ONEOK (OKE)

EXECUTIVE SUMMARY

The following discussion highlights some of our achievements and significant issues affecting us for the periods presented. Please refer to the “Financial Results and Operating Information,” “Liquidity and Capital Resources,” and “Capital Projects” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements for additional information.

Diluted earnings per share of common stock from continuing operations (EPS) increased to $0.55 for the three months ended September 30, 2008, compared with $0.13 for the same period in 2007. For the nine-month period, EPS increased to $2.30 from $1.83 for the same period last year. Operating income for the three months ended September 30, 2008, increased to $192.2 million from $102.8 million for the same period in 2007, and for the nine months ended September 30, 2008, increased to $698.3 million from $566.8 million for the same period in 2007. These increases were primarily due to wider NGL product price differentials, increased NGL gathering and fractionation volumes, higher realized commodity prices and incremental operating income associated with the assets acquired from Kinder Morgan Energy Partners, L.P. (Kinder Morgan), all in our ONEOK Partners segment. For the nine months ended September 30, 2008, this increase in operating income was partially offset by a decrease in storage, marketing and transportation margins, net of hedging activities, in our Energy Services segment.

In March 2008, we purchased from ONEOK Partners, in a private placement, an additional 5.4 million of ONEOK Partners’ common units for a total purchase price of approximately $303.2 million. In addition, ONEOK Partners completed a public offering of 2.5 million common units at $58.10 per common unit and received net proceeds of $140.4 million after deducting underwriting discounts but before offering expenses. In conjunction with ONEOK Partners’ private placement and public offering of common units, ONEOK Partners GP contributed $9.4 million to ONEOK Partners in order to maintain its 2 percent general partner interest.

In April 2008, ONEOK Partners sold an additional 128,873 common units at $58.10 per common unit to the underwriters of the public offering upon the partial exercise of their option to purchase additional common units to cover over-allotments. ONEOK Partners received net proceeds of approximately $7.2 million from the sale of these common units after deducting underwriting discounts but before offering expenses. In conjunction with the partial exercise by the underwriters, ONEOK Partners GP contributed $0.2 million to ONEOK Partners in order to maintain its 2 percent general partner interest. Following these transactions, our equity interest in ONEOK Partners is 47.7 percent.

ONEOK Partners used a portion of the proceeds from the sale of common units and the general partner contributions to repay borrowings under its revolving credit agreement (ONEOK Partners Credit Agreement).

We declared a quarterly dividend of $0.40 per share ($1.60 per share on an annualized basis) in October 2008, an increase of approximately 11 percent over the $0.36 per share declared in October 2007. ONEOK Partners declared an increase in its cash distribution to $1.08 per unit ($4.32 per unit on an annualized basis) in October 2008, an increase of approximately 7 percent over the $1.01 per unit declared in October 2007.

Partial operations began in October 2008 on the Overland Pass Pipeline. In September 2008, the Woodford Shale natural gas liquids pipeline extension was placed into service, and the final phase of the Fort Union Gas Gathering expansion project was placed into service in July 2008. In January 2008, Midwestern Gas Transmission, a ONEOK Partners subsidiary, placed its eastern extension pipeline into service. All of these projects are in our ONEOK Partners segment.

30

Table of Contents

EXECUTIVE SUMMARY

The following discussion highlights some of our achievements and significant issues affecting us for the periods presented. Please refer to the “Financial and Operating Results” and “Liquidity and Capital Resources” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements for additional information.

Diluted earnings per share of common stock from continuing operations (EPS) increased to $0.39 for the three months ended June 30, 2008, compared with $0.31 for the same period in 2007. For the six-month period, EPS increased to $1.75 from $1.67 for the same period last year. Operating income for the three months ended June 30, 2008, increased to $173.0 million from $135.7 million for the same period in 2007, and for the six-month period increased to $506.1 million from $464.0 million for the same period in 2007. These increases were primarily due to higher realized commodity prices, new NGL supply connections and increased fractionation volumes, and incremental revenues associated with the assets acquired from Kinder Morgan Energy Partners, L.P. (Kinder Morgan), all in our ONEOK Partners segment. Additionally, net margin increased due to implementation of new rate schedules in our Distribution segment. These increases were partially offset by a decrease in transportation margins, net of hedging activities, in our Energy Services segment. In addition, the six-month period was also impacted by a decrease in storage and marketing margins in our Energy Services segment.

In March 2008, we purchased from ONEOK Partners, in a private placement, an additional 5.4 million of ONEOK Partners’ common units for a total purchase price of approximately $303.2 million. In addition, ONEOK Partners completed a public offering of 2.5 million common units at $58.10 per common unit and received net proceeds of $140.4 million after deducting underwriting discounts but before offering expenses. In conjunction with ONEOK Partners’ private placement and public offering of common units, ONEOK Partners GP contributed $9.4 million to ONEOK Partners in order to maintain its 2 percent general partner interest.

In April 2008, ONEOK Partners sold an additional 128,873 common units at $58.10 per common unit to the underwriters of the public offering upon the partial exercise of their option to purchase additional common units to cover over-allotments. ONEOK Partners received net proceeds of approximately $7.2 million from the sale of these common units after deducting underwriting discounts but before offering expenses. In conjunction with the partial exercise by the underwriters, ONEOK Partners GP contributed $0.2 million to ONEOK Partners in order to maintain its 2 percent general partner interest. Following these transactions, our interest in ONEOK Partners is 47.7 percent.

ONEOK Partners used a portion of the proceeds from the sale of common units and the general partner contributions to repay borrowings under its revolving credit facility agreement (ONEOK Partners Credit Agreement).

We declared a quarterly dividend of $0.40 per share ($1.60 per share on an annualized basis) in July 2008, an increase of approximately 11 percent over the $0.36 per share declared in July 2007. ONEOK Partners declared an increase in its cash distribution to $1.06 per unit ($4.24 per unit on an annualized basis) in July 2008, an increase of 6 percent over the $1.00 per unit declared in July 2007.

In July 2008, the final phase of the Fort Union Gas Gathering expansion project was placed into service. See “Capital Projects” below for additional information. In January 2008, Midwestern Gas Transmission, a ONEOK Partners subsidiary, placed its eastern extension pipeline into service.

EXECUTIVE SUMMARY

The following discussion highlights some of our achievements and significant issues affecting us for the periods presented. Please refer to the “Financial and Operating Results” and “Liquidity and Capital Resources” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements for additional information.

Diluted earnings per share of common stock from continuing operations (EPS) was $1.36 for the three months ended March 31, 2008 and 2007. Operating income for the three months ended March 31, 2008, increased to $333.1 million from $328.3 million for the same period in 2007, primarily due to higher realized commodity prices and wider regional NGL product price spreads in our ONEOK Partners segment. This increase was partially offset by a decrease in storage and marketing margins in our Energy Services segment.

In March 2008, we purchased from ONEOK Partners, in a private placement, an additional 5.4 million of ONEOK Partners’ common units for a total purchase price of approximately $303.2 million. In addition, ONEOK Partners completed a public offering of 2.5 million common units at $58.10 per common unit and received net proceeds of $140.4 million after deducting underwriting discounts but before offering expenses. In conjunction with ONEOK Partners’ private placement and public offering of common units, we contributed $9.4 million to ONEOK Partners in order to maintain our 2 percent general partner interest. Following these transactions, our interest in ONEOK Partners increased to 47.8 percent.

In April 2008, ONEOK Partners sold an additional 128,873 common units at $58.10 per common unit to the underwriters of the public offering upon the partial exercise of their option to purchase additional common units to cover over-allotments. ONEOK Partners received net proceeds of approximately $7.2 million from the sale of these common units after deducting underwriting discounts but before offering expenses. In conjunction with the partial exercise by the underwriters, we contributed $0.2 million to ONEOK Partners in order to maintain our 2 percent general partner interest. Following these transactions, our interest in ONEOK Partners is 47.7 percent.

ONEOK Partners used a portion of the proceeds from the sale of common units and the general partner contributions to repay borrowings under its revolving credit facility agreement (ONEOK Partners Credit Agreement).

We declared a quarterly dividend of $0.38 per share ($1.52 per share on an annualized basis) in April 2008, an increase of approximately 12 percent over the $0.34 declared in April 2007. ONEOK Partners declared an increase in its cash distribution to $1.04 per unit ($4.16 per unit on an annualized basis) in April 2008, an increase of approximately 5 percent over the $0.99 declared in April 2007.

In January 2008, Midwestern Gas Transmission, a ONEOK Partners subsidiary, placed its eastern extension pipeline into service.

EXECUTIVE SUMMARY

The following discussion highlights some of our achievements and significant issues affecting us this past year. Please refer to the Financial and Operating Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operation and the Consolidated Financial Statements for a complete explanation of the following items.

Diluted earnings per share of common stock from continuing operations (EPS) increased to $2.79 in 2007, compared with $2.68 in 2006. The increase in operating income for 2007, compared with 2006, and exclusive of the gain on sale of assets, is primarily due to the implementation of new rate schedules in Kansas and Texas in our Distribution segment and new supply connections and higher product price spreads in our ONEOK Partners’ natural gas liquids businesses. This increase was partially offset by reduced operating income in our Energy Services segment primarily due to decreased transportation margins during 2007.

In September 2007, ONEOK Partners completed an underwritten public debt offering of $600 million to finance the assets acquired from Kinder Morgan and to repay outstanding debt under the ONEOK Partners Credit Agreement, which was incurred to fund ONEOK Partners’ internal growth capital projects. The assets acquired from Kinder Morgan and ONEOK Partners’ capital projects are discussed below in the Significant Acquisitions and Divestitures and the Capital Projects sections, respectively.

We declared a quarterly dividend of $0.38 per share ($1.52 per share on an annualized basis) in January 2008, an increase of approximately 12 percent over the $0.34 declared in January 2007. ONEOK Partners declared an increase in its cash distribution to $1.025 per unit ($4.10 per unit on an annualized basis) in January 2008, an increase of approximately 5 percent over the $0.98 declared in January 2007.

EXECUTIVE SUMMARY

The following discussion highlights some of our achievements and significant issues affecting us for the periods presented. Please refer to the Financial and Operating Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements for a complete explanation of the following items.

Diluted earnings per share of common stock from continuing operations (EPS) decreased to $0.13 for the three months ended September 30, 2007, compared with $0.21 for the same period in 2006. For the nine-month period, EPS decreased to $1.83 from $2.02 for the same period last year. Operating income for the three months ended September 30, 2007, decreased to $102.8 million from $119.6 million for the same period in 2006, and for the nine-month period decreased to $566.8 million from $659.5 million for the same period in 2006. Excluding the gain on sale of assets, which primarily relates to the $113.9 million gain on the sale of a 20 percent interest in Northern Border Pipeline in the second quarter of 2006, operating income increased to $564.9 million for the nine-month period, compared with $543.1 million for the same period last year. The decrease in operating income for the three-month period is primarily due to our Energy Services segment’s decreased transportation and storage margins, partially offset by increased financial trading margins. This decrease was also partially offset by the implementation of new rate schedules in Kansas and Texas in our Distribution segment. The increase in operating income for the nine-month period, exclusive of the gain on sale of assets, is primarily due to the implementation of new rate schedules in Kansas and Texas in our Distribution segment. Our Energy Services segment partially offset this increase primarily due to decreased transportation margins in the nine-month period.

In September 2007, our ONEOK Partners segment completed an underwritten public debt offering of $600 million to finance the assets acquired from Kinder Morgan Energy Partners, L.P. (Kinder Morgan) and to refinance short-term debt, which resulted from ONEOK Partners’ internal growth capital projects. Both the assets acquired from Kinder Morgan and ONEOK Partner’s capital projects are discussed below in the Significant Acquisitions and Divestitures and the Capital Projects sections.

We declared a quarterly dividend of $0.36 per share ($1.44 per share on an annualized basis) in October 2007, an increase of approximately 13 percent over the $0.32 declared in October 2006. ONEOK Partners declared an increase in its cash distribution to $1.01 per unit ($4.04 per unit on an annualized basis) in October 2007, an increase of approximately 4 percent over the $0.97 declared in October 2006.

EXECUTIVE SUMMARY

The following discussion highlights some of our achievements and significant issues affecting us for the periods presented. Please refer to the Financial and Operating Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements for a complete explanation of the following items.

Diluted earnings per share of common stock from continuing operations (EPS) decreased to $0.31 for the three months ended June 30, 2007, compared with $0.65 for the same period in 2006. For the six-month period, EPS decreased to $1.67 from $1.80 for the same period last year. Operating income for the three months ended June 30, 2007, decreased to $135.7 million from $269.6 million for the same period in 2006, and for the six-month period decreased to $464.0 million from $539.9 million for the same period in 2006. Excluding the gain (loss) on sale of assets, which primarily relates to the $113.9 million gain on the sale of a 20 percent interest in Northern Border Pipeline in the second quarter of 2006, operating income decreased to $136.1 million for the three-month period, compared with $154.5 million for the same period last year, and increased to $462.2 million for the six-month period, compared with $423.6 million for the same period last year. The decrease in operating income for the three-month period is primarily due to our Energy Services segment’s decreased storage and marketing margins and financial trading margins, partially offset by its increased transportation margins. This decrease was partially offset by the implementation of new rate schedules in Kansas and Texas in our Distribution segment. The increase in operating income for the six-month period, exclusive of the gain (loss) on sale of assets, is primarily due to the implementation of new rate schedules in Kansas and Texas in our Distribution segment. Our Energy Services segment partially offset this increase as a result of decreased transportation, financial trading and retail margins, partially offset by increased storage and marketing margins in the six-month period.

ONEOK Partners declared an increase in its cash distribution to $1.00 per unit ($4.00 per unit on an annualized basis) in July 2007, an increase of approximately 5 percent over the $0.95 declared in July 2006. ONEOK declared an increase in its cash dividend to $0.36 per share ($1.44 per share on an annualized basis) in July 2007, an increase of approximately 13 percent over the $0.32 paid in the third quarter of 2006.

EXECUTIVE SUMMARY

The following discussion highlights some of our achievements and significant issues affecting us this past quarter. Please refer to the Financial and Operating Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operation and the Financial Statements for a complete explanation of the following items. As a result of the April 2006 transactions, our ONEOK Partners’ segment deconsolidated Northern Border Pipeline and consolidated Guardian Pipeline retroactive to January 1, 2006. Our consolidated financial statements for the quarter ended March 31, 2006, have been restated on a retroactive basis to reflect the accounting impact of these transactions.

Diluted earnings per share of common stock from continuing operations (EPS) increased to $1.36 for the three months ended March 31, 2007, compared with $1.17 for the same period in 2006. During the first quarter of 2007, we increased our dividend to $0.34 per share of common stock ($1.36 per share on an annualized basis).

ONEOK Partners declared an increase in its cash distribution to $0.99 per unit ($3.96 per unit on an annualized basis) in April 2007, an increase of approximately 13 percent over the $0.88 paid in the second quarter of 2006.

Operating income for the first quarter of 2007 increased to $328.3 million from $270.4 million for the same period in 2006, a 21 percent increase. Our Distribution segment’s operating income increased $26.5 million for the three-month period, primarily due to the implementation of new rate schedules in Kansas and Texas. Operating income for our Energy Services segment increased $26.9 million for the three-month period, primarily due to increased storage and marketing margins, partially offset by decreased transportation, financial trading and retail margins. Our ONEOK Partners segment’s operating income increased $4.2 million for the three-month period, driven primarily by higher NGL related margins, resulting from higher product price spreads between Mont Belvieu, Texas, and Conway, Kansas; higher isomerization price spreads; wider price spreads between ethane and propane; and increased natural gasoline sales used in the production of ethanol fuel in our natural gas liquids business. These increases were partially offset by decreased operating income in our ONEOK Partners segment’s gathering and processing business, primarily due to lower realized commodity prices on our percent of proceeds (POP) contracts and lower volumes processed due to the anticipated contract terminations at certain processing facilities.

Our income from continuing operations increased to $152.9 million for the first quarter of 2007 from $129.7 million for same period in 2006.

EXECUTIVE SUMMARY

The following discussion highlights some of our achievements and significant issues affecting us this past year. Please refer to the Financial and Operating Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operation and the Financial Statements for a complete explanation of the following items.

Diluted earnings per share of common stock from continuing operations (EPS) decreased to $2.68 in 2006 from $3.73 in 2005. Excluding the gain on sale of a 20 percent partnership interest in Northern Border Pipeline in 2006 and excluding the 2005 gain on sale of our Texas gathering and processing assets, EPS from continuing operations decreased to $2.40 in 2006, compared with $2.53 in 2005. During 2006, we increased our dividends twice to a current annual dividend of $1.28 per share of common stock. This follows five increases in our dividends during 2005 and 2004. During the first quarter of 2007, we increased our dividend to $0.34 per share of common stock ($1.36 per share on an annualized basis).

ONEOK Partners declared an increase in its cash distribution to $0.98 per unit ($3.92 per unit on an annualized basis) in January 2007, an increase of approximately 23 percent over the $0.80 paid in the first quarter of 2006.

In April 2006, we sold certain assets comprising our former gathering and processing, natural gas liquids, and pipelines and storage segments to ONEOK Partners for approximately $3 billion, including $1.35 billion in cash, before adjustments, and approximately 36.5 million Class B limited partner units in ONEOK Partners. We also purchased the remaining 17.5 percent

29

Table of Contents

general partner interest, which increased our general partner interest to the entire 2 percent general partner interest in ONEOK Partners. Prior periods have been restated to show our former gathering and processing, natural gas liquids, and pipelines and storage segments as part of our newly formed ONEOK Partners segment. The legacy operations of ONEOK Partners accounted for the 2006 operating income increases in our ONEOK Partners segment since we consolidated ONEOK Partners beginning January 1, 2006, in accordance with EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” See “Impact of New Accounting Standards” beginning on page 31 for additional information on the consolidation of ONEOK Partners. In addition, the acquisition of the natural gas liquids businesses owned by Koch in July 2005, contributed to operating income increases in our ONEOK Partners segment. Our legacy operations in the ONEOK Partners segment benefited from strong commodity prices, wider gross processing spreads and increased natural gas transportation revenues. These increases were slightly offset by decreases in our ONEOK Partners segment resulting from the sale of natural gas gathering and processing assets located in Texas in December 2005.

In 2006, operating income increased to $861.6 million from $799.0 million in 2005, an 8 percent increase. Our income from continuing operations decreased to $306.7 million in 2006 from $403.1 million in 2005.

Operating income for our Energy Services segment increased $63.6 million for 2006, primarily due to the effect of improved natural gas basis differentials on transportation contracts.

EXECUTIVE SUMMARY

Operating income for our third quarter of 2006 was $119.5 million, an increase of $9.5 million, or nine percent, compared with the same period in 2005. For the first nine months of 2006, operating income was $659.0 million, an increase of $310.4 million, or 89 percent, from the same period last year. The increase in operating income, excluding the gain on sale of assets, was $194.5 million for the nine-month period. The gain on sale of assets primarily relates to our ONEOK Partners (formerly Northern Border Partners, L.P.) segment’s sale of its 20 percent partnership interest in Northern Border Pipeline to TC PipeLines, an affiliate of TransCanada, in April 2006.

Diluted earnings per share of common stock from continuing operations (EPS) decreased to 21 cents for the third quarter of 2006 from 41 cents for the same period in 2005. For the nine-month period, EPS increased to $2.02 from $1.49 for the same period last year.

In April 2006, we sold certain assets comprising our former Gathering and Processing, Natural Gas Liquids, and Pipelines and Storage segments to ONEOK Partners for approximately $3 billion, including $1.35 billion in cash, before adjustments, and approximately 36.5 million Class B limited partner units in ONEOK Partners. We also purchased the remaining 17.5 percent general partner interest, which increased our general partner interest to 100 percent of the two percent general partner interest in ONEOK Partners. Prior periods have been restated to show our former Gathering and Processing, Natural Gas Liquids, and Pipelines and Storage segments as part of our newly formed ONEOK Partners segment. The legacy operations of ONEOK Partners accounted for the 2006 operating income increases in our ONEOK Partners segment since we consolidated ONEOK Partners beginning January 1, 2006, in accordance with EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” See Impact of New Accounting Standards on page 37 for additional information on the consolidation of ONEOK Partners. In addition, the acquisition of the natural gas liquids businesses owned by Koch Industries, Inc. (Koch) in July 2005, contributed to operating income increases in our ONEOK Partners segment. Our legacy operations in the ONEOK Partners segment benefited from strong commodity prices, wider gross processing spreads and increased natural gas transportation revenues. These increases were slightly offset by decreases in our ONEOK Partners segment resulting from the sale of natural gas gathering and processing assets located in Texas in December 2005.

Operating income for our Energy Services segment decreased $20.5 million for the three-month period and increased $70.7 million for the nine-month period. The decrease for the three-month period was primarily related to lower storage and marketing margins resulting from reduced storage opportunities in the third quarter 2006 compared with the same period in 2005. The increase for the nine-month period was primarily due to the effect of improved natural gas basis differentials on transportation contracts.

ONEOK Partners declared an increase in its cash distribution to $0.97 per unit in October 2006, an increase of approximately two percent over the $0.95 paid in the third quarter, an increase of approximately 10 percent over the $0.88 paid in the second quarter and an increase of approximately 21 percent over the $0.80 paid in the first quarter.

EXECUTIVE SUMMARY

Operating income for our second quarter of 2006 was $269.4 million, an increase of $217.2 million, or 416 percent, compared with the same period in 2005. For the first six months of 2006, operating income was $539.4 million, an increase of $300.9 million, or 126 percent, from the same period last year. The increase in operating income, excluding the gain on sale of assets, was $102.3 million and $185.0 million for the three- and six-month periods, respectively. The gain on sale of assets primarily relates to our ONEOK Partners L.P. (formerly Northern Border Partners, L.P.) segment’s sale of its 20 percent partnership interest in Northern Border Pipeline Company (Northern Border Pipeline) to TC PipeLines Intermediate Limited Partnership (TC PipeLines), an affiliate of TransCanada Corporation (TransCanada), in April 2006.

Diluted earnings per share of common stock from continuing operations (EPS) increased to 65 cents for the second quarter of 2006 from 16 cents for the same period in 2005. For the six-month period, EPS increased to $1.80 from $1.08 for the same period last year.

In April 2006, we sold certain assets comprising our former Gathering and Processing, Natural Gas Liquids, and Pipelines and Storage segments to Northern Border Partners, L.P. (renamed ONEOK Partners, L.P. on May 17, 2006) for approximately $3 billion, including $1.35 billion in cash, before adjustments, and approximately 36.5 million Class B limited partner units in ONEOK Partners. We also purchased the remaining 17.5 percent general partner interest which increased our general partner interest to 100 percent of the two percent general partner interest in ONEOK Partners, L.P. (ONEOK Partners). Prior periods have been restated to show our former Gathering and Processing, Natural Gas Liquids, and Pipelines and Storage segments as part of our newly formed ONEOK Partners segment. The legacy operations of ONEOK Partners accounted for increases in our ONEOK Partners segment in 2006 since we consolidated ONEOK Partners beginning January 1, 2006 in accordance with Emerging Issues Task Force (EITF) Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (EITF 04-5). See Impact of New Accounting Standards on page 33 for additional information on the consolidation of ONEOK Partners. In addition, the acquisition of the natural gas liquids businesses owned by Koch Industries, Inc. (Koch) in July 2005, contributed to increases in our ONEOK Partners segment. The purchase of the remaining interest in Guardian Pipeline, L.L.C. (Guardian Pipeline) in April 2006, which resulted in its consolidation retroactive to January 1, 2006, also positively impacted our ONEOK Partners segment. Our legacy operations in the ONEOK Partners segment benefited from higher commodity prices, wider gross processing spreads and increased natural gas transportation revenues. These increases were slightly offset by decreases in our ONEOK Partners segment resulting from the sale of natural gas gathering and processing assets located in Texas in December 2005.

Operating income for our Energy Services segment increased $50.6 million and $91.2 million for the three and six months ended June 30, 2006, respectively. Increases of $21.9 million and $32.0 million for the three and six months ended June 30, 2006, respectively, were related to optimization activities and increased demand fees. Additionally, increases of $16.8 million and $45.0 million for the three and six months ended June 30, 2006, respectively, were due to the effect of improved natural gas basis differentials on transportation contracts.

In July 2006, our Board of Directors announced an increase in our quarterly dividend to $0.32 per share, an increase of approximately seven percent over the $0.30 paid in the second quarter and an increase of approximately 14 percent over the $0.28 paid in the first quarter. This increase is a result of the continued evaluation of our dividend payout in relation to both our financial performance and our peer companies.

Additionally, ONEOK Partners declared an increase in its cash distribution to $0.95 per unit in July 2006, an increase of approximately eight percent over the $0.88 paid in the second quarter and an increase of approximately 19 percent over the $0.80 paid in the first quarter.

EXECUTIVE SUMMARY

Operating income for our first quarter of 2006 was $311.5 million, an increase of $125.2 million, or 67 percent, compared with the same period in 2005. Diluted earnings per share of common stock from continuing operations (EPS) increased to $1.17 for the first quarter of 2006 from $0.92 for the same period in 2005.

We began consolidating our investment in Northern Border Partners, LP (Northern Border Partners) on January 1, 2006, in accordance with Emerging Issues Task Force (EITF) Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (EITF 04-5), which resulted in increased operating income of $63.8 million. See Impact of New Accounting Standards on page 30 for additional information on the consolidation of Northern Border Partners.

Operating income for our Energy Services segment increased $40.6 million in the first quarter of 2006 compared with the same period in 2005. An increase of $28.2 million in net margin was due to the effect of improved natural gas basis differentials on transportation contracts. Additionally, increased storage margins of $9.5 million resulted primarily from increased demand fees.

Our acquisition of the natural gas liquids businesses owned by Koch Industries, Inc. (Koch) in July 2005, accounted for increases in both our Natural Gas Liquids segment and our Pipelines and Storage segment. The sale of natural gas gathering and processing assets located in Texas during December 2005, resulted in decreases in our Gathering and Processing segment offset by higher commodity prices.

On February 14, 2006, we signed agreements to sell and transfer certain assets comprising our Gathering and Processing segment, Natural Gas Liquids segment, and Pipelines and Storage segment to Northern Border Partners for approximately $3 billion in cash and Class B limited partner units, and to increase our general partner interest to 100 percent of the two percent general partner interest in Northern Border Partners. These transactions were completed on April 6, 2006.

In April 2006, our Board of Directors announced an increase in our quarterly dividend to $0.30 per share, an increase of seven percent over the $0.28 per share dividend paid in the first quarter. This is a result of the continued evaluation of our dividend payout in relation to both our financial performance and our peer companies.

Additionally, Northern Border Partners declared an increase in its cash distribution to $0.88 per unit in April 2006, an increase of ten percent over the $0.80 per unit distribution paid in the first quarter.

EXECUTIVE SUMMARY

The following discussion highlights some of our achievements and significant issues affecting us this past year. You should read the Financial and Operating Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operation and the Financial Statements for a complete explanation of the following items.

Our diluted earnings per share of common stock from continuing operations increased to $3.73 in 2005 compared with $2.13 in 2004. During 2005, we increased our dividend to a current annual dividend of $1.12 per share of common stock. This follows four increases in our dividend during 2004.

In 2005, our income from continuing operations increased to $403.1 million from $224.7 million in 2004, a 79 percent increase. Operating income increased to $799.0 million in 2005 from $443.7 million in 2004, primarily due to the gain on sale of assets in our Gathering and Processing segment of $264.2 million.

Our Energy Services segment benefited from increases in natural gas prices and price volatility during 2005. Operating income for our Energy Services segment increased $26.5 million in 2005 compared with 2004, primarily due to an increase of $32.4 million in net margin. An increase of $41.9 million in net margin was due to the effect of improved natural gas basis differentials on transportation margins. A $22.6 million increase in net margin was due to the increase in wholesale physical marketing margins, which resulted from natural gas price volatility. These increases were partially offset by an $18.3 million decrease in storage margins from cash flow hedge ineffectiveness primarily related to natural gas basis movements attributable to anticipated storage withdrawals from the 2006/2007 heating season and an $18.4 million decrease resulting from less favorable price movements in 2005 related to our natural gas fixed price activities.

Favorable energy prices also had a significant impact on our Gathering and Processing segment’s results during 2005. Average prices for natural gas, NGLs and crude oil exceeded prices for the same period in 2004. The gross processing spread was also higher in 2005 and continued to exceed the previous five-year and three-year averages.

The acquisition of the natural gas liquids businesses owned by several affiliates and a subsidiary of Koch in July 2005, accounted for increases in both our Natural Gas Liquids segment and our Pipelines and Storage segment.

On February 14, 2006, we signed agreements to sell certain assets to Northern Border Partners for approximately $3 billion in cash and limited partner units and increase our general partnership interest in Northern Border Partners to 100 percent. We expect these transactions to be completed by April 1, 2006. These transactions will result in our Gathering and Processing segment, Natural Gas Liquids segment, and Pipelines and Storage segment being transferred to Northern Border Partners.

On October 4, 2005, the OCC issued a final order on our application for a rate increase by Oklahoma Natural Gas. The OCC unanimously approved an annual rate increase of $57.5 million. The Commission’s administrative law judge had previously

24

Table of Contents

Index to Financial Statements

recommended an increase in annual revenues of approximately $58.0 million in July 2005. Oklahoma Natural Gas implemented new rates, subject to refund, on July 28, 2005, based on the judge’s report.

Executive Summary

We are a diversified energy company with nearly a century of experience in the natural gas business. Since 1906, we have grown from an Oklahoma intrastate natural gas pipeline business to an integrated natural gas company with operations throughout the mid-continent area of the United States and, more recently, in Canada.

The following discussion highlights some of our achievements and significant issues affecting us this past year. You should read the relevant sections of Management’s Discussion and Analysis and the Financial Statements for a complete explanation of the following items.

In 2004, we saw our income from continuing operations increase to $242.2 million from $214.3 million in 2003, a 13 percent increase. Operating income increased to $490.0 million in 2004 from $446.1 million in 2003, and cash flow from operations increased to $204.8 million in 2004 from $0.7 million in 2003. Our dividend was increased each quarter during 2004, to a current annual dividend of $1.00 per share of common stock. This follows two increases in our dividend during 2003.

EPS is one of the key indicators that we use to evaluate our success. Other key indicators that we use are shareholder appreciation as compared to our peer companies and return on invested capital.

Our business strategy is focused on the maximization of shareholder value by integrating our natural gas business operations. We expect to continue evaluating and assessing acquisition opportunities to further complement our existing asset base. We also, from time to time, sell assets when deemed less strategic or as other conditions warrant.

25

Table of Contents

The contribution to our earnings from the gas and oil reserves we acquired in December 2003 was primarily responsible for the $31.7 million increase in operating income in our Production segment.

In 2004, our gathering and processing segment increased operating income by $68.3 million over 2003, or an increase of 109 percent. This followed an 89 percent increase in 2003 over 2002. The third and fourth quarter of 2004 had the most favorable pricing environment for natural gas and NGL products as any period in the last five years.

In November 2004, we closed the purchase of Northern Plains and became the holder of the majority of the general partnership interest in the limited partnership. We will operate more than $2.5 billion of assets in a mix of mostly natural gas assets, including interstate pipelines, gathering pipelines and processing plants located in an area stretching from the Canadian Border and the Rockies to the upper Midwest.

We filed for $99.4 million in rate relief in Oklahoma on January 28, 2005, of which $38.5 million would be paid in additional income taxes. This amount includes $10.7 million of the interim rate relief granted in January 2004. We have not had an increase to our base rates in Oklahoma since 1995. Under Oklahoma state law, the OCC has 180 days to conduct a review and issue an order in response to our application. This means that any approved rate relief would be in effect prior to the 2005/2006 heating season.

The September 2003 rate increase in Kansas was in effect for the entire 2004 year. This provided $16.2 million in additional operating income, as compared to 2003, which included the rate increase for a portion of the year.

A reorganization in the Energy Services segment at July 1, 2004, changed the way we do business and present revenues in that segment. As a result of separating the management and operations of our physical marketing, retail marketing and financial trading activities, we began accounting separately for the different types of revenue earned from these activities.