Annual Reports

 
Quarterly Reports

  • 10-Q (May 7, 2014)
  • 10-Q (Nov 6, 2013)
  • 10-Q (Jul 31, 2013)
  • 10-Q (May 1, 2013)
  • 10-Q (Oct 31, 2012)
  • 10-Q (Aug 1, 2012)

 
8-K

 
Other

ONEOK 10-Q 2009

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
oke_10-q.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2009
OR
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________.


Commission file number   001-13643



ONEOK, Inc.
(Exact name of registrant as specified in its charter)


Oklahoma
73-1520922
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
   
100 West Fifth Street, Tulsa, OK
74103
(Address of principal executive offices)
(Zip Code)


Registrant’s telephone number, including area code   (918) 588-7000


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes X  No _  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   No __

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer X             Accelerated filer __             Non-accelerated filer __             Smaller reporting company__

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes __ No X

On April 27, 2009, the Company had 105,301,805 shares of common stock outstanding.
 



ONEOK, Inc.

Part I.
Financial Information
Page No.
Item 1.
Financial Statements (Unaudited)
 
 
 
5
 
 
 
6-7
 
 
9
 
 
 
10-11
 
 
 
12
 
 
13-29
 
Item 2.
 
30-49
 
 
Item 3.
50
 
Item 4.
51
 
Part II.
Other Information
 
Item 1.
51
 
Item 1A.
51
 
Item 2.
 
52
 
Item 3.
 
52
Item 4.
 
52
Item 5.
 
52
Item 6.
 
52
 
53
 
As used in this Quarterly Report on Form 10-Q, references to “we,” “our” or “us” refer to ONEOK, Inc., an Oklahoma corporation, and its predecessors and subsidiaries, unless the context indicates otherwise.

The statements in this Quarterly Report on Form 10-Q that are not historical information, including statements concerning plans and objectives of management for future operations, economic performance or related assumptions, are forward-looking statements.  Forward-looking statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “should,” “goal,” “forecast,” “could,” “may,” “continue,” “might,” “potential,” “scheduled” and other words and terms of similar meaning.  Although we believe that our expectations regarding future events are based on reasonable assumptions, we can give no assurance that such expectations and assumptions will be achieved.  Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Forward-Looking Statements” and Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and under Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2008.
 
 
GLOSSARY
The abbreviations, acronyms and industry terminology used in this Quarterly Report on Form 10-Q are defined as follows:

AFUDC
Allowance for funds used during construction
ARB
Accounting Research Bulletin
Bbl
Barrels, 1 barrel is equivalent to 42 United States gallons
Bbl/d
Barrels per day
BBtu/d
Billion British thermal units per day
Bcf
Billion cubic feet
Bcf/d
Billion cubic feet per day
Btu
British thermal units, a measure of the amount of heat required to raise
    the temperature of one pound of water one degree Fahrenheit
Bushton Plant
Bushton Gas Processing Plant
EBITDA
Earnings before interest, taxes, depreciation and amortization
EITF
Emerging Issues Task Force
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
Fort Union Gas Gathering
Fort Union Gas Gathering, L.L.C.
FSP
FASB Staff Position
GAAP
Accounting principles generally accepted in the United States of America
Guardian Pipeline
Guardian Pipeline, L.L.C.
KCC
Kansas Corporation Commission
KDHE
Kansas Department of Health and Environment
LDC
Local Distribution Company
LIBOR
London Interbank Offered Rate
MBbl
Thousand barrels
MBbl/d
Thousand barrels per day
Mcf
Thousand cubic feet
MMBtu
Million British thermal units
MMBtu/d
Million British thermal units per day
MMcf
Million cubic feet
MMcf/d
Million cubic feet per day
Moody’s
Moody’s Investors Service, Inc.
NGL products
Marketable natural gas liquid purity products, such as ethane, ethane/propane
    mix, propane, iso-butane, normal butane and natural gasoline
NGL(s)
Natural gas liquid(s)
Northern Border Pipeline
Northern Border Pipeline Company
NYMEX
New York Mercantile Exchange
OBPI
ONEOK Bushton Processing Inc.
OCC
Oklahoma Corporation Commission
ONEOK
ONEOK, Inc.
ONEOK Partners
ONEOK Partners, L.P.
ONEOK Partners GP
ONEOK Partners GP, L.L.C., a wholly owned subsidiary of ONEOK and the
    sole general partner of ONEOK Partners, L.P.
OPIS
Oil Price Information Service
Overland Pass Pipeline Company
Overland Pass Pipeline Company LLC
S&P
Standard & Poor’s Rating Group
SEC
Securities and Exchange Commission
Statement
Statement of Financial Accounting Standards

AVAILABLE INFORMATION

We make available on our Web site copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act and reports of holdings of our securities filed by our officers and directors under Section 16 of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.  Our Web site and any contents thereof are not incorporated by reference into this report.


























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PART I - FINANCIAL INFORMATION
           
ITEM 1. FINANCIAL STATEMENTS
           
ONEOK, Inc. and Subsidiaries
           
CONSOLIDATED  STATEMENTS OF INCOME
           
 
Three Months Ended
 
March 31,
(Unaudited)
 
2009
   
2008
 
 
(Thousands of dollars, except per share amounts)
             
Revenues
  $ 2,789,827     $ 4,902,076  
Cost of sales and fuel
    2,238,416       4,316,164  
Net Margin
    551,411       585,912  
Operating Expenses
               
Operations and maintenance
    161,719       167,992  
Depreciation and amortization
    72,126       59,479  
General taxes
    25,227       25,331  
Total Operating Expenses
    259,072       252,802  
Gain (Loss) on Sale of Assets
    664       13  
Operating Income
    293,003       333,123  
Equity earnings from investments (Note L)
    21,222       27,783  
Allowance for equity funds used during construction
    9,003       8,496  
Other income
    1,665       3,232  
Other expense
    (3,944 )     (4,608 )
Interest expense
    (77,961 )     (62,861 )
Income before Income Taxes
    242,988       305,165  
Income taxes
    (79,439 )     (92,368 )
Net Income
    163,549       212,797  
Net income attributable to noncontrolling interests
    (41,264 )     (68,960 )
Net Income Attributable to ONEOK
  $ 122,285     $ 143,837  
                 
Earnings Per Share of Common Stock (Note M)
               
Net Earnings Per Share, Basic
  $ 1.16     $ 1.38  
Net Earnings Per Share, Diluted
  $ 1.16     $ 1.36  
                 
Average Shares of Common Stock (Thousands)
               
Basic
    105,162       104,170  
Diluted
    105,733       105,821  
                 
Dividends Declared Per Share of Common Stock
  $ 0.40     $ 0.38  
See accompanying Notes to Consolidated Financial Statements.
               
 
 
ONEOK, Inc. and Subsidiaries
           
CONSOLIDATED BALANCE SHEETS
           
   
March 31,
   
December 31,
 
(Unaudited)
 
2009
   
2008
 
Assets
 
(Thousands of dollars)
 
             
Current Assets
           
Cash and cash equivalents
  $ 76,753     $ 510,058  
Accounts receivable, net
    1,014,142       1,265,300  
Gas and natural gas liquids in storage
    443,244       858,966  
Commodity exchanges and imbalances
    49,734       56,248  
Energy marketing and risk management assets (Notes B and C)
    280,962       362,808  
Deposits
    102,355       105,798  
Other current assets
    71,539       218,424  
Total Current Assets
    2,038,729       3,377,602  
                 
Property, Plant and Equipment
               
Property, plant and equipment
    9,688,778       9,476,619  
Accumulated depreciation and amortization
    2,252,123       2,212,850  
Net Property, Plant and Equipment (Note J)
    7,436,655       7,263,769  
                 
Investments and Other Assets
               
Goodwill and intangible assets
    1,036,309       1,038,226  
Energy marketing and risk management assets (Notes B and C)
    60,550       45,900  
Investments in unconsolidated affiliates (Note L)
    747,990       755,492  
Other assets
    619,731       645,073  
Total Investments and Other Assets
    2,464,580       2,484,691  
Total Assets
  $ 11,939,964     $ 13,126,062  
See accompanying Notes to Consolidated Financial Statements.
               

 
ONEOK, Inc. and Subsidiaries
           
CONSOLIDATED BALANCE SHEETS
           
   
March 31,
   
December 31,
 
(Unaudited)
 
2009
   
2008
 
Liabilities and Shareholders’ Equity
 
(Thousands of dollars)
 
             
Current Liabilities
           
Current maturities of long-term debt (Note G)
  $ 18,200     $ 118,195  
Notes payable (Note F)
    986,700       2,270,000  
Accounts payable
    798,625       1,122,761  
Commodity exchanges and imbalances
    130,199       188,030  
Energy marketing and risk management liabilities (Notes B and C)
    77,084       175,006  
Other current liabilities
    436,702       319,772  
Total Current Liabilities
    2,447,510       4,193,764  
                 
Long-term Debt, excluding current maturities (Note G)
    4,602,756       4,112,581  
                 
Deferred Credits and Other Liabilities
               
Deferred income taxes
    866,497       890,815  
Energy marketing and risk management liabilities (Notes B and C)
    16,892       46,311  
Other deferred credits
    765,176       715,052  
Total Deferred Credits and Other Liabilities
    1,648,565       1,652,178  
                 
Commitments and Contingencies (Note I)
               
                 
Shareholders’ Equity
               
                 
ONEOK Shareholders’ Equity
               
Common stock, $0.01 par value:
               
authorized 300,000,000 shares; issued 122,103,602 shares
               
and outstanding 105,293,253 shares at March 31, 2009;
               
issued 121,647,007 shares and outstanding 104,845,231
               
shares at December 31, 2008
    1,221       1,216  
Paid in capital
    1,301,849       1,301,153  
Accumulated other comprehensive loss (Note D)
    (56,152 )     (70,616 )
Retained earnings
    1,633,238       1,553,033  
Treasury stock, at cost: 16,810,349 shares at March 31,
               
2009 and 16,801,776 shares at December 31, 2008
    (696,863 )     (696,616 )
Total ONEOK Shareholders’ Equity
    2,183,293       2,088,170  
                 
Noncontrolling Interests in Consolidated Subsidiaries
    1,057,840       1,079,369  
                 
Total Shareholders’ Equity
    3,241,133       3,167,539  
Total Liabilities and Shareholders’ Equity
  $ 11,939,964     $ 13,126,062  
See accompanying Notes to Consolidated Financial Statements.
               



























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ONEOK, Inc. and Subsidiaries
           
CONSOLIDATED STATEMENTS OF CASH FLOWS
           
   
Three Months Ended
 
   
March 31,
 
(Unaudited)
 
2009
   
2008
 
Operating Activities
 
(Thousands of dollars)
 
Net income
  $ 163,549     $ 212,797  
Depreciation and amortization
    72,126       59,479  
Allowance for equity funds used during construction
    (9,003 )     (8,496 )
Gain on sale of assets
    (664 )     (13 )
Equity earnings from investments
    (21,222 )     (27,783 )
Distributions received from unconsolidated affiliates
    25,187       24,040  
Deferred income taxes
    23,624       29,362  
Stock-based compensation expense
    4,173       7,982  
Allowance for doubtful accounts
    (822 )     2,035  
Changes in assets and liabilities (net of acquisition and disposition effects):
               
Accounts receivable
    251,980       (7,065 )
Gas and natural gas liquids in storage
    404,416       488,214  
Deposits
    3,443       (52,052 )
Accounts payable
    (311,252 )     119,795  
Commodity exchanges and imbalances, net
    (51,317 )     (24,686 )
Energy marketing and risk management assets and liabilities
    (32,921 )     33,626  
Accrued interest
    38,623       50,293  
Unrecovered purchased gas costs
    42,445       26,802  
Fair value of firm commitments
    153,391       (50,686 )
Other assets and liabilities
    35,102       (13,129 )
Cash Provided by Operating Activities
    790,858       870,515  
Investing Activities
               
Changes in investments in unconsolidated affiliates
    3,362       3,311  
Acquisitions
    -       2,450  
Capital expenditures (less allowance for equity funds used during construction)
    (243,027 )     (339,531 )
Proceeds from sale of assets
    1,083       161  
Cash Used in Investing Activities
    (238,582 )     (333,609 )
Financing Activities
               
Borrowing (repayment) of notes payable, net
    (813,300 )     63,000  
Repayment of notes payable with maturities over 90 days
    (470,000 )     -  
Issuance of debt, net of discounts
    498,325       -  
Long-term debt financing costs
    (4,000 )     -  
Payment of debt
    (104,037 )     (405,504 )
Repurchase of common stock
    (247 )     (15 )
Issuance of common stock
    2,509       1,533  
Issuance of common units, net of discounts
    -       140,369  
Dividends paid
    (42,080 )     (39,536 )
Distributions to noncontrolling interests
    (52,751 )     (47,118 )
Cash Used in Financing Activities
    (985,581 )     (287,271 )
Change in Cash and Cash Equivalents
    (433,305 )     249,635  
Cash and Cash Equivalents at Beginning of Period
    510,058       19,105  
Cash and Cash Equivalents at End of Period
  $ 76,753     $ 268,740  
See accompanying Notes to Consolidated Financial Statements.
               
 
 
ONEOK, Inc. and Subsidiaries
                       
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                   
                         
                         
   
ONEOK Shareholders
 
                     
Accumulated
 
   
Common
               
Other
 
   
Stock
   
Common
   
Paid-in
   
Comprehensive
 
(Unaudited)
 
Issued
   
Stock
   
Capital
   
Income (Loss)
 
   
(Shares)
 
(Thousands of dollars)
 
                         
December 31, 2008
    121,647,007     $ 1,216     $ 1,301,153     $ (70,616 )
Net income
    -       -       -       -  
Other comprehensive income (loss) (Note D)
    -       -       -       14,464  
Repurchase of common stock
    -       -       -       -  
Common stock issued
    456,595       5       696       -  
Common stock dividends -
                               
$0.40 per share
    -       -       -       -  
Distributions paid
    -       -       -       -  
March 31, 2009
    122,103,602     $ 1,221     $ 1,301,849     $ (56,152 )
See accompanying Notes to Consolidated Financial Statements.
                         
 
 
ONEOK, Inc. and Subsidiaries
                       
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
             
(Continued)
                       
                         
 
ONEOK Shareholders
   
Noncontrolling Interests in Consolidated Subsidiaries
       
                   
               
Total
 
   
Retained
   
Treasury
   
Shareholders’
 
   
Earnings
   
Stock
   
Equity
 
 
(Thousands of dollars)
 
                         
December 31, 2008
  $ 1,553,033     $ (696,616 )   $ 1,079,369     $ 3,167,539  
Net income
    122,285       -       41,264       163,549  
Other comprehensive income (loss) (Note D)
    -       -       (10,042 )     4,422  
Repurchase of common stock
    -       (247 )     -       (247 )
Common stock issued
    -       -       -       701  
Common stock dividends -
                               
$0.40 per share
    (42,080 )     -       -       (42,080 )
Distributions paid
    -       -       (52,751 )     (52,751 )
March 31, 2009
  $ 1,633,238     $ (696,863 )   $ 1,057,840     $ 3,241,133  
                                 
 
 
ONEOK, Inc. and Subsidiaries
           
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
           
   
Three Months Ended
 
   
March 31,
 
(Unaudited)
 
2009
   
2008
 
   
(Thousands of dollars)
 
             
Net income
  $ 163,549     $ 212,797  
Other comprehensive income (loss), net of tax
               
Unrealized gains (losses) on energy marketing and risk management
               
assets/liabilities, net of tax
    60,497       (52,321 )
Unrealized holding gains (losses) arising during the period, net of tax
    188       (4,764 )
Realized gains in net income, net of tax
    (53,919 )     (7,267 )
Change in pension and postretirement benefit plan liability, net of tax
    (2,534 )     (2,469 )
Other
    190       -  
Total other comprehensive income (loss), net of tax (Note D)
    4,422       (66,821 )
Comprehensive Income
    167,971       145,976  
Comprehensive income attributable to noncontrolling interests
    31,222       70,247  
Comprehensive Income Attributable to ONEOK
  $ 136,749     $ 75,729  
See accompanying Notes to Consolidated Financial Statements.
               


ONEOK, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A.           SUMMARY OF ACCOUNTING POLICIES

Our accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP and reflect all adjustments that, in our opinion, are necessary for a fair presentation of the results for the interim periods presented.  All such adjustments are of a normal recurring nature.  The 2008 year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008.  Due to the seasonal nature of our business, the results of operations for the three months ended March 31, 2009, are not necessarily indicative of the results that may be expected for a 12-month period.

Our accounting policies are consistent with those disclosed in Note A of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2008.  The following recently issued accounting pronouncements will affect our consolidated financial statements during 2009.






Reclassifications

Certain amounts in our consolidated financial statements have been reclassified to conform to the 2009 presentation.  These reclassifications did not impact previously reported net income.


B.           FAIR VALUE MEASUREMENTS

Refer to Notes A and C of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2008, for a discussion of our fair value measurements and the fair value hierarchy.

Recurring Fair Value Measurements> - The following tables set forth our recurring fair value measurements for the periods indicated.

   
March 31, 2009
 
   
Level 1
   
Level 2
   
Level 3
   
Netting (a)
   
Total
 
   
(Thousands of dollars)
 
Assets
                             
Derivatives
  $ 93,065     $ 471,127     $ 540,937     $ (763,617 )   $ 341,512  
Trading securities
    5,813       -       -       -       5,813  
Available-for-sale investment securities
    1,971       -       -       -       1,971  
Total assets
  $ 100,849     $ 471,127     $ 540,937     $ (763,617 )   $ 349,296  
                                         
Liabilities
                                       
Derivatives
  $ (121,694 )   $ (350,648 )   $ (370,699 )   $ 749,065     $ (93,976 )
Fair value of firm commitments
    -       -       (111,212 )     -       (111,212 )
Total liabilities
  $ (121,694 )   $ (350,648 )   $ (481,911 )   $ 749,065     $ (205,188 )
(a) - Our derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral in accordance with FSP FIN 39-1, when a legally enforceable master netting arrangement exists between us and the counterparty to a derivative contract. At March 31, 2009, we held $94.6 million of cash collateral and had posted $80.1 million of cash collateral with various counterparties.
 
 
   
December 31, 2008
 
   
Level 1
   
Level 2
   
Level 3
   
Netting (a)
   
Total
 
   
(Thousands of dollars)
 
Assets
                             
Derivatives
  $ 580,029     $ 215,116     $ 454,377     $ (840,814 )   $ 408,708  
Trading securities
    4,910       -       -       -       4,910  
Available-for-sale investment securities
    1,665       -       -       -       1,665  
Fair value of firm commitments
    -       -       42,179       -       42,179  
Total assets
  $ 586,604     $ 215,116     $ 496,556     $ (840,814 )   $ 457,462  
                                         
Liabilities
                                       
Derivatives
  $ (501,726 )   $ (55,705 )   $ (412,022 )   $ 748,136     $ (221,317 )
Long-term debt swapped to floating
    -       -       (171,455 )     -       (171,455 )
Total liabilities
  $ (501,726 )   $ (55,705 )   $ (583,477 )   $ 748,136     $ (392,772 )
(a) - Our derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral in accordance with FSP FIN 39-1, when a legally enforceable master netting arrangement exists between us and the counterparty to a derivative contract. At December 31, 2008, we held $92.7 million of cash collateral.
 

In accordance with Statement 157, “Fair Value Measurements,” we categorize derivatives for which fair value is determined based on multiple inputs within a single level, based on the lowest level input that is significant to the fair value measurement in its entirety.

Our Level 1 fair value measurements are based on NYMEX-settled prices, actively quoted prices for equity securities and foreign currency forward exchange rates.  These balances are predominantly comprised of exchange-traded derivative contracts, including futures and certain options for natural gas and crude oil, which are valued based on unadjusted quoted prices in active markets.  Also included in Level 1 are equity securities and foreign currency forwards.

Our Level 2 fair value inputs are based on NYMEX-settled prices that are utilized to determine the fair value of certain non-exchange traded financial instruments, including natural gas and crude oil swaps.
 

Our Level 3 inputs are based on over-the-counter quotes, market volatilities derived from NYMEX-settled prices, internally developed basis curves incorporating observable and unobservable market data, modeling techniques using observable market data and historical correlations of NGL product prices to crude oil, and spot and forward LIBOR curves.  The derivatives categorized as Level 3 include over-the-counter swaps and options for natural gas and crude oil, NGL swaps and physical forward contracts, natural gas basis and swing swaps and physical forward contracts, and interest-rate swaps.  Also included in Level 3 are the fair values of firm commitments and long-term debt that have been hedged.

The following tables set forth the reconciliation of our Level 3 fair value measurements for the periods indicated.
 
   
Derivative
Assets (Liabilities)
     
Fair Value of
Firm Commitments
     
Long-Term
Debt
     
Total
 
   
(Thousands of dollars)
 
January 1, 2009
  $ 42,355       $ 42,179       $ (171,455 )     $ (86,921 )
   Total realized/unrealized gains (losses):
                                     
       Included in earnings
    110,002  
 (a)
    (153,391 )
 (a)
    1,455  
 (b)
    (41,934 )
       Included in other comprehensive income (loss)
    (7,730 )       -         -         (7,730 )
   Maturities
    -         -         100,000         100,000  
   Terminations prior to maturity
    -         -         70,000         70,000  
   Transfers in and/or out of Level 3
    25,611         -         -         25,611  
March 31, 2009
  $ 170,238       $ (111,212 )     $ -       $ 59,026  
                                       
Total gains (losses) for the period included in
   earnings attributable to the change in unrealized
   gains (losses) relating to assets and liabilities
   still held as of March 31, 2009 (a)
  $ 136,563       $ (138,637 )     $ -       $ (2,074 )
(a) - Reported in revenues and cost of sales and fuel in our Consolidated Statements of Income.
                 
(b) - Reported in interest expense in our Consolidated Statements of Income.
                     

   
Derivative
Assets (Liabilities)
     
Fair Value of
Firm Commitments
     
Long-Term
Debt
     
Total
 
   
(Thousands of dollars)
 
January 1, 2008
  $ (54,582 )     $ 42,684       $ (338,538 )     $ (350,436 )
   Total realized/unrealized gains (losses):
                                     
       Included in earnings
    (100,626 )
 (a)
    92,854  
 (a)
    (9,167 )
 (b)
    (16,939 )
       Included in other comprehensive income (loss)
    23,266         -         -         23,266  
   Transfers in and/or out of Level 3
    -         -         -         -  
March 31, 2008
  $ (131,942 )     $ 135,538       $ (347,705 )     $ (344,109 )
                                       
Total gains (losses) for the period included in
   earnings attributable to the change in unrealized
   gains (losses) relating to assets and liabilities
   still held as of March 31, 2008 (a)
  $ (83,533 )     $ 84,903       $ (9,167 )     $ (7,797 )
(a) - Reported in revenues and cost of sales and fuel in our Consolidated Statements of Income.
                 
(b) - Reported in interest expense in our Consolidated Statements of Income.
                     
 
Realized/unrealized gains (losses) include the realization of our fair value derivative contracts through maturity and changes in fair value of our hedged firm commitments and fixed-rate debt swapped to a floating rate.  Maturities represent the long-term debt associated with an interest-rate swap that matured during the period.  Terminations prior to maturity represent the long-term debt associated with an interest rate swap that terminated during the period.  Transfers into Level 3 represent existing assets or liabilities that were previously categorized at a higher level for which the inputs to our models became unobservable.  Transfers out of Level 3 represent existing assets and liabilities that were previously classified as Level 3 for which the inputs became observable in accordance with our hierarchy policy discussed in Note A of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K.



   
March 31,
   
December 31,
   
2009
   
2008
 
 
(Thousands of dollars)
Available-for-sale securities held
           
Aggregate fair value
  $ 1,971     $ 1,665  
Reported in accumulated other
   comprehensive income (loss) for net
   unrealized holding gains, net of tax
  $ 188     $ 815  

For the three months ended March 31, 2009, we recorded a gain of $0.6 million, net of tax, which represents the total mark-to-market effect of trading securities still held as of March 31, 2009.

C.           RISK MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES

Energy Marketing and Risk Management Activities

Our Energy Services and ONEOK Partners segments are exposed to various risks that we manage by periodically entering into derivative instruments.  These risks include the following:
·  
Commodity price risk - We are exposed to the risk of loss in cash flows and future earnings arising from adverse changes in the price of natural gas, NGLs and crude oil.  We use commodity derivative instruments such as futures, physical forward contracts, swaps and options to mitigate the commodity price risk associated with a portion of the forecasted purchases and sales of commodities and natural gas and natural gas liquids in storage.
·  
Basis risk - We are exposed to the risk of loss in cash flows and future earnings arising from adverse changes in the price differentials between pipeline receipt and delivery locations.  Our firm transportation capacity allows us to purchase gas at a pipeline receipt point and sell gas at a pipeline delivery point.  Our Energy Services segment periodically enters into basis swaps between the transportation receipt and delivery points in order to protect the fair value of these location price differentials related to our firm commitments for capacity-demand payments.
·  
Currency exchange rate risk - As a result of our operations in Canada, we are exposed to the risk of loss in cash flows and future earnings from adverse changes in currency exchange rates on our commodity purchases and sales primarily related to our firm transportation and storage contracts that are transacted in a currency other than our functional currency, the U.S. dollar.  To reduce our exposure to exchange-rate fluctuations, we use physical forward transactions, which result in an actual two-way flow of currency on the settlement date since we exchange U.S. dollars for Canadian dollars with another party.

The following derivative instruments are used to manage our exposure to these risks.
·  
Futures contracts - Standardized exchange-traded contracts to purchase or sell natural gas and crude oil at a specified price, requiring delivery on or settlement through the sale or purchase of an offsetting contract by a specified future date under the provisions of exchange regulations. 
·  
Forward contracts - Commitments to purchase or sell natural gas, crude oil or NGLs for delivery at some specified time in the future.  Forward contracts are different from futures in that forwards are customized and non-exchange traded.
·  
Swaps - Financial trades involving the exchange of payments based on two different pricing structures for a commodity.  In a typical commodity swap, parties exchange payments based on changes in the price of a commodity or a market index, while fixing the price they effectively pay or receive for the physical commodity.  As a result, one party assumes the risks and benefits of movements in market prices, while the other party assumes the risks and benefits of a fixed price for the commodity.
·  
Options - Contractual agreements that give the holder the right, but not the obligation, to buy or sell a fixed quantity of a commodity, at a fixed price, within a specified period of time.  Options may either be standardized, exchange traded or customized and non-exchange traded.

Our objectives for entering into such contracts include, but are not limited to:
·  
reducing the variability of cash flows by locking in the price for all or a portion of anticipated index-based physical purchases and sales, transportation fuel requirements, asset management transactions and customer-related business activities;


·  
locking in price differentials to protect the fair value between transportation receipt and delivery points and to protect the fair value of natural gas or NGLs that are purchased in one month and sold in a later month; and
·  
reducing our exposure to fluctuations in foreign currency exchange rates.

Our Energy Services segment also enters into derivative contracts for financial trading purposes primarily to capitalize on opportunities created by market volatility, weather-related events, supply-demand imbalances and market liquidity inefficiency, which allows us to capture additional margin.  Financial trading activities are generally executed using financially settled derivatives and are normally short term in nature.

With respect to the net open positions that exist within our marketing and financial trading operations, fluctuating commodity prices can impact our financial position and results of operations.  The net open positions are actively managed, and the impact of the changing prices on our financial condition at a point in time is not necessarily indicative of the impact of price movements throughout the year.

Our Distribution segment also uses derivative instruments to hedge the cost of anticipated natural gas purchases during the winter heating months to protect our customers from upward volatility in the market price of natural gas.  The use of these derivative instruments and the associated recovery of these costs have been approved by the OCC, KCC and regulatory authorities in certain of our Texas jurisdictions.

We are also subject to fluctuation in interest rates.  We manage interest-rate risk through the use of fixed-rate debt, floating-rate debt and interest-rate swaps.  Fixed-rate swaps may be used to reduce our risk of increased interest costs during periods of rising interest rates.  Floating-rate swaps may be used to convert the fixed rates of long-term borrowings into short-term variable rates.  Interest-rate swaps are agreements to exchange an interest payment at some future point based on the differential between two interest rates.

Accounting Treatment

We account for derivative instruments and hedging activities in accordance with Statement 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended.  Under Statement 133, entities are required to record derivative instruments at fair value, with the exception of normal purchases and normal sales that are expected to result in physical delivery.  The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it.

If certain conditions are met, we may elect to designate a derivative instrument as a hedge of exposure to changes in fair values, cash flows or foreign currency.  Certain non-trading derivative transactions, which are economic hedges of our accrual transactions, such as our storage and transportation contracts, do not qualify for hedge accounting treatment.

The table below summarizes the various ways in which we account for our derivative instruments and the impact on our consolidated financial statements.
 
Accounting
 
Recognition and Measurement
Treatment
 
Balance Sheet 
 
Income Statement 
Normal purchases and normal sales exception
-
Fair value not recorded
-
Change in fair value not recognized in earnings
Mark-to-market
-
Recorded at fair value
-
Change in fair value recognized in earnings
Cash flow hedge
-
Recorded at fair value
-
Ineffective portion of the gain or loss on the derivative instrument is recognized in earnings
 
-
Effective portion of the gain or loss on the derivative instrument is reported initially as a component of accumulated other comprehensive income (loss)
-
Effective portion of the gain or loss on the derivative instrument is reclassified out of accumulated other comprehensive income (loss) into earnings when the forecasted transaction affects earnings
Fair value hedge
-
Recorded at fair value
-
The gain or loss on the derivative instrument is recognized in earnings
 
-
Change in fair value of the hedged item is recorded as an adjustment to book value
-
Change in fair value of the hedged item is recognized in earnings
         
 
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