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Oneok to Sell Production Arm

Posted on: Wednesday, 20 July 2005, 12:01 CDT

Jul. 20--The energy company wants to raise cash to fund a recent large acquisition.

Oneok Inc. said Tuesday it may sell its oil and gas production to help provide permanent financing for its $1.35 billion acquisition of natural gas liquids assets from Koch Industries Inc., which closed earlier this month.

Chances are Oneok will receive a good price for its production and reserves, as industry analysts project higher prices for both oil and gas.

"Some people maintain that oil and gas prices are in the middle of their dramatic rise," said Tulsa money manager Fred Russell. "If you want to sell, this is not a bad time to do it."

The production and reserves of Tulsa-based Oneok are in four fields in Oklahoma and Texas.

The company produced 16.6 billion cubic feet of gas and 344,000 barrels of oil last year. By the end of 2004, Oneok had 203 billion cubic feet of proven gas reserves and more than 4 million barrels of proven oil reserves.

Oneok's production business recorded nearly $88 million in natural gas sales and more than $10 million in oil sales last year.

"The market for production properties is very strong," said Oneok spokeswoman Lori Webster. "We do expect to receive a price that's in the best interest of our shareholders."

Oneok has said all along that it planned to finance the Koch acquisition in a variety of ways, including the sale of "less strategic" assets. The assets of Oneok's production companies -- Oneok Energy Resources and Oneok Texas Energy Resources -- will be sold together in a packaged deal, Webster said.

"The plan is to contact a limited number of prospective strategic buyers," she said.

Oneok officials hope to complete the transaction in the third quarter.

Oneok is one of the nation's largest natural gas distributors, serving nearly 2 million customers in Oklahoma, Kansas and Texas.

Oneok Chairman and Chief Executive Officer David Kyle said the sale "will allow us to focus our attention on our other businesses -- natural gas distribution, gathering and processing, transportation and storage, energy services, natural gas liquids and our investment in Northern Border Partners."

The acquisition of NGL as sets from Wichita-based Koch is expected to add between $135 million and $145 million in pre-tax, fee-based earnings to Oneok's balance sheet in 2006.

The deal included 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 gave Oneok an interest in fractionation plants in Conway, Kan. and Mont Belvieu, Texas -- major market centers in the NGL industry.

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.

At the end of the first quarter, Oneok had $1.5 billion of debt, according to Standard & Poor's.

Shares of Oneok rose 47 cents Tuesday to $34.24, a few cents shy of its 52-week high of $34.32 set last week. The stock is up 20 percent this year on the New York Stock Exchange.

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OKE,

Source: Tulsa World

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