歐尼克 (OKE) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ONEOK third quarter 2006 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (OPERATOR INSTRUCTIONS). As a reminder, today's conference is being recorded. It is now my pleasure to introduce the host for today's conference, Mr. Dan Harrison. Mr. Harrison, you may begin.

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 or ONEOK Partners expectations or predictions should be considered forward-looking statements which are covered by the Safe Harbor provisions of the Securities Act 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 factors that could cause actual results to differ, please refer to ONEOK's and ONEOK Partners' filings with the Securities and Exchange Commission.

And now, David Kyle, who serves as Chairman and CEO of both ONEOK and ONEOK Partners will moderate this morning's call. David?

Thanks, Dan and welcome, everyone. We are very pleased with the performance of both ONEOK and ONEOK Partners. ONEOK Partners' performance improved in the quarter primarily as a result of the assets purchased from ONEOK earlier this year. That notwithstanding, the partnership benefited from higher commodity prices and wider gross processing spreads in the gathering and processing segment.

As you know, the partnership will be ONEOK's primary growth engine. It is well positioned to deliver future growth as a result of more than $1.1 billion in internally generated growth projects that we have identified, as well as from assets that we believe we will be able to acquire much like the recently announced NGL storage at Mont Belvieu.

From the ONEOK perspective, our performance benefited from the partnership's performance as well as from improvements in the distribution segment, primarily as a result of the implementation of new rates in Oklahoma. We also have a proposed rate settlement in Kansas that Sam Combs will discuss in a few minutes.

While ONEOK's Energy Services segment had lower storage and marketing margins in the third quarter relative to last year, the segment had better than expected second quarter results and the combination of the two historically lower margin quarters this year, the second and third were stronger than those last year. The nine months or the year-to-date numbers reflect a 70 plus percent improvement for the segment over last year's results.

You all will remember that last year's results included benefits resulting from the much higher commodity prices associated with the hurricane activity. Overall, I believe their performance has been exceptional. Billy Maxwell will provide more detail shortly.

In the quarter, we increased the ONEOK dividend to $0.32 per share, and increased the ONEOK Partners distribution for the third time this year to $0.97 per unit. These distribution increases benefit not only ONEOK Partners' unit holders, but also ONEOK as a general partner.

Now, let me turn the call to our Chief Financial Officer, Jim Kneale, who will update you on the financial results for the quarter for both ONEOK and ONEOK Partners. Jim?

Thank you, David, and good morning. As David mentioned, both ONEOK Partners and ONEOK had strong quarters. Both were affected by events that had significant impacts when comparing 2006 with 2005. In particular, the dropdown of the ONEOK assets into ONEOK Partners, ONEOK Partners' sale of a 20% interest in Northern Border Pipeline, and ONEOK's sale of its production business in 2005. At ONEOK Partners, third quarter net income was $98.2 million compared with $48.4 million last year. EBITDA increased 48% to $159 million.

For the nine months ended September 30, ONEOK Partners' net income increased to $365 million and includes a $114 million gain on the sale of 20% of Northern Border Pipeline in the second quarter of this year. Excluding that gain, net income increased 125% over last year. Also for the nine months, ONEOK Partners EBITDA was $473 million excluding the gain compared with $278 million last year. Distributable cash flow was $3.59 per unit, an increase of 26% over last year.

In September, the partnership completed a $1.4 billion debt issuance to repay the bridge loan used in the asset dropdown and to repay the outstanding balance on its short-term credit facility. The effective interest rate on the five, ten and thirty-year notes was a very attractive 6.37%. At the end of the quarter, ONEOK Partners long-term debt was 48% of capitalization.

Turning to ONEOK, earnings were also strong in the third quarter due to higher earnings at ONEOK Partners and the performance of our distribution segment. Earnings per share were $0.21, which exceeded the high end of our guidance range by $0.02. This compares with $0.41 last year excluding discontinued operations.

For the nine months ended September 30, ONEOK reported earnings per share of $2.02 as compared with $1.49 last year excluding discontinued operations. The $2.02 includes a onetime gain of $0.27 per share, which is ONEOK's portion of the ONEOK Partners gain on the sale of the 20% of Northern Border Pipeline. Excluding that gain, ONEOK's earnings per share increased 17% for the nine months over the 2005 level. Strong performance in each of ONEOK's segment, which will be discussed in a few minutes, contributed to the increased earnings.

On August 7, ONEOK repurchased 7.5 million shares of our common stock under an accelerated share repurchase agreement at a price of $37.52. Those shares have been removed from our average shares outstanding calculation as of that date.

At the end of the quarter, on a stand-alone basis, ONEOK had significant cash available, with cash invested of $192 million and $815 million of natural gas in storage. Also on a stand-alone basis, our long-term debt was 48% of capitalization. David, that concludes my remarks.

Thanks, Jim. Now John Gibson, President and Chief Operating Officer of ONEOK Partners will review the partnership's operating results. John?

Thanks, David, and good morning, everybody. The third quarter performance of the partnership was positively affected by increased throughput, strong commodity prices, and higher processing spreads. During the quarter, we also continue to make progress on our many internal growth projects, which will deliver results in the future.

At this time, I would like to share with you some more detailed comments regarding the individual segments of the partnership. First, in our gathering and processing segment, we had another great quarter due to very favorable processing spreads and strong natural gas liquids and (indiscernible) prices.

We are experiencing growth in our gathering business driven primarily by increasing volumes from the Big George coal play in the Powder River Basin. Our gathered volumes on our 100% owned assets in the Powder River Basin have grown from an average of 180 million cubic feet a day in the first quarter of this year to 225 million a day in the third quarter. Based on known expansions, we expect continued growth in this predominately fee-based business.

At benefit of our basin diversity in this segment is that volume growth in the Rockies continues to more than offset the historical declines we experienced with our mid-continent assets. Our internal growth projects in this segment are spread over the Williston, Powder River, and Anadarko basins with most expected to be completed by year-end with full earnings impact in 2007.

Additional hedges were put in place during the third quarter for the remainder of 2006 and as a result, approximately 75% of the gross margin associated with our key pole and percent of proceeds contracts has been hedged. For 2007, we currently have hedged about 25% of our key pole volume at a spread of $3.06 per MMbtu.

Our contract mix continues to evolve. Our current contract mix by volume is 11% key pole, 28% of proceeds and 61% fee. Of our 11% key pole, 47% of these volumes contain conditioning language, which in effect establishes a floor allowing us opportunity to benefit from the upside available from widening processing spreads.

The contract mix as measured by margin was provided in the press release materials. The sensitivity of this segment's margin to commodity prices continues to change as well. An increase in natural gas prices, which adversely impacts key pole spreads, now has only a nominal impact of $100,000 per $0.10 increase in natural gas price to the partnership. This sensitivity in contrast to the third quarter of last year when most of these assets were owned by ONEOK, is much lower than the $2 million per $0.10 impact of a year ago.

The sensitivity reduction is due to three factors. The results of our ongoing contract restructuring effort; the December 2005 sale by ONEOK of the Texas assets which had exposure to key pole contracts; and the positive impact the equity natural gas attributable to the legacy partnership percent of proceeds contracts has had relative to the key pole natural gas purchases associated with the former ONEOK assets. The net effect has been a reduction in the segment's net short natural gas position, which has reduced the sensitivity to changing natural gas prices.

Our natural gas liquids segment continues to perform as expected. Our Mid-Continent NGO gathering of fractionation throughput averaged 214,000 barrels per day for the quarter. This is a small reduction from the second quarter of 2006 when we averaged 220,000 barrels a day. The reduction was due to a combination of planned maintenance at our facilities, along with an extended period of abnormally high ambient temperatures, which negatively impacted our fractionation throughput.

Today, our current Mid-Continent throughput is 220,000 barrels per day and during the first quarter of 2007, we estimate our Mid-Continent throughput to be near our current Mid-Continent fractionation capacity of 250,000 barrels per day. This incremental supply is as a result of new third party processing plant connections and increased volumes from our existing customers.

We continue to work on our capital projects to expand our fractionation and transportation capacity to handle the liquids associated with the Overland Pass NGL pipeline project. We still anticipate this new capacity will be onstream in early 2008.

The prospects for volume growth from the Rockies remained favorable, and we continue to pursue supply opportunities with various NGL producers in the region. Strong demand for NGL storage services continue as our storage levels in the Mid-Continent were near capacity during the quarter. Our recently announced storage acquisition in the Mont Belvieu area fits very nicely with our existing assets, increases our storage capacity and allows us to grow our fee-based storage business.

In our pipelines and storage segment, when compared with the same quarter last year when these assets were owned by ONEOK, EBITDA increased due primarily to slightly higher realized rates and throughput on our natural gas pipelines along with about a 5% higher throughput on our natural gas liquids gathering and distribution pipelines.

Activities continue on our Overland Pass NGL pipeline which, as I said earlier, is on schedule for startup in early 2008, and we remain on schedule with respect to construction procurement and design activities. In our interstate pipeline segment, during the third quarter, we reached a settlement with all parties in our Northern Border Pipeline rate case. The settlement was uncontested and has been sent to the Federal Energy Regulatory Commission by the Administrative Law Judge who recommended approval. Progress continues with our Guardian II project and we filed our application for that expansion with the FERC during the quarter and expect completion late next year.

Thank you all for your continued interest in ONEOK Partners. David, that concludes my remarks.

Thanks, John. Here to review the performance for the distribution segment, I'll call on Sam Combs, President of ONEOK's Distribution Company. Sam?

Thank you, David. The distribution segment recorded improved performance in the third quarter and nine months due primarily to the implementation of new rates in Oklahoma. We also benefited from lower labor and employee benefit costs for the quarter, partially offset by higher depreciation, depletion, and amortization expense.

Our residential and commercial sales volumes were also down for the nine month period due to warmer than normal weather across our entire service territory. The negative effect of warmer than normal weather was moderated by Commission-approved weather protection mechanisms.

In Kansas, we recently announced reaching a proposed settlement with all of the parties on our $73.3 million general rate case that was filed on May 15 of this year. If approved by the Kansas Corporation Commission, new rates would be implemented on January 1, 2007 and result in a $52 million annual increase in rates and add approximately $44 million to $47 million to our 2007 operating income. The hearing before the Kansas Commission to present the settlement is scheduled for next week on November 6.

In Oklahoma, we continue to benefit from the new rates that were implemented last year. In Texas, where we have home rule regulation, we received approval during the third quarter to increase customer demand charges by $811,000 annually related to our recent capital recovery mechanism filing in El Paso, the largest city in our Texas service territory.

Additionally, the implementation of new rates in our North Texas, South Jefferson County, and Rio Grande Valley jurisdictions have had a positive impact on results. We expect the collective annual impact of those new rates to be fully realized in 2007.

In closing, the integrated strategies related to rates, growth, cost control, and customer programs outlined in September during our annual Investor Conference Presentation in New York are yielding results. Looking forward, we will continue to focus on rate solutions that reduce regulatory lag and address increasing costs to close the gap on profitability. David, that concludes my remarks.

Thanks, Sam. I've asked Billy Maxwell, who leads the Energy Services segment, to discuss their results. Billy?

Thanks, David, and good morning. The Energy Services segment experienced another productive quarter. We achieved positive contributions for the period from transportation margins, physical trading optimization and retail marketing. The volatile price conditions resulting from late-season hurricane activity in 2005 didn't reoccur this year.

As a result, our productive third quarter results for 2006 do not compare with last year's achievements for the same period. We made $21.6 million in operating income in the third quarter this year compared with $42.1 million in the same period last year. We earned $34.5 million more dollars last year in the third quarter associated with our storage and marketing activities. Cash prices reached $17 per MMbtu during the hurricanes in the third quarter of 2005. By comparison, cash prices this year third quarter averaged approximately half of the 2005 levels.

We currently have 80.4 million cubic feet of gas in the ground of our cycleable storage at a weighted average cost of about $6.55. Transportation margins for the year have been driven by wider basis differentials between the Mid-Continent and Gulf Coast regions that we have captured through hedging strategies. Currently, our firm transportation contracts are 92% hedged for 2006; 87% hedged for 2007; and 75% hedged for 2008.

Our physical optimization activities included effective management of storage, capturing the value created by above normal heat experienced in July and August. Our traders have numerous options available to them each day through our network of storage, firm transportation, and split-connected gas supplies. These various options help us capture the value from continued high volatility and market inefficiencies.

Retail marketing had a positive impact on earnings for the quarter. Lower prices influenced more customers to commit to fixed term purchases. Customer choice programs and LDC unbundling were also favorable to the retail efforts.

We have had a very successful year of marketing peaking services to electric generators and LDC's. We are anticipating $10 million in additional fees in 2006 as compared with 2005. This success was aided by overall lower natural gas prices.

In September, 2006, we announced that we entered into a 20-year fixed price purchase contract with Power Holdings of Illinois, LLC for 45,000 MMbtu's per day of pipeline quality synthetic natural gas. We will also have an exclusive marketing agreement for all excess production from the facility. Power Holdings will begin construction on the coal gasification facility next year in southern Illinois, which is expected to be completed by 2011.

In September, we raised our earnings guidance for the Energy Services segment from $195 million to $205 million as a result of improved marketing optimization and additional storage margins. David, this concludes my remarks.

Thanks, Billy. Before we open the lines up for questions, I would like to make a few additional comments.

First, I am sorry that I was unable to be with you in September at our analyst conference. But it appears that just based on stock performance since then, I wasn't missed too much. Seriously, it does show the depth of the management team here and I'm proud to be a part.

I also want to express my appreciation to all the ONEOK employees for their efforts to deliver these strong results and tell them how proud I was to be able to represent them at the New York stock exchange for the Closing Bell ceremony in honor of our centennial. All in all, it's been a really great year for ONEOK, and the good news is it's not over. At this point, we're now ready for questions.

(OPERATOR INSTRUCTIONS). Faisel Khan, Citigroup.

I just have a few questions here. On the gas utility side, now that you've got the proposed revenue increase in Kansas and some of these recoveries from, I believe it's called the grip -- the grip filings in Texas. Going forward, assuming that the costs kind of stay where they are, are you confident that you're making the appropriate returns on your invested capital in that business?

Sam?

Well, certainly we feel much better about it. For example, in Kansas, you can do a back of the envelope calculation and see that if we would have [had it] and these rates were approved this year, then it would have had added significantly to closing that gap. So your statement about some of the rate mechanisms we have in place is very accurate, and we're continuing to pursue those type of rate mechanisms that will help us slow down that regulatory lag and assist us in earning our allowed returns.

Fair enough.

I might ask Sam to comment -- we're doing a fair amount of work on analyzing customer usage patterns and there's a -- across the United States there's a pretty strong push to deal with this lower average use per customer that we've talked about before. I might let Sam comment on kind of what we're seeing in terms of those analyses.

Well, in fact, like other companies in our industry, we are experiencing that decline and it's related to a number of factors. Higher prices certainly cause customers to think more about conservation in their gas prices. We are seeing the impact of warmer weather, and in this part of the country, we experienced the warmest weather on history for the state of Oklahoma, for example, and we had the warmest weather, probably naturally, on a year-over-year basis.

And so you couple those two things together, prices and warmer weather, it has an impact. Also, this is not new for you, I'm sure, that as newer homes are more efficient, they have caused this pilot, this ignition [in prices]. But what you do is there's a number of things that we can do and we are doing those. You deal with it through your rate structuring and your rate design. In each of these rate cases, we've pursued and been successful and our commissions have been joined with us on raising demand charges which allow us to cover a higher percentage of our fixed costs in that demand charge. There are some innovative rate designs out there like decoupling that certainly we are watching and so there's a number of things that can be done as well as just adding new accounts and being aggressive about that.

So the real push there is to not only operate efficiently, but to make sure that we've got rate designs that allow us to close that gap, if you will, against authorized and actual earned.

How long do you think it would take to get the regulators on board in terms of getting potentially decoupling of volumes [from] rates?

Well, candidly, it's an education process and part of the beginning of that process is to have some good analyses that you can present and walk through with these regulators. We are developing that, and that's what Sam was alluding to as we speak. And so I expect that on a go forward basis, that will be a strong push for the segment in each of the jurisdictions.

On the working capital side, I think if I add up all of the amounts on the balance sheet at ONEOK Inc., about $2 billion in working capital. Can you kind of walk us through how that number comes down over time and what we should expect in terms of the return of cash on the balance sheet?

That sounds like one of your kind of questions, Jim.

Yes. Thanks. I think what you're seeing is -- and I mentioned in my remarks that we've got over $800 million at the end of the quarter of natural gas in storage. The majority of that's at Energy Services, some of it's at the distribution companies. And so as we pull that gas out of storage, I would expect a lot of that money to be back by the end of the first quarter, which has been a pretty typical pattern for us.

The other items are just the -- I would say the more normal run rates of capital in ONEOK Partners where we transferred and dropped the assets down. As you see these gas prices, I mean, we've seen gas prices decline a bit, that will bring working capital back, but I would expect maybe stronger prices by the end of the year, so in my forecasting I see working capital increasing in the fourth quarter but then coming back a lot of it in the first quarter and then the rest of it more in the second quarter.

On the partnership side, are there specific -- and I saw the acquisition of the NGL storage business -- but are there specific parts of the partnership or segments of the partnership that you think you would like to get a little bit bigger, whether it be the pipeline and storage side, or the NGL storage side? Are there particular sides of it where you see opportunities right now in the market kind of going forward?

Let me start with an answer and then I'll let John supplement. I think from my perspective, historically, we've been pretty opportunistic as we look at acquisition opportunities. So we're going to look at -- in each of the areas, each of the segments for growth, and take advantage of potential transactions that we can do. So we're not going to focus just solely on one over the other as the deals come forth.

Generally speaking, I think from a partnership standpoint, you would like to have diversity of cash flow and so if we could make some of the segments a little bit larger relative to some of the others, I think that would be a good thing. So NGL side of the business I think would be one -- if we had a choice, that we'd probably focus on. But let me let John add to that.

No, David, I think that clearly articulates what we have done and what we will continue to do and there's just about -- I can't think of any asset deal that's come out that we haven't looked at and quickly sized them up, and we continue to engage the marketplace and understand what opportunities there are. So it's part of our strategy to stay engaged with acquisition opportunities. And as we've said before, I want to take this opportunity to emphasize, we don't just look at potential acquisitions for what they might bring in terms of cash flow accretion. We look at them from a strategic sense and we look for those kinds of acquisitions that will give us additional growth opportunity, either growth in terms of additional asset investment or growth in terms of additional business. So we not only look at it from the cash flow standpoint, but also from the strategic standpoint.

On the (indiscernible) your growth activities on the midwest pipe lines, I was wondering if you comment a little bit about what you are seeing actually in the midwest gas markets because you guys seem to be expanding some of your systems into that area. I was trying to figure out, I always understood some of that market to be pretty much saturated, but where's the demand growth coming from for natural gas in the midwest? Is it power generation or is it just kind of home-grown housing construction?

Well, let me -- are you asking from the Energy Services side or are you asking from the partnership side?

From the partnership side. I guess if that filters into the Energy Services side, that would be helpful to.

I'll let John talk about the assets and then Bill, you can talk about what you see in the market.

Well, in the natural gas pipeline business, there has been and there are opportunities to move incremental supply out of this area to markets. So, many of the pipeline projects that are out there and being considered one of which we have, are to move increasing gas supplies, say, out of the Barnett Shale or parts of Oklahoma, potential new production out of the Fayetteville Shale in Arkansas, to move -- that supply is in an area, as you know, does not have significant amount of demand increase. So to get the producers that best net-back that they can, they need a way to get that gas out into market where demand is significant. So that's these pipeline projects, much like the Rockies Express, as a way to move gas out of the Rockies to market for those producers, there is an opportunity that we are seeing in the Mid-Continent.

Billy, do you want to talk about market -- what you see --?

Yes, I was just going to say real quick, John hit the nail on the head. Really, what's happening is, is because you've got such wide basis differentials of the gas that's moving into the midwest, it's allowing a lot of opportunity to people like ONEOK partners to look at pipeline projects to then move that gas out of that area.

And then the second thing is, you are exactly right. Demand growth that we are seeing on the power side is solid. Because I continue to see a lot of the electric companies that we sell to are continuing to add to their fleet and so there's very good growth there -- especially on the gas side.

And then just one thing from an accounting perspective. At ONEOK Inc., I think on page seven of the release, there seems to be a negative net-trading revenue. I was just want to figure out what causes that, because you reported an operating profit, I think, in the quarter. But I was trying to figure out why that an energy trading revenue net is actually a negative number.

Yes, let me ask Jim to comment on that and then maybe Billy to supplement.

To make sure we're talking about the same thing, are you talking about the financial trading margins in the table?

It says it's for revenues three months ended September 2006, operating revenues kind of excluding energy trading, 2.649 billion, and then energy trading revenues net -8,435,000.

Pardon me, I --

Page seven of the -- the way it comes out to me on the Internet, it says page seven here.

That's why I'm -- I don't have a page seven, so I'm trying to --

It's the consolidated earnings statement -- the consolidated net income statement. From revenue straight down to net income for the overall company.

I can step out there and tell you for the quarter, comparative with last year, we had a tremendous quarter last year in our option portfolio. So we've got about a $10 million difference in trading revenues third quarter '05 to third quarter of '06, and I bet that that's what's driving your question. During that hurricane run up, that we had a big run on our option portfolio. And I think that's probably -- is that -- does that help you?

Yes, I understand the operating -- the operating income numbers make sense to me. I was just looking at it from the net revenue standpoint, it just looked a little odd to me on the income statement. It says ONEOK Inc. and Subsidiaries Consolidated Statement of Income and then as you read down, it says -8,435,000.

This is Jim. I found what you were talking about and without going into a lengthy detailed discussion of the accounting rules that determine how we report revenue, the big picture is the majority of Energy Services revenues are in that topline operating revenues, and there are some sales of gas that are made to maybe other marketing companies and things like that are reported on energy trade revenues net. Often if you see that number negative, it's because there's a corresponding physical sale up in that line above that is at a profit. It's how we have to report them based on the end-use purchaser.

Mark Reichman, A.G. Edwards.

I just wanted to get an update on the Guardian II project and then also with the joint venture with Boardwalk, I see that Energy Transfer partners had dropped out of that. So kind of sketch out maybe how that might look. Will it be a 50-50 joint venture or what are your preliminary thoughts on that?

On the Boardwalk opportunity, which is the [Texarcoma] project where we would build a pipeline, say, out of Oklahoma and North Texas across Arkansas to interconnect with Texas gas and other pipelines. As you know, Energy Transfer elected to withdraw from that partnership.

Where we stand right now is we have rates in front of potential customers. We are awaiting feedback. Based on the feedback, we will then determine whether or not we will or how we will negotiate our joint venture with Boardwalk and how we will proceed with the project as far as an open season is concerned. I would anticipate that will become much clearer by the end of this year.

And also, on the Guardian II?

Well, on Guardian II, we continue from an engineering and procurement perspective to make progress. The application, as I mentioned, has been filed. We are in that process where we will be awaiting feedback. We continue to work with our key customers on interconnect agreements and things of that nature, but we continue to progress in a very normal manner as it relates to pipeline projects.

The cost still expected to kind of follow that range of $220 million to $240 million and has the anticipated startup date, is that -- is nothing changed there?

Nothing that I'm aware of. It all seems to still be -- I actually didn't hear the number you used --

I said $220 million to $240 million.

I think it's $230 million to $250 million was the most recent.

And is the anticipated completion date or startup date like early 2008?

Yes.

(OPERATOR INSTRUCTIONS). Carl Kirst, Credit Suisse.

Most of my questions have already been captured, I think, but just a couple of quick clarifying ones. Just since the [Texarcoma] project was brought up, who actually is sort of the interface right now with producers? Is that you guys? Or is that Boardwalk?

Well, let me say, I think both of us are having contact with producers. Obviously there are producers in Oklahoma that have a desire to move gas out of Oklahoma to market that we know pretty well, and then there are producers that Boardwalk has relationships with and we are jointly working that effort.

And just a couple of questions here on the energy marketing, Billy. Again, clarifying here, there was a note of sort of $6.6 million mark-to-market gains on transportation storage contracts. Are those ['06] economic hedges? Meaning, does that $0.04 revert out in the future or are those more sort of open positions?

No, what the $6.6 million was, we have to go through a qualification process of qualifying the hedges, and it was really just timing of getting the hedges qualified. So, in other words, we had market movement before we got them qualified, so that made it a mark-to-market gain. But once they were qualified, then it's just like a normal hedge.

So now they're qualified.

Yes. It's just a timing difference.

And then just kind of lastly, as we're kind of entering here into November and I understand you're basically reiterating the energy marketing energy services guidance here for full-year 2006 to $205 million/billion range.

Carl, could I ask you to repeat that? You're kind of cutting out on us.

From what you said, it sounded like you were reiterating from just a few weeks ago at the analyst meeting, the $205 million operating income for energy services for the full year of '06. Obviously, that kind of implies a fourth quarter number in the mid-$30 million mark and I was just wondering with what volatility we've seen so far too date in the fourth quarter, are we sort of, to the best that you can describe, at, ahead, or below expectations relative to making that $205 million figure?

That's a great question and it sort of gets into an overall revised guidance question. And let me just say that we are where we -- the guidance we have currently is guidance that we put out not too long ago. As we move forward, we will take another look at where we think we're going to come out year-end and we may, in fact, issue some revised guidance for the full year. I suspect that we will probably also take a look at where we think '07 is going to come in. So we're not prepared to do that today, but stay tuned.

No, and that's helpful, but as far, can you answer then, as I guess maybe, I understand you don't want to give a number, but atonally sort of how October has looked? Is that something that you can give us some color on?

Without giving any numbers, Billy, I'll let you just talk about generally what's going on.

Yes, like David said, we're right on track. And with the price volatility that we're getting, and just the amount of gas that we need to pull to secure the margins to finish out our year, we're -- I mean everything's right on track.

(OPERATOR INSTRUCTIONS). Rick Gross, Lehman Brothers.

I apologize if I come in late because I missed a good part of the call, but in regard to Overland Pass, I've tried to do some work to figure out where the supplies would come there. As I march across from Jonah across the Wamsutter Arch and kind of look at all the plants and the folks involved, if I go from Jonah to the [five Opal trains] to Black Fork [Scranger] to Echo Springs to Wamsutter to all the way over to -- I run out of places where they're extracting liquids.

The only plant that I see is free and not dedicated to [Mapple] is the new Williams Peonce plant. Is that an incorrect assumption?

Before John answers, that's a pretty rugged trip you just took.

Yes.

John?

I think that as you look at the existing plants and go across the landscape, that's correct. There are, I think, another thing that we have -- I'll just say, yes, I believe that's correct.

(multiple speakers) getting critical mass then this is basically Overland is going to be dependent basically on, we'll call it, new construction in new areas?

Rick, I think that's -- you're heading towards the overall strategy here. If you look at status quo, one would assume that there's no need for anything. But what we're seeing is a fair amount of activity in the overall area that you just described that tells us that on a go forward basis and tells our partner, our joint venture partner on a going forward basis, that there's going to be a need for additional outlet of barrels from that area.

From a standpoint of going forward, I'm a little bit fuzzy on this. Is there an economic out as such in this arrangement with Williams or is this kind of a -- I don't want to call it, maybe it's too strong a word, must build -- but what would be the flipside, the economic out trigger if in fact there is one?

Well, as we have indicated, there are enough barrels to anchor the pipeline today, committed to the pipeline.

Then I don't have to worry about that.

No.

Becca Followill, Howard Weill.

Two questions for you. One, following up on Rick's question, would you consider building processing facilities in the Rockies, then?

Yes.

And the next question is, whenever somebody says stay tuned, I have to follow up. What is the timing end to issue '07 guidance?

We are just now beginning our process on evaluating each of the segments for '07, basically our budget process. So I would expect sometime between now and probably the first of December we'll come out with something.

(OPERATOR INSTRUCTIONS). Mr. Harrison, I'm showing no further questions.

Well, thank you. This concludes the ONEOK and ONEOK Partners call. As a reminder, our quiet period for the fourth quarter will start when we close our books in early January, 2007, and will extend until earnings are released. We will provide a reporting date and conference call information for the fourth quarter at a later date. A reminder, Ellen Konsdorf and I will be available throughout the day for follow-up questions. So, thanks for joining us and have a good day.

Ladies and gentlemen, this does conclude today's presentation. Again, we thank you for participating and you may now disconnect.