歐尼克 (OKE) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ONEOK Partners third quarter earnings conference call. (Operator Instructions). I would now like to turn the conference over to your host, Mr. Dan Harrison. Sir, you may begin.

Thank you. Good morning, and welcome, everyone. A reminder that any statements that might include ONEOK or ONEOK Partners' expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933 and 1934. Please note that actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to Securities and Exchange Commission filings. And now let me turn the call over to John Gibson, ONEOK'S CEO and ONEOK Partners' Chairman and CEO. John?

Thanks, Dan. Good morning, and many thanks for joining us today, and of course for your continued investment and interest in ONEOK and ONEOK Partners. Joining me on today's call are Curtis Dinan, our Chief Financial Officer for both ONEOK and ONEOK Partners; Robert Martinovich, Chief Operating Officer of ONEOK; Terry Spencer, our Chief Operating Officer of ONEOK Partners; and Jim Kneale, President of ONEOK and ONEOK Partners. Jim, as well as the other presenters, will be available to answer questions following our discussion. As our earnings release has indicated, both ONEOK and ONEOK Partners had strong third quarter and year to date performances. At ONEOK, all three segments performed well. Our Distribution segment turned in a solid performance, benefiting from new rate mechanisms in all three states. Energy Services had another solid quarter, primarily as a result of higher transportation margins relative to the comparative period. And ONEOK Partners posted solid results due to increased natural gas and natural gas liquids throughput, which relative to year ago levels, helped to offset the impact of lower commodity prices and narrower NGL product price differentials.

Based on our nine-month performance and our current view of prices and volumes for the remainder of this year, we are increasing our 2009 earnings guidance and range at ONEOK and tightening the range at ONEOK Partners. In just a few moments, Curtis will provide additional information regarding guidance at both entities. During the third quarter at ONEOK Partners, we completed our $2 billion-plus growth program that began for us in 2006. Our last project, the Piceance lateral pipeline, a 150-mile pipeline connecting the Piceance Basin with the Overland Pass pipeline, is in service and began transporting volumes in October. The completion of these projects provides the partnership with growing fee-based earnings and with the opportunity increase the partnership's distributions now and in the future, which will benefit not only ONEOK Partners unit holders, but also ONEOK shareholders. As we discussed at our recent investor day in October, these projects also provide a foundation for future growth opportunities that we have identified over the next five years. Terry will speak more specifically to those opportunities in just a few moments.

In the Partnership's natural gas gathering and processing business, we have been successful in growing our processed volumes and are confident in our ability to deliver continued volume growth for the remainder of this year and through 2010. We also expect continued NGL volume growth for the remainder of this year and through 2010. We also expect continued NGL volume growth throughout this year and next. The completion of the NGL growth projects, which are focused on new NGL supplies, along with our ongoing efforts to grow our NGL volumes behind our existing assets, position us as a premier NGL Company, with both the assets and the capabilities to meet our producers' and our customers' needs.

Now at this time, Curtis Dinan will provide a more detailed look at ONEOK Partners' financial highlights, and then Terry will review the partnership's operating highlights. Curtis?

Thanks, John, and good morning, everyone. In the third quarter, ONEOK Partners reported net income of $122 million, or $1 per unit, compared with last year's third quarter net income of $204 million, or $1.97 per unit. The decline reflects the impact of lower commodity prices in the partnership's natural gas gathering and processing and narrower NGL price differentials in the natural gas liquids segment, more than offsetting the benefits of natural gas and natural gas liquids volume increases from completed capital projects. Distributable cash flow in the third quarter was lower by 47 million, but more than adequate to cover our $1.09 per unit third quarter distribution, and maintain a 1.14 times coverage ratio, well within our 1.05 to 1.15 target.

As John noted earlier, ONEOK Partners updated its 2009 guidance and narrowed the range to $3.40 to $3.60 per unit. This slight increase in the midpoint of the range is primarily the result of lower than anticipated interest expense and higher allowance for funds used during construction. We have increased our hedges to lock in margins on expected production in partnership's natural gas gathering and processing segment, which has the most sensitivity to commodity price changes. For the remainder of 2009, we have hedged 88% of our expected NGL and condensate production at an average price of $1.26 per gallon and 88% of our expected natural gas production at $4.25, per MMBtu. We have also increased our hedge positions for 2010. Approximately 60% of our expected NGL and condensate production is hedged at an average price of $1.38 per gallon, and 75% of our expected natural gas production is hedged at $5.55 per MMBtu.

As is our practice, we continually monitor the commodity markets, and will place additional hedges as conditions warrant. Our revised earnings guidance for 2009 also reflects a slight increase in capital investments from our previous forecast to $523 million for growth capital and $60 million for maintenance capital. Through the first nine months of 2009, we invested $491 million, which includes 455 million for growth and 36 million for maintenance, leaving approximately 90 million in total investments remaining for 2009. Our capital position and financial flexibility remains strong. At the end of September, the partnership had 515 million outstanding under our $1 billion revolving credit agreement which does not expire until 2012. The partnership's next long-term debt maturities are a very manageable 250 million, due in June 2010, and another 225 million due in 2011. As John mentioned earlier, in October we increased the distribution to annualized rate of $4.36 per unit.

This marks the 12th distribution increase since the drop down of the ONEOK assets in April 2006. During this period, the partnership has increased the distribution by 36%, demonstrating our commitment to growing unit holder distributions. At the new annualized distribution rate of $4.36, our forecasted distribution coverage ratio for 2009 is 1.08 times. Increases in volumes and fee-based earnings from our recently completed capital projects will provide us with additional opportunities to increase future distributions. Now Terry Spencer with provide you with an overview of the operating partnership performance at the partnership.

Thanks, Curtis, and good morning. I will start with the partnership's natural gas business. The gathering and processing segment's third quarter results were lower compared with last year's strong performance, primarily as a result of significantly lower commodity prices. In addition to lower prices, we also experienced a 4% decline in natural gas gathered in both the third quarter and the nine month periods, due primarily to production declines and curtailments by producers of dry natural gas from coalbed methane wells in the Powder River Basin. We have certainly seen a drop off in drilling and volumes in this region due to lower natural gas prices. However, since this gas generally does not contain natural gas liquids and is not processed, it is some of our lowest margin through put. And as natural gas prices have improved over the past month, we have experienced some resumption of flow from the production in the Powder River, but not yet back to previous levels.

The good news is that our natural gas volumes processed increased 2% for the quarter and is up about 3% year to date. Processing volumes remain strong because of our presence in the NGL rich plays, such as the Bakken shale in the Williston Basin in North Dakota and the Woodford shale in Oklahoma. These areas remained very active for new supply development, driven by favorable drilling economics, due in large part to the high natural gas liquids content and associated crude oil and condensate production. Across the five states where we operate, drilling rig counts appear to have bottomed out during the first week of June and have been gradually increasing since then. As of the end of September, our well connection across the segment September year to date are down about 25% from 2008 levels. But the wells we are connecting produce at higher average rates, so volumes have remained relatively steady with the exception of the previously mentioned Powder River Basin.

As Curtis mentioned, our 2009 guidance for gathering and processing has been updated to reflect our latest hedged positions. This guidance also reflects our expectation that gathered volumes on our system will be about 3% lower than 2008 and that processed volumes will be about 3% higher than 2008. We also increased our 2010 hedge positions to approximately 60% for natural gas liquids and condensate, and to approximately 75% for natural gas. We currently expect 2010 gathered volumes to be down about 1% from 2009, and processed volumes to be up about 7%. We see continued volume growth in this segment, with ample opportunities for system expansions within our diverse asset base, especially in the Woodford and Bakken shale plays.

Now moving to our natural gas pipeline segment, this predominantly fee-based segment had an exceptional quarter. The Guardian pipeline expansion and extension that was placed into service in the first quarter, as well as our new Midwestern Gas Transmission interconnect with the Rockies Express Pipeline, added $10.1 million of margin to our third quarter results. This increase was partially offset by the impact of lower natural gas prices on our net retained fuel position. Both our interior and intrastate pipelines are almost 90% subscribed under demand-based rates for the quarter. In early October, we completed the $14.7 million Fargo Lateral expansion on Viking Gas Transmission on time and on budget, allowing us to increase our deliveries to our customers in North Dakota. I would like to thank our employees who helped us complete this important project.

Equity earnings from investments were down for the quarter, primarily due to lower volumes and rates associated with our 50% interest in Northern Border Pipeline. Increasing Canadian natural gas, driven by oil sands development and natural gas fired electric generation growth, has and will don't create charges for Northern Border over the near-term. As firm contracts expire over the next few years, the success of the operation's recontracting efforts will be dependent upon the evoking supply and demand balance between Canada and the Midwest markets in the United States. The operator of Northern Border, an affiliate of TransCanada, remains focused on those recontracting efforts, as well as the development of new business opportunities along the pipeline. The previously announced Bison Project, expected to be completed in late 2010, will add the prolific Rocky Mountain producing region to Northern Border's supply portfolio ,creating opportunities for future volume growth. Northern Border Pipeline is and will be connected to some of the most prolific producing basins in North America, and we look favorably on its role to continue supplying key Midwest market areas with reliable natural gas supply over the long haul.

Now I would like the take a few moments to discuss our growth prospects in the natural gas pipeline segment. We are seeing increased demand for natural gas fired electric generation in the geographic areas we serve, and connections to our pipeline infrastructure to serve this new power plant load are a growth opportunity. We also see continued supply growth in the mid-continent region, especially in the Woodford shale, that will provide us an opportunity to develop and build new pipeline expansions, extensions and interconnections to meet the needs of the producers in these regions. At this time, we are engaged in discussions with producers and customers on several such projects within our natural gas pipeline segment. Now let's move to our natural gas liquid segment. Operating income for the natural gas liquid segment decreased from the third quarter of 2008, primarily as result of narrower NGL product price differentials and a prior year operational measurement gain related to NGL storage inventory.

The average price differential between the Conway and Mont Belvieu was nearly 38% lower in the third quarter of 2009 compared with 2008. These decreases were offset by increased NGL volumes gathered, fractionated, marketed and transported, primarily due to the completion of Overland Pass Pipeline and its related projects, the Arbuckle Pipeline and new gas processing plant connections. The NGLs we fractionated increased 32% from the prior year quarter to 496,000 barrels per day. NGLs transported on our gathering lines were up 52%, or 132,000 barrels per day, and NGLs transported on our distribution lines increased 4% or 16,000 barrels per day. The primary reason again for these increases is Overland Pass Pipeline, which is currently flowing more than 99,000 barrels per day, and which we expect to increase to approximately 130,000 to 140,000 barrels per day by the end of the fourth quarter of this year as a result of the recently completed Piceance Lateral pipeline come online.

We also continued to increase solid results on our North System products pipeline serving the Midwest. For the remainder of this year, we anticipate healthy propane demand due to an expected strong corn drying season driven by better than normal fall and strong crop yield. We also continue to see strong third party interest in shipping [diluent], a natural gas liquid through the system to other third party pipelines and railcar terminals. [Diluent] is used in the production and transportation of heavy Canadian crude oil. Operating costs and depreciation expense increased for the third quarter and year to date largely due to the incremental expenses associated with the operation of the Overland Pass Pipeline, the Arbuckle Pipeline and the expansion of our Bushton fractionator that began operating in the third quarter of 2008.

Now for an update on some of our recently completed projects. In October, the Piceance Basin Lateral Pipeline was placed into service, and will deliver raw NGLs from processing plants in the Piceance Basin to the Overland Pass Pipeline. We expect throughput on this lateral to reach approximately 30,000 barrels per day in the fourth quarter of 2009. Also during the third quarter, Arbuckle Pipeline throughput reached approximately 80,000 barrels per day; and over the next three to five years, we have commitments producers for 210,000 barrels per day of throughput compared with Arbuckle's expandable capacity of 240,000 barrels per day. These higher volume commitments on Arbuckle have offset the higher than expected capital costs incurred and will allow us to add additional NGL supplies, seeking the price-advantaged Gulf Coast market.

There are always questions regarding the overall NGL market, so I will take a few minutes to share with your our observations and experiences. Across the NGL industry, excess fractionation capacity remains limited, and we expect this situation to continue. As you would expect under those circumstance, we are seeing fractionation fees increasing significantly, and we have seen regional NGL price differentials widen to historically high levels, primarily as supply and demand imbalances continue between Conway and Mont Belvieu. As many of you already know, more than 50% of the NGL barrel is used in the petrochemical industry. Our volumes delivered to the pet-chems have remained strong through the first nine months of 2009, and we expect this to continue. We believe this is driven by a couple of things; first, our customers', need for reliable supplies services and infrastructure, and second, NGL-based feedstocks, like ethane, continue to have a competitive cost advantage over oil-based feedstocks for the remainder of 2009 and into next year.

On the petrochemical front, we continue to see strong demand for NGL-based feed stocks, primarily ethane due to its cost advantage, and accordingly petrochemical demand for NGLs is up over 20% from early this year. However, overall, petrochemical demand is still down about 15% compared with its peak in 2008. Conversions at existing petrochemical facilities, from heavy feedstocks to light NGL-based feedstocks, are expected to positively impact ethane demand during the remainder of 2009 into 2010. Export demand for ethylene derivative products outside the US remains robust, but is showing some signs of moderation, particularly in Asian markets. According to our industry sources, a vast majority of the US ethylene derivative demand comes from Canada, Mexico and South America, with about 10% of the export demand being consumed in Asian markets. Some industry experts believe that the new petrochemical capacity coming online overseas, albeit very slowly, will displace some less economic oil-based capacity located in certain Asian countries.

We believe, as do other experts in the petrochemical space, that our country's access to and proven ability to quickly develop natural gas reserves at a relatively low cost will continue to keep fuel and feedstock costs for US petrochemicals at some of the lowest and most competitive prices in the world. Our past projects have been primarily NGL-focused, and in the future we expect that trend to continue. The need for continued expansion of our NGL infrastructure is driven by the long-term development plans of natural gas and NGL producers within our core areas, and some outside our core areas. NGL fractionation and pipeline expansion opportunities remain a key focus for our business, particularly during this period of limited excess capacity that we mentioned earlier. Of particular interest is the emerging Marcellus shale play that's in need of more natural gas and NGL infrastructure. Discussions with producers are ongoing, as we evaluate and develop solutions relating to NGL takeaway capacity.

For the partnership overall future potential growth capital spending is estimated to be in the range of 300 to $500 million each year from 2010 through 2015. For 2010, we currently expect our growth capital investments to be around the lower end of that range. Much of our 2010 growth capital spending will be focused on connecting new natural gas and NGL supplies to our systems, NGL fractionation expansion opportunities, natural gas and NGL pipeline capacity upgrades and natural gas processing plant expansions. We discussed at a recent investor conference that we believe these potential growth projects will generate EBITDA multiples in the range of five to six times. Many of these projects are driven by the continued needs of natural gas and NGL producers and consumers for new processing fractionation, storage and pipeline capacity located in the Gulf Coast, MidContinent, Rocky Mountains and the Upper Midwest, and areas outside our footprint as well. John, that concludes my remarks.

Thank you Terry, you've been busy. Good quarter. Turning to ONEOK now, let me now turn the discussion over to Curtis to review the ONEOK's financial performance, and then he will be followed by Rob Martinovich, who will review ONEOK's operating performance. Mr. Dinan?

Thanks, John. ONEOK's net income for the third quarter was $48 million, or $0.45 per diluted share, compared with last year's third quarter net income of $58 million, or $0.55 per diluted share. We increased ONEOK's 2009 earnings guidance range to $2.65 to $2.85 a share, reflecting strong results for the first three quarters of 2009, and confidence in our ability to perform over the balance of this year. This increase reflects improved operating performance in the Distribution and Energy Services segments that Rob will discuss in a minute. ONEOK's year to date standalone free cash flow before changes in working capital exceeded capital expenditures and dividend payments by $158 million. We expect our standalone free cash flow for 2009 to be in the range of 200 to $220 million. By virtue of ONEOK's general partner interest and ownership position, ONEOK received $70 million in distributions from the partnership in the third quarter, a 6% increase from the same period in 2008. At the partnership's current distribution level, ONEOK will receive approximately $278 million in distributions in 2009, a more than 10% increase over 2008.

ONEOK's liquidity position is excellent. At the end of the third quarter and on a standalone basis, we had 309 million of commercial paper outstanding, which is backed by our $1.2 billion revolver that does not expire until 2011, 22 million in cash and cash equivalence, and 470 million of natural gas in storage. At the end of October, our short-term borrowings were 300 millions. We've previously stated that we do not expect our short-term borrowings to exceed $400 million for the rest of the year. With significantly commodity prices and reduced natural gas storage capacity underleased in our Energy Services segment, we on pace to be onsite at this level. Our next scheduled debt maturity is not until 2011, when $400 million comes due. Our current standalone long-term debt to equity is 42%, and our standalone total debt to equity is 46%. Combined with the free cash flow I described earlier, ONEOK has significant financial flexibility and liquidity, with opportunities to make strategic acquisitions, increase our investment at ONEOK Partners, increase future dividends or repurchase shares.

Finally, as I mentioned at our October analyst conference, we increased our long-term dividend payout ratio target to 60 to 70% of recurring earnings, due to the stability of cash flows from all of our business segments. And we will continue to look for opportunities to increase the dividend and returns to our shareholders. Now Rob Martinovich will provide an update on ONEOK's operating performance. Rob?

Thanks, Curtis, and good morning. Gary already talked about the ONEOK Partner segment, so I will start with Energy Service. We had another strong quarter, driven primarily by an increase in transportation margins that we were able to realize because of the hedges we put in place last year on the Rockies to MidContinent capacity. Year to date, operating income is also up, primarily due to increased premium service, transportation, and retail margins, partially offset by lower realized seasonal storage differentials. Our natural gas and storage at the end of the quarter was about 80 Bcf, up from last year's 75 Bcf. This increase is primarily due to warmer than normal regional weather in the first quarter this year as compared with the colder than normal weather realized in the first quarter of 2008.

We currently have 83 Bcf of storage capacity under lease as compared with 91 Bcf at this time last year. We anticipate further reductions to 72 Bcf in the first half of 2010, and down to 65 Bcf in 2011. This lower storage capacity, combined with much lower natural gas prices, has significantly reduced Energy Services' working capital needs compared with prior years, yet still gives us plenty of capacity to serve our customers. As Curtis mentioned, we have updated our Energy Services 2009 operating income guidance to $122 million. This increase is primarily due to our success in contracting for and retention of premium service margins, as well as increased optimization opportunities. We expect demand revenues related our premium service activities will slightly exceed last year's. We have a high degree of confidence in our ability to achieve this updated guidance.

We have nearly 100% of our storage margins and 90% of our transportation margins hedged for the remainders of 2009, and believe may be upside due to additional optimization opportunities and retention of premium service margins. Now let's turn to the Distribution segment. Our third quarter earnings were higher compared with last year, primarily due to new rates implemented in all three states as well as lower bad debt expense. Year to date operating income is also up, primarily due to increased margins in all three states from these new rates. Operating expenses were lower due to reduced bad debt expenses in all three states, partially offset by higher employee related costs. Our bad debt experience is better than last year for several reasons. Natural gas costs are much lower, our collection practices been more success, and we have a new bad debt recovery mechanism in Oklahoma that allows us to recover the gas cost portion of our uncollectible accounts. As previously reported, we also have this recovery mechanism in our other states.

On the regulatory front, on October 26th, Oklahoma Natural Gas, Oklahoma Corporation Commission staff, and the Attorney General entered a joint stipulation and agreement supporting the annual capital investment recovery mechanism of $17.3 million. On October 29th, the administrative law judge approved the joint stipulation and is recommending approval by the Oklahoma Corporation Commission. The $17.3 million has been factored in to our updated guidance. While the capital investment recovery mechanism sunsets this year, ongoing capital recovery will be included in the annual performance based rate structure commenting January 1st, 2010. The Distribution segment updated 2009 operating income guidance of $209 million includes the $17.3 million capital investment recovery mechanism in Oklahoma, partially offset by higher employee related costs, primarily employee incentive accruals. Concerning the 2009 Oklahoma rate case, on October 28th, a joint stipulation and settlement agreement of $54.5 million was reached between Oklahoma Natural Gas, the Oklahoma Corporation Commission staff, the Oklahoma Attorney General, and other intervening parties in the rate case filed June 26th.

With the move of several current riders into the base rates, the net revenue increase is expected to be $25.7 million. If the joint stipulation is approved by the Oklahoma Corporation Commission as drafted, it would add approximately $14 million of operating income beginning in 2010. As a reminder, these new rates would fall under new performance-based rate structure which requires us to adjust rates annually beginning in 2011, depending on our returns. When compared with the original filing, the agreed upon stipulation includes a lower return on equity of 10.5%, although higher than the current 9.9%; a slight reduction in rate base and a reduction in expenses. We did maintain our file capital structure of 44.7% debt to 55.3%, equity. This settlement requires approval by an administrative law judge and ultimately the Oklahoma Corporation Commission, and is set for hearing before the administrative law judge on November 9th, 2009. A final ruling is expected by the full Commission before the end of the year.

Moving to rate activity in Kansas, on September 11th, the Kansas Corporation Commission approved that utilities be permitted to defer pension and other post retirement expenses that are in excess of what's recovered in rates. We anticipate the total 2009 impact to be a $3.2 million increase in operating income. These amounts have also been factored into our guidance. On August 31st,we filed for a $3.9 million rate increase under the Kansas Gas System Reliability Surcharge rider. The Kansas Corporation Commission's staff has recommended that Kansas Gas Service be authorized to recover the $3.9 million. If approved by the Kansas Corporation Commission, the increase will go into affect in 2010. We expect to be able to report on the outcome of this filing on or before our fourth quarter analyst call. We continue to work on a memorandum of understanding with the Kansas Corporation Commission staff concerning Kansas gas services' participation in Efficiency Kansas in return for a form of rate decoupling.

Lastly in Kansas, the United Steel Workers and the International Union of Operating Engineers, ratified new labor agreements to replace the existing labor agreements on October 27th. The new agreement will be in effect through October 27th, 2011. Base wages, medical and pension benefits remain unchanged throughout the term of the agreement. Our wrap up with Texas rate activity. In August, the cities in our Rio Grand Valley service area approved increase of $1.3 million in base rates that also included new depreciation rates plus recovery of the fuel related portion of bad debts. These new rates were effective in September and are factored into our updated 2009 guidance. John, this concludes my remarks.

Thank you, Rob, and congratulations on a good quarter. Both ONEOK and ONEOK Partners continued to perform well and have strong financial positions. Before we move on to your questions, I would like to spend a few moments discussing the partnership's future growth and stability, as well as ONEOK's future opportunities as a result of its strong free cash flow generation which provides us with the financial flexibility to create value over the long-term. When we began the partnership's recently completed growth program in 2006, we promised to deliver increased earnings that would allow us the opportunity to grow our distributions to benefit not only ONEOK Partners unit holders but also ONEOK shareholders. This has happened, and it will continue to happen. Despite lower commodity prices and an unstable market, we have been able to maintain and recently increase our distributions at the partnership, primarily, if not solely, due to the earnings from these recently completed capital projects.

And as I previously mentioned, these new assets provide us a foundation for future growth. We have identified the opportunities, and when appropriate, we will announce the specific projects. At the partnership, we believe acquisition opportunities will develop over the next 18 months, primarily gathering and processing assets. Regarding ONEOK, we have been asked frequently about potential uses of ONEOK's estimated 200 to $220 million in free cash flow. It's a nice problem to have. Our financial structure as general partner and 45% owner of the partnership provides was a lot of options relative to acquisitions, either at ONEOK or at the ONEOK Partners level. As previously discussed, we believe acquisition opportunities will be available, primarily at the partnership. However, we are always looking for opportunities to grow our distribution companies. In any event, we will remain a disciplined buyer. We will evaluate potential transactions with a commitment to buy assets or businesses that fit strategically and have embedded growth opportunities.

We also continue to have a strong interest in increasing our ownership in ONEOK Partners, and as our actions have demonstrated, are committed to growing our dividend. And we are not adverse to share repurchases, having repurchased more than 22 million shares since 2005. But at this time, we believe other opportunities -- acquisitions, increasing our ownership in ONEOK Partners, dividend increases and debt repayment -- are more attractive options. That being said, we recognize we operate in a rapidly changing and ever evolving marketplace, and that those priorities could change as a result of those opportunities that are presented. But we are committed to maintaining a broad view of the landscape so that we can react to opportunities quickly. Once again, I would like to thank our employees for their commitment and contributions, which allow us to create value for our investors and our customers, and thanks to all of them for their dedication and hard work.

Finally, I would like to recognize and thank Jim Kneale, our President, who is retiring at the end of the year with 29 years of service to the Company, and participating in his last conference call, which I imagine sounds mighty nice to him. As leaders of large organizations, we recognize that our role is to prepare the organization for our exit. Much like removing your finger from a glass of water and seeing no change in the water level, Jim has done his job well. The organization has prepared for his retirement. Terry and Rob are both doing a great job in their Chief Operating Officer roles, and the future is bright for ONEOK and ONEOK Partners. But as Jim prepares to leave at the end of the year, I want him to know and I want you to knows that the change in the water level will be noticeable on a personal level to me, our leadership team, and to our employees.

In the ten years I worked with Jim, I have found him to be a great mentor, a confidant and an excellent business person, whose calm demeanor and wise council will be missed by all of us, but especially me. I'm truly blessed to know that although absent from work, he will always be my friend. So Jim, thank you, and enjoy your retirement. Operator, we are now ready to take questions.

(Operator Instructions). Our first question comes from Michael Bloom of Wells Fargo. Your line is open.

Thanks. Good afternoon, or good morning, everyone. Just a couple of quick questions for me. The first, in terms of the hedging information you provided, have you -- are those hedges mostly at the heavy end of the barrel on the NGL side, or have you also hedged ethane?

Terry?

Yes, most of it is on the heavier end of the barrel. We still have some methane to do.

Okay. Any granularity you are willing to provide on that?

Not really. I mean --

The majority of the unhedged barrel is ethane The majority of the unhedged is ethane.

Okay. And then the second question is, you made some comments around natural gas pipeline growth potentially in the MidContinent. Can you talk about what you're seeing there in terms of where you see the long-term opportunities from a growth perspective, and would that -- do you think that's mostly going to entail expansion of existing pipelines or do you think there's actually room there for another pipeline, and where would it go?

Well, what I could tell you, Michael, is that we are looking as a lot of things, particularly MidContinent. Supply is a key driver -- the supply development in the Woodford shale has been very significant and the outlook is very strong. So we see expansion opportunity of our existing assets and the potential for new pipeline facilities. So when we are talking to producers on a continual basis and trying to frame up economics and frame up commercial structures.

So to provide a little more color to that, wouldn't you say -- or isn't it true that in addition to expanding our existing system, for which will there are opportunities -- we are not talking about across the country pipeline. We're talking mainly about just like on the NBL side, moving incremental natural gas to liquid points. Just so you don't have a view that we are thinking about a southern crossing of the United States or something like that.

Okay. That's helpful. Thank you.

(Operator Instructions). Our next question comes from Helen [Rue] of Barclays Capital -- pardon me if I mispronounced. Your line is open.

Good morning. A couple of questions on OKS. Given your expectation of processing volume growth in 2009 and 2010, is it reasonable to assume your equity volumes will hold or they will be higher in 2010 versus 2009 without major capital spending on the segment?

Well, one of the drivers in that movement of equity volumes are contract structures, okay? So that -- you have to take that into consideration, and oftentimes that's the primary mover. Now if you are going to increase throughput -- and most of those contracts are POP-type contract --, you are going to have to spend capital to connect those wells, okay? So you will spend some capital, and you will increase your equity position on NGLs.

Okay. So the capital would be mostly to connect wells?

That's correct.

Okay.

As it typically is.

Right. Okay. Then another question is on your Arbuckle project, I think you talked about mi- teens return, and is that return assumption based on the current capacity or the secured supply commitment of 210,000 barrel per day, I guess? Just wondering what's the volume assumption to get to that mid-teens kind of return.

Well, I mean, what we've provided you is a stair step, if you will, from where we currently are to that 210,000 barrels per day. That rate of return or those economics are based upon that volume forecast.

Okay. Great.. Thanks. And then I guess final question is, talked about growth capital spending of about 300 million in 2010, and just wondering what do you expect to be the lead time of these projects and the timing of the spending, whether you expect it to be front end loaded or back end loaded? Just trying to get a sense of how much EBITDA contribution you would actually see in the same year on the spending next year?

Well, of course, it's going to be front end loaded. A lot of the projects are organic growth projects, so it's going to take some time for EBITDA to materialize. So we will spend a considerable portion of the capital. You won't actually see most of that capital being spent until later in the year. Okay? So from a profile standpoint, it will be more kind of back end loaded in the year. So I guess what I'm trying to say is there will be a lag of sorts. You will see some EBITDA in 2010. But a considerable portion of the EBITDA won't be realized until subsequent periods.

But it is fair to say, Helen, that one of the advantages of -- and the gathering and processing, and in particular in the NGL business as well -- is that you spend capital to connect new wells or new processing plants to your system, you start making money pretty quick. There's not a long lag time on those type of capital dollars, which is a part of the 300 million.

Okay. Okay, great. Thank you very much.

Our next comes from Ross Payne from Wells Fargo. Your line is open.

How are you doing, guys?

Hello, how are you doing, Ross?

Good, and Jim you will be missed. Thanks for all your hard work over the number of years. On Bison, I wanted to ask the question what kind of impact that will have on Northern Border Pipeline in your view as you look out a couple of years after it's been up and running?

Well, Ross, I mean, it's going to be significant. The project is targeted to start up late 2010, and clearly it adds another level of diversity to the supply portfolio for border. It is their near-term significant growth opportunity. So I'm not speaking for TransCanada, but what I can tell you, it's important for them, and they look to continue to expand it even further into the Meeker area.

But also, if you want more details, you should go to TransCanada.

Also on Overland Pass, it looks like that is almost able to reach full capacity fairly quickly with the Piceance Lateral. Is that fair to say?

Right. In terms of the current capacity. But as we said before, it's expandable with additional pump facilities.

Okay. Any thoughts on when that may happen?

Yes, I mean, from a timing standpoint -- I mean, as we've indicated before, in that next three to five years taking it to that maximum capacity level.

Over the next three to five years?

Right, right.

Do we have plans in next couple of years to add more pump stations?

Absolutely we do. That's going to transpire in stages between now and that time frame.

Great, that's helpful.

Our next question comes from Alex Meier of Zimmer Lucas. Your line is open.

Hey, guys, congratulations on the quarter. Just had two questions. First off, I know you guys disclosed that you had about 79.6 Bcf of gas in storage at your energy marketing and trading. Can you tell me how much you had at the (inaudible), at the gas distribution company?

We had about 28 Bcf a day at our energy services, out of 34 Bcf total storage.

So you had 34 in storage at the distribution company, okay. Okay, and then just on the energy marketing and trading --

No, it was 28, was what we've got in storage. The last number I gave you was the total.

Total capacity. Got you.

Yes.

Okay. Then just in terms of, I guess, the strong transportation margins you saw at energy marketing and trading, if you just look at what the kind of Rockies versus Mid-Con basis is now,, it looks like it's very skinny. So just in terms of the hedging, can you give a little more color on how it was such a great quarter and how well you guys did, and what is driving that.

Well, again, those were hedges that were -- as a result of hedges that were put on last year when the differential was wider. So that's what we are seeing now.

Okay, and do you have a lot of hedges remaining for the remainders of the year for the transportation segment that were priced at kind of similar levels to what you saw in the third quarter?

Yes, I mean, we are over 90% hedged, so I mean, they would be in a similar ballpark.

Okay, great. Thanks a lot, again, and congratulations, and Jim, best of luck.

Alex, thank you I appreciate that.

And I'm showing no further questions, sir.

Okay. Well, thank you. This concludes the ONEOK, ONEOK Partners conference call. As a reminder, our quiet period for the fourth quarter will start when we close our books in early January and will extend until earnings are released. We will provide a reporting date and conference call information on the fourth quarter at a later date. Andrew Ziola and I will be available throughout the day to answer your follow-up questions. Thanks for joining us, and have a nice day.

Ladies and gentlemen, that does conclude today's conference. You may now disconnect, and have a wonderful day