Good day, and welcome to the ONEOK Second Quarter 2024 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Andrew Ziola, Vice President of Investor Relations. Please go ahead.

Thank you, Dave, and good morning, and welcome to ONEOK's second quarter 2024 earnings call. We issued our earnings release and presentation after the markets closed yesterday, and those materials are on our website. After our prepared remarks, management will be available to take your questions. Statements made during this call that might include ONEOK's 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. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. Just a reminder for Q&A, we ask that you limit yourself to one question and a follow-up to fit in as many of you as we can. With that, I'll turn the call over to Pierce Norton, President and Chief Executive Officer. Pierce?

Thanks, Andrew. Good morning, everyone, and thank you for joining us. On today's call is Walt Hulse, the Chief Financial Officer, Treasurer and Executive Vice President, Investor Relations and Corporate Development; and Sheridan Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing. Also available to answer your questions today are Chuck Kelley, our Senior Vice President of Natural Gas Pipelines; and Kevin Burdick, who is the Executive Vice President and Chief Enterprise Services Officer. Yesterday, we announced the second quarter 2024 earnings and affirmed our full-year 2024 financial guidance, with record Rocky Mountain region volumes, continued progress on acquisition-related synergies and solid demand on our products and services driving our strong second quarter performance and providing momentum into the second half of 2024. Increasing volumes across our gathering and processing and natural gas liquids segments and the demand for our natural gas pipeline services, combined with the strategic opportunities in our refined products and crude oil segments continue to provide confidence in our long-term growth and highly attractive returns across our business. We continue to identify opportunities to expand and extend our systems with recent announcements tied specifically to the commercial opportunities and synergy-driven growth in our natural gas liquids and refined products and crude segments. In June, we completed our acquisition of a system of NGL pipelines from Easton Energy. This acquisition was unique in that it made sense for ONEOK even before the acquisition of Magellan because of the ability to capture value downstream of our Mont Belvieu fractionation assets. Now, adding the legacy Magellan assets, the value creation and return potential is even greater. In addition to acquisitions, we continue to see substantial organic growth opportunities. In July, we announced the expansion of our refined products pipeline to the Greater Denver area. This project will provide additional needed capacity for various transportation fuels, including aviation and sustainable aviation fuel to support increasing demand from the significant future expansion of the Denver International Airport. Also in July, we received our first shipment of sustainable aviation fuel at our Galena Park Marina terminal in Houston, facilitating growth with sustainable fuels in this market. These opportunities are all in addition to our previously announced NGL-related growth projects, including our MB-6 fractionation and expansions of our Elk Creek and West Texas NGL pipelines. Sheridan will provide a more detailed explanation of those projects and their timing and more to that shortly. Long-term volume commitments, strong operating performance, and a proven track record of supporting our customers with reliable capacity give us confidence in our future growth. We remain committed to investing alongside our customers. Less than a year after the Magellan acquisition, we're already seeing significant synergies and discovering new growth opportunities that wouldn't have been possible for either company on its own. Our integrated assets are proving their value, and our potential for additional growth remains. With that, I'll turn the call over to Walt.

Thank you, Pierce. ONEOK's second quarter 2024 net income totaled $780 million or $1.33 per share, representing an earnings per share increase of 28% compared with the second quarter of 2023 and a 22% compared with the prior quarter. Second quarter adjusted EBITDA totaled $1.6 billion. Results were driven primarily by higher NGL and natural gas processing volumes in the Rocky Mountain region, increased transportation services in the natural gas pipeline segment, and contributions from the refined products and crude segment. The sale of nonstrategic gathering and processing assets in Kansas contributed to a pretax net benefit of approximately $50 million during the quarter. We expect the full-year net benefit from the sale to be approximately $40 million when considering the earnings of the assets that would have provided through the remainder of the year. As Pierce mentioned, we affirmed our 2024 financial guidance after increasing it with our first quarter earnings announcement. That increased guidance range included an expected adjusted EBITDA midpoint of $6.175 billion, with the high end at $6.325 billion. We continue to expect to meet or exceed our midpoint of $175 million in cost and commercial synergies in 2024 and expect additional annual synergies to meet or exceed $125 million in 2025. As of June 30, we had no borrowings outstanding under our $2.5 billion credit agreement. During the quarter, we extended the maturity of our revolving credit facility to June of 2028. In addition, our run rate net debt-to-EBITDA ratio was 3.36x at the end of the second quarter, in line with our long-term leverage target of 3.5x. We have an approximately $480 million maturity due in September, which we expect to pay with cash, strengthening our balance sheet even further. This will position us well to continue returning value to our investors through a strategic and balanced capital allocation approach. Our approach remains an all of the above strategy, utilizing a combination of high-return capital projects, dividend growth, debt reduction, and share repurchases. I'll now turn the call over to Sheridan for a commercial update.

Thank you, Walt. Beginning with the natural gas liquids segment, volume growth from the Rocky Mountain and Mid-Continent regions of 17% and 16%, respectively, compared with the first quarter 2024 drove higher earnings in the second quarter. Rocky Mountain region growth was primarily from increased propane plus volume, with higher incentivized ethane also contributing. The Mid-Continent saw more ethane recovery compared with the first quarter, as well as contributions from overall NGL growth sequentially. In the Permian Basin, we had higher volumes committed short term in the second quarter of 2023 and the first quarter of 2024 than in the second quarter 2024. We since recontracted much of that capacity with the volumes committed for longer terms. We continue to see opportunities to recover ethane across our system. Favorable ethane economics will continue to depend on natural gas values and ethane demand at petrochemical facilities. Dynamics through the remainder of the year could provide a tailwind to our modest ethane recovery assumptions and guidance. We've made significant construction progress on our capital growth projects and now expect the West Texas NGL pipeline expansion and our MB-6 fractionator to be in service by the end of 2024. Our previous in-service estimates were the first quarter 2025 for both projects. On the West Texas NGL expansion, the full pipeline looping providing a capacity of 500,000 barrels per day is expected by year-end, with a few remaining pump stations to be completed to get to the full capacity of 740,000 barrels per day. The Elk Creek pipeline expansion remains on track for the first quarter 2025 completion. Additionally, today, with our expanding need for fractionation capacity, we are announcing a project to rebuild our 210,000 barrels per day NGL fractionator in Medford, Oklahoma. The project is expected to cost approximately $385 million and be completed in two phases, with the first expected to be completed in the fourth quarter of 2026 and the second phase in the first quarter of 2027. Rebuilding at Medford provides a number of strategic benefits. It is the lowest cost per barrel expansion option for ONEOK to help address the expected increase in NGL production. Its location in the Mid-Continent will further increase the reliability and resiliency of ONEOK's fractionation capabilities and will allow our integrated system to accommodate volume growth from the Permian, Bakken, and Mid-Continent. The Medford fractionator will also produce additional butane and natural gasoline for incremental refined products and deliver blending opportunities in the Mid-Continent. As Pierce mentioned, we recently completed a strategic acquisition of NGL assets from Easton Energy in the Houston area. These assets will provide connectivity between our NGL and refined product systems and with key customers in the area. The acquisition came with associated earnings from existing volumes, and we expect to fill the additional capacity of this system, providing a very attractive return on the project through committed volumes we control. In addition to tariff earnings on the system, we also expect the acquisition to accelerate our commercial synergy opportunities primarily related to blending. The close proximity of our NGL and refined products terminals to major refiners in the Houston area and improved connectivity presents considerable opportunities to capture value downstream of our fractionation assets. We expect to complete connections from the legacy Houston asset to our Houston-based assets beginning in mid-2025 through the year-end 2025. Moving on to the refined products and crude segment, gasoline and jet demand was strong in the second quarter, supported by the beginning of a robust summer travel season. As it relates to marketing and optimization, we were able to optimize our assets through forward sales to capture higher margins on our liquids blending activity. As Pierce mentioned, we recently announced the expansion of our refined products pipeline system from Kansas to the greater Denver area, including an additional direct connection with the Denver International Airport. Total system capacity will increase by 35,000 barrels per day, with low-cost expansion opportunities available as demand continues to grow in these markets. Following a successful open season, the additional capacity is fully subscribed. The project is expected to cost approximately $480 million and be completed in mid-2026. Moving on to the natural gas gathering and processing segment, Rocky Mountain region processing volumes increased 10% year-over-year, averaging a record of more than 1.6 Bcf per day during the quarter. There are currently 40 rigs in the Williston Basin with more than 20 on our dedicated acreage. As we look to the remainder of the year, we are reaffirming our volume guidance due to the benefits we're seeing from the drilling of longer laterals and higher well performance on traditional laterals without the need for as many well connects. In the Mid-Continent region, we are currently seeing 35 rigs in Oklahoma, with six operating on our acreage. With current commodity prices, we expect producers to continue concentrating activity in the oilier and NGL-rich regions in the area. As natural gas prices strengthen towards the remainder of the year, we could see rig activity increase in the gassier regions. In the natural gas pipelines segment, we benefited from higher firm and interruptible transportation rates in the second quarter. The demand for natural gas storage remains high. Progress continues to be made on our current expansion projects in Texas and Oklahoma, which both have firm contracts extending beyond 2030. In the second quarter, we completed 2 Bcf of the Texas project and expect the remaining 1 Bcf to be in service next month. Our Oklahoma project is expected to be completed in the second quarter of 2025. Pierce, that concludes my remarks.

Thank you, Sheridan and Walt, for those updates. Before we conclude, I'd like to express my deep appreciation to our Houston-based employees for their incredible dedication through Hurricane Beryl and its aftermath. Despite challenging weather conditions and persistent power outages, they remain committed to ensuring the safe and reliable operations of our assets in the area. Many also faced impacts to their own homes, yet they continue to demonstrate resilience and professionalism. So I want to thank you personally for your dedication and the efforts that you showcased during the aftermath of this event. ONEOK employees have consistently demonstrated dedication to responsible operations and doing things the right way. As our business has grown, we have continued our commitment to our company-wide sustainability program and practices. This dedication has been recognized with the MSCI AAA rating and being named one of America's Greatest Workplaces in 2024 by Newsweek. As we close our prepared remarks, we published our 16th Corporate Sustainability Group Report last week, highlighting our safety, environmental and governance programs. This report details our efforts and progress in these crucial areas as we continue to deliver the energy the world needs while innovating for the future. Operator, we're now ready for questions.

Our first question comes from Spiro Dounis with Citi.

First one, maybe just to start with the guidance. Walt, if you just go back over some of your comments and guide for the year, you maintain the range, but I think in some of your comments there, you seem to mainly make reference to the midpoint and high end that if I combine that with Sheridan's comments around ethane being a tailwind in the back half of the year, seems to suggest like coming below the midpoint is getting a little bit more remote here. So one, am I kind of reading through some of those comments correctly? And if you think about that second half of the year, what needs to go right here to kind of beat the midpoint?

So Spiro, this is Pierce. Walt mentioned in his comments that we did raise guidance in the first quarter during that analyst call. Personally, I like, the team likes where we are and where we're trending to. And it does give us a lot of confidence in the back half of the year. So we're going to take a look at this guidance again as we come to you guys with some additional information in the third quarter. So that's the way I'd answer your question.

No problem, we'll be patient on that one. Second one, maybe just going to double-ish. Of course, one of your peers has announced the conversion to an NGL pipeline up in the Bakken, where you've sort of enjoyed a lot of the market share there. So curious how you're assessing the risk to your Bakken position at this point? And is there a scenario where you actually see some of these volumes flow on OPPL and maybe into a ONEOK frac?

Well, this is Sheridan. We were aware that this pipeline could serve as an alternative for NGL transportation out of the region, but we do not expect it to significantly affect our business. We have long-term contracts in the basin, and there is only a small amount of NGLs in the Williston available for renewal in the next five years. Currently, the average duration of our contracts in the Williston Basin is over nine years. We believe we offer superior service with our dual pipeline options, which provide redundancy and reliability for our customers, as well as a seamless connection from the Bakken to market centers in Conway and Mont Belvieu, all through our integrated system that offers the best overall value. Regarding the possibility of volumes moving on OPPL, it is currently full and under allocation, and we control over 70% of that allocation. If anyone is considering that volumes might shift to OPPL when we finish the Elk Creek pipeline, that assumption is not certain.

And the next question comes from Jeremy Tonet with JPMorgan.

This is Jeremy Tonet with JPMorgan. Just wanted to pick up on synergies, if I could. Following the Easton acquisition, wondering if you could provide a bit more color on what you see this unlocking specifically for your platform, especially post-Magellan acquisition? Just wondering if you could provide a bit more insight into what could be accomplished.

Sure, Jeremy. This is Sheridan. We were keeping an eye on the Easton acquisition for some time because we viewed it as a means to transport our product more effectively through pipelines to end users. Currently, a significant portion of the product at Easton originates from our fractionation complex in Mont Belvieu. With the Magellan acquisition, we saw the chance to acquire Easton to enhance the efficiency and speed of connecting our NGL and refined products systems, thereby boosting our commercial synergies from this acquisition instead of opting for new builds that would take longer. Essentially, we're set to achieve the synergies we anticipated earlier, but now at a reduced capital cost and with greater speed.

And then just moving along, I guess, with producer activity, as you see it right now, wonder if you could provide a bit more color on how things are shaking out, particularly given Bakken well connects year-to-date versus your guide. Just wondering any thoughts you could share there.

Well, I would just say that on the volume side, we still have reaffirmed our guidance on volume. What we are seeing is, as we've talked earlier about, longer laterals. The wells are producing more and more efficiently. We see that we don't need as many well connects to reach our volume guidance, and that's been a pleasant surprise this year. We knew we'd see some of it, but it's an even more pleasant surprise. So even if you see that our well connects seem to be a little bit down, we're still very confident in our volumes for the remainder of this year and going into 2025.

The next question comes from Theresa Chen with Barclays.

I'd love to get your thoughts on the strength in the refined products and crude segment. Just puts and takes on what's driving that? Is it largely seasonal? Are you realizing the synergies ahead of schedule? And as we look to the second half of the year and kind of touching on the broader discussion of where you're going to land within your guidance, within this segment, as we see downtime in the Chicago area and the product margins as well as regional product spreads spike as a result, would it be reasonable to think that would increase your earnings in the segment above what you typically budget year in and year out?

Theresa, this is Sheridan. I think if you start off, it's kind of all of the above. We are seeing our synergy capture coming in very nicely and very strong, and that will accelerate through the remainder of the year. So we are very confident, as we said, that we will meet the cost and commercial synergies at or above the $175 million we have outlined. We are seeing a little bit of seasonality, a little bit more volume in the summer months. But remember, as we get into the back half, the third quarter our blending activity will ramp up. So we will see growth in that time as well. And the issues we have in Chicago are creating a little bit of tailwinds for us right now. But we always anticipate we will see some refinery turnarounds throughout the year. So we feel very comfortable where we're sitting today on both our synergies and where the refined products and crude segment is going to end the year.

And then on your expansion project into Denver, can you help us think through the economics related to that expansion? And if there are additional opportunities as you assess the landscape within the segment to expand your infrastructure based on committed volumes to additional inland premium markets?

On the expansion, this is a 5x multiple project on 35,000 barrels a day. We are laying a 16-inch line into Denver, which is why we believe we have low-cost expansion potential on that pipeline as we expect volume to keep increasing. If demand continues to rise and we need additional capacity on that pipeline system, we will initiate a subsequent open season.

The next question comes from Tristan Richardson with Scotiabank.

Could you talk a little bit about ethane across the basin, seemingly strong recovery in the Mid-Con and in the Rockies? But this is ethane trending better than maybe you were thinking at the beginning of the year? And then just how you see the second half looking?

Ethane is expected to be volatile, fluctuating in response to natural gas prices. That's why we've incorporated only a modest amount of ethane recovery into our guidance moving forward. Currently, the Permian region is experiencing full recovery while the Mid-Continent is in rejection. We have already secured some incentivized ethane through the third quarter and into the fourth quarter. We will need to monitor how the ethane market develops. The petrochemical sector is currently facing a significant spread between ethane and ethylene, leading to high utilization rates. We expect to see some recovery in the ethane markets as we progress through the year.

Appreciate it, Sheridan. And then maybe, Walt, curious you haven't offered anything on 2025 CapEx yet. But just given that you've pulled some projects forward, and you've said in the past, you really expect a downtrend in 2025 versus 2024 CapEx. Curious if we should see that maybe amplified with some of the projects pulled forward into 2024?

Well, Tristan, we were going to be finishing up those projects in 2025. So clearly, the capital that was associated with the tagging of those projects is going to move forward into 2024, and that will be a positive for our CapEx in 2025. We've added the Denver project spread over a couple of years that isn't really a material increase to our capital. So I think the trends we've talked about in the past continue to be true. And we're getting to that point where we're going to enjoy the operating leverage we have built into our system. As we fill that demand, we're going to see that drop to the bottom line.

Next question comes from Keith Stanley with Wolfe Research.

Several of your producer customers in the Bakken have announced mergers, Conoco and Marathon, Devon and Grayson Mill. Any thoughts on what you think that could mean for Bakken production and your business over time?

One thing I want to highlight is that we maintain strong relationships with all the producers involved in the recent acquisitions in the Bakken, as well as in other regions. From our conversations, we believe these developments will not disrupt operations in the area. They plan to keep up their drilling pace and may even increase their activities as they focus on more core segments, drilling them at a quicker rate. Overall, we feel confident about the consolidation happening in the region as it's shifting toward capable hands, and there is a strong commitment to ongoing production in the Bakken for the foreseeable future.

And I wanted to follow up just on the Denver project. So I mean, the whole Magellan business has historically been viewed as a lower growth, kind of high return on capital business. But the Denver project is pretty material when you think about it. Are there other material opportunities across refined products besides Denver that you could pursue, other areas of the system that are getting tight on capacity, you're seeing more of a demand inflection?

We continue to look for those areas as well. We think there are some other opportunities. One is we can continue to think El Paso shows some strength as well as we have completed our expansion into El Paso, and it is running full. We've actually had an open season on a little smaller expansion on there that was fully subscribed. So we're already seeing a little bit more growth in that area. Our teams are continuing to look for different areas, synergies, or growth that we can expand our system as well. So we are excited about the growth in the refined products and system that we think we will see at a higher rate than has been typically seen in that business.

The next question comes from Michael Blum with Wells Fargo.

Do you have any updates on potential AI data center-related projects in the gas pipeline segment?

Michael, this is Chuck. Yes, since we last spoke last quarter, as I mentioned then, we had 15 potential projects across our footprint. Of those, there were 3 that specifically stated AI. Since then, our number is now up to 17 on the potential power plants, and of which 5 are AI demand specifically. Approximately across our footprint, these 5 are right in the neighborhood of a Bcf per day. So again, early stages, but more to come.

I was looking for an update on Saguaro. Any recent conversations and what’s the latest thinking on the timing of FID if that’s going to happen?

Yes. I would just remind everyone, this really is a commercially strong project with world-class customers, and it makes great commercial sense. You have Permian supplies, and LNG demand pull is competitively advantaged to the Asian markets. So MPL is working on the project financing to make their final investment decision. At this time, we do not anticipate any material capital spend on our behalf here in 2024.

And the next question comes from Manav Gupta with UBS.

My first question is, can you talk a little bit about ethane? Can you also talk about any butane blending opportunities in your system at this point of time?

Yes, Manav, this is Sheridan. Obviously, we have opportunities as we continue to integrate the refined products and NGL systems together that we have the opportunity to take our butane and put it into our refined products instead of having to buy from a third party. So just from a sourcing and logistics savings, we're seeing that opportunity. And also, we continue to find ways to blend more butane into our refined products across our system by more automation and understanding, directing volumes through our system. So we are very pleased with where we're sitting on our blending strategy at this time. And obviously, we have found some projects too that take some capital that will be more into next year. We'll see Easton being one of them, but we'll see greater blending opportunities next year as we put some of these small capital projects into service.

Perfect. My quick follow-up is you kind of mentioned earlier or hinted to it that 2025 CapEx obviously now would be lower than 2024. So your growth projects are kicking in and the CapEx is lower. So the free cash flow next year would be higher. I'm just trying to understand if there is a preliminary plan and how should we think about those uses of the extra cash that is going to come out in 2025?

Well, as we stated before, back in January, the Board did give us authorization to buy up to $2 billion worth of stock. We remain committed to our level of capital allocation. Our first goal is always to find high-growth projects that are extremely accretive to our shareholders. Then we want to maintain that balance sheet. We've clearly demonstrated that we have a very strong dividend that we've maintained through some very difficult times over time and continue to grow. If we have excess cash, that provides the opportunity for stock repurchases. We fully expect to complete that $2 billion program over the timeframe that we had announced. We haven't bought any today, as we mentioned on the first quarter call, because we do have this maturity coming up in September that we were going to focus our free cash flow on through that, and we will just allocate as appropriate as we get out in the coming quarters.

And the next question comes from Neal Dingmann with Truist.

I just want to approach the data center question from a different angle, not really on new projects. And this might be early, but has the downward market activity in the last month change the conversation side of this at all? I would assume they're not changing their demand forecast in real time, but have there been any maybe pauses in conversations, or do some parties want to take a step back? Or is everything kind of steady as she goes?

I'm sorry, Neal, could you repeat the first part of that question? You said something about the past...

Yes. Just the downward activity in the market over the past month, has that impacted the conversations at all? Or is everyone still looking so long term that maybe downward activity over the last month is just kind of a blip?

No. As a matter of fact, it hasn't impacted the discussions at all. In fact, we see even more activity here this month and in the next several months. So the markets are looking long term. And when you're looking at having to add facilities to serve these markets, that takes time. That's understood both by the power generators and the commissions they answer to. So no impacts at this time.

And then the second one, on Slide 10, you do a really good job of showing Williston Basin GORs and kind of how flaring has tailed off and maybe that relationship is related. But do you see that continuing? Is this more of an inventory just drifting with a higher GOR? Or is there any other kind of plateau on that trend?

I would say on the GOR question, we know that as wells age, the GOR goes up. So a little bit of the movement in the GOR we see is more based on drilling activity. If you drill in an area that starts at a lower GOR, it may pull the overall GOR down for a little bit. But those wells, even wells that started lower, will continue to grow. Overall, we see the GORs increasing as a general trend.

And the next question comes from Neil Mehta with Bank of America.

I wanted to touch on the share repurchase. I think the leverage level over the last 12 months has been 3.36x, which you pointed out. Are you looking to buy back shares after the September debt maturity? Or are there other factors or criteria which you're waiting for to start executing on that $2 million program?

I think the plan is to allocate the capital as appropriate from the third quarter through the remainder of the program. So it's over several years. We expect that to be executed in each of those years going forward. But it will ebb and flow as we have opportunities to spend capital on high-growth projects in a particular quarter, then it will be allocated there. In other quarters, that will go in other directions. We are committed to completing the program over the timeframe that we have said and think we’re on track with our plans with this maturity coming up in September.

This concludes our question-and-answer session. I would like to turn the conference back over to Andrew Ziola for any closing remarks.

Our quiet period for the third quarter starts when we close our books in October and extends until we release earnings in late October. We'll provide details for that conference call at a later date. Thank you all for joining us, and have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.