歐尼克 (OKE) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2007 earnings conference 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 Harrison. Sir, you may begin your conference.

Good morning and welcome, everyone.

As we begin this morning's conference call, I 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 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 factors that could cause actual results to differ, please refer to ONEOK's and ONEOK Partners' filings with the Securities and Exchange Commission.

Now, John Gibson, who serves as CEO of ONEOK and President and CEO of ONEOK Partners. John?

Thanks, Dan, and good morning, everyone.

Both ONEOK and ONEOK Partners had outstanding quarters thanks to the hard work and commitment of our more than 4600 employees. Without their contributions, our results would not have been possible. So to them, I said thank you.

On the call today, Jim Kneale, ONEOK's Chief Operating Officer, who will review ONEOK's operating performance, followed by Curtis Dinan, our Chief Financial Officer, who will review ONEOK's financial performance. Having concluded our comments relative to ONEOK, I will then review the ONEOK Partners' operating performance and then Curtis will return and review the financial highlights. They we will open it up for questions.

As our press release stated, ONEOK benefited from an exceptionally strong performance in energy services and significantly higher results in the distribution statement, which Jim Kneale will now review. Jim?

Thank you, John, and good morning. ONEOK did have a great first quarter.

In a few minutes, John will cover the results of ONEOK Partners, which is one of ONEOK's three operating segments. I want to reinforce that this ONEOK segment continues to not only provide strong earnings to ONEOK but also future growth opportunities through its $1.5 billion of internal growth projects.

Looking at our Distribution segment, operating income increased to $103 million, which is 34% over last year. Margins improved due to the implementation of new rates in Kansas and Texas and additional sales volumes due to the return of more normal weather in our service territories. However, it wasn't all weather-related, as we also added approximately 22,000 customers over the same period a quarter ago.

Operating expenses increased slightly, primarily from higher employee cost. This increase was partially mitigated by lower bad debt expenses. Our employees' efforts in this area have produced results that exceed industry averages and led to a $2.2 million reduction in bad debts as compared with last year.

Distribution capital spending was behind last year as unseasonably warm weather experienced in 2006 provided opportunities for construction in the first quarter that we did not experience this year. However, we expect our capital spending for the year to be in line with last year. Our rate base continues to grow at a rate of about 5%. Looking forward, our distribution segment will continue to execute on their integrated strategies that focus on increasing margins through more frequent rate filings, growth through efficient investment, and cost control.

Now, turning to Energy Services, its operating income of $120 million was 29% over last year due to strong storage and marketing margins that were driven by higher realized seasonal storage spread and daily optimization of our storage positions. We also were able to efficiently manage our LDC peaking commitments so that we retain the majority of the demand charges that we collected.

Energy Services ended March with approximately 37 Bcf of natural gas in storage at a weighted average cost well below next winter's values. We have begun injecting for next winter and currently have 48 Bcf of natural gas in storage.

Although transportation margins were lower this quarter as compared with last year, they are in line with our expectations. Currently, we have approximately 85% of our transportation capacity hedged for the remainder of the year.

Energy Services continues to look at ways to grow our physical business which will generate more fee-based stable earnings. We have increased our lease storage capacity for the 2007/2008 winter season to 96 Bcf, a 10 Bcf increase over the past two years. Also during the quarter, we entered into several additional peaking transactions for the 2007/2008 winter season.

John, that concludes my remarks.

Thanks, Jim. Curtis Dinan will now review ONEOK's financial performance. Curtis?

Thanks, John, and good morning, everyone.

As Jim described, ONEOK had a strong quarter to start the year. Net income for 2007 was $153 million or $1.36 per share compared with net income of $129 million or $1.17 per share in 2006. The Distribution segment had improved performance in 2007 and Energy Services reported exceptionally strong operating income of $120 million compared with $93 million in 2006.

As John will discuss in a few minutes, our ONEOK Partners segment also performed very well during the quarter. On a stand-alone basis, ONEOK ended the first quarter with no short-term debt, 668 million of cash in temporary investments, 317 million of natural gas in storage and a debt-to-capital ratio of 48%. Stand-alone cash flows from operations, excluding the effects of working capital, exceed capital expenditures and dividends by $144 million.

Looking ahead, ONEOK has $400 million of debt maturing in February of 2008. With our current and forecasted cash positions and our long-term focus to maintain a 50-50 debt-to-equity ratio, we are considering a number of options or combinations thereof, including stock repurchase, future dividend increases, and additional investments in ONEOK Partners, to support its growth capital program.

John, that concludes my remarks.

Thanks, Curtis. Now, switching to ONEOK Partners, I will review the Partnership's operating results.

The first-quarter 2007 results reflect the volume growth in the Natural Gas Liquids segment due to bed new supply connections and improved natural gas processing economics. These results were offset somewhat by lower processed and lower realized commodity prices, which affect our percent of proceeds contracts in the Gather and Processing segment.

Let's take a moment to look at each of the partnerships for operating segments. Our net margin for Gather and Processing was down $15.2 million compared with last year. Lower realized pricing for natural gas and natural gas liquids accounted for most of the decline. While realized prices were lower, they were partially offset by a higher realized gross processing spread of $3.59 per Mmbtu, which is higher than the first-quarter 2006 realized spread of $3.43 per Mmbtu and still much higher than the five-year average of $2.55. We saw lower processed volumes due to anticipated contract terminations and weather-related events. As a result of these anticipated contract terminations, we temporarily idled our Bushton, Kansas natural gas processing facility and moved the remaining volumes to other facilities. Our 2007 guidance reflected these lower processed volumes.

During the quarter, our gathered volumes increased, primarily due to growing Rockies natural gas production. In addition, our average rate on gathered gas also increased, improving the quality of our fee-based earnings.

We continue to make progress on our contract restructuring effort. For the quarter, our contract mix by volume is 9% keephole 29% percent of proceeds, and 62% fee. Of our 9% keephole volumes, 52% of these contain conditioning language which, in effect, convert to a fee if the spread turns negative while still allowing us upside opportunities when the spread is positive. Our evolving contract mix, along with effective hedging, has significantly reduced the margin volatility of this segment.

During the first quarter, primarily as a result of our growing Rockies volumes and our ongoing contract restructuring, we crossed the point where the volume of natural gas we own through our percent of proceeds contracts exceed the amount of gas we own under our keephole contracts. This now allows us to dedicate a portion of our percent of proceeds equity natural gas where we are long gas against an equivalent portion of our keephole Natural Gas Liquids shrink requirements, where we are short gas, creating a natural hedge, if you will. The end result leaves us with a long position of keephole NGLs which we are able to hedge.

During the quarter, we increased our hedging activities, which are outlined in the news release. We also announced the expansion of the grasslands processing plant, fractionator, and gathering system as part of our growth capital program. Through the first quarter of 2007, our well connection, the Williston Basin, which is fueling the grasslands expansion, are on pace to exceed last year, which was a record year.

Turning to the Natural Gas Liquids segment, first-quarter performance was exceptional. This segment was able to capitalize on the product price differentials between Mont Belvieu, Texas and Conway, Kansas, contributing more than half of the margin increase. New NGL supplies connected to our systems along with improved processing economics positively affected our quarterly performance. NGLs gathered volumes increased by 9% from a year ago earlier and NGLs fractionated increased by 14% from a year earlier.

We continue to develop new NGL projects, along with our efforts to execute the previously announced Overland Pass Pipeline project and upgrades and expansions at our Mid-Continent facilities. The $260 million, 440 mile Arbuckle Pipeline will transport raw NGLs from the producing areas in southern Oklahoma and the Barnett Shale in Texas to our facilities and others at Mont Belvieu. We also announced a $120 million, 150 mile lateral pipeline connecting NGL production in the Piceance Basin to the Overland Pass Pipeline. These projects allow us to take advantage of the growing NGL production in two of the most prolific production plays in the U.S., the Rockies and the Barnett Shale, and connect them to our existing infrastructure at both Conway and Mont Belvieu.

In our Pipelines and Storage segment, net margins were up slightly due to a 7% increase in natural gas throughput and an 11% increase in throughput on our natural gas liquids gathering and distribution pipelines. The increase in NGL volumes was primarily the result of increased volumes being transported between Conway and Mont Belvieu because of higher price spreads. Construction is underway on our 135 mile Bushton-to-Medford NGL pipeline that is being built in conjunction with the Mid-Continent facility upgrades and the Overland Pass Pipeline project.

Also in the quarter, we completed the connection of the Partnership's natural gas transmission pipeline to a new 550 megawatt power plant in Texas that's being constructed by Navasota Energy Partners. The first phase of the power plant is expected to be operational this summer.

Now, turning to the Interstate Natural Gas Pipeline segment, margins were down because of lower throughput on Midwestern pipeline. Equity earnings were also down because of our reduced ownership position in Northern Border Pipeline. We were successful and we -- excuse me, we successfully completed the transfer of operating responsibility for Northern Border to TransCanada on April 1. Related to that, we closed our Omaha operations, moving the operations and gas control to Tulsa and successfully switching over all of our customer systems.

We also received our draft environmental impact statement from the Federal Energy Regulatory Commission for our proposed Guardian Pipeline extension and expansion into Green Bay, Wisconsin. We are still on target for a November of 2008 in-service date.

Curtis will now review ONEOK Partners' financial highlights. Curtis?

Thanks, John.

As John described, ONEOK Partners had a really strong first quarter. Net income was 96 million or $1 per unit, compared with 71 million or $0.67 per unit last year. Our higher earnings in 2007 resulted in a 19% increase in distributable cash flow to $1.25 per unit for the quarter.

Recently, ONEOK Partners increased its quarterly distribution to $0.99 per unit. This is the fifth consecutive distribution increase since the drop-down of the ONEOK assets in April of 2006. During the same period, we have increased distributions by 24%, demonstrating the Partnerships' commitment to growing unitholder distributions. The partnership ended the first quarter with $96 million of cash and temporary investments, 740 million available under its revolving credit agreement, and a debt-to-capital ratio of 48%.

ONEOK Partners has a strong and flexible balance sheet and is well positioned to develop the $1.5 billion of internally generated growth capital projects that are expected to contribute incremental EBITDA beginning in 2008.

John, that concludes my remarks.

Thank you, Curtis.

Before opening it up to questions, let me make a few additional comments. In my previous remarks, I mentioned several of the Partnership's growth projects that we either recently announced or currently have underway. I would like to take a moment to discuss how important these opportunities are to both ONEOK in ONEOK Partners. The partnership has more than $1.5 billion in capital projects over the next three years with attractive returns, benefiting both ONEOK Partners in the form of increased EBITDA and distributions and ONEOK as a sole general partner and 45% owner of the Partnership in the form of higher equity earnings and general partner distributions.

As employees, we recognize how important it is for us to deliver results. You may rest assured that we are focused on facing the challenges associated with this undertaking. You may also rest assured that we are not done. We remain active in finding yet more opportunities to create value for our customers, our shareholders, and our unitholders.

Operator, that concludes our prepared remarks. We are now ready to accept questions.

(OPERATOR INSTRUCTIONS). Kathleen Vuchetich, W.H. Reaves.

I was wondering if you could tell me, has the capital budget for OKS changed at all? You have a lot of projects underway and I was just wondering if there's been an update to the annual expected CapEx.

I might ask Curtis to answer that particular question.

Kathleen, this is Curtis. What we call the routine growth and our maintenance capital, that really has not changed since what we provided before, but with all of the projects that we have announced, the 1.5 billion that we have talked about, our growth capital for 2007 for what we call our large projects will be somewhere in the neighborhood of 750 million to 800 million, in that range. That's on top of, again, the maintenance and what we call routine growth.

What would the maintenance be, Curtis?

Maintenance was $65 million.

Okay. Will this require outside financing? Do you expect to do outside financing in 2007?

Well, I talked a little bit about the revolving credit agreement that's available. There's 740 million available under it and it expands to $1 billion, so we would anticipate using that as well as cash on hand and cash generated from operations to fund that during 2007.

Great.

Kathleen, I might also add, as Curtis pointed out in his comments, there are other options that we are looking at as well as it relates to equity contributions from ONEOK, in buying more units, etc., so we're looking at all of those things.

Okay, super. I was also wondering if -- I thought it was real interesting that you're now balanced on percent of proceeds in the keephole. Do that mean that you are able now comfortably to add to the keephole? You guys have been working really hard to bring that percentage down. Now that you're balanced, does that give you more flexibility in contracting?

Well, you know, balance -- I would say that where we are today is where we have been targeting to get to. What this does do is it gives us a little more flexibility to negotiate with producers and be open to adding marginally to the fee, the keephole and the percent of proceeds. So, I would not look for our portfolio to significantly shift away from where we are today, but what you point out is correct, is that we do have now be flexibility to be a bit more responsive to our producers.

Great. Jim made a comment that I really did not understand. He said -- and I'm probably mangling this -- but that you managed storage to retain the demand fee, and I'm not exactly certain what you meant, Jim.

As we make arrangements with LDCs to provide peaking service, they pay us a reservation fee. Then what the energy services people do, as they set up each month, they make a call on what they believe weather is going to be and how much demand business might be called from them. You can't always get that right. So if you end up in a situation where you're in a rising marketing and you are buying gas and selling it at a lower first-of-the-month index, that, we -- what we call -- that's, in effect, take some of that demand revenue away. We don't pay it back, but it just creates a negative situation that eats up some of the demand charges that we collect.

You did a really good job of forecasting and buying gas in advance.

Yes, they have.

Okay, super. Thanks so much, guys.

Yves Siegel, Wachovia.

John, could you just review the opportunity that you had in the Natural Gas Liquids segment to benefit between Conway and Mont Belvieu? I think it was around 11 million that you mentioned. Could you perhaps just elaborate on how that -- how you are able to affect that strategy and what will be the opportunity, going forward perhaps, to replicate that?

Sure. As you know, there are, from time to time -- excuse me. I should say there always is some relative difference in the value of a product between two locations. Through our Natural Gas Liquids segment, we provide our customers with a service that where we take their raw NGL from their natural gas processing plant and we deliver a finished product for them at either Conway or at Mont Belvieu. So, for those periods of time in which either -- which the price of a particular product at Conway or Mont Belvieu is significantly greater on a relative basis, we then, by participating in the market, are able to deliver the product where we have an obligation to but yet maximize for our own benefit the sale of a product at a particular point.

So in this case, say, for example, propane, relative to Conway, was significantly higher, and so we were delivering the product that we were required to deliver at Belvieu for our customers for their account, but then, the barrels that we were obligated to deliver in Conway, we perhaps would buy barrels at Conway and deliver those barrels for our customer to fulfill that obligation. Then we would ship those barrels for our own account and for our own benefit and sell them in Belvieu. That's one way. There's a whole lot of other things that our commercial people do, but that's probably the -- I hope that's a fairly clear description of the commercial activity.

It is. I'm just trying to figure out if there's a way to sort of forecast.

No. The way to think about it is this way. We collect a fee to provide that service, and that fee is certain. When the market, as in any commodity, creates an opportunity, because of our infrastructure and I think our commercial activities, we are able to capture that. It's no different than trying to predict a basis blowout on a natural gas pipeline -- very difficult to predict.

The important thing is it's upside and our ability to execute when the opportunities create themselves is the signpost that we think indicates that we are executing well.

How much volume -- is it possible to say how much volume is associated with that sort of arbitrage opportunity that you captured?

Well, you asked the question as you normally do, in a very specific way. Yes, it is possible for me to tell you that. I'm not sure that we have ever told that, and so I'm not sure that we should. So the answer I guess is I can, but we have not.

You choose not to is the answer?

Choose not to, okay, there you go. Thank you.

Then two quick ones just to move on -- one is you didn't change your guidance for this year and you had a terrific quarter. Is there a reason why you didn't increase the guidance?

Well, primarily because we want to get through the next quarter to see whether or not some of these activities that we are seeing in certain of these segments are repeatable, in which case then we will consider, reconsider -- and that's pretty consistent with what we have done in the past. As we get, obviously, closer to the end of the year, we become more confident in where we will end and I think we have been pretty straightforward, when we have that level of confidence, to revise guidance.

John, here's my last one. It appears that there's some significant acquisition opportunities in the marketplace right now or very shortly. How do you handicap -- plus I think there's also some significant opportunities for you in terms of additional organic growth projects. How would you sort of handicap the ability to do both or the ability to do more? Obviously, the return is going to be probably better on an organic project, but how do you think about it right now?

Well, we still, although not announced, see some sizable and significant internal or organic opportunities. There's more commercial work to be done before they are announced. So, we think we still have, we believe that we still have opportunities to grow through internally generated growth projects.

As we stated before, we remain interested in growing through acquisition. The handicap I would put is higher to internal growth than acquisition just simply because of the current multiples being paid or expected in the marketplace. But being commercially engaged also sometimes allows you to get opportunities to deal with people on an exclusivity basis, which is also something that we try to do, where we think we can create specific value for the seller that others might not be able to and then for ourselves and avoid the auction process. So, we are still looking at both of them, but if you ask me to handicap, that is how I'd do it. We're more heavily weighted towards internal for the reasons you point out.

I'm just pushing it and I really apologize, but the last question is, do you guys -- are you restricted in any way, in terms of how much of OKS units you can own at OKE?

No, we're not.

Okay, thank you.

[Sue Lyn Tank], Citigroup.

I was wondering if you could elaborate a little bit more about to Energy Services, given that you guys had a great first quarter. What's a good run rate going forward since you didn't change your guidance for 2007?

I apologize, but your transmission of the question was cut out, and so we only heard about half of it. Would you mind trying that again?

Is this better?

Yes ma'am, much better.

Great. My question was regarding the Energy Services. Given that you guys had a great first quarter and you did not change your '07 guidance, so I was wondering. What's a good run rate to project forward for the rest of the '07 quarters.

This is Jim. I think my first response to that question is when we gave our quarterly guidance three or four weeks ago, we anticipated this quarter, so it was right in line with our expectations. part of the process of this business is volatility and weather create different opportunities, and as -- now as we are getting into warmer weather, especially for the second quarter, we'll probably and are -- will be injecting gas into storage. Then typically in the third quarter, when it's hot in a lot of the country, we will see increased demand for natural gas, which, again, with our gas we've been injecting in storage sometimes, we are able to capture the margins from that volatility. Then, of course, as you move into the fourth quarter when it gets cold, we typically see higher margins. So in a general way, our first and fourth quarters are generally our largest quarters. The second quarter follows behind that and then the third quarter is usually the lower quarter. I would expect that same pattern to be repeated this year. Now, you throw all of that out if the hurricane forecasters are correct. As we saw several years ago, that creates a lot of volatility with natural gas.

So overall, you're still expecting roughly around 205 million for the entire year?

Yes. Our guidance is 205, and that, as we said, doesn't include any trading. So you look historically, our trading averages about $20 million. But that, again, depends on a lot of factors outside of our control.

Right, got it. My last question is related to -- I know you mentioned the use of the cash you have on hand regarding whether stock a repurchase or increased dividend or two support OKS, but I was wondering if you can get a more definitive plan and also timing of any sort of announcement that could potentially come up?

I think that's a great question, but no, we can't give a more definitive answer than that which we have provided so far. But I think it's -- we are looking at all of those and, as Curtis alluded to, combinations thereof and so we will attack -- we will approach those as time passes.

Sam Brothwell, Wachovia.

Apologies, I had to jump off and on a couple of times. If this has been asked, just tell me, but at the parent level, you're sitting on a fair amount of cash, but can you this kind of step through how you think about allocating that, returning it to shareholders, debt paydown, and also what level of credit quality you think you need to keep to sustain the success you're seeing in the Energy Services business.

As far as the credit rating, we believe -- our target is to maintain and increase our current rating. We continue to work with the rating agencies to that ultimate goal.

As far as the opportunities to invest cash, as we have discussed in the past, we look at opportunities to invest more money in ONEOK Partners. We have looked at share repurchase, increasing the dividend, share buyback. We've got all of these in the pot right now and we're stirring them up.

So, and as I alluded to on the last question, we're not at a point where we are ready to disclose or talk about what exactly it is we're going to do. Now Curtis, is there anything you would like to add to that?

No, I think that -- did that answer all your questions, Sam?

I guess at what point do you anticipate being able to get a little more definitive about that?

Well, much like looking at guidance, as the year progresses, these alternative become much clearer, and so I don't -- I'm not going to -- we don't have a date specific, but we are spending time reviewing all of these alternatives, so sometime in the near to not too distant future.

Good enough. Thank you very much.

Yes, sorry.

[Louis Shamey], Zimmer Lucas.

Congratulations on the quarter. I had a couple of questions. First off, just on the Bushton plant which was idled, what would the EBITDA impact have been if you still have those volumes going through that plant?

I'm not sure that I have that information in front of me. I think what you've got to remember about the Bushton is that it's a complex. It consists of more than just a natural gas processing facility, so what we have been able to do is move raw gas, our raw gas to some of our own facilities as well as to a third party. But overall, I think you are probably safe to say that you are in the probably the $5 million to $7 million range for the first quarter, something like that.

Okay. So basically if you had it in service, you would have done $5 million to $7 million better in terms of EBITDA?

That's correct.

Okay. In terms of shifting the volumes to the third parties, did you receive any compensation from them for that?

I'm sorry, again, I apologize. Would you mind repeating that question?

Sure. On the volumes that you shifted to third-party processing plants, were you -- did you receive any compensation for that?

Yes, yes, and all of that was in our guidance. I think we mentioned that in our press release, but that was actually contemplated and part of our 2007 plan. This is some -- these are some consolidation plays we've had underway inside gathering and processing for well over a year.

Great. On the NGL segment, I'm trying to understand what percentage of that margin came from sea bass services and what percentage came from, let's say, the Conway Belvieu spread and let's say, (inaudible) or services like that?

Well, most of -- and I think it's somewhere in the neighborhood 80% of the margin generated in the Natural Gas Liquids segment is fee based.

Would that hold true in the first quarter as it did last year or has that shifted a little bit in this quarter?

Well, I would think that, since we had this additional or incremental earnings associated with the product differential, we will see a bit more probably in the optimization, which contains some fee-based business, but incrementally, there would be a bit more, so it would be somewhat, on a relative basis, lower, that being the fee-based portion. But it's still predominantly a fee-based business.

So you wouldn't have the actual dollar amount in margin that you made on the optimization?

No, we don't.

Okay. Then finally --

We do, but we've not ever shared that information.

Sure. But it's roughly on the order of that 11 -- what was the number there in the press release? 11.3 million? Something around that? That was disclosed in the press release?

Right. The number in the press release is correct.

Finally, if you were to compare the spreads in April to what you saw in the first quarter, have they kind of maintained themselves or have the opportunities diminished at all?

About the same.

About the same, that's what I thought. Thanks a lot.

Chip Rewey, Kramer Rosenbaum.

Just actually a quick follow-up to that last one. If you think about just the guidance for the Energy Services at that 205, can you just give us a little more detail or feel on how much of that is really just demand fee driven, even a rough percentage, just kind of getting a base fee before you do any of the optimization or commercial activities? How have those -- what has been the growth rate of those demand fees over the last couple of years?

Chip, this is Jim. I hear your question, but we, historically, haven't disclosed those demand fees and what their growth rate is because you can imagine that's pretty sensitive data between all of the LDCs we do business with. But it is -- as we add peaking customers, it does grow those demand fees, and as we -- but then as we add storage, it increases our ability to take advantage of that summer/winter spread and the daily volatility. So we tend to look at that all as one package of earnings, and again though, just I have them but I'm not comfortable disclosing the level of those demand fees.

Okay. I guess, secondly, what is the average contract term on your normal relationship? Is it like a three-year thing or is it just renew annually as kind of an evergreen or when you have these relationships, what is the average duration?

Well, most of them are one-year terms, but that said, because of having the storage and the pipe capacity to supply these customers, we have a very high renewal rate. Added to that, we have never been unable to perform providing this peaking service to these customers, so we have -- and we perform and that's important to these utilities.

Chip, this is John. Another thing I would add to that is that they are not all one-year. We have several that are longer-term. And the question, another question that we get asked is it's the chicken before the egg -- what do you do? Do you go storage and then go find an LDC for load following service or vice versa? The two, obviously, we -- as execute our strategy, they occur simultaneously, but it definitely is our commercial people are out generating new business demand based no-notice, load following service. Then as they execute on those deals, then we are going back out almost simultaneously and increasing our transportation and storage positions to fulfill those contracts to, as Jim says, always be able to provide that service.

Now, the added benefit is the optimization that group provides to those storage and transport positions, which we acquire to provide that no-notice service. That's our strategy. Now, if we sit down and break it all out of into buckets, why, it gets very transparent and we're not going to go to that; we are not want to go to that.

Okay, thank you.

Ted Isaac, Bear Stearns.

Thank you very much. Actually my question was answered. I was just going to ask you more about the share repurchases, but it sounds like you've made no decisions yet on sort of timing or amount. Is that a fair statement?

That is a fair statement.

Okay, thank you.

Kent Green, Boston American Asset Management.

My question pertains to Northern Border. I sense that you're backing away from ownership in this pipeline and you're down to 50% [giving up the GP] to Transamerica. Is the remaining 50% up for sale or could it be sold in the future?

Well, the other 50% is owned by TransCanada and of course, our share is 50%. We're not actively pursuing the sale of that interest.

Is that, is the volumes on the TransCanada still somewhat in doubt because of tar sands and other things or is it starting to rise?

No, we've seen a decrease. Let me back up. Northern Border Pipeline for many years was fully subscribed at max rates. Over the last, I don't know, maybe 18 months to 2 years, we have seen a certain amount of that capacity become available for interruptible transportation. So, I think the numbers are something like 300 million to 600 million a day of former demand-based firm transport that's converted to IT. So that, I think, has been -- it's obviously a change. It's a big shift, but for those of us in the United States that are engaged in the interstate pipeline business, that's the way most pipes in the United States are is they have a certain volume that's firm and a certain volume that is IT, or interruptible. So we are little more comfortable with the IT concept, but we are keeping an eye on supply and demand and how much volume is moving into the States from Canada. You are correct in that a large share of that gas that's not finding its way into the U.S. is being used to -- in the tar sands development. But I would agree with your assessment, but we are not actively selling our 50%, or attempting to.

Just one follow-up question on the storage -- I assume, from your earlier comments, that you are in the storage business to capture the spreads from the off-peak periods to the peak periods. Are you offering those services to other people, too, to use storage or are you just using in your own?

In our Energy Services segment, which is a segment inside of ONEOK, Inc., is where we have -- where we are talking about capturing the summer/winter spread, and it's where we are out engaged, trying to negotiate no-notice service with distribution companies and then acquiring transport and storage to serve them and then optimizing in these off-peak periods you are referring to. That occurs inside that segment, which is a ONEOK segment.

The ONEOK Partnership, or ONEOK Partners, one of the segments that -- inside that business is our Pipeline and Storage segment where we owed intrastate pipelines and we also own natural gas storage fields. Now, in that segment, we provide storage services to the marketplace for a fee. So we are engaged in both ends of the market, one in providing the service and we do that through the Partnership, and the other in using the service to create value for customers. We do that inside ONEOK, Inc.

Looking at it from ONEOK Partners' standpoint, is this then expandable by a significant portion over the next several years?

The storage that we own has some expansion capabilities and it is always a matter of economics and returns, but also, we believe storage is an on-the-margin asset. It is the one that satisfies market demand faster than anything else. So we continue to look for opportunities to invest at the Partnership level in more storage. We have found that those opportunities and the returns that are available on those type of investments are not as great as those that we found by building primarily infrastructure in the natural gas liquids business. So for us, it's been not that there are not opportunities to vest in storage but that they tend to be better investments in other areas.

Am I right in assuming that you are very, very interested in the natural gas liquids business primarily, you know, in the northern basins like the Williston where a lot of new stuff -- or Utah, a lot of new stuff is coming up?

We are active in our Gathering and Processing segments gatherings gas and producing liquids in those areas that you are talking about. We're also active in those areas building infrastructure to move those NGLs out of the Rockies down to our Natural Gas Liquids business, which is primarily in the Mid-Continent where we own our fractionators and most of our pipe and then at Mont Belvieu Texas where we also own other infrastructure and the pipe that connects the two. So what we are doing is trying to move or provide a service to producers who have natural gas liquids locked, if you will, or trapped in that area you referred to, and get them to market either at Conway or Belvieu.

Thank you.

So yes, we are very interested in it, but we are also very interested in the natural gas business. So, we're pretty evenly spread between the two.

Thank you.

Lasan Johong, RBC Capital Markets.

Congratulations on a good quarter. I've been hearing, through my E&P sources, that drilling in the Mid-Continent and the Rockies, particularly the PRB, is starting to slow down for multiple different reasons. I'm wondering if you have any insight into those comments and thoughts.

Our only insight would be based on our own personal activity in connecting news wells in those areas. Of course, we're not in the Permian Basin, so I can't make comment to that, but as in the Rockies, as it relates to those areas in which we operate, the Rockies and the Mid-Continent, we continue to see a lot of activity.

So you don't necessarily view a threat to your franchise at this point?

No, sir.

Excellent. Thank you.

Okay, thank you. This concludes the ONEOK and ONEOK Partners call.

As a reminder, our quiet period for the second quarter will start when we close our books in early July of 2007 and will extend until earnings are released. We will provide a reporting date and conference call information for the second quarter at a later date. Christy Williamson and I will be available throughout the day for follow-up questions. Thanks for joining us and have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.