ONEOK to buy back ONEOK Partners

TULSA — ONEOK Inc. has agreed to buy back the outstanding stake in its ONEOK Partners in a $9.3 billion deal that would recombine the Tulsa-based natural gas giant.

The all-stock transaction would give ONEOK an enterprise value of $30 billion, executives said Wednesday.

"We are very excited about this strategic transaction that creates a larger stand-alone operating company, lowers the cost of funding and better positions us to continue executing on our growth opportunities," CEO Terry Spencer said in a conference call with analysts.

Under terms of the deal, ONEOK Inc. will issue almost 169 million shares to buy back the almost 172 million outstanding ONEOK Partners units.

The deal is expected to close in the second quarter. At that time, ONEOK Partners unitholders would receive 0.985 shares of ONEOK stock for each partnership unit they exchange.

"As we evaluated other investments opportunities, we continued to arrive on the same conclusion that the best value for shareholders would be owning the remaining 60 percent of the partnership," Spencer said. "Our current structure has performed well in a tough environment, but this transaction will position us for greater strength and stability."

ONEOK executives said ONEOK's quarterly distribution is expected to increase 21 percent to 74.5 cents a share after the transaction and that they expect an annual increase of 9 percent to 11 percent through 2021.

"We expect shareholders will benefit from the larger size

of the company, significantly enhanced financial strength and lower costs of funding to execute growth opportunities,” Derek Reiners, ONEOK’s senior vice president, chief financial officer and treasurer, said during Wednesday’s conference call.

The deal also is expected to protect the company from industry and market changes, he said.

“By proactively pursuing this transaction, we are hoping to insulate the company from industry downturns while maintaining goals and previously disclosed deleverage strategies,” Reiners said.

Because of the tax implications of the deal, the combined ONEOK is expected to defer cash tax payments through 2021, Reiners said.

Wednesday’s announcement continues a trend of companies throughout the oil and natural gas sector reabsorbing the master limited partnerships they spun off over the past two decades.

“We’ve officially come full circle,” said Jake Dollarhide, president of Longbow Asset Management Co. in Tulsa. “In the mid- to late ‘90s, we had a proliferation of oil and gas companies creating this master limited partnership for tax and capital raising reasons, but now they have a shared board of directors, a shared management team, two books for auditors, twice the Sarbanes-Oxley costs and twice the legal fees.”

Across town, Tulsabased Williams Cos. Inc. has indicated a similar desire to reacquire its Williams Partners LP.

Williams last year announced plans to buy back its master limited partnership as an effort to stave off a failed takeover attempt by Dallas-based Energy Transfer Equity. The company scrapped that effort, but last month announced said it would-up its stake in the partnership to 72 percent.

The trend likely will strengthen the Tulsa companies and boost the community’s economy, Dollarhide said.

“It reinforces how important ONEOK and Williams are to the community with their job bases, employment and the impact they have on the nonprofit community,” he said. “A stronger ONEOK and a stronger Williams are good for Tulsa.”

ONEOK Partners units surged $8.56, or almost 20 percent, Wednesday to $51.70 per unit. ONEOK Inc. shares slipped $1.11, or 2 percent, to $54 a share.

2017 guidance

Also on Wednesday, ONEOK executives announced the company’s 2017 guidance, and the directors declared a quarterly dividend.

ONEOK is expected to generate a net income of between $575 million and $755 million this year with an adjusted earnings before interest, taxes, depreciation and amortization of between $1.87 billion and $2.13 billion.

“We expect 2017 to provide continued growth across our asset footprint as market fundamentals continue to improve and producer customers are increasing their activity in the NGL-rich (natural gas liquid) shale plays where ONEOK is positioned,” Spencer said in a statement. “ONEOK’s strong asset position, integrated operations and diverse basin footprint will continue to drive results and provide opportunities for growth.”

ONEOK directors declared a quarterly dividend of 61.5 cents per share payable Feb. 14 to shareholders as of Jan. 30.