, in principle, with all the cities except one in the Rio Grande Valley rate case. This case was consolidated for 33 municipalities in the area. We are now in the process of obtaining local government approvals which, when completed, will add $2.3 million in additional revenue. Additionally, we are awaiting the outcome of our June 2006 GRIP filing for the El Paso region. David that concludes my remarks.

Thanks, Sam. For a brief review of the energy services segment, I will introduce Billy Maxwell. Billy joined us almost eleven years ago; almost exactly eleven years ago, and has a great reputation in the industry and is widely recognized for his in-depth market knowledge and expertise. Billy.

Thanks, David and good morning. The energy service segment had an outstanding quarter. The higher than expected income was driven by natural gas storage and marketing optimization activities, transportation margins, financial trading results.

Our optimization activities included management of gas purchase strategies related to our storage injections and our gas marketing activities. We were able to capture value and had it included in our forecast for the segment. We finished the second quarter with 73 billion cubic feet of gas in the ground of our cyclable and non-cyclable storage at a weighted-average cost of about $6.80. We have approximately 70% of our cyclable storage hedged to the winter. We believe that we will continue to be benefited by natural gas volatility as we head into the winter. This volatility will benefit our storage, transport, and physical trading activities.

The transportation margins were driven by wider basis differentials between the Mid-continent and Gulf Coast regions and we have been fairly effective in capturing that value in the form of our hedging strategies. Currently, our firm transportation contracts are approximately 95% hedged in 2006 and 90% hedged in 2007. Trading margins were primarily composed of natural gas option activities, which the portfolio benefited, by lower natural gas prices.

Our marketing activities remain a very strong focus. Our asset management transaction with First Energy that we announced earlier in the first quarter started in the second quarter. We are continuing to pursue similar transactions throughout the country and have had some success, but none as notable as FirstEnergy.

We are raising our guidance from 183 million to 195 million. Primarily as a result of trading margins generated for the first half of the year. Partially all set by lower anticipated storage withdrawals in the fourth quarter. Consistent with our past practice our guidance does not include any future trading earnings.

David that concludes my remarks.

Thanks Billy. Now John Gibson, President, CEO ONEOK Partners, will review the Partnership operating results. John?

Thanks David and good morning. Following the announcement of the transactions with ONEOK we have been extremely busy. However we have maintained our focus on asset optimization and internal growth projects. All during the time when we transitioned those activities in our Omaha and Denver offices, to Tulsa, which will take place over the next few months.

I take my hat off to those affected employees, as well as to those other ONEOK Partner employees who have worked hard on the right things, contributing to the results we will discuss today. With those assets formally owned by ONEOK we benefited from increase through put and strong commodity prices.

For our interstate segment most of our effort has been to execute those internal projects, such as the Northern Border rate case, as well as the Chicago Three Expansion and the Guardian Acquisition, which will deliver results in the future. Now lets discuss our four segments in greater detail.

First I would like to discuss our gathering and processing segments, where we had another consistent quarter, driven by favorable processing spreads, on our keep-whole contracts and strong natural gas liquids, condensate and natural gas prices, which increased gross margins on our percent of proceed contracts.

During the quarter we executed several gas supply contracts and approved projects that will result in new gathering systems, compressor installations, plan upgrades and line moves to accommodate more gas supplies, which will positively impact future earnings. These internal growth projects are spread over the Williston, Powder River and Anadarko basins. And will generate EBITDA at a much lower EBITDA multiples than we currently experienced with acquisition multiples.

Also during the quarter we executed more hedges. We anticipate further hedging activity during the third quarter, as we see opportunities to lock in favorable spreads and prices and we will continue to look at additional hedging opportunities for 2007 as well.

As a result of the transaction our contract mix has changed. Our current combined contract mix by volume is 13% keep-whole, 26% percent of proceeds and 61% fee. Of our 13% keep-whole, 42% of the volume contains positioning language, which in effect establishes a [positioning] while still allowing us exposure to the upside available from processing spreads.

We provided the contract mix measured by margin in the press release materials.

Another focus for this segment is the consolidation of the Partnership's gathering and processing legacy assets with the drop down assets under one management team with centralized support processes. This consolidation will result in cost efficiencies and increased communication between our two operating regions, the Rockies and Mid-Continent. This effort will be complete by the end of the year and be fully implemented for the start of 2007.

In our natural gas liquid segment, EBITDA increased, primarily due to the addition in the Coke assets. Our Mid-Continent NGL Gathering and Fractionation throughput averaged 220,000 barrels per day for the quarter. We continue to see volume growth from new volumes contracted after the acquisition.

By the first quarter of next year, we estimate the Mid-Continent throughput to be near our current Mid-Continent fractionation capacity of 250,000 barrels per day.

We have already approved $173 million of capital projects for the Mid-Continent which will expand our fractionation and transportation capacities primarily to fractionate and distribute liquids associated with our $433 million Overland Pass NGL pipeline project.

This new capacity will be on-stream in early 2008 and the prospects for volume growth from the Rockies are favorable as we continue to negotiate service agreements with other NGL producers in the region.

For our Pipeline and Storage segment, EBITDA for the second quarter exceeded expectations due primarily to higher throughput and realized rates experienced on our natural gas pipelines, and the additional revenue generated by our natural gas liquids gathering and distribution pipelines acquired from Coke in July of last year.

Design and procurement activities are well underway on our Overland Pass NGL Pipeline, which will connect Rockies production to the Mid-Continent markets with further access to the Mount Bellevue markets through our existing pipeline infrastructure. Orders have inflows for most of the pipe.

Our interstate pipeline segment revenues were up, primarily due to the gain on the sale of 20% of our interest of Northern Border Pipeline to TransCanada and our acquisition of the remaining 2/3 of the Guardian Pipeline. We are engaged in settlement discussions regarding our November 2005 rate case filed at the [indiscernible]. We feel progress is being made and have high hopes that an agreement will be reached in the near-term.

Progress also continues with our Guardian II project which will connect our Guardian pipeline to the Green Bay, Wisconsin area. We also still expect an early 2007 start date of our previously announced mid-western expansion project.

We are also pretty excited about another growth opportunity with two other NLP's, Energy Transfer and Boardwalk. We recently announced our intention to form a joint venture to build a 1 billion cubic feet per day natural gas pipeline which is planned to originate in north Texas intersecting our intrastate pipeline in central Oklahoma and then going east across Oklahoma and Arkansas, terminating at Boardwalk's Texas Gas Pipeline in Dire County, Tennessee. The projected route will provide shippers and producers with access to markets at the Henry Hub, Lebanon, Ohio, the South East, and the Mid West. In addition, the pipeline route will provide producers in Fayetteville Shale with access to these same markets. Discussions are currently underway with several key producers and the preliminary response as been very favorable.

David that concludes my remarks.

Thanks John. Before we open up the lines for questions. I'd like to make a few additional points. ONEOK raised its dividend to $0.32 in the quarter, the ninth increase since 2003, more than doubling the payout since that time. We very clearly understand the role dividends play and their importance to investors. We also understand the need to maintain a yield that is competitive and that will be our intention. Equally important is our payout ratio and as we have stated we are now comfortable with the payout ratio above 50% of sustainable earnings.

We also continue to receive a number of questions regarding our cash on the balance sheet. Let me try to address that issue this way. We have been fairly [inquisitive] over the last several years, growing by acquisitions, our gathering processing business, and our natural gas liquids business. We continue to look for acquisitions in those businesses as well as others like Intrastate and Interstate pipeline. It is generally a sellers market and good deals are getting harder to find. More importantly for ONEOK, those growth areas now reside within the Partnership. Now we maybe to help finance some of the activities by taking units, but clearly they have the ability to finance their own activity without impacting our standalone balance sheet or cash position. That's not to say that we are out of the game and on the sidelines, but looking forward, we are likely to be in an excess cash flow position.

As I stated, we've increase the dividends and we currently have a stock re-purchase approved for $7.5 million shares. While approved at the end of 2005, we have not purchased shares under the plan to date. But obviously, it remains an option for us.

Finally, before we open the call for your questions. I'd like to share with you that in October of this year, we will celebrate our Centennial. And I am so proud to be working side-by-side with the men and women of this company, who strive to deliver excellent service to our customers and I'm also proud to say that they are all shareholders with a focus on increasing shareholder value. We would not have these kinds of results without their collective efforts and to them I say, thank you.

Operator, we are now ready for questions.

[OPERATOR INSTRUCTIONS] Our first question comes from Faisel Khan of Citigroup.

I just have one question; I just want to make sure. Are there any mark-to-market movements in the trading that would of effected Energy Services?

Faisel, they're looking at the numbers.

The total mark-to-market movement wasn't but $2.5 million.

Okay, it was small.

Yes, very small.

Okay, I appreciate it. Thanks for the time.

Our next question comes from Yves Siegel of Wachovia Securities.

Just a couple of quick questions if I could. As it relates on the Partnership level to the G&P business and John's remarks as it relates to some of those expansion projects and the Williston Basin, Power River Basin, and Anadarko Basin. What kind of capital are we thinking about on those expansion projects and how quickly would you start realizing a return?

On that particular question, we're probably around $20 million of capital for those projects and we expect to see those -- the impact of those in 2007.

Great. And then, just a follow up. As it relates to the consolidation of operations within the Partnership. Are there any costs that you might incur as it relates to that? And are there any type of savings that you might be able to realize?

Let me address that and see if I can give you a clear answer. I think one thing to keep in mind as part of the transaction with the TransCanada. We received a $10 million payment, which we differed to absorb any cost related to separating the operations of the pipeline and then reconsolidating those operations into ONEOK. So that's one. We have some money that will be used to offset any costs incurred. I think the other part of your questions is do we expect savings. I think over time, as John mentioned, removing the Denver G&P office to Tulsa. And we're in the process of moving most of the jobs, what I'd call, not all, but back office jobs from Omaha to Tulsa. I think there will be some cost savings over time. And we timeline the operations are scheduled to switch on Northern Boarder Pipeline on April 1st, so we should by the first quarter next year, have a pretty good handle on that.

Yves let me also add that there will be some costs associated obviously with relocation costs and potential severance costs. The current estimates on those costs don't exceed that $10 million amount that Jim described. We feel like we'll have an adequate amount of money to cover those costs.

Okay, great. And if I could just push it for two, more questions. The first is how would you handicap the likelihood that the pipeline project gets done -- the one that you're working on with the Energy Transfer and Boardwalk. What kinds of milestones do we need to see?

I would handicap it but the chances are very good that we will see that project through. As indicated, we're having discussions with key producers out of Barnett Shale as well as Anadarko and other parts of Oklahoma where we as Energy Transfer and ONEOK Partners can bring supply to this new pipeline. We also feel like looking at the pipeline in the amount of capital that, although we had not announced, the routes, the new pipe we think we are at a competitive advantage to other projects, because we will require less capital. So we feel that the project is pretty strong right now.

I think the only other, and I hate to go back, but the only other comment I would like to make relates to cost-savings issue. Is that I think most of the savings -- the move from -- the consolidation from Denver and Omaha to Tulsa was not driven by cost-savings. It was driven more by organizational efficiencies, our ability to create value using the least amount of resources. So I just think that is an important point to make, is that these consolidations to these offices to Tulsa are not being driven necessarily by costs, driven more by putting the right resources in the right place to create the most amount of value.

And David reminded me that as is typical, I did not answer all your questions. Your other question was as it relates to milestones. Milestone on the Texarcoma project will the next major milestone will be an open season.

Which will run through?

Well an open season period normally lasts a specific period of time and I cannot tell you what that will be right now, but it will be consistent with those other projects that we have either been a part of or others have announced.

Okay great and thank you. I am keeping to my promise, my last question is, is it possible to just -- the CapEx program, what you intend to spend for 2006, if you could, is it possible to break it down and perhaps just give a ballpark what CapEx might look like in 2007?

I can tell you, Yves we have not projected CapEx into 2007 at this point. Obviously some of the projects that we have described over the past and depends on where Texarcoma goes, they will have an impact on capital requirements within the Partnership. As to breakdown, or are you looking for a breakdown between ONEOK and the Partnership within CapEx?

Just of the Partnership and I can do it offline, what I was trying to do was just go through to the different projects that you have announced and just make sure that we have got it straight. I can do that offline.

Okay.

[OPERATOR INSTRUCTIONS] Our next question comes from Kathleen Vigitich of WH Reed.

I am following up on Yves question, what is the CapEx forecast for this year for ONEOK on a standalone basis, and then ONEOK with the Partners? I have lost control of where your CapEx is.

Let me see if Jim can put you back in control okay?

Thank you.

Let me see, cash flow estimate should start in -- on a consolidated basis.

Yes.

It is $472 million.

Thank you.

$151 million of that is, well almost all of the $151 million that you would say is ONEOK standalone relates to the distribution operation. So the remaining $321 million, or $293 million I think it is – I am trying to do the math here – $293 million is the Partnership in which 232 million are growth, and we have got that on page 9 of their release, and 61 is maintenance capital.

Okay, thank you so much. Can I ask Billy a question about the deliveries and activity in the second quarter. Are you guys delivering any storage volumes to the electric market?

Yes, mostly Kathleen that has occurred in the third quarter.

Okay.

The biggest part of those deliveries.

Is that coming out of storage or is that just gas that you are marketing and purchasing?

I would say that is both.

Okay. And finally, I want to thank you so much for the dividend discussion. I sincerely appreciate the increase in the discussion. I will talk to you all later.

Our next question comes from Rebecca Followill of Howard Weil.

Hi. Good morning. A question for you on the hedging on the gathering process of business within OKF. Can you talk about what the appropriate level of hedging is and I am sorry, I missed the beginning about where you stand. If that is already in the call, I will just go back and listen to the transcript on it or look at the transcript or listen to the reply, if you have already discussed that.

As far as where we are currently in the Gathering and Processing Segment as it relates to hedging, we have got that in the press release.

Okay.

Okay? As far as what is appropriate, and it is -- I will just repeat it -- it is 40% hedged on percent of proceeds, the gas portion, 35% on our percent of proceeds on the liquids portion, and 31% of our projected peephole spread. What is appropriate -- I will give you what we think is the upper limit. The upper limit is 75%. We hold back 25% to make sure that we cover any [indiscernible] event which sometimes we are faced with freeze-offs during certain times of the year, so we look at the total available volume. We never look at a playing field greater than 75% and then the balance is based on what we see as historical process, projected prices, and so we are somewhere between where we are now and that level.

That is your upper limit, but would you really ever get up to that level?

You know, Becca, as I sit here, to my knowledge I do not believe that we have ever gotten to that level.

Do you even think even over 50%, would you even get that high?

We have been over 50% in the past.

Okay.

My recollection. And as I mentioned in the comments, we are looking at opportunities for the balance of this year, as well as 2007. I mean, it goes without saying that prices and spreads currently are very strong, so we are looking at this on a daily basis.

[OPERATOR INSTRUCTIONS] We have a follow-up with Yves Siegel of Wachovia Securities.

Thanks. I guess the follow-up is when you set the distribution, what do you think about in terms of sustainable processing margin?

I'm not sure I understand your question exactly, Yves.

Well, you benefited -- the processing environment right now is extraordinarily strong.

That's true.

The question is when you think about the distribution going forward, how much of the cash flow do you think you benefited by unusually strong environment?

Well, let me talk generally then I will let Jim add if he needs to add specifics. But generally, as we look at this business within the Partnership we're comfortable, obviously comfortable, with the current distribution level. If you look at the numbers you can back in to a pretty strong coverage ratio and that coverage ratio, the strength of that coverage ratio gives us some comfort as we project on into 2007 and 2008 as we think about the distribution. Timing-wise we have projects that we believe will start impacting us either late 2007 or early 2008. So, from a width stand point if you do see some degradation in spread, you've got comfort that other projects are going to fill that hole on a go-forward basis. All of that was part of our analysis as we looked at setting that distribution level and quite frankly, we're very comfortable where we are. Does that help you?

It doesn't give me everything I wanted, but it got me a little bit closer. Thank you.

Okay. Go ahead, John.

Yves, I am not sure if this answers your question, but one of the things that we consider when we look at our Gathering and Processing assets is whether and how well they fit into the MLP structure. We focused on assets that give us the diversity to basins. We have worked to amend or adjust our contract mix so that we get more exposure to fee based business which we knew that some of that volatility and exposure to commodity prices so I think from an operational standpoint we tried to, and have I think, put assets in the MLP that, gathering and processing assets in the MLP, that fit; is maybe another way of coming at your answer.

I feel pretty comfortable with where the distribution is. It's more of trying to figure out how fast the distribution is going to grow.

We are going to grow it as fast as we can.

[OPERATOR INSTRUCTIONS] I am not showing any further questions, would you like to continue with any further remarks?

No, thank you operator. This concludes our ONEOK and ONEOK Partners call. As a reminder, our quiet period for the third quarter will start when we close our books in early October 2006 and will extend until earnings are released. We will provide a reporting date and conference call information for the third quarter at a later date.

One other reminder, ONEOK and ONEOK Partners will hold their annual investor conference on September 26th in New York. You should have received an invitation and registration information. If you have not, please let me know. Ellen Konsdorf and I will be available throughout the day for any follow-up questions. Thanks again for joining us and have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the call. You may now disconnect. Everyone have a wonderful day.