歐尼克 (OKE) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your fourth quarter 2009 ONEOK conference call. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference call is being recorded. I would now like to introduce your host for today conference call, Mr. Dan Harrison. You may begin, Sir.

Thanks. Good morning and thank you, everyone, for joining us. Any statements made during this call that might include ONEOK, or ONEOK Partners, expectations or predictions should be considered forward looking statements and are covered by the Safe Harbor provisions of the Securities Act of the 1933 and 1934. Please note that actual results could differ materially from those projected in any forward looking statements. For discussion of factors that could cause actual results to differ, please refer to our SEC filings. And now, let me turn the call over to John Gibson, ONEOK President and Chief Executive Officer and ONEOK Partners Chairman, President and Chief Executive Officer. John?

Thanks Dan. Good morning and many thanks for joining us on today. And of course for your continued investment and interest in ONEOK and ONEOK Partners. Joining me on today's call are Curtis Dinan, Chief Financial Officer for both ONEOK and ONEOK Partners, Rob Martinovich, Chief Operating Officer of ONEOK and Terry Spencer, Chief Operating Officer of ONEOK Partners. As our news release has indicated, both ONEOK and ONEOK Partners had solid fourth quarter and year to date performances in a challenging industry and economic environment. At ONEOK, all three segments performed well. Our distribution segment turned into solid performance benefiting from new rate mechanisms in all three states and from additional revenues in the fourth quarter from capital recovery mechanisms. During 2009, the distribution segment essentially closed the gap between allowed and earned returns on equity as a result of the successful execution of multi-year innovative rate strategies. And in 2010 the segment will benefit from the new rates in Oklahoma that went in to affect late last year.

Energy services had exceptional fourth quarter and year, as we continue to successfully implement our strategy to reduce earning volatility. At ONEOK Partners higher natural gas and natural gas liquids through put benefited results during the fourth quarter and the year. Although, lower realized commodity prices compared with 2008 more than offset those benefits for year. And the fourth quarter however, the impact of lower realized commodity prices was more than offset by higher volumes in both the natural gas liquids and natural gas businesses, resulting in a 15% quarter over quarter operating income increase, driven in part from earnings associated with the completion of more than $2 billion in capital investments that began in 2006. These completed projects drove volume growth primarily in the natural gas liquids business and benefited not only the fourth quarter but also the full year. In fact. the expected contribution of these completed projects gave us enough confidence earlier this year to project $0.01 per quarter increase in ONEOK Partners distributions in 2010. The distribution increases will benefit not only ONEOK Partners unit holders, but also ONEOK share holders, since two thirds of every incremental EBITDA dollar generated at the Partnership is returned to ONEOK as cash. Importantly, we are well positioned for continued growth at the Partnership.

As previously announced we have identified between $300 million and $500 million per year of additional projects through 2015, depending of course on market needs and producer commitments.

In early February ONEOK Partners took advantage of receptive capital markets issued more than $320 million of equity which will be more than adequate to fund our 2010 investments. While ONEOK did not participate in the offering primarily because of the demand for our units in the public market, the Company still believes investment in the partnership is beneficial to shareholders. Now at this time Curtis Dinan will provide a more detailed look at ONEOK Partners financial highlights and then Terry will review the Partnerships operating highlights. Curtis?

Thanks, John and good morning everyone. In the fourth quarter ONEOK Partners reported net income of $116 million, or $0.93 per unit compared with last year's fourth quarter net income of $122 million, or $1.09 per unit. For 2009, net income was $434 million, or $3.60 per unit compared with $626 million, or $6.01 per unit in 2008. John has already provided a high level summary of the drivers of the fourth quarter and full year performance and Terry will provide additional detail in a moment.

Distributable cash flow in the fourth quarter was $149 million, a 35% increase compared with fourth quarter 2008. For the year distributable cash flow decreased $79 million to $558 million, but was more than adequate to cover $1.10 per unit fourth quarter distribution and maintain 1.13 times coverage ratio for the year towards the high end of our 1.05 to 1.15 target. We issued the Partnerships 2010 guidance in January, and expect net income to be in the range of $450 million to $490 million for the year. Preliminary estimates for the Partnership's 2010 distributable cash flow are in the range of $580 million to $620 million. Adjusted for the recent equity offering, our average units outstanding for 2010 are approximately 101.4 million. Pending board approval the Partnership anticipates increasing the distribution $0.01 per quarter building from the fourth quarter 2009 distribution increase to $1.10 per unit, which marked the 13th distribution increase since ONEOK became sole general partner of the Partnership and represents a cumulative 38% increase over that time. Capital expenditures expected to be approximately $362 million, comprised of $278 million in growth capital and $84 million in maintenance capital. Terry will provide additional details on the projects we are targeting with these investments.

We have increased hedge to lock in margins expected equity volumes in the Partnership's natural gas and processing segment which has the most sensitivity to commodity price changes. While current 2010 prices for certain commodities are higher than the hedges in place, these hedges provided us the opportunity to lock in margins and to help ensure the distributable cash flow to support our forecast distribution increases for 2010. For 2010, we have hedged 75% of our expected NGL and condensate equity volumes at an average price of $1.21 per gallon and 75% of our expected natural gas equity volumes at $5.55 per MM btu. For 2011 approximately 16% of our expected NGL and condensate equity volumes are hedged at equity price of $1.65 per gallon and 43% of our expected natural gas equity volumes are hedged at $6.29 per MM btu. As is our practice, we continually monitor the commodity markets and to mitigate our overall risk we will place additional hedges as conditions warrant.

Earlier this month, we issued 5.5 million common units including the underwriters exercise of a portion of the over allotment option generating net proceeds of approximately $323 million which were used to reduce the amount outstanding under our revolving credit agreement and general partnership purposes. At the end of 2009, the Partnership had $523 million outstanding and $367 million available under the $1 billion revolving credit agreement that expires in 2012. Following completion of the equity offering the partnership now has $260 million outstanding and a debt to capital ratio of 50%. We are also forecasting our debt to EBITDA ratio to be below 4 to 1 by the Q3 of this year. The Partnerships next long-term debt maturities are very manageable $250 million due this June which we expect to refinance with our short-term revolver and $225 million due in 2011.

Over the past three years the Partnership has issued $1.1 billion of long-term debt and raised more than $1 billion dollar of equity and has now funded its more than $2 billion growth capital program. At this time the partnership does not anticipate any additional financing needs this year, but we will continue to monitor the capital markets and take advantage of opportunities as they are presented. Now Terry Spencer will provide you with a overview of the operating performance at the Partnership.

Thank you Curtis and good morning. The Partnership had a solid operating performance in the fourth quarter and the full year driven primarily by high volume increases in both the natural gas and natural gas liquids businesses. Lower commodity prices primarily for the full year offset the impact of these volume increases. The gathering and processing segments fourth quarter and year end financial results were lower than in 2008, due primarily to significantly lower commodity prices offset some what by higher natural gas volume processed and by selling our Leman Brothers bankruptcy claims. In addition to lower prices, we also experienced a 3% decline in natural gas gathered in both the fourth quarter and year end periods, due primarily to production declines and curtailments by producers of dry natural gas, coal beds, methane wells in the Powder River Basin. We have certainly seen a, drop off in drilling and natural gas production in this region compared with prior years due to lower natural gas prices. Powder River production generally is not processed since it does not contain natural gas liquids and some is some of our lowest margin through put. However, our natural gas volume processed increased nearly 3% for the quarter and for the year. And remains strong because of our presence in the growing natural gas liquids rich Balkin shale in the Williston Basin in North Dakota and the Woodford Shale in Oklahoma. These areas continue to be very active development areas driven by favorable drilling economics due in large part to the natural gas liquids content and associated crude oil and condensate production.

In 2009, we connected approximately 300 new wells down 35%, from 2008 levels. But over half of these well connects located in the crude oil producing NGL rich Balkin Shale and contributed to our growing processed volumes. If rig counts remain at current levels, the new well development on acreage dedicated to us under existing contracts could exceed 1,600 through 2014. We plan to invest $115 million in growth capital this year including $32 million for well connects and remaining $83 million for system expansions upgrades within our operating footprint.

In 2009, we had approximately 190 Willston Basin well connects and expect that number to increase to nearly 300 this year. For the entire segment across our entire operating footprint, we expect the total number of well connects to be north of 400 compared with 476 in 2008. With this growth in the Balkin Shale our recently expanded Graflin gatherings and processing facilities are well positioned. And we are evaluating the possible construction of more processing capacity and system expansions there as well as in Oklahoma.

Our western Oklahoma systems are at or near capacity because of the increased drilling activity in the Cannan Woodfford Shale and Colony Wash development. While more of a natural gas driven play is a natural gas produced there does contain considerable natural gas liquids. We have contractual commitments with producers to provide gathering and processing services and are well positioned for continued growth.

Our 2010 operating income guidance reflects higher anticipated processing volumes that are expected to be 6% higher than 2009, and gathering volumes level with last year. As Curtis mentioned, we have 75% of our equity volumes hedged for 2010 and have already placed some hedges for 2011, and will continue to look for more hedging opportunities as the year progresses.

In the news release, you will notice they with adjusted realized net sales prices to reflect hedge gains or losses on only the equity volumes we retain, as opposed to averaging the gains or losses across total sales volumes. We believe the resulting realized prices will better reflect the impact of hedging on the equity volume we retained from producers for our services.

Now moving to our natural gas pipeline segment. This predominantly fee based segment had another exceptional quarter and year. The Guardian pipeline expansion and extension that went into service for the first quarter of 2009, as well as our new Midwestern Gas Transmission interconnect with the Rockies Expressed Pipeline drove fourth quarter and year end results.

For 2009, our inter and intra state pipelines were approximately 90% subscribed under demand based rates for the quarter compared with 85% in 2008, and approximately 86% subscribed for the year, compared with 83% in 2008. Continued supply growth in the mid continent region especially in Woodford Shale will us provide opportunity to build new pipelines connecting to new supply sources and take away expansions to meet the needs of the producers. We are currently talking to producers and customers about these potential growth projects.

Now let's move to our natural gas liquid segment. Operating income increased more than 22%, from the fourth quarter of 2008, primarily as a result of higher NGL volumes gathered fractionated marketed and transported due to completion of Overland Pass Pipeline and its related projects and the Arbuckle pipeline, For the year, operating income was lower primarily due to narrower NGL product price differentials offset partially by higher NGL volumes from our recently completed growth projects.

The average price differential between the Conway and Monte Bellview market centers, for=ethane was nearly 25% lower in the fourth quarter of 2009, compared with the same period in 2008. And it was nearly 27% lower compared with the 2008 average. The amount of NGL fractionated during the 2009 fourth quarter increased to 482,000 barrels per day or 35% higher. NGL transported on gathering lines were up 50% or 138,000 barrels per day and NGL transported on distribution lines increased 25%, or 97,000 barrels per day. The primary driver for these increases was a completion of Overland Pass Pipeline, which reached more than 113,000 barrels per day in the fourth quarter. Earlier this month, through put reached 142,000 barrels per day getting us closer to our target of over 200,000 barrels per day in next three to five years, compared with Overland Pass' expandable capacity of 255,000 barrels per day.

We continue to experience solid results on our north system, the NGL and refined petroleum products pipeline serving the Midwest. In the fourth quarter, we experienced higher propane demand due to strong corn drying season and winter heating demand. We continued to see increase in third party interest in shipping bill units used in the production and transportation of heavy Canadian crude oil. Our 2010 operating income guidance reflects anticipated supply growth in the mid continent and the full year impact of Arbuckle, Overland Pass and related projects completed in 2009. Now update on Arbuckle. Through put reached approximately 97,000 barrels per day in the fourth quarter of 2009, exceeding expectations as new supplies continue to be developed across our systems. Over the next three to five years we have commitments from producers for more than 210,000 barrels per day of through put compared with Arbuckle expandable capacity of 240,000 barrels per day. For Overland Pass and Arbuckle expect approximately $40 million to $60 million in investments in additional pump stations in 2010.

Now let's discuss the NGL markets. Fundamentals across the NGL industry remain strong. We expect frax nation capacity to remain tight and additional NGL supplies to continue to be developed. Demand for fractionation capacity is increasing and so are the fees with some contracts being negotiated with firm demand fee structures. Our volumes delivered to the PET cams remain strong as US steam cracker consumption of ethane exceeded 850,000 barrels per day during the fourth quarter of 2009. We expect this trend to continue throughout 2010. Demand is driven by our customers continued need for reliable supplies services and infrastructure. We expect NGL based feed stocks like ethane to continue to have a competitive cost advantage over oil based feed stocks. We also anticipate as much as 100,000 barrels per day of cracking capacity could be further converted from oil base to ethane base feed stocks in the US.

As NGL growth continues we will carefully evaluate our NGL infrastructure growth opportunity and underlying assumptions about the customer and market demand. With these historically high demand levels and growing supplies contract structures that significantly mitigate volume and margin risk will become more prevalent. Chemical companies are projecting double digit volume growth in 2010, driven by poly ethylene and other plastics as well as continued strong exports to Asia. US destocking has ended and petro chemical companies are now expecting further increases in end user demand for various products.

A vast majority of the US ethylene derivative demand comes from Canada, Mexico and South America with about 10% of the export demand historically consumed in Asian markets. Some industry experts believe that the petrochemical capacity on line overseas will displace less economic oil based capacity in Asia. We believe our country's access to and proven ability to quickly develop natural gas and natural gas liquids reserve at a relatively low cost will keep fuel and feed dock costs for US petro chemicals at some of the lowest and most competitive in the world. The need for a continued expansion of our NGL infrastructure is driven by long-term development plans of natural gas and NGL producers within our core areas especially in the Balkin Shale and Woodford Shale and some outside our core areas. We are in discussions with producers in Williston Basin about NGL infrastructure needs and take away capacity to accommodate this growth.

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. We recently signed a ten year fractionation services agreement with 60,000 barrels per day of capacity at their facility in Mount Bellview,Texas which is currently being expanded and expected to be operational during the second quarter of 2011. This agreement provides us with timely access to new capacity in a cost affective manner. It does not preclude us from continuing to evaluate the expansion of our own fractionators or for building new fractionation facilities.

The emerging Marcella Shale play needs more natural gas and NGL infrastructure is experiencing a potential challenging legislative regulatory and environmental landscape. We are continuing our discussions with producers in this region to develop solutions related to NGL take away capacity and we will require commitments from producers prior to making any investment. John that concludes my remarks.

Thanks Terry.That's a good summary. I appreciate that. Now turning to ONEOK. Curtis Dinan will review ONEOK's financial performance. And that will be followed by Rob Martinowich, who will review ONEOK's operating fullfillments. Curtis? Thanks John. ONEOK's net income for the Q4 was $93 million compared with last years Q4 net income of $68 million or 65 cents per diluted share.

ONEOKs net income for the fourth quarter was $93 million or $0.87 per diluted share compared with last year's fourth quarter's net income of $68 million or $0.65 per diluted share. ONEOK's net income for 2009 was $306 million or $2.87 per diluted share, versus $312 million, or $2.95 per diluted share in 2008. Rob will provide more details on the drivers of this financial performance in a few minutes.

ONEOK's 2009 stand alone free cash flow before changes in working capital exceeded capital expenditures and dividend payments by $223 million. By virtue of ONEOK's general partner interest and significant ownership position, ONEOK received $278 million in distributions from the partnership for 2009, an 11% increase from 2008. At the Partnerships estimated distribution level, as detailed in the 2010 guidance, ONEOK will receive approximately $304 million in distributions for 2010, a 9% increase over 2009.

ONEOK's liquidity position is excellent. At the end of the fourth quarter and on a stand alone basis, we had $359 million of commercial paper outstanding which is backed by our $1.2 billion revolver that does not expire until 2011, $26 million in cash and cash equivalence, and $366 million of natural gas in storage. By the end of the first quarter, we expect to have repaid all of our short-term debt as we continue to pull gas from storage to meet our customers needs. We currently project short-term borrowings to remain below $400 million for 2010. Our next scheduled debt maturity is not until 2011 when $400 million comes due.

Our current stand alone long-term debt to equity is 41%. And our stand alone total debt to equity is 46%, which are both under our 50-50 debt to equity target. ONEOK's significant free cash flow and financial flexibility provide us with opportunities to make strategic acquisitions, increase our invest in ONEOK's partners increase future dividends, repurchase shares. As John mentioned, ONEOK did not participate in the recent ONEOK Partners equity offering because it was more efficient and timely to access the public market. However, it does not indicate a shift in ONEOK's strategy or capacity or support of the growth program at ONEOK Partners. ONEOK's 2010 net income guidance is in the range of $300 million to $335 million.

Our guidance reflects higher anticipated earnings in the ONEOK Partners and distribution segments, partially offset by lower expected earnings in the energy services segment. Pending board approval ONEOK anticipates dividend increases of $0.02 per share, semi annually during the year, building on the fourth quarter dividend increase to $0.44 per share, representing a 57% increase since January 2006. We remain committed to our targeted long-term dividend payout ratio of 60%-70% of recurring earnings, due to the stability of earnings and cash flows from all of our business segments. Now Rob Martinowich will provide update on ONEOK's operating performance.

Thanks Curtis and good morning. Terry has discussed ONEOK Partners. So I will start with our distribution segment. Fourth quarter earnings were up 12% compared with 2008, due primarily to additional revenues from our capital recovery mechanism in Oklahoma that was approved by the Oklahoma corporation commission late last year, partially offset by higher employee related costs. Year to date operating income was up approximately 11%, due primarily to increase margins and all three states from successful rate case outcomes. Operating expenses were slightly higher due to higher employee related costs primarily incentives offset partially by reduced bad debt expenses and lower vehicle related costs. For the past several years, we have focused on an execution of regulatory strategy to close the gap between our actual return on equity and our allowed return. I'm pleased to report we have a closed this gap. Since 2005 the distribution segment has more than doubled its return on equity and nearly doubled its operating income. In 2010, our weighted average allowed return has increased from 10.1%, to 10.7%, with expected return on equity of 10.4%.

Our innovated rate designs for capital recovery in all three states have enabled us earn a return on our investment more quickly thus reducing regulatory lag and improving the level of sustainable earnings. Going forward we expect to grow rate base by efficiently invested capital and projects that provide benefits to our customers and shareholders. For example, we plan to invest $31 million to install automated meters in select metropolitan communities in Oklahoma. These meter will enable quicker, safer, and more efficient methods in meter reading and provide a net reduction in expenses, while allowing us to earn a return on these investments under the new performance based rate structure creating a win-win for customers and the Company. With that I will briefly discuss the latest regulatory updates in our states beginning in Oklahoma.

In mid December the Oklahoma Corporation Commission approved increase of $54.5 million, in base rates and set an authorized return on equity of 10.5%. The previously approved performance based rate structure allows for a 75 basis points band above and below the authorized return. In this rate case, several riders including capital recovery were moved to base rates. The net revenue increase is expected to be $25.7 million, contributing approximately $14 million of incremental operating income in 2010.

Our new performance based rate structure requires regulatory review and annual adjustments as needed. However, adjustments are anticipated to be on a smaller scale than in the past depending on our returns beginning in 2011.

Moving to Kansas, in mid December the Kansas Corporation Commission approved our request for a $3.9 million rate increase under the Kansas gas system reliability surcharge rider that became affective in January 2010. Also in mid December, Kansas gas service filed a application with the Kansas Corporation Commission to become efficiency Kansas utility partner. This program is designed to promote energy conservation, and funded by federal economic stimulus dollars. As filed the Company's participation in this program is contingent upon the KKC approving rate mechanism for revenue decoupling and allowing recovery of all program costs. The KCC has 240 days from the application date to issue a ruling which results in a decision on or before August 16th.

Finally, our Texas rate activity. In early December, Texas Gas Service filed for a $7.3 million rate increase in its El Paso service area. If approved the new rates would become effective in may and factored in tour earnings guidance. For 2010, the operating income guidance for our distribution segment is $223 million. This reflects the $14 million impact from the approved Oklahoma rate case, $8 million from the retail marketing business, moved from the energy services segment and the impact of previously approved rates as well as anticipated new rates in Kansas and Texas. Offsetting these increases is the $17 million from the 2009 capital investment recovery mechanism in Oklahoma that will not recur in 2010.

Now let's turn to energy services. We had another strong quarter with results tripling compared with the same period in 2008. This was driven primarily by an increase in storage margins because of wider seasonal storage differentials the summer winter spread as well as higher transportation margins due to hedges put many place during 2008 on the Rockies to mid continent capacity. We were also able to take advantage of optimization opportunities in the market place due to the colder weather.

Offsetting in these increases was a decrease in premium services revenue due to lower demand fees, and the increased cost of providing these services due to colder weather in our core service areas in December of 2009. Full year 2009 operating income was $135 million, up nearly 80% compared with 2008, due primarily to higher transportation margins from higher realized Rockies to mid continent differentials and increase in premium services due to relatively warmer winter weather in the first quarter of 2009 compared to the same period of 2008.

Our natural gas in storage at the end of the year was about 61 bcf down from last year's 82 bcf. This decrease is primarily due to colder than normal regional weather in the fourth quarter mostly in December compared with the fourth quarter of 2008, plus the year-over-year reduction of leased capacity. We currently have 83 bcf of storage capacity under lease compared to 91 bcf at the end of 2008. Our January 31st, 2010 inventory balance was approximately 42bcf.

As part of on going realignment of storage and transportation capacity to meet the requirements of our premium services customers, we anticipate further storage capacity reductions to 71bcf by the end of this year, and down to 65 bcf by the end of 2011. We expect our transportation capacity to be at 1.3 bcf pir day by the end of 2010 and approximately 1 bcf per day by the end of 2012 compared with current capacity of 1.5 bcf per day. This capacity reduction targets those assets with lower than average unit margins. These actions will also reduce our earnings volatility and working capital requirements.

During 2009, we evaluated potential benefits associated with maintaining the storage and transportation capacity above the levels needed to serve our premium services customers. In the past, this additional capacity has enabled us to take advantage of natural gas supply disruptions that created opportunities for strong but not necessarily repeatable financial results. With our focus on premium services customers, we have created a more predictable less volatile earnings strength. Beginning this year, we moved our retail marketing business to the distribution segment, which allows energy services to increase its focus on providing premium services to its wholesale customers. Energy services 2010 earnings guidance of $107 million, in operating income, excludes the $8 millions from the retail marketing business, and reflects lower expected transportation margins from narrower natural gas location differentials compared with 2009.

Our earnings guidance also anticipates reduced premium services demand fees as a result of the lower price environment when contracted along with reduction in market volatility relative to 2009. We expect higher storage margins during the year as a result of wider seasonal storage differentials due to the lower pricing environment during the 2009 injection period.

For 2010, nearly 75% of our storage margins and 62% of our transportation margins are hedged. We will complete our storage hedges as we inject gas in to storage or financially if spreads significantly widen. For transportation we will be opportunistic. If differentials widen in the summer, as they often do, we will put additional hedges in place. If they don't, we optimize our position in the marketplace. John, this concludes my remarks.

Thanks Rob. Very good summary and congratulations on a good year too. Now to summarize. Since becoming general partner of ONEOK Partner in 2006, we've demonstrated our commitment to and a strong track record of strategic growth. Growth in distributions, since 2006, of approximately 8%, on a compound annual basis, with more than $0.30 a quarter from $0.80 to $1.10 as well as expectation of continued distribution growth in 2010. Growth in capital investments to create long-term value for our customers and investors including more than $2 billion of investments between 2006 and 2009. And identification of $300 million to $500 million per year in additional investment opportunities between now and 2015. Growth in projects that creates sustainable earnings this year, and next, which also lead to additional investments in needed infrastructure in the future. Our industry clearly needs additional energy infrastructure as we secure producer commitments on the projects we've identified internally. We will announce specific projects with specific details as we have in the past. We believe our track record connecting supply with demand meeting producer and customer needs by providing quality nondiscretionary services as well as doing what we say we will do speaks to the credibility of our Company and its employees.

Since 2006, we announced ten major projects, nine of which are now in service. All in all I would say that's a pretty good batting average. So at this time I would like to thank our employees for their commitment, and contributions which allow us to continue to create the value we are delivering for our investors and our customers. Our employees hard work and perseverance was a basis of our 2009 success, making our sound strategy and good assets come together to deliver strong results in a challenging environment. I would like to thank each of them for their dedication and hard work. Operator, we are now ready for questions.

(Operator Instructions) First question comes from Helen Roy with Barclays Capital.

Yes, good morning. Just a couple of questions on the OKS side. The first one is in the NGL segment, notice the gathered volume increased 138 million barrels per day year-over-year. I was wondering adding Arbuckle 97 and Overlands 130 that's about over 220, I guess some of the Overlands number appeared in the fourth quarter last year. So I was wondering that given your increase was 138 and you had a larger volume contribution from Arbuckle and will Overland, where there was any other gathering NGL gathering lines that had volume decline.

I'm not sure I understand your question. What I will tell you is that those volumes are interrelated to a certain extent. We actually seen increases in our my continent gathered volumes. We seen increases of course in the gathered volumes that go in to Overland Pass and Arbuckle. So, we are not experiencing decline in the, if you will, the core business. So perhaps the numbers, we could spend a bit more time with you and to help you perhaps with that to tie out. We are experiencing growth across our entire NGL business. And gathered volumes.

Okay. You will be getting new supply commitments on Arbuckle and Overland in the next three to five year. And I was wondering for you would providing fractionation distribution of NGL sales service for the new volumes coming in?

Yes we will, for some of the customers we will. Some customers will have their own fractionation capacity or want to contract for that themselves. But we will provide menu of services for the customers in the way fractionation storage marketing.

And in fact the customers that we'll seek out are the ones where we can sell them the most services.

Okay, And then another question was just trying to understand better the operating data disclosed in the NGL segment. I guess what you gather you fractionate and then it goes to distribution volume. And the final pages, the NGL sales, these four data points are included in your operating data. I was wondering would you say the first three business gathering fractionation distribution business are fee base business. And the last part, NGL sales, get a fee and make additional margin on the same product spread between the two markets centers and the optimization margin between ISO and on the butane side. Is that the way to think about these data?

Close. You are close. Absolutely on the fractionation gathered volumes, those are fee based businesses. On the sales volume, we generally generate a marketing margin. It's not necessarily a fee. It's a premium we can collect in the marketplace because we do have considerable volume at the market hubs. So, that in and of itself is not part of the fee based business. One of the other things that you need to understand here is that some of the volumes are actually one in the same. So some of the volumes we fractionate are also those same volumes are being gathered and transported. You can't add you will all those volumes together. You would be double counting volume.

I guess you would be offering some of a bundled fee with the same. Okay.

That's exactly, that's how generally our exchange agreements are primarily a bundled service.

Okay, got it. And just finally the Connway to Monte Bellview ethane spreed came down quite a bit in the quarter. Just wondering what you're seeing for 2010. What's the assumption embeded in your 2010 segment guidance, the $297 million. What kind of spread assumption is embedded there?

Well, our view for 2010 is about a $0.10 spread for ethane propane or EP mix is what I'm talking about. Ethane spreads between Connway and Bellview. About $0.10 a gallon. There are other products we generate, that we optimize and generate and realize spread benefit as well some of the heavier propane and normal as well. But the big driver is ethane and it's about $0.10.

Alright. Thank you very much.

Thank you, Helen.

Next question comes from Ted Dureban with Goldman Sachs.

Hey guys. Just thinking about the CapEx budget. Are you more than likely what your customers are wanting to lean towards processing fractionation, maybe a little more commodity sensitive businesses or more the fee based gas pipeline kind of things? What are you seeing in the market right now?

Well, inside the partnership, we are seeing a need for continued increase in gathered volumes whether that be in the gas business or in the gas liquids business as supply pushes itself towards infrastructure. So it's undoubtedly supply push and then once it hits your system, the way we turn that into revenue, is predominantly fee based.

So little bit of a mix of both, we ought to think about that sort of going forward?

A mix in that it won't vary drastically from the mix that currently exist. Kind of more of the same.

Understood. Then maybe just on the services, the Targa announcement, how do we think about how that impacts your margin? Doesn't mean there is capital involved there, but How do we work out through our models. That agreement you signed.

Ted you recall from other discussions the fractionation situation in the industry is tight. There is not much excess fractionation capacity available. This was low hanging fruit project we needed to do to allow us to grow our infrastructure. It fits very well. It's down on the south end of our Arbuckle pipeline. Allows us to continue to grow. And then from a economic standpoint, how it will make money is it will allow us to generate fees from our pipeline business. Fractionation in and of itself will be a profit center but the most of the revenue you will make it from it will be from as John indicated hauling long haul barrels our of the Rockies down to the Gulf Coast, out of the mid continent down to the Gulf Coast.

So you were seeing sort of potention constraints in terms of being able to move volumes in the pipe which would drive you to set the agreement up.

Probably the short story is that the piece is shortest now is fractionation space. And the party that can build incremental fractionation the fastest certainly relative to us is the affiliate of Targa. So, what we're able to do is capture that capacity, use that and combine with gathering, as Terry said gathering those those barrels so that we are able to provide producers in place to frac those barrels. Then we have then barrels that tailgated that fractionator to distribute and or capture product price differentials. So, the short answer to your question is the way to think about this, we are increasing our margin. We are doing this to make more money. This is the most economical and quickest way for us to meet the needs of the producers.

Got it. If I could just one more in terms of kind of bigger picture. Thinking about growth at the partnership and cost of capital, and the LPGP relationship. How are you thinking about distribution growth going forward? Are there things that the general partner can do to make sure that the partnership stays competitive when it's competing for projects?

The general partner has shown a willingness to do that in the form of buying units. The other option that we have available to us is and we are looking for these opportunities are for the GP to buy assets at the GP level for us to spend down in the future. So we not only have a willing GP, but we have a financially strong GP that is flexible in how it approaches its investment in ONEOK Partners.

Thanks very much.

Thanks Ted.

Our next question comes from the line of John Lafar with Wells Fargo. Good morning everybody. I should say almost good afternoon. We were listening to the Williams call last week talking to them about their intentions to exercise the option on Overland Pass pipeline. I think that agreement comes up in November. I guess I was just wondering what your thoughts are around this, are you anticipating that they will exercise. If not, do you have the right to resell that portion of that pipeline. And then would it impact your capital plans on 2011 and beyond.

Well, we didn't listen to the call. To my knowledge, we don't know what they said. So, let's just review the option they do have. Which you correctly point out, is they have the option to acquire the interest in Overland Pass, the DJ and Peonce pipeline systems. They have that and the option is in November. We have yet to hear from them as what there intentions are. We offered that option to them. And by virtue to the fact by offering it to them, we are completely fine if they exercise it. And what that means is that if they exercise it, then we are going to get money. And that's at a predetermined price. And that's money then we use to invest further in ONEOK Partners. If they exercise the option and exercise it to the extent than they become 50% owners in the pipelines I mentioned, then they have the right to become operator. Which if they elect to do that is okay with us, when we entered in to this option we entered in to this knowing that Williams is a excellent operator of pipelines as are we. So, we're good with it. But we've not heard anything from them. As far as the overall impact when you look at the pluses and minuses of dollars coming in and interest cost going down and how much money we make off of the downstream activities, net-net it's not going to make a big difference to us in 2010 and relatively neutral going forward.

So I guess my question was if they don't exercise, will you look to bring in a different partner or will you just continue on with the same strategy or continue to own 99% ?

I'm sorry I didn't answer your question, I apologize. Once their option period passes we as owners of the 99% of the owners have the option to do whatever we like. I'm not sure selling part of our pipeline to somebody is not something we are thinking about. The short answer is we obviously have the right to do but it's not something we are contemplating.

So your growth plans for $300 million to $500 million are not at predicated on selling that piece.

No, absolutely not.

Okay. That's all I have.

See you.

Our next question comes from Lewis Shamey with Zimmer Lucas.

Hi, congratulations on the quarter and the year. I just had a quick question regarding the distribution segment. Does your 2010 guidance assume any impact from that filing in El Paso?

It does, yes.

Do you assume you get the full $7.3 million.

No.

Okay. Can you tell me what you do assume?

No.

Okay. All right, thanks very much.

Was that Lewis?

That was Lewis.

Next question comes from Ross Pane with Wells Fargo.

Hello, Ross.

Most of my questions have been answered but one quick question, what kind of exposure do you have to the Granite Wash, in Oklahoma the Woodford is a growth area for you assume Granite Wash is as well. What is going on in between in terms of conventional drilling.

Ross let me interrupt you I'm sorry, we can just barely hear you.

Okay. How about here.

Little better.

Sorry about that. Obviously the Woodford is a growth area for you in Oklahoma. Was curious what kind of exposure you had to the Granite Wash? And absent that, what's going on with conventional drilling just within your gathering areas.

With conventional drilling?

Yes.

First part of your question, we do have exposure both to the Colony Wash and the Granite Wash. So, our systems do extend into those areas. So, we like our position there. As far as conventional drilling, it's slowed down quite a bit. There is still come activity but the thing that's surprising is even some of the more traditional conventionally drilled formations are horizontally drilled. And they were not horizontally drilled before. So, conventional drilling has slowed down quite a bit. But the horizon drilling obviously the results in the Woodford and Colony Wash have much more than offset that.

Great, thanks, appreciate your comments on the Overland Pass as well, thanks.

Thank you, Ross.

Our next question come from John Tyson with CitiBanc.

His guys, good morning.

How are you doing?

Good. Quick question on and clarifying in regards to our signed long-term fractionation agreement with Targa. Were are you able to lock in supply that supports capacity agreement on the fractionator? Or is it your view that the mid continent NGL supply is going to be so rebust that taking advantage of I guess short term in NGL basis differentials is more attractive way of monetizing that fractionation capacity?

Terry?

We actually have a considerable portion of that locked up. Not all of it but we do have supply committed for that will affectively go through that fractionator. Our view on the supply is so bullish that we don't have any concern that we won't have that fract full by the time it starts up.

So, if you look at the I guess the supply versus the fractionation capacity in the mid continent area over the Connway market, the assumption would be that you there will be plenty of enough supply for that market and it's going to over flow to either Canadian or into the Gulf of Mexico. And I guess the is the Arbuckle pipeline is only incremental provider of the transport between the two at this point?

I wouldn't say it's the only but I will say that it's probably as economic if not the most economic alternative to move product down to the Gulf. It's readily expandable pipe. And it has quite a bit of connectivity down on the south end. And it ties directly in to our fractionation facilities and tie in to the Targa fract.

How much further can you expand that pipe now that its completed?

Well, the current capacity is about 160,000 barrels per day. And we can readily go to 240,000. And some of our engineers would argue we could go higher than that. But, 240,000 barrel as day is what is expandable to.

Okay, thank you guys.

Our next question comes from Carl Kirst with BMO Capital.

Very nice quarter as well. Actually most of my questions have been hit. One follow up if I could or actually in energy services. Can you comment at all how the first quarter weather treated you guys? I guess I want to make sure that as we see the amount of hedges in place I guess I'm on the same page. Did the weather spikes, do we have the capacity to take advantage of that now? Or is sort of the move towards cutting out the volatility which I think is absolutely the right way to go, does that sort of also mute the impact of taking advantage of weatherer events like that?

You got it. So obviously we can't make comments about first quarter. But as we said many times before the tradeoff for us to align our capacity whether it be transport and storage with premium customers is we remove the opportunities to participate in the upper side but greatly remove the opportunity to participate in the downside. So as you described it is exactly what is behind our strategy.

Perfect. Just wanted to confirm. Curtis, the hedges you threw out on the NGL equity volumes and the gas volumes, I apologize, are those net two ONEOK or those Monte Bellview heavy held prices?

Well, the equity volumes, they are a combination.

So, they are net of a location.

They are net. Okay. Thank you, guys.

Well, thank you all. This concludes the ONEOK and ONEOK Partners conference call. As a reminder, our quiet period for the first quarter will start when we close books in early April, and will extend until earnings are released after the market closes April 28th. Our first quarter conference call is scheduled for April 29th and we will provide additional conference call information at a later date. Andrew, Viola and I will be available throughout the day for any follow up questions. Thank you for joining us.

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