Oneok, Inc. · NYSE:OKE
Oneok — Corporate Update (October 2006)
52 slides from Oneok's corporate update, October 2006
Slide 1: Natural Gas Winter Preparedness Meeting
Natural Gas Winter Preparedness Meeting October 2006
Slide 2: Why Am I Here?
Why Am I Here? • To get answers to your gas questions…. – Natural Gas Transportation Basics – Monthly Cash Outs and Daily Allocations – Winter Operating Rules Review – Gas Pricing and Winter Outlook – Questions and Answers
Slide 3: What's in my packet?
What’s in my packet? • Slide Presentation • Glossary of Gas Terminology • Transportation Customer Summary • Transport Customer Report • Meeting worksheet • Drawing entry form
Slide 4: What is transportation?
What is transportation? • An optional service where….. – Your marketer provides supply, storage, pipeline transportation, and billing – Kansas Gas Service provides local delivery, metering, and billing
Slide 5: How can I save money?
How can I save money? $14.00 Most marketers offer index plus or fixed $12.00 price contracts. $10.00 $8.00 KGS COGR $6.00 $4.00 Southern $2.00 Star Index $0.00 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06
Slide 6: What is a sales account?
What is a sales account? • Kansas Gas Service provides supply, storage, pipeline transportation, local delivery, metering, and billing • Everything necessary to provide service is provided by one company with one bill
Slide 7: Where does natural gas come from?
Where does natural gas come from?
Slide 8: How does natural gas get to my business?
How does natural gas get to my business? • Producers drill and operate gas wells • Gathering systems are used to bring the gas to a pipeline • Marketer (choice of many) buys and delivers gas to the appropriate town border station – unregulated • Pipelines (Southern Star, Kansas Pipeline, Northern Na
Slide 9: Can anyone transport natural gas?
Can anyone transport natural gas? • Annual usage of more than 1,500 Mcf • Meters on contiguous property can be consolidated for qualification • All K-12 schools or irrigators regardless of usage
Slide 10: Do I have to stay on transport?
Do I have to stay on transport? • There is a twelve month minimum term on transport or sales service
Slide 11: Do I have to qualify for transport each year?
Do I have to qualify for transport each year? • There is no annual re-qualification to remain on transportation
Slide 12: What is a marketer?
What is a marketer? • Your gas marketer purchases your gas in the production area from independent producers or major energy companies using contracts of varying lengths (daily, monthly, or longer) and varying prices • Your marketer arranges delivery from the production area to your assigned town bo
Slide 13: How do I find a marketer?
How do I find a marketer? • A listing of the known marketers on the Kansas Gas Service system is available at www.kansasgasservice.com or from your KGS account representative
Slide 14: What marketer options are available?
What marketer options are available? • NYMEX based prices • Index based prices (various pipelines) • Fixed prices • Combinations of the above – Splits – Options to lock-in fixed price • Varying time lengths
Slide 15: Do I need to deal with the pipeline company?
Do I need to deal with the pipeline company? • No. Typically your marketer tells KGS and the pipeline how much they will deliver for your account (your nomination) – Monthly quantity divided by 30 to give a daily amount for smaller meters – Use a weekday and weekend schedule for larger meters to mat
Slide 16: Do I need a special meter?
Do I need a special meter? • Electronic Flow Measurement (EFM) is required for meters using more than 1,500 Mcf in their highest month to accurately bill for monthly or daily periods • Standard meters use a Required Daily Quantity (RDQ) which is a preset daily amount to be delivered during an Operat
Slide 17: What if I don't use what my marketer delivers?
What if I don’t use what my marketer delivers? KGS buys at 70% of C.O. price +15% KGS buys at 85% of C.O. price +10% Total Monthly Nomination less Usage, Retainage (L&U), and Carried over to the next month Carryover from previous month -10% KGS sells at 115% of C.O. price -15% KGS sells at 130% of C
Slide 18: How is the cash out price determined?
How is the cash out price determined? • Cash out price will be the average of the daily midpoints of 5 designated pipelines as published in “Gas Daily” • Imbalances of 50 MMBtu or less are always carried over • Imbalances can be aggregated
Slide 19: Will I always see a cash out on my KGS bill?
Will I always see a cash out on my KGS bill? Monthly Cash Out Aggregation Areas K-system M-Zone K-system T-system P-Zone * There a few other smaller aggregation areas
Slide 20: Are there different rates for transport?
Are there different rates for transport? • Small Transportation Service (ST) – Service charge $17/mo/meter T-system rates are – All Mcf - $1.6163/Mcf slightly higher because • General Service Transportation (GTk) they include some pipeline charges – Service charge $17/mo/meter – All Mcf - $1.2389/Mc
Slide 21: Has KGS filed for a rate increase?
Has KGS filed for a rate increase? • KGS requested a $73 million rate increase on May 15, 2006 • Public hearings will be held in October • Technical hearings are scheduled for November • A final decision and new rates are expected to go into effect during January 2007
Slide 22: What other charges appear on my bill?
What other charges appear on my bill? • Franchise fees • Ad Valorem Tax Surcharge – Authorized by Kansas State Law – Allows utilities to collect additional tax expenses assessed in between rate cases – Current charge of $0.0588/Mcf – Surcharge amount will be recalculated at the beginning of each yea
Slide 23: Is there a downside to transporting?
Is there a downside to transporting? • Because you (and your marketer) become responsible for your gas supply, you are required to be in balance each month AND you can be penalized for being out of balance each day during an Operational Flow Order
Slide 24: Why are operational orders necessary?
Why are operational orders necessary? • Conditions require transport receipts and deliveries to be in balance to protect the integrity of the Company’s system or to insure compliance with upstream pipeline requirements. • Over-Delivery (cold weather) – Customer uses more than marketer supplied. • Un
Slide 25: What kind of operational orders can be called?
What kind of operational orders can be called? • Standard Operational Flow Order • Emergency Operational Flow Order • Period of Daily Balancing (PODB) • Period of Curtailment (POC)
Slide 26: How often are OFOs called?
How often are OFOs called? • 14 days under OFO December 2000 • OFO on part of K-system in 2002 • No OFO/PODBs during 2001, 2003, 2004, or 2005 • Will this be the year??
Slide 27: Will I be notified when an OFO is called?
Will I be notified when an OFO is called? • Non-aggregated transport customers will be notified by Kansas Gas Service • Aggregated transport customers may or may not be notified by their marketer
Slide 28: What is an RDQ?
What is an RDQ? • RDQ balancing is available to meters using less than 1,500 Mcf in the peak month for 12 months ending April 30 • The predetermined RDQ amount is assigned by the Company and is to be delivered each day of an OFO, PODB, or POC (Over-Delivery)
Slide 29: When do I get my new RDQ?
When do I get my new RDQ? • Notified August 1, effective November 1 • RDQ balanced meters are not read during an OFO, PODB, or POC • Zero tolerance for delivering less than the assigned RDQ • Nomination applied to RDQ first and balance to any applicable EFM meter
Slide 30: What if I can't possibly use my assigned RDQ?
What if I can’t possibly use my assigned RDQ? • You can receive a temporary RDQ assignment upon written request and approval by KGS – Must be a significant event – Notify KGS within 72 hours of event – Effective for period of event, must renew if more than 30 days
Slide 31: If I have EFM metering, do I have to be perfect?
If I have EFM metering, do I have to be perfect? • Over-delivery penalties – May be assessed during an OFO, PODB, or POC – Assessed to any customer or aggregation group using gas in excess of authorized volumes – Applies to unauthorized Over-Deliveries to EFM meters which exceed 5% of authorized dai
Slide 32: What is an under-delivery OFO?
What is an under-delivery OFO? • System receipts exceed the actual usage of all KGS customers • Transportation customer’s confirmed nomination shall be limited to customer’s actual usage • RDQ customer usage deemed to be equal to the lesser of 50% of the assigned RDQ or the current confirmed nominat
Slide 33: How bad are the penalties?
How bad are the penalties? • Standard OFO (Over-Delivery or Under-Delivery) – Excess MMBtu’s more than 5% of Authorized “Daily” Delivery are billed at the greater of $10/MMBtu or 2½ times the average Gas Daily Index • Emergency OFO (Over-Delivery or Under- Delivery) - – Excess MMBtu’s more than 5% o
Slide 34: How do I avoid a cold weather penalty?
How do I avoid a cold weather penalty? • Deliver your RDQ amount • Limit your usage for your EFM meter to less than 5% over your nomination • Have your marketer increase your delivery so that you remain in compliance
Slide 35: Where does the penalty money go?
Where does the penalty money go? • Penalty money is used to lower the cost of gas (COGR) for Kansas Gas Service sales customers • KGS has no financial incentive to call an operational order
Slide 36: What is aggregation?
What is aggregation? • Marketer enters into agreement with Company and establishes aggregation groups • Marketer allowed to aggregate customer imbalances during OFOs, PODBs, or POCs within aggregation areas established by Company • Aggregation also applies to monthly cash out • Marketer is responsib
Slide 37: Could I ever get curtailed?
Could I ever get curtailed? • A supply curtailment could be issued after an OFO/PODB has been implemented and in situations where supplies are not sufficient to maintain service to firm sales customers • Transport customers continue to operate under conditions imposed by the OFO/PODB • Under a syste
Slide 38: Are there other kinds of curtailments?
Are there other kinds of curtailments? • Local system curtailment – Issued when demand on a portion of the Kansas Gas Service system exceeds the delivery capability of the system – Customer notified that transportation and sales service is curtailed based on end-use categories stated in the Company’
Slide 39: Is there a curtailment sequence?
Is there a curtailment sequence? • Large Volume Transport • General Transport, Small Transport, General Sales, and Customers with Endangered Property • Residential and Customers with Endangered Human Life
Slide 40: What is the price of gas these days?
What is the price of gas In 2005… these days? • Hurricanes – Analysts hiked their gas price forecasts Sept 2005 • Supply scare Index $8.50 • Soaring prices – January NYMEX closes $15.377 MMBtu on 12/31/05 In 2006… • Hotter summer • Higher storage inventories Sept 2006 Index $5.72 • Prices retreat –
Slide 41: Why are gas prices so volatile?
Why are gas prices so volatile? • Oil prices • Increasing gas demand • Gas supply limits or disruptions • Weather • National storage • Commodity trading
Slide 42: Are natural gas price and oil prices connected?
Are natural gas price and oil prices connected? • Historically there have been tight correlations and fuel switching • Last winter – Off-line production caused prices to move in opposite directions -- favoring oil • Currently – moving independently -- favoring gas
Slide 43: How much new gas will we need in the future?
How much new gas will we need in the future? • U.S. Demand (EIA) : – 2005: 22.40 TCF – 2006: 22.10 – 2007: 22.61 – 2020: 30.00 • By 2020 Natural gas used in Power Generation will grow by more than 20%.
Slide 44: Where is the new gas going to come from?
Where is the new gas going to come from? Decline Areas: - Heartland - San Juan - Gulf Shelf Sustain Areas: - Gulf Coast Growth Areas: - Rocky Mtns - Eastern Canada - Western Canada - Deep water Restricted Areas: - East Coast - Florida Gulf - National Parks - West Coast
Slide 45: What about the Alaskan pipeline?
What about the Alaskan pipeline? • Up to 300 TCF of gas reserves trapped on the North Slope • 15 agencies agree to expedite permitting and construction to reduce delays • Political changes will delay action on a contract between the three producers and Alaska • Most think we are still 8-10 years awa
Slide 46: What is going on with LNG?
What is going on with LNG? • LNG is natural gas that has been transformed from its gaseous state into liquid form • EIA predicts natural gas imports will have an annual growth rate of 4.1% • The world has no shortage of natural gas. Countries such as Russia, Indonesia, Qatar and Trinidad have enormo
Slide 47: What is the weather forecast for this winter?
What is the weather forecast for this winter? • Current outlook is near normal through mid- December • NOAA reports El Nino formations in the Pacific that will last till 2007 – El Ninos tend to suppress hurricane activity with wind shear. – Overall expect warmer than average temperatures this winter
Slide 48: Where are we on storage for this winter?
Where are we on storage for this winter? • Warm last winter • 82% full on September 10 • Potential for storage glut with another warm winter
Slide 49: Does storage impact gas prices?
Does storage impact gas prices? • Gas prices fall when storage is excessively full • Expect storage to set record levels if we have a warmer than normal October and November
Slide 50: Will we have natural gas long term?
Will we have natural gas long term? • Natural gas is plentiful in America and the world • Higher prices tend to slow the growth in demand • More rig crews and better production technology • Deepwater developments are impressive • Infrastructure projects are attracting capital • LNG growing at a reco
Slide 51: What do I need to remember from today?
What do I need to remember from today? • Transportation lowers costs • Prepare an action plan to avoid OFO penalties • Natural gas prices are better • Natural gas prices can change quickly • Gas is still the best option
Slide 52: Thank you!!
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