歐尼克 (OKE) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your ONEOK Second Quarter 2007 Earnings Conference Call.

(OPERATOR INSTRUCTIONS.)

As a reminder, today's conference call is being recorded.

I would now like to introduce your host for today's conference call, Mr. Dan Harrison. You may begin, sir.

Thank you. Good morning, and welcome, everyone.

As we begin this morning's 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.

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

Thanks, Dan. Good morning, everybody.

Joining me on the call today are Jim Kneale, ONEOK's President and COO, and Curtis Dinan, SVP and CFO for both ONEOK and ONEOK Partners. Here's our agenda for this morning. Following a few general remarks, we'll review ONEOK Partners first. Curtis will review ONEOK Partners' financial performance, and then I'll discuss the Partnership's operating performance. Then we'll switch to ONEOK, and Curtis will return and review ONEOK's financial performance, then Jim will review ONEOK's operating performance. Then, I'll make a few closing comments before we take your questions.

ONEOK had a solid second quarter primarily because of the strong performance of the ONEOK Partners segment and the Distribution segments. The ONEOK Partners segment benefited from improvements in the Natural Gas Liquids business, which I'll discuss in more detail shortly.

ONEOK's Distribution segment benefited from the new rates that went into effect the first of the year in Kansas and Texas. ONEOK's Energy Services segment had lower second quarter results than the same period last year, which is a reflection of lower natural gas price volatility.

As a point of reference, this segment's earnings are in line with past second quarter earnings. For example, in 2004, it was $4.9 million and in 2005 it was $2.9 million. More importantly, we remain confident in the segment's full year forecast of $205 million. Jim will provide more detail in a few minutes.

We are reaffirming ONEOK's 2007 guidance, but narrowing the range to $2.50 to $2.70 per share, and the midpoint has increased $0.05. We are also increasing ONEOK Partners 2007 guidance to the range of $3.65 to $3.85 per unit due to the anticipated strong performance of our Natural Gas Liquids, our Gathering and Processing and our Pipeline Storage segments, along with the acquisition of an interstate Natural Gas Liquid system, which we expect to close later this quarter.

Curtis Dinan will now review the financial highlights and the results of ONEOK Partners. Curtis?

Thank you, John, and good morning.

ONEOK Partners continued its outstanding performance in 2007 with a really strong second quarter. Net income was $95 million, or $0.97 per unit in the second quarter of 2007 compared with $196 million, or $2.22 per unit last year. The 2006 amounts include a gain from the sale of a 20% interest in Northern Border Pipeline Company. Excluding that gain, the Partnership's second quarter 2006 net income per unit would have been $0.87 per unit, or $0.10 lower than this year's second quarter. Excluding that gain on the Northern Border sale, second quarter operating income increased 9% in 2007 compared with the same period in 2006.

As John will describe in more detail, our Natural Gas Liquid and Pipelines and Storage segments performed very well during the quarter, benefiting from growth in Natural Gas Liquids supplies and favorable Natural Gas Liquids market conditions.

Recently, ONEOK Partners increased its quarterly distribution to $1 per unit. This is the sixth consecutive distribution increase since the drop-down of the ONEOK assets in April 2006. during this period, the Partnership has increased distributions by 25%, demonstrating its commitment to growing unit holder distributions.

The Partnership ended the second quarter with $83 million of cash and short-term investments, a debt to capital ratio of 49%, and $885 million available under our recently expanded $1 billion revolving credit agreement. ONEOK Partners has a strong and flexible balance sheet, and is well positioned to execute its growth capital program that is expected to contribute incremental EBITDA beginning in 2008.

The Partnership has increased its earnings guidance for 2007 to a range of $3.65 to $3.85 per unit to reflect the higher anticipated results in our Natural Gas Liquids and Pipeline and Storage segments, and completion of the $300 million acquisition of the interstate Natural Gas Liquids and Refined Products pipeline system from Kinder Morgan Energy Partners.

The Partnership's guidance also includes higher estimated other income related to capitalized allowance for funds used during construction, or AFUDC equity costs from our growth capital program. Interest expense net of capitalized interest cost is expected to be lower than our previous guidance, primarily related to our growth capital program. Again, those amounts are net of capitalized interest cost.

Our distributable cash flow is now expected to be in the range of $4.30 to $4.50 per unit.

With the recent announcement of our organizational changes, we will begin reporting our results of operations in new segments beginning with our third quarter earnings release and 10-Q. at that time, we will revise prior periods presented such that our segment financial information is comparable between all periods.

Results for our Natural Gas Liquids segment, renamed Natural Gas Liquids-Gathering and Fractionation and our Gathering and Processing segment will not change. Our current interstate pipeline segment will be renamed Natural Gas Pipelines, and will also include the intrastate natural gas pipelines and storage assets that are currently reported in our Pipeline and Storage segment.

Natural Gas Liquids-Pipelines will be our fourth segment, and will consist of our current regulated Natural Gas Liquids pipelines, the assets we are acquiring from Kinder Morgan, and the FIRC-regulated Natural Gas Liquids pipelines, such as Overland Pass, Peonce and Arbuckle that we are currently developing.

At the time we report our third quarter results, we anticipate revising our 2007 guidance to reflect our new reporting structure.

John, that concludes my remarks.

Thanks, Curtis.

OK, let's take a moment now and review the operating results of ONEOK Partners. Adjusting for the $113.9 million one-time gain in the second quarter of '06 associated with the sale of the 20% interest in Northern Border Pipeline to TransCanada, the Partnership's second quarter and six-months results were up, reflecting volume growth in both the Natural Gas Liquids and Pipeline and Storage segments, and improved product pricing spreads in the Natural Gas Liquids segment.

Now for a review of the Partnership's four operating segments. In the Gathering and Processing segment, processed volumes in the second quarter increased from the first quarter of 2007. However, when compared with the second quarter last year, processed volumes were lower due to the anticipated contract terminations that took place at the end of 2006.

During the quarter, our gathered volumes increased, primarily due to increased production in the Rockies, growth in the Williston Basin is driving the expansion of our Grasslands Plant, where construction is currently underway and the first phase should start later this summer. Our combined new well connects in the Rockies and the Mid-Continent areas are currently on pace with last year.

All in all, the team has done a great job adding additional Natural Gas supply. We also continue to benefit from our contract restructuring efforts, primarily through our fee-based earnings. At the end of the second quarter, our contract mix by volume was 62% fee, 29% of proceeds and 9% keypole. Of our 9% keypole volumes, 56% of these contained conditioning language which, in effect, converts to a fee if the spread turns negative while still allowing us, with upside opportunities, when the processing spread is positive.

Our evolving contract mix, along with effective hedging, has significantly reduced over time the margin volatility of this segment.

The Natural Gas Liquids segment's second quarter performance was outstanding as a result of additional volumes due primarily to new NGL supply connections. Additionally, wider NGL product price differentials between Mont Bellevue, Texas and Conway, Kansas, and higher isomerization spreads benefited this segment. Volumes of both NGLs gathered and fractionated increased 5% from the second quarter last year and about 8% from last year's six-month period.

As mentioned, our volume growth was due to new connections of four natural gas processing plants in the mid-Continent region. Our Mont Bellevue fractionator also experienced improved performance as a result of both increased throughput and re-negotiated rates.

The Pipeline and Storage segment was up slightly in the second quarter as a result of higher margins due to increases in Natural Gas Liquids gathered and transported, and higher natural gas storage margins as a result of new and renegotiated contracts. These increases were partially offset by lower natural gas throughput on our intrastate pipelines due to milder weather.

Again, after adjusting for the one-time gain on the sale of the 20% interest in Northern Border Pipeline, our interstate natural gas pipeline segment was down primarily due to reduced transportation revenues resulting from lower contracted volumes and higher operating costs, which were primarily employee-related.

Equity earnings were also down mainly due to one-time costs of transitioning operations of the Northern Border pipeline to a TransCanada affiliate. On a brighter note, on July 26th, the FIRC granted authorization to Midwestern Gas Transmission to construct a 31-mile extension project, bringing needed gas supply into Nashville, Tennessee. Construction has begun, with an expected in-service date in the fourth quarter of this year.

Now for some comments regarding ONEOK. Curtis will now review the ONEOK's second quarter financial highlights. Curtis?

Thanks, John.

ONEOK's net income in the second quarter of 2007 was $35 million, or $0.31 per share, compared with net income of $78 million, or $0.65 per share in the second quarter of 2006. The results for 2006 include a $0.27 per share impact related to ONEOK Partners' sale of a 20% interest in Northern Border Pipeline Company. As Jim will discuss in more detail, ONEOK's results for 2007, while lower than 2006, reflect increased earnings in the Distribution segment and a return to a more historical earnings pattern, with our highest earnings coming during the first and fourth quarters.

As previously described, our ONEOK Partners segment performed very well during the quarter. the Partnership's two Distribution increases so far in 2007 have increased its annualized distribution by $0.08. this increase creates about $3 million of additional cash flow from the limited partner units that ONEOK owns. It also increases the incentive distribution ONEOK receives by about $6.6 million annually.

With the growth forecast by ONEOK Partners from its $1.5 billion in projects and anticipated acquisition from Kinder Morgan, future Distribution increases will continue to create earnings and cash flow growth for ONEOK.

On a standalone basis, ONEOK ended the second quarter with no short-term debt, $247 million of cash and cash equivalents, $598 million of natural gas in storage and a debt to capital ratio of 52%. Standalone cash flows from operations, excluding the effects of working capital, exceeded capital expenditures and dividends by $153 million. This amount has been positively impacted by a delay in capital expenditures at our distribution segment, caused by rainy weather in our service territories. For the full year, we continue to estimate that our capital spending will be in line with our previous guidance.

As previously announced, we completed an accelerated share repurchase of 7.5 million shares of common stock at the end of June. The repurchase did not impact our second quarter results, but will have a positive impact on our EPS calculations beginning in the third quarter. we have updated our earnings guidance for 2007 to a range of $2.50 to $2.70 per share, reflecting the anticipated higher results in our ONEOK Partners and Distribution segments, as well as the recently completed share repurchase. These higher results are somewhat offset by lower investment income and higher minority interest expense related to the 54.3% of ONEOK Partners that we do not own.

We also anticipate that ONEOK's standalone cash flows from operations before changes in working capital to exceed capital expenditures and dividends by $180 million to $200 million. With our current and forecasted cash positions and our long-term focus to maintain a 50-50 debt to equity ratio, we continue to analyze a number of options, or combinations thereof, including repaying $400 million of debt that matures in February 2008, future dividend increases, and additional investments in ONEOK Partners to support its growth capital program.

John, that concludes my remarks.

Thanks, Curtis.

Now, Jim Kneale will review ONEOK's second quarter operating performance. Jim?

Thank you, John, and good morning. I'm going to spend the next few minutes talking about ONEOK's three operating segments - ONEOK Partners, Distribution and Energy Services. John and Curtis have already talked about the Partnership's operations and distribution increases, and the only point I want to emphasize is that, with the growth forecast by ONEOK Partners, we expect distribution increases to continue, which will result in additional earnings growth at ONEOK.

Turning to the Distribution segment, we had strong performance in the second quarter. The significant improvement in margins over last year was primarily the result of new rates in Kansas and Texas. We were also able to hold operating costs flat with last year as we continue to focus on cost containment through process improvement and creating synergies between the three distribution companies.

Year-to-date Distribution margins also improved relative to last year, again due to the new rates in Kansas and Texas and a return to more normal weather. Total operating costs for the six months increased a modest 2.9%, with the bulk of the increases related to bad debt expense and an increase in property taxes in Kansas. Even with the increase, our bad debt percentage remains well below industry norms, and the Kansas property taxes are being recovered in our base rates.

Consistent with our strategy to increase returns, in Texas we have recently filed several rate applications. In the third quarter, we will file a general rate case application in our El Paso jurisdiction. These filings could result in up to $5.5 million in additional annual revenues, and we've factored the impact -- the estimated impact of that in our 2007 guidance.

In Oklahoma, we successfully presented our case to recover $6.7 million of deferred cost incurred to comply with government mandated pipeline integrity management requirements. We anticipate receiving final approval by mid-August. Also in Oklahoma, we expect to file a request for approval of both capital and bad debt recovery mechanisms before the end of the year.

In Kansas, the governor has indicated her intent to promote energy conservation measures. As a result, the Kansas Corporation Commission opened a generic docket on energy efficiency programs. We view this as a positive development for the prospect of alternative rate designs, such as revenue decoupling.

In summary, I would like to recognize the Distribution team for the great job they've done improving the returns for this segment and the good progress they're making on executing on our strategies, which will continue to add earnings over time.

Now looking at Energy Services segment. As Curtis mentioned, we had a profitable second quarter in 2007, but it was lower than 2006. The volume of natural gas marketed increased, but last year we benefited from unusually high natural gas price volatility. The reduced price volatility we experienced in the second quarter this year resulted in lower storage margins and also negatively affected both our optimization and trading activities when you compare them to 2006.

On the other hand, transportation margins for the second quarter were higher than last year. we have approximately 87% of our transportation capacity hedged for the remainder of 2007.

While our second quarter operating income was less than 2006, as already has been mentioned, 2007 was higher than both 2004 and 2005. Our 2007 earnings pattern is returning to the more normal pattern of high first and fourth quarter earnings driven by sales of natural gas related to winter weather.

This logically follows the profile of our largest storage customers, the LDCs, who also experience higher earnings in the first and fourth quarters. We currently have 96 BCF of storage capacity leased for the 2007-2008 winter season, which is an increase of 10 BCF over the past two years. During the second quarter, we signed up numerous 2007-2008 winter season peaking transactions with LDCs.

The last thing I want to mention is that, as John already indicated, we continue to believe Energy Services is on track to meet or exceed 2007 guidance expectations.

John, that concludes my remarks.

Thanks, Jim. And before opening it up to questions, let me make a few additional comments.

At ONEOK, we remain committed to growing ONEOK Partners, which benefits from the Partnership's -- which benefits the Partnership's unit holder in the form of increased distribution and benefits ONEOK as the sole General Partner and 45.7% owner of the Partnership in the form of higher equity earnings and General Partner distributions.

The Partnership's $1.5 billion of internally generated growth projects and pending $300 million acquisition of additional NGO assets are proof of our efforts. You may also rest assured that we are not done. We remain active, evaluating opportunities both internally and externally, to create value for our customers, our shareholders and our unit holders.

But, it's the effort of our more than 4,400 employees that make the difference, not only in the second quarter but also in the future. And to them, I say thank you. as employees, we recognize how important it is for us to deliver results. I am confident we are focused on the right things and are ready to meet the challenges associated with this undertaking.

Operator, we're now ready for questions.

(OPERATOR INSTRUCTIONS.)

Mike Heim with A.G. Edwards.

Thanks. Good morning.

Hate to focus in on the Energy Services, but one question on that. I think I understand your explanation on the marketing and storage margins pretty well, and I can accept that financial trading is going to be a pretty volatile area. But, I guess I'm a little bit surprised on the drop in retail marketing. I would have thought that would be a pretty consistent division. Can you add any more color on that?

Yes. Mike, this is Jim. A couple things. One is, especially in this second quarter with all the rain we've had in this part of the country, the irrigation load just hasn't been there. that's a big part of their business in that segment. The other thing is we lost a couple customers toward the end of last year, and we're just starting to see the effects of that.

Now, on the flip side, we've been signing up new customers, but those revenues -- margins just haven't started showing up yet.

OK. That's my only question. Thank you.

Carl Kirst with Credit Suisse.

Hey. Good morning, everybody.

I just wanted to follow up on the interview services, if I could, and specifically trying to get a better handle on the volatility maybe that we're seeing today versus the second quarter. I'm looking at it in context of sort of -- with respect to the $205 million full year guidance for marketing. That would seem to imply second half '07 results close to second half '06 results. Would you say that second half '06 was somewhat indicative of more normal volatility? Do you think we've had a pickup of volatility July over second quarter? I'm trying to get a better sense of why second half '07 is going to be very close to second half '06.

Carl, this is Jim. Let me take a shot at that, and then maybe John might want to add that.

In general terms, as we look at the fourth quarter -- third and fourth quarter of this year, what we're forecasting, like we said, is that more normal -- return to normal withdrawals. And if you look at it kind of in perspective, a lot of the margins we generate in the fourth quarter and the first quarter come from storage withdrawals in that summer-winter spread, much of which is hedged. And actually, the hedged spread, if you want to call it that, is a little higher this year than we realized last year. You look at what will drive that spread. It will be withdrawals from storage. And just in perspective, what we're forecasting is withdrawals comparable to last year increased a bit because of that 10 BCF of additional capacity in the new LDC customers we have.

Now, in terms of volatility, I could give you statistics, just looking at year-over-year, the Henry Hub cash volatility was 60% last year in the second quarter. It was 32% this year. What that impacts -- because normally, again, this time of year second quarter we aren't withdrawing a lot of gas out of storage, but what we're able to do is take advantage of price movements in -- on a daily basis maybe not inject or sell gas. Those opportunities just didn't show up because the price was virtually fairly flat.

So, again, looking forward to the fourth quarter, of course we need it to get cold, and usually third quarter you'll see more volatility because there tends to be some disturbances, tropical depressions and things that will impact prices. So, long explanation, but yes, we -- third and fourth quarter combined should pretty much track '06, maybe a little higher.

No, no, that color is actually very, very helpful. In fact, if I could just -- as a follow-up, so you mentioned the sort of cash volatility, if you will. On a go-forward basis, somewhat of -- kind of a generic sense, is that the primary factor we should be focused on when trying to gauge whether or not volatility is higher or lower in a certain quarter, I mean, as opposed to cash prompt month or -- I mean, obviously you guys do a whole lot in storage, but trying to figure out if there's one element or one dynamic more than any other that is driving the boat, so to speak.

It's probably a combination, Carl. One of the things I tend to track and watch on a daily basis, and I know the Energy Services team also does this, too, it's -- one, it's the summer-winter spread, and watching the NYMEX will give you some indication of that. but, the missing piece is basis, it's like the mid-Continent basis. I mean, if you look at the NYMEX -- yesterday when I did, I think the September to February spread was maybe 2.25. But, if you basis-adjusted that, it's not that high in where we -- where our markets are.

The other thing is the volatility. In presentations we've made, we have a piece of our business we call optimization, and that is that part where we physically take advantage of price movements, and that margin comes from the daily volatility that you see. So, again, it's those two factors combined that really you kind of have to watch to track the business. And then, again, it needs to get cold, like we need to have normal weather, of course, as we move into the winter.

Hey, Carl, this is John. Let me throw a little bit of a different spin on this, and that is that, if you look at what occurred in the second quarter of last year with the hurricane and the impact of supply and disruption of demand or increasing demand in different parts of the country, that event created a lot of opportunities to move supply from where we have supply located to meet the needs of the marketplace. And because of the uncertainty associated with that event, along with actually I believe an earlier heat -- cooling season, in other words temperatures were a little hotter this time of the year, particularly where we sell gas to power plants for air conditioning load than we've experienced so far this year. So, those really weather-related events created opportunities.

And one of the things our Energy Services people do is they look to capture the opportunities that are available in the marketplace. And because of the -- a bit heavier cooling load, along with the dynamics created by the hurricanes, they were able to execute and capture value. So, I don't think there is a measure that you can focus on like volatility measure and use that to predict earnings.

I would go back to what -- the statement we made earlier, and that is, if you look at '04 and '05 for the second quarter, and if you go back and look at the third quarter, you'll see that our traditional earnings pattern in Energy Services, notwithstanding special events, is more consistent with what we saw this quarter.

And we just -- you can't predict the weather, but I do believe -- and the point we're trying to make is that earnings from our Energy Services segment will more follow the Distribution companies because those are our primary customers across the country. So, to the extent that weather provides opportunities, we feel confident that our people are well positioned to capture those.

But, on the other hand, I think you need -- I would suggest that you would focus more on this earnings pattern. And as it relates to the second half of this year, again, we feel very confident that that segment will end the year around that $205 million number.

Very much appreciate the added color and the time.

(OPERATOR INSTRUCTIONS.)

[Louis Shamey] with Zimmerman Lucas.

Hi. Actually, it's Zimmer Lucas. Congratulations on the quarter. Pretty strong, especially for OKS.

The question that I had was on the revised guidance, on the interest expense. What portion of that interest expense change in the guidance is due to capitalized interest or AFUDC debt?

Curtis, you want to handle that one?

Yes. Louis, there's a couple of pieces. I assume you're talking about the guidance at ONEOK Partners.

Yes. yes.

On the line item that's "Other Income" expense, which is a net number that's increased from $2 million to $19 million, that's almost exclusively the AFUDC equity component that we're capitalizing. It gets recorded on that line. But then, the interest expense, which is the debt portion that gets capitalized, that's netted out of interest expense. And you can see that that number has -- there's several things going on in that number. It's improved by about $16 million.

Part of that is it increased from the previous guidance for the Kinder acquisition that's anticipated to close here this quarter, but then offsetting that by similar amounts to the AFUDC equity piece would be the capitalized interest. And then, we've also just had a little bit stronger cash flows this year than we had anticipated, so our borrowings have not been quite as great as we had originally forecast last year when we released our '07 guidance.

OK. Is there any way you can break that out or give what the kind of cash interest payment would be?

I don't have that here with me, Louis, the exact numbers. But, the capitalized interest, since we're at a 50-50 debt and equity, the interest piece that's capitalized would be similar to the AFUDC piece. So, in that kind of $15 million, $16 million range.

Great. And then, looking to the parent, the interest expense also was -- the guidance was revised down, but by less magnitude. I'm just wondering why I guess the parent interest expense is expected to be higher than you were originally forecasting.

Similar answer with -- from ONEOK Partners. At ONEOK standalone, that piece is forecast to be up about $10 million, and it comes from a few places. One, we used $370 million of cash to complete the accelerated share repurchase, so we have a little bit less cash available for interest income, but then that also means we'll probably be borrowing on a short-term basis a little bit more than we had anticipated. And so, that's part of it.

And the other part is just the rates that we're seeing to do that are a little bit higher than we had forecast last fall. So, again, it's kind of a combination of things.

OK, excellent. Thanks a lot.

(OPERATOR INSTRUCTIONS.)

Carl Kirst from Credit Suisse.

Hey, hi, just a quick follow-up.

As we look at the environment for Energy Services and specifically people, I know it's a bit apples and oranges and not exactly your direct competitors. But, as we see more banks come into this space, perhaps looking for talent on one hand, on the other maybe it's not quite as heated a market with the lower volatility, can you comment on any changes you may see with the market as far as having to hire new people, retaining current people, anything that's different this quarter over the last six months?

Carl, this is John. No. I would say that it -- the players are changing. I mean, we have formidable competitors through not only the banks, the new entrants, as you mentioned, but also the major integrated oils and their marketing affiliates, along with the other independent marketing companies out there.

And clearly, in that business, the talent is your greatest resource. And so, we have seen people leave, and we have seen people come, and we -- as we are with the balance of our employee workforce, focused on creating opportunities and challenges that are both rewarding financially but also professionally, and trying to attract that talent. But, clearly, right now in particular, there's a lot of movement and opportunity in the Energy Services segment as it relates to people.

That's helpful.

And then last quick question, I know back when you first issued guidance for the year there was kind of a quarterly split. And with all deference to being able to predict quarterly swings in Energy Services, do you have kind of a similar rough breakout for what the third quarter and fourth quarter might be as far as a broad range relative to full year guidance?

The short answer is no. I mean, part of the difficulty in this conversation today actually is, in our attempts to try to provide a better feel to the -- to our shareholders and to the analysts who follow us is to what our earnings would look like. And so, we attempted at the beginning of the year to try to separate our year-end guidance into quarterly guidance. And what you find is it's a guess. We feel very confident in our year-end numbers, as we have in the past.

And I will tell you personally that one of the disadvantages of having tried to communicate what we thought quarterly performance might be is that we have spent a lot of time over the last month or so focused on quarterly earnings, and we're all about long-term value creation. And so, we will continue to give our annual guidance, as we have in the past, and our ranges and -- as we have in the past, but we will not get into the quarterly guidance routine.

Understood. Appreciate it again, and best of luck.

Faisel Khan from Citi.

Hey, guys. On the KMI -- Kinder Morgan acquisition, is there any guidance on what type of cash flows or EBITDA those assets [throw off]?

Nothing other than what we gave in the earnings -- excuse me, in the announcement.

OK. and John, I just wanted to go back to some of the comments you made, and just going back and looking at some of the data on Energy Services. I mean, isn't the second quarter usually a pretty -- it's either a break-even or close to break-even quarter as it is, anyways? I mean, this is a business where you make money on the storage -- on the spreads between summer and winter. But, this is not -- this is actually -- if you go back in time, this wouldn't be an unusual sort of event.

You know, Faisel, that's correct. If we hadn't had the hurricane effect that I tried to describe earlier, we'd be [high-fiving] this particular quarter for Energy Services. When you look back at '05 and '04, they were both below $5 million.

So, short answer is yes, you're correct.

OK, got you. That's it, guys. Thanks.

Louis Shamey with Zimmer Lucas.

Hey, guys, just one quick question, and that's in terms of the Peonce, I guess [at] the ROFR you have on the Rockies assets with Williams. What is the timeline for that? When do they have to notify you whether or not they exercise?

Louis, this is John. They have two years from the date in which liquids start flowing in the pipeline.

OK, great. Thanks.

There are no further questions at this time.

OK. Well, thank you, everyone. This concludes our quarterly call.

Couple of quick announcements. We've scheduled our ONEOK and ONEOK Partners annual Investor Day for Tuesday, October 2 in New York, and we provided many of you with a "Save The Date" memo late last week. A more formal invitation and registration link will be sent in the next few weeks. If you wish to attend but did not receive that "Save The Date" memo, please give me or [Christy Williamson] a call.

Reminder, our quiet period for the third quarter will start when we close our books in early October and will extend until earnings are released. We will be providing a reporting date and conference call information for the third quarter at a later date.

[Christy Williamson] and I will be available throughout the day for follow-up question. So, thanks for joining us, and have a good day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect.