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Oneok Buys Natural Gas Liquids Assets for $1.35 Billion

Posted on: Tuesday, 5 July 2005, 15:00 CDT

Jul. 2--Oneok Inc. has completed its $1.35 billion purchase of natural gas liquids assets from Koch Industries Inc., moving up as a major player in the NGL market.

The deal marked the largest acquisition in Oneok history.

"It's a very sensible acquisition for Oneok," said John Olson, who covers Oneok for Sanders Morris Harris Group, a money manager. "Natural gas liquids demand has been growing at about 2 to 3 percent a year."

After the announcement, shares of Tulsa-based Oneok surged 49 cents to $33.14, a 52-week high, before closing at $33.13. The stock is up 16.5 percent this year.

Natural gas liquids such as ethane, propane and butane command a higher value than natural gas and are used for home heating, refining and petrochemical production.

"We'll take that barrel of natural gas liquids and we'll gather it, fractionate it and distribute it to the market," said John Gibson, president of Oneok Energy Cos. "We're the sixth or seventh largest natural gas liquids producer in the United States."

The deal is expected to add between $135 million and $145 million in pre-tax, fee-based earnings to Oneok's balance sheet in 2006.

"It will add to earnings. It will add to cash flow," Olson said.

The acquisition involves several companies controlled by Wichita-based Koch Industries.

The assets include 4,400 miles of gathering and distribution pipeline in Oklahoma, Kansas and Texas and two fractionation plants in Medford and Hutchinson, Kan.

In addition, the deal gives Oneok an interest in fractionation plants in Conway, Kan., and Mont Belvieu, Texas -- major market centers in the NGL industry. The Koch system links NGL production from Oklahoma, Kansas and the Texas Panhandle to those hubs, Oneok said.

"The acquisition is consistent with our growth strategy and is a perfect fit with our existing businesses," Oneok Chairman, President and CEO David Kyle said in a written statement. "It adds a new segment to our operations, giving us the ability to create additional value."

Of the Koch system's 207 employees, 191 will join Oneok. Most of them will remain in the field. A company spokeswoman said 35 commercial and accounting positions will be transferred from Wichita to Tulsa.

The deal is being financed temporarily with a short-term loan of $1 billion, borrowings from an existing $1 billion five-year credit agreement and proceeds from Oneok's commercial paper program.

Permanent financing will be achieved through a combination of cash, proceeds from the sale of long-term debt and proceeds from the sale of equity units next February.

Oneok says it has a debt-to-equity ratio of 59 percent, which includes the Koch acquisition. At the end of the first quarter, Oneok had $1.5 billion of debt, according to Standard & Poor's.

Oneok is one of the nation's largest natural gas distributors, serving nearly 2 million customers in Oklahoma, Kansas and Texas. It is the parent of Oklahoma Natural Gas Co., the state's largest gas utility.

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OKE,

Source: Tulsa World

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