oneok 2006 Wachovia Pipeline Conference

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  • 1. Wachovia Securities 5th Annual Pipeline & MLP SymposiumNew York City December 5, 2006

2. John W. Gibson Chief Executive Officer-electONEOK. Inc. ONEOK Partners, L.P. 3. Forward Looking Statement Statements contained in this presentation that include company expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. It is important to note that the actual results of company earnings could differ materially from those projected in any forward-looking statements. For additional information refer to ONEOKs and ONEOK Partners Securities and Exchange Commission filings. 4. Agenda StrategyGibson ONEOK PartnersGibson DistributionKneale Energy Services Kneale Financial ReviewKneale Questions and Answers Gibson/Kneale 4 5. Key Strategies Consistent growth and sustainable earnings, manage our balance sheets Strategic acquisitions that provide long-term value ONEOK Partners anticipated to be ONEOKs primary growth vehicle Improve profitability at ONEOK Distribution Companies Continue focus on physical activities in ONEOK Energy Services Operate in a safe and environmentally responsible manner Attract, develop and retain employees to support strategy execution 5 6. ONEOK Partners Today Gathering & Processing 6 7. ONEOK Partners Today Gathering & Processing Natural Gas Liquids 7 8. ONEOK Partners Today Gathering & Processing Natural Gas Liquids Pipelines & Storage 8 9. ONEOK Partners Today Gathering & Processing Natural Gas Liquids Pipelines & Storage Interstate Pipelines9 10. ONEOK Partners Key Points Integrated operations contribute to value creation Commercial and operating synergies through acommon footprint In compliance with FERC and other regulatoryrules Shared corporate services Stable cash flow generated from diverse asset mix Supported by commercial and risk-managementstrategies The partnership is well positioned to grow Operating philosophy reduces asset reliability risks10 11. Cash Flow Diversity Predominantly fee based 65 percent of margin comes from fee-based business Commodity and spread risk is measured and managed Cash flow stability managed within each segment Pre-AssetSpread DropdownPost-Asset Dropdown0%SpreadCommodity 7% 20%CommodityFee Based Fee Based28% 65%80%Total gross margin: $511 million Total gross margin: $834 million2005 Actual 2006 Guidance 11 12. Internal Growth Significant growth opportunities Efficient use of capital Projects underway in excess of $1.1 billion Overland Pass Pipeline ($433 million) Related NGL projects ($173 million) Guardian II ($260 million) Midwestern extension ($37 million) Other projects ($240 million) More than 25 active projects announced, under evaluation or negotiation Capital guidance for 2006 $178 million for Growth $63 million for Maintenance12 13. Growth Projects Capital and EBITDA Timing Over $1.1 billion of internally generated growth projects EBITDA contributions begin in 2006 Attractive returns CAPEX as a multiple of EBITDA in the 3-6 times range 2008 EBITDA contribution greater than $150 million; increasing in 2009 and beyondCAPITAL EXPENDITURES200620072008 2009 +TOTALMAJOR PROJECTSOverland Pass38 251 144 433Related NGL projects 22 11338 173Guardian II extension 890 162 260Midwestern extension 181937 Sub-total903 OTHER PROJECTSGathering & Processing 656558 188Natural Gas Liquids17116 34Pipelines & Storage 71 1 9Interstate Pipelines33 3 9 Sub-total240TOTAL GROWTH CAPITAL 178553 412 1143 13 Investment EBITDA Contribution 14. Internal Growth Overland Pass Pipeline A 99/1 percent joint venture with Williams for $433 million with 50/50 option 110,000 bpd capacity easily expandable to 150,000 bpd Efficient alternative due to low fuel costs Supply growth expected primarily from new drilling Current pipeline infrastructure expected to be at capacity Long-term supply agreement with Williams (~ 60,000 bpd) In negotiations for additional supplies 750 miles, 14-16 inch line Construction: Summer 2007 Completion: Early 2008 14 15. Internal Growth Overland Pass-related NGL Projects Associated with Overland Pass Pipeline project, an additional $173 million in other downstream infrastructure upgrades and expansions are underway: Upgrade and expand the Bushton facilities from 80,000 bpd to 160,000 bpd Upgrade the Bushton storage facility to accommodate ethane/propane mix and raw NGLs Install 135 miles of 14-inch pipe from Bushton to Medford with a capacity of 120,000 bpd ofethane/propane mix Expand the Sterling pipeline capacity south to Mont Belvieu by 60,000 bpd Add additional pump capacity to increase deliveries on ONEOK Partners Bushton-to-Conwaypipeline15 16. Internal Growth Guardian Pipeline 106-mile extension from Ixonia to Green Bay, Wisconsin Incremental capacity of 537,000 Dth/day to eastern Wisconsin Capital expenditures estimated to be $260 million Project anchored by two 15-year agreements with: Wisconsin Energy WPS Resources Construction to begin after FERC approval, expected early 2008 Target completion November 200816 17. Acquisition Natural Gas Liquids Storage $40 million to purchase and invest in related infrastructure improvements in Mont Belvieu, Texas Adds 14.6 million barrels of capacity Currently connected to existing NGL infrastructure Enhances value of our existing assets and allows us to provide our customers with additional services 17 18. Jim Kneale President and Chief Operating Officer-electONEOK, Inc. 19. Distribution Distribution Strategies 647,000 Improve profitability through: customers Rate filings Cost Control 820,000 Business Process Improvementcustomers 576,000 Customer programscustomers19 20. Distribution Rate Strategies More frequent and synchronized rate filings Maintain positive relationships with regulators IssueSolution Oklahoma Kansas TexasBad Debt Commodity recovery in PGA 2/17 Fixed-price Plan Average Payment Plan Financial Hedging 6/17 Physical Hedging17/17Earnings Lag More frequent filingsLag in Capital RecoveryAccelerated capital recovery5/17Capital Recovery Return on gas in storageVolumetric sensitivity Two-tier rate plan Decoupling1/17Margin Fluctuation Weather Normalization 7/17Optimize capacityRevenue sharing 2/17 20 21. Distribution Kansas Gas Service Rate Case $52.0 million settlement approved November 16th Adds $44-47 million in 2007 operating income Implementation January 1, 2007 As a result, the Distribution segment will now earn 8.5 percent return on equity 21 22. Energy ServicesEnergy Services Key Points Deliver bundled, reliable products and services in exchange for premium value, primarily to LDCs Lease transportation and storage capacity, connecting the industrys major supply and demand centers Optimize our storage and transportation capacity through the daily application of market knowledge and effective risk management techniques Grow earnings in our retail business by increasing market share, while maintaining current per-unit margins Execute trading arbitrage opportunities around our knowledge and positions22 23. Energy Services Energy Services: Sources of Margin Storage: Winter/summer spread, demand revenues, storage financial arbitrage Transportation: basis hedging, optionality, marketing services Optimization: daily/monthly from storage, transportation, split connect supplies Retail: customer choice programs, LDC unbundling, small commercial and industrial Trading: based on knowledge and opportunities to extract trading margins Operating Income Operating Income 2006 Guidance2007 GuidanceTrading RetailRetail8% Optimization7% 7% Optimization8%StorageStorage 12%41%50%Transportation Transportation 35%32%23 24. 2007 Guidance: Increased 2006 guidance Includes gain on sale Announced preliminary guidance for 200720062006 2007 Previous RevisedPreliminaryONEOK, Inc.$2.50 - $2.60$2.60 - $2.70$2.35 - $2.75 Gain on sale$0.28$0.28-$2.22 - $2.32$2.32 - $2.42$2.35 - $2.75AdjustedONEOK Partners, L.P. $4.77 - $4.90$4.92 - $5.02$3.06 - $3.46 Gain on sale$1.51$1.51-$3.26 - $3.39$3.41 - $3.51$3.06 - $3.46Adjusted24 25. ONEOK Partners Distribution Growth to Unit Holders Three increases in 2006; first increase since 2002 21 percent growth in 2006 $4.00$0.97$3.00 $0.80$0.80$0.80$0.80 $0.7625 $0.95$2.00$0.80$0.80$0.80$0.80 $0.7625$0.88$0.80$0.80$0.80$0.80 $0.7625$1.00$0.80$0.80$0.80$0.80 $0.80$0.70$0.00200120022003 200420052006Q1Q2 Q3 Q425 26. ONEOK Partners Growth Benefits ONEOKEBITDA GrowthDistribution Growth Assumptions Limited Partner Units $1 million incremental EBITDA ONEOK owns 37 million limited partner units Partnership is in the high splits Every one cent increase results in an additional $1.5 in ONEOKs annual cash flow All incremental cash flow is distributed Incentive Distribution Rights Annual depreciation of $125,000 Assumes high splits Impact on ONEOK income is $664,000 (pretax) Every one cent increase results in a $3.3 million increase in ONEOKs annual cash flow and Approximately $500,000 from Incentive income before taxes Distribution Rights Approximately $164,000 equity earnings related to limited partner units owned by ONEOK26 27. ONEOK Is Undervalued Enterprise value of $7.1 billion; equity value of $6.1 billion Equity value per share: $55.08 Implied P/E of 21.6EBITDA Enterprise (Millions of Dollars and Shares) EBIT * Depreciation EBITDAMultiple Value Distribution $161 $110 $271 9.0 $ 2,439 Energy Services -Physical 205 2 207 6.5 1,346Trading- - - - Total 205 2 207 1,346 ONEOK Partners **Limited Partner Units--2,223General Partner Interest46 - 46231,05846 - 463,281Total$412 $112 $524 $ 7,065 Long-term Debt, net of cash & gas in storage1,007 Equity value$ 6,058 Outstanding shares110 Equity value per share$55.08 Implied P