歐尼克 (OKE) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the ONEOK third quarter 2007 earnings release conference call. (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.

Thank you. 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 material 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 Chairman, President and CEO of ONEOK Partners. John?

Thanks, Dan. And good morning, everyone. And thank you for participating in our call.

Joining me on the call today are Jim Kneale, ONEOK President and Chief Operating Officer; Curtis Dinan, Senior Vice President and Chief Financial Officer for both ONEOK and ONEOK Partners; Pierce Norton, ONEOK Partner's Executive Vice President of Natural Gas; and Terry Spencer, ONEOK Partner's Executive Vice President of Natural Gas Liquids.

Here's our agenda this morning. Following a few general remarks by me, we'll talk first about ONEOK Partners. Curtis will review ONEOK Partner's financial performance, followed by Pierce and Terry, who will review the Partnership's operating performance. Then, Curtis will return to review ONEOK's financial performance and Jim will provide a review of ONEOK's operating performance. Then I will make a few closing comments before we take your questions.

ONEOK had a solid third quarter, primarily because of the strong performance of the ONEOK Partners and Distribution segments, partially offset by lower earnings from our Energy Services segment. ONEOK's performance for the quarter was better than we were anticipating when we met with investors on October 1, because, fortunately, the Cheyenne Plains impact was less than we had originally thought, which Jim will discuss in a few minutes.

The ONEOK Partner's segment benefited from the growth of NGL supply in the Mid-Continent region, which resulted in more barrels of NGLs being gathered, fractionated, transported and sold. Offsetting this somewhat were lower volumes of natural gas processed in the Partnership's Gathering and Processing segment.

ONEOK's Distribution segment benefited from the new rates that went into effect the first of the year in Kansas and Texas.

And, as mentioned earlier, ONEOK's Energy Services segment had lower third quarter results than the same period last year, reflecting lower natural gas price volatility and a curtailment due to a force majeure event on the Cheyenne Plains pipeline. As we have said before, we remain confident in the Energy Services Segment's full year forecast of $205 million.

We are increasing ONEOK Partner's 2007 guidance to a range of $3.90 to $4.00 per unit, due to the continued strong performance in the Natural Gas Liquids Gathering and Fractionation Segment, driven by supply growth in the Mid-Continent and the anticipated strong performance of our Natural Gas Gathering and Processing Segment as a result of higher natural gas liquids prices, which affect our percent of proceeds and keep whole contracts.

We are also raising ONEOK's 2007 guidance and narrowing the range to $2.62 to $2.72 per share from $2.50 to $2.70 per share, due to the anticipated stronger performance of both the ONEOK Partners and Distribution segments.

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

Curtis?

Thank you, John, and good morning.

ONEOK Partners continued its outstanding performance in 2007 with a really strong third quarter. Net income in the third quarter was $96 million, or $0.98 per unit. As Terry will describe in more detail, both of our Natural Gas Liquid segments performed very well during the quarter, benefiting from growth in natural gas liquid supply connections in the Mid-Continent region.

Recently, ONEOK Partners increased its quarterly distribution to $1.01 per unit. This is the seventh consecutive distribution increase since the dropdown of the ONEOK assets in April, 2006. During this period, the Partnership has increased distributions by 26%, demonstrating our commitment to growing unit holder distributions.

At the end of September, the Partnership completed a $600 million public debt offering of 30-year senior notes at a very attractive coupon rate of 6.85%. Following completion of the offering, the Partnership ended the quarter with $794 million of cash and cash equivalents and $365 million outstanding under our $1 billion revolving credit agreement.

During October, the Partnership utilized this cash position to repay the amounts outstanding under the revolver and complete the $300 million acquisition from Kinder Morgan.

In addition to the acquisition, the Partnership has spent $320 million on capital expenditures for its large growth projects in 2007, including Overland Pass and related NGL infrastructure upgrades, Guardian II and the Midwestern Extension. ONEOK Partners remains well positioned to execute its growth capital program that is expected to contribute incremental EBITDA beginning with the anticipated completion of the Midwestern Extension in December of this year.

Also, we announced that the partnership has increased its earnings guidance for 2007 to a range of $3.90 to $4.00 per unit to reflect the higher anticipated results in our Natural Gas Gathering and Processing Segment, due to strong NGL prices and continued benefit from increased volumes in our Natural Gas Liquids Gathering and Fractionation Segment.

We have also increased our estimate of distributable cash flow, which is now expected to be in the range of $4.60 to $4.70 per unit, providing additional opportunity for future distribution increases.

John, that concludes my remarks regarding the Partnership's financials.

Thanks, Curtis. Now, let's review the operating results of ONEOK Partners, which, as you will recall, now consists of four segments, two in natural gas and two in natural gas liquids. First, Pierce Norton will discuss the two natural gas segments, Gathering and Processing and Natural Gas Pipelines. Pierce?

Thanks, John and good morning.

In the Natural Gas Gathering and Processing Segment, process volumes were lower when compared with the third quarter last year, due to expected contract terminations that took place at the end of 2006. In comparing the third quarter with the second quarter of this year, the process volumes were flat, despite weather-related outages in the Mid-Continent. In August, flooding in Oklahoma caused pipeline outages, curtailing production.

We also experienced a few days of scheduled downtime in the Williston Basin, due to installation of additional processing and fractionation capacity as part of our Grasslands Plant expansion. The first phase of this project is scheduled to come on line in the middle of the fourth quarter. Also, phase one of the Port Union expansion is nearing completion and will be on line by the end of the year.

Our contract mix by volume changed slightly this quarter. Our keep whole contracts by volume decreased to 8%, while our percentage of proceeds contracts increased to 30%, leaving our fee-based contracts unchanged at 62%. Of our 8% keep whole volumes, 76% of these contained conditioning language, which in effect converts to a fee if the processing spread turns negative, while still allowing us the upside opportunities when the processing spread is positive.

As you know, over the past six or seven years, we have worked hard to restructure our contracts, thanks to the efforts of our gas supply personnel. With this contract mix, as has been the case in previous quarters, we are long liquids and will continue to be. However, due to the contract restructuring efforts, over time we have moved from a neutral position on natural gas to a long position. As a result, our natural gas sensitivity is now positive, meaning that for every $0.10 increase per MMBtu in natural gas prices, we make $400,000 of margin on an annual basis. These changes, combined with effective hedging, have reduced our volatility of this segment.

Moving to the Natural Gas Pipeline Segment, the Natural Gas Pipeline segment earnings were down slightly in the third quarter, as well as year-to-date, as a result of lower transportation revenues from lower volumes and higher fuel usage. This was partially offset by higher storage revenues from new and renegotiated rates.

Equity earnings were relatively flat, quarter-to-quarter, but they were down year-to-date, primarily due to the reduced ownership in the Northern Border pipeline effective April 1st, 2007.

Looking at our growth projects, the Midwestern Gas Transmission Extension project is in final stages of construction and is expected to be in service by the end of the year, bringing much needed gas supply into Tennessee.

Progress also continues on the Guardian extension. The final environmental impact statement has been issued by FERC and will be published by the EPA in the Federal Register on November 2nd, 2007. We anticipate FERC issuing a certificate of public convenience and necessity by year-end.

John, that concludes my remarks.

Thanks, Pierce. Now, Terry Spencer will review the two natural gas liquid segments, Gathering and Fractionation and the NGO pipelines. Terry?

Thanks, John, and good morning, everyone.

The natural gas liquids businesses, the Gathering, Fractionation and NGO pipeline segments had another outstanding quarter. We continue to see volume growth positively affecting both segments, as drilling and exploration activity drive new natural gas processing plant developments, particularly in Oklahoma and the Texas panhandle.

During 2007, we expect to connect five new processing plants to our Mid-Continent system. In doing so, we will have connected a total of 16 plants to the system since we acquired these assets back in July, 2005. Now, let's take a look at each segment.

The Natural Gas Liquids Gathering and Fractionation segment's third quarter results benefited from these new NGL supplies connected to our system. Gathered volumes were up 12% and fractionation volumes were up 13% over the same period last year. Improved performance at our Mount Belleview fractionator also benefited the quarter, as the result of both increased volume and renegotiated rates on more favorable terms.

Operating costs have increased over last year, resulting from higher employee-related costs, general taxes and the acquisition of the Mount Belleview storage assets at the end of last year. Due to the increased natural gas development in the Mid-Continent, raw NGL supplies are growing, which has resulted in our gathering and fractionation utilization rates rising above 90%. This trend, which we expect to continue, reinforces the need to expand our raw NGL feed network, such as the previously announced Bushton fractionator expansion and construction of the Arbuckle pipeline from Southern Oklahoma through the Barnett Shale and onto Mount Belleview, Texas, that are currently underway.

Our Natural Gas Liquids Pipelines segment also benefited from higher throughput related to new NGL supply connections. Gathered volumes were up 38% and volumes transported between the Mid-Continent and Texas Gulf Coast were up 13%, compared with the third quarter last year.

With approximately $1.1 billion of internal growth projects already in progress in our NGL business, we are expanding our Mid-Continent footprint into other rapidly growing production areas, such as the Rockies and the Barnett Shale in Texas. In early October we received approval from various local, state and federal agencies to begin construction on our Overland Pass pipeline. Due to an extended permitting process, completion of construction contracts were delayed pending final approval of the required permitting and the determination of a definitive construction start date. The negotiations of terms for construction have now been completed and the contracts have been executed.

Based upon the rates and terms required to get the project completed, we have revised our cost estimate for the Overland Pass pipeline and now anticipate that the capital costs will be approximately $100 million, or 23% higher than was initially estimated back in early 2006. Since that original estimate in 2006, there has been a significant increase in the demand for pipeline construction related services, which have led to much higher rates, particularly for construction labor and construction equipment.

Also contributing to the increase in capital costs is the fact that more of the pipeline than initially planned will be constructed during the winter months, due to the extended permitting process. To the extent weather conditions vary from normal, our costs could be further affected. Construction work on the pipeline is now well underway. We remain committed to this very strategic expansion opportunity to serve the rapid NGL growth currently underway in the Rockies.

There has been some comment about our lack of specificity on long term NGL supply commitments on our major pipeline projects. We have already announced an anchor shipper on the Overland Pass and [Piance] pipelines, are in ongoing negotiations with a number of additional NGL producers and fully expect Overland Pass to be at or near initial capacity in 2008. The development of new processing plants and plant expansions in the Rockies continues at a pace that we believe may exceed the prevailing NGL pipeline capacity out of the region.

We have also been successful in securing commitments from several NGL producers in the Mid-Continent and Barnett Shale for the Arbuckle pipeline and will announce those, if and when it is appropriate. We remain very confident in our supply outlook for the Arbuckle project, as new processing plant development and expansions are occurring rapidly and we fully develop to be at or above the volumes we forecast in our project economics.

And lastly, on October 8th, 2007, we completed the purchase of an interstate NGL and refined petroleum products pipeline system from Kinder Morgan Energy Partners. The system is connected to our Bushton facilities and extends to markets in the Upper Midwest. This acquisition is immediately accretive and provides us with additional growth opportunities, as the influence of Canadian heavy crude oil production creates demand for NGLs used in blending into heavy crude, as well as additional demand for refinery services.

We are also excited to welcome those new employees affected by the acquisition to the ONEOK family.

John, that concludes my remarks.

Thanks, Terry. Now, let's turn our focus to ONEOK, where Curtis Dinan will review ONEOK's third quarter financial highlights. Curtis?

Thanks, John. ONEOK's net income in the third quarter of 2007 was $14 million, or $0.13 per share. As Jim will discuss in more detail, ONEOK's results for 2007, while lower than 2006, reflect improved results in our Distribution Segment and a return for Energy Services to a more historical earnings pattern, with our highest earnings expecting to come during the first and fourth quarters.

As previously described, our ONEOK Partners Segment performed very well during the quarter. The Partnership's three distribution increases so far in 2007 have increased its annualized distribution by $0.12. This increase creates $4.5 million of additional cash flow from the limited partner units that ONEOK owns.

More importantly, it also increases the incentive distribution ONEOK receives by $10 million annually. With the growth forecast by ONEOK Partners from its $1.6 billion in projects and recently completed 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 third quarter with no short term debt, $39 million of cash and cash equivalents, $744 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 $151 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 forecast that our capital spending will be in line with our previous guidance. Yesterday, we updated our earnings guidance for 2007 to a range of $2.62 to $2.72 per share, reflecting the anticipated higher results in our ONEOK Partners and Distribution Segments, net of 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, will exceed capital expenditures and dividends by $180 million to $200 million for the full year.

With our strong free cash flows 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, acquisitions at the ONEOK level, 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 third 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. Pierce and Terry already discussed the results at ONEOK Partners and Curtis explained the impact that the increased distributions would have on ONEOK earnings. I just want to emphasize that, with the expected growth at ONEOK Partners when the internal projects come on line, we expect distribution increases to continue resulting in significant additional earnings growth at ONEOK.

Turning to the Distribution Segment, we had a strong performance in the third quarter. The significant improvement in margins over the last year was primarily the result of the implementation of new rates in Kansas and Texas. We also experienced higher residential and commercial sales volumes in the year-to-date period, primarily due to a return to more normal weather patterns in our service territory.

Operating costs increased slightly, because of bad -- higher bad debt expense in Oklahoma, however, our bad debt expense remains below the industry benchmark.

Property taxes were higher in Kansas, but will be offset under our ad valorem surcharge.

Our efforts to control expenses through process improvements and other initiatives are showing results across all three distribution companies. This was demonstrated by improvements in our efficiency metrics, such as the number of customers per employee, which increased in both the quarter and the 9-month period.

You will note that the Distribution Segment increased its 2007 guidance from $166 million to $172 million, primarily because of margin and expense improvements.

Consistent with our rate strategy, we've been active on the regulatory front. In Texas, we filed a $5.5 million rate case in El Paso and another $2.4 million combined in other Texas jurisdictions, as well as a $700,000 capital recovery mechanism filing in the Rio Grande Valley. The impact of these rate cases has been factored into our guidance.

In Oklahoma, we received approval from the Corporation Commission to recover $7.2 million in deferred costs for our Pipeline Integrity Management Program and began billing customers for these costs in October. We will continue to defer costs as they are incurred and file a new application for cost recovery each year.

In mid-August, we also filed for a capital investment recovery mechanism in Oklahoma that would allow us to recover and earn a return on capital investments made for growing and maintaining our distribution systems. We have similar capital recovery mechanisms in Texas and Kansas.

Based on the investment we have made in Oklahoma since the last rate case, through June 30th of this year, we have requested $12.1 million for the first annual recovery period. A hearing on our application will occur in the first quarter of next year.

Now turning to the Energy Services Segment, we were near breakeven with a $700,000 loss for the quarter as a result of lower natural gas price volatility, partially due to cooler weather, which results in lower natural gas power generation demand and the Cheyenne Plains outage that affected our ability to deliver natural gas on that pipeline. Cheyenne Plains expects the pipeline to be back to full capacity in November.

Our third quarter results include a $7.4 million charge based on the projected outage through November 15th, but do not include any potential insurance recoveries. We are currently flowing about 75% of our capacity, which is above what we had originally anticipated would flow when we met with you in New York in early October. We do not expect any additional charges in the fourth quarter from this outage.

Energy Services third quarter earnings decline consisted of a decrease in transportation margins, which included the Cheyenne Plains outage, and a decrease in storage margins resulting primarily from lower natural gas price volatility and increased storage fees on contract renewals and new capacity contracts.

These decreases were partially offset by an increase of $12.2 million in financial trading margins, which are primarily the result of an option strategy around our storage position, which was intended to protect us in the event of low volatility, and an increase in demand fees collected as we continued to sign up 2007-2008 winter peaking transactions with LDCs.

Although the volume of natural gas marketed increased in the third quarter, last year we benefited from unusually high natural gas price volatility that produced higher margins per unit. We have approximately 90% of our transportation capacity hedged for the remainder of 2007.

As we discussed previously, our 2007 earnings are reflecting a summer-winter 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 demand-based customers, the LDCs that also experience higher earnings in the first and fourth quarters. We would expect this trend to continue, unless a major event, such as a hurricane or an extremely hot summer, creates opportunities for margin during the second and third 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, and we ended October with 92 Bcf of gas in storage.

The last thing I want to mention is that, as John also mentioned, we continue to believe Energy Services is on pace to meet our 2007 guidance expectations. As we execute on our strategy in the fourth quarter to withdraw natural gas from storage at margins which have been hedged, and benefit from the sale of premium no-notice services we provide to LDCs.

John, that concludes my remarks.

Thanks, Jim.

Before opening it up to questions, let me make a few additional comments. I'd like to reiterate what we said in the last quarterly call and again in New York last month at our annual analysts meeting. We do not intend to provide quarterly guidance in the future. We will, however, continue to provide guidance on an annual basis in the form of a range and update it and adjust the range as events warrant.

With respect to 2008, we expect to provide our preliminary 2008 earnings guidance through a press release, which we will issue around the first of the year, if not before.

And finally, I'd like to thank all of our employees, all 4,500 of them, in more than a dozen states for their efforts, not only in the quarter, but also every day, to make this company a great place, a great place to work, to do business with and to invest in.

Operator, we are now ready for your questions.

(OPERATOR INSTRUCTIONS) The first question is from [Rob Kane] from Wachovia.

How you doing, guys? Can you hear me?

Can now. Yes.

Okay, great. Obviously, natural gas volumes and gathering has been off a little bit here at OKS. Can you talk about what contracts expired and just add some color to what that, what's going on there? Sequentially it looks like it's down a little bit, as well. Any thoughts on when that's going to stabilize on the natural gas side?

Sure. Pierce, would you, could you add some color?

Sure, Rob. The contract expirations, Rob, were primarily in the southwest Kansas area, primarily around the Bushton plant. And most of that volume had been redeployed to some other processing opportunities in that area. And as far as the looking forward with the volumes, we're in the middle of our planning process for 2008 right now, and so we'll be coming out with that in the form of guidance for 2008.

Okay, any particular producers involved in those contracts in '06?

No. The ones that were primarily expired were at the end of '06, so we had a full impact in '07. And it was primarily just a couple of the larger producers out in the southwest Kansas area.

And the reason for them switching?

Primarily, one of the producers actually owns an ownership position in their own plant in that area, so they switched to their own processing plant.

Okay. Very good. Also, CapEx is moving up here notably. The returns on that look very attractive. That being said, how do you guys look at financing that going forward, given where your leverage is and where you want it to be on an ongoing basis?

Rob, no different than we have stated in the past as to how we'll handle that. But, Curtis, is there anything in particular you'd like to add?

No. It's still long term focused to be at that 50-50 debt and equity level. As I had indicated at our conference in New York last month, we'll be a little bit higher than the 50-50 mark in terms of debt, as the Overland Pass project is being constructed. As you might remember, Williams has the option to buy into that project up to 50% within the first couple of years of it flowing product. And so, until that decision point, we would continue to carry at least half of that project financing in debt. So, that's why you might see it a little bit higher. But, again, long term, it's back to the 50-50 mark.

But that's consistent with our past behavior in that we have stretched our ratio in the past primarily through acquisition. Now we're stretching it a bit through internal growth projects.

Okay. Also, is there any kind of levels on a debt-to-EBITDA standpoint that you like to stay within?

Curtis?

In -- we're, obviously, mindful of our credit ratings and what those, how the rating agencies look at those targets. In terms of covenants in our debt agreements, and our revolver has the five times limit, other than for short periods of time when we do acquisitions. That's really kind of pushing it on the high end for us. And, again, we're just very mindful of staying under that and staying mindful of how the rating agencies look at that.

All right. Thanks very much, guys. Good quarter.

Thanks, Rob.

(OPERATOR INSTRUCTIONS) The next question is from Carl Kirst from Credit Suisse.

Good morning, everybody.

Good morning, Carl.

Hey, I understand we're not, we don't have 2008 earnings guidance and that really isn't sort of what I want to get to. But with respect to a 2008 financial question, is it, Curtis, is it possible to say with what you guys are looking at with your current marketing book, as well as obviously the normal course of storage, gas and storage in and out, as you guys are looking at 2008 right now, and we're kind of firming up numbers, working capital for next year, should we generally be expecting that as kind of a net neutral, or are there, is there kind of a large return of capital marketing? Is there a large swing the other way? Just trying to get a better sense of that.

Well, I mean -- Carl, this is John. The first thing I would tell you is we're not complete with our 2008 operating plan and we've not presented it to the board. If we were and if we had we would be in a much better position to be able to answer some of those specific questions. But in general, Curtis, is there anything you'd like to add?

Jim touched on that we have a little bit higher storage capacity in Energy Services.

Right.

So, that could push up the needs a little bit. But generally, I'd expect the working capital needs to be fairly flat. And I might emphasize again that, at ONEOK, we ended the quarter with cash on hand and we've not used it all, the $1.2 billion revolver that we have available. So, from a liquidity standpoint or anything like that, that's not something that we're concerned about.

Yes, I know. I just wanted to make sure I was understanding the position. Thanks for the color.

Thanks, Carl.

The next question is from Ted Izatt from Bear Stearns.

Yes, hello. Did you -- I might have missed part of the last question, but would you possibly be coming to the capital markets at all with this increased debt level?

Curtis?

Again, long term we do want to be kind of at that 50-50 target. So, eventually we will have the need to raise additional equity at the partnership. It's not something that is imminent. As I mentioned, the last, the debt offering that we just completed at the partnership we completely cleared off the revolver at the partnership, so it's fully available now. But as we continue to work through our capital program, eventually we will have some additional equity needs.

Okay, so as far as the revolver goes then, on the debt -- so that's the equity side -- but on the debt side then, you would just use the revolver. You wouldn't need to go -- do you see yourself going to the debt markets at all, for longer term debt issuance at the partnership?

Yes, eventually I don't think we would finance our capital projects in the long term necessarily on the revolver. But, I guess what I would stress is we really look at that kind of opportunistically. So, as opportunities present themselves -- I guess, two things, one, as we have needs, including balances on the revolver, we would look. But, it's also I think we're in a position where we can be very opportunistic when we access any of those markets, whether it's the longer term debt markets or it's the equity markets. But there's not a set calendar of at this exact point we're going to do this type of transaction.

Okay. Okay. Thank you very much.

Thank you.

The next question is from Faisel Khan from Citigroup.

Hello, Faisel.

Hey, how you doing?

All right.

The -- I think I may have missed this, but on the Overland project, the higher costs associated with that project, will you be able to pass that on to your shippers?

Well, Faisel, I think the important thing that I would -- the only important point that I would make about the increased costs, and Terry I thought was very specific in what is attributing to the costs, is to the -- the feedback, or I guess the takeaway, is that it's still for us an extremely profitable project and to go into -- and to answer your question would be difficult, because we're not, we haven't completed our negotiation with certain of the producers and we're already completed with some.

Okay. I got you. On the Kinder acquisition you guys made, now that the transaction is done, is there any way you can provide some of the economics around that transaction, that kind of what you bought it for and kind of what you expect to get out of it in terms of the synergies with your current pipeline systems?

Well, we've announced what we bought it for.

Right.

And that's out there. And we have given some expectation. I think Kinder Morgan provided some indication of their multiple. We've indicated an expectation for us. You know, no, we're not going to share our economics. I think that and our history has been that when we make acquisitions, usually the first response is that we, and what we make our strategic acquisitions, that usually the feedback is that we pay towards the high end of the multiple. But, I think as time evolves we buy specific strategic assets because of the potential upside and our ability to leverage our existing capabilities to those new assets. And we have every reason to believe that we're going to do the same here. But we're not going to divulge to you what our expectations are.

Okay, that's fair. On the comments on the Energy Services businesses, Energy Services business, and that the last quarter was kind of, you said you had cooler weather that may have driven some of that volatility out of your, out of the, your ability to extract higher margins. When you say cooler weather, I mean, I'm just trying to figure out what that means. Because generally across the U.S. I thought weather was warmer than normal, maybe a little bit cooler than last year. But, I mean, I thought the volatility and weather was still fairly prevalent.

Well, in particular, and I should ask Jim if he would like to add anything to this, but in particular, outside of the week we hosted the PGA here in Tulsa, Oklahoma, the weather in the Mid-Continent where a lot of our, where Energy Services provides gas to fuel power generation for primarily air conditioning load, we had a relatively mild summer. So, when we refer to the cooler temperatures, that's what we're referring to, is that it just wasn't as hot, except for that one week here in the Mid-Continent.

Okay, so mostly in the areas where you have storage capability. That's kind of --

Or market.

Okay. Okay. Fair enough.

Jim, is there anything else that you would like to add?

No, that's right on.

Okay. Thanks guys. Appreciate it.

The next question is from [Louis Shamey] from Zimmer Lucas.

Well, hello, Louis.

Hi. I was just wondering, on the cost overruns for the Overland Pass project, is there any -- how do you guys kind of handicap the chances of that happening on any of the other major pipeline projects that you're undertaking?

Well, I should ask Terry if he has anything he'd like to add, but the way I would handicap it is that, as we went through the process of negotiating construction projects on Overland Pass, is when many of those -- in fact, many of the contractors would not execute contracts with us until we had our permit in hand. As it relates to the other projects that we have underway in the partnership, we have no reason to believe that there will be any major changes to the costs associated with each of those projects, whether they be gas or whether they be gas liquids. What makes Overland Pass unique is the delay in receiving the permit and exposing the contractors to a lay in the winter months, as opposed to the summer and fall, which is what we had hoped for. But, again, we didn't know exactly where we were going to shake out until we got these contracts negotiated. Does that answer your question, Louis?

More or less. And in terms of where you are in the permitting process, I mean, is there any chance -- you still haven't locked up the permits on most of those projects, though, to my understanding.

Well, it depends. Let me just ask Pierce to tell you about the gas side and then --

Sure.

-- Terry can bring you up to date on the permits on the liquid side.

Okay.

The two pipeline projects we have going on, of course, the NGT project, as we said in our script, was nearing completion here at the end. So, naturally, the permits are there for that one. As far as the Guardian expansion goes, the Notice of Availability actually comes out tomorrow, starts a 30-day clock and then we expect at the end of that 30 days to get our Certificate for Convenience, which really starts that construction process. So all that, in our opinion, is on track.

Okay, great.

Terry?

The only thing I can add is on the two projects, the Piance Basin project is, will require BLM approval, similar to Overland Pass, and that process is currently under way. We don't anticipate having any difficulty getting this permit permitted in the timing that we have indicated publicly. So, we look just fine there. The Arbuckle pipeline will not require any one particular large agency approval. What you'll have is you'll have a number of county construction permits. You'll have Corps of Engineers. Those should all be pretty plain vanilla. Don't anticipate having any problems there.

Interesting.

So, that will not be anywhere near as difficult as in Overland Pass.

Okay. Great. Well, congratulations on the quarter and it sounds like you guys are well on track. Thank you.

Thank you, Louis.

The next question is from Dennis Coleman from Banc of America.

Yes, good morning. Thank you. I'm wondering, on OKE, could you please just step through the uses that you had listed for free cash flow? I just kind of might have missed a couple and wanted to kind of understand what the priority is, if that the way you listed them would be your priority?

Yes, I don't think that we, as a matter of fact, I know that we didn't provide a priority. Curtis, those were in Curtis' comments and I'll ask him to repeat those for you. But, obviously, we will look at share repurchase, increased dividend. We have talked publicly about our interest at the ONEOK level in acquiring more units at OKS and then, as we have grown in the past, we will continue to look for opportunities to acquire businesses and assets. So, I think those were the four. Curtis, is there anything?

The other item, John, is looking at $400 million of debt that we have maturing in February --

John Gibson. Oh, yes, sure.

-- and repayment of that. So, if I was prioritizing, that's obviously the first one that comes up.

Okay. And just so I understand, I mean, does that imply just an ongoing lower level of debt at the OKE level?

Yes.

Obviously, lot of free cash flow coming in there.

Right. Just what you said. We anticipate repaying that, as opposed to replacing it or reissuing long-term debt in its place.

Okay. Perfect. Thank you.

Yes, sir, Dennis.

The next question is from Rob Kane from Wachovia.

Hello, Rob.

Just a quick follow up question. Given that you guys are in the marketing business like you are, just wanted to get your comments on what kind of impact you see from Rockies Express on different markets in the Mid-Continent.

Jim, did you have anything you'd like to add? I mean, I have a personal opinion.

Yes, I mean, a little background. I know, if you look into the forward market, the basis is tighter because the expectation that the pipeline is going to come on and move gas farther out of the Rockies through the Mid-Continent over to Ohio, I believe, is where it goes. What that will do to basis differentials in other parts of the country, I can't tell you. But, in some ways it's like a big balloon, there's so much gas and you push somewhere, it pops out somewhere else. So, I think we're all waiting to see once that gas starts flowing is what the actual impact might be.

I would agree with that, yes. Does that answer your question, Rob?

Yes, yes. I mean, I just kind of wanting a few more specifics on how you felt it might, some of the particular pipelines or something that --

Sure. Well, the only problem with providing more specifics is that we might be enacting the strategies inside Energy Services based on our point of view. And those get to be fairly, those are very proprietary.

Got you. Got you. I understand. Okay, thanks, guys.

Yes, sir.

(OPERATOR INSTRUCTIONS) There are no further questions.

Okay. 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 2008 and will extend until our earnings are announced. We will provide a reporting date and conference call information for the fourth 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.