ONEOK to Sell Assets to Northern Border Partners for $3 Billion in
Cash and Units; ONEOK to Increase General Partnership Interest to
100 Percent; Northern Border Partners to Sell 20 Percent of
Pipeline to TransCanada Affiliate TULSA, Okla., Feb. 15
/PRNewswire-FirstCall/ -- ONEOK, Inc. (NYSE:OKE) and Northern
Border Partners, L.P. (NYSE:NBP) today announced a series of
transactions expected to increase shareholder and unit holder value
and facilitate additional growth opportunities for both companies.
Following completion of the transactions, ONEOK will own 45.7
percent of Northern Border Partners and 100 percent of the general
partner interest. In addition, ONEOK and Northern Border Partners
are increasing their estimated 2006 earnings guidance in
anticipation of the closing of the transactions. The Northern
Border Partners policy committee announced that after closing of
the transactions, it intends to consider an increase of $0.13 to
$0.15 per unit in the quarterly distributions to unit holders.
Depending on the timing of the closing, a portion of that increase
could be included in the first- quarter distribution, which will be
payable in May. The Transactions In separate transactions, ONEOK,
through its wholly owned subsidiary, Northern Plains Natural Gas
Company, will purchase TransCanada Corporation's 17.5 percent
general partner interest in Northern Border Partners, increasing
ONEOK's ownership of the general partner interest to 100 percent,
for $40 million, less $10 million for expenses associated with the
transfer of operating responsibility of the Northern Border
Pipeline Company to TransCanada for a net payment of $30 million.
ONEOK will transfer to Northern Border Partners its entire
gathering and processing, natural gas liquids, and pipelines and
storage segments in a transaction valued at approximately $3
billion. Included in the sale are the natural gas liquids assets
purchased from Koch Industries, which ONEOK will sell to Northern
Border Partners for $1.35 billion, the price it paid to Koch in
July 2005. ONEOK will receive approximately $1.35 billion in cash
and approximately 36.5 million limited partner units. The limited
partner units and the related general partner interest contribution
are valued at approximately $1.65 billion. The actual number of
units issued was determined by using the average closing price of
the Northern Border Partners common units for the 20 trading days
prior to this announcement. For financial reporting purposes, the
transfer of the assets to Northern Border Partners will be
accounted for at the historical cost basis of the assets being
transferred, and accordingly there will be no goodwill to Northern
Border Partners or gain to ONEOK recorded for the transaction.
ONEOK's projected 2006 operating income for the segments being
transferred was $266 million and was included in its 2006 earnings
guidance issued on Oct. 21, 2005. Depreciation was estimated at $80
million. Northern Border Partners will sell to TC PipeLines, LP, a
publicly traded partnership affiliated with TransCanada, a 20
percent interest in Northern Border Pipeline Company for
approximately $300 million. The price of the 20 percent interest,
along with the related share of Northern Border Pipeline's
outstanding debt, totals $420 million. All cash distributions paid
by Northern Border Pipeline in 2006 will be split equally between
Northern Border Partners and TC PipeLines. Following completion of
the sale, Northern Border Partners and TC PipeLines, LP will each
own a 50 percent interest in the pipeline, with an affiliate of
TransCanada becoming operator of the pipeline in April 2007. Based
on 2006 earnings guidance issued by Northern Border Partners on
Nov. 2, 2005, projected operating income and depreciation for 2006
related to the 20 percent of Northern Border Pipeline being sold
are approximately $36 million and $12 million, respectively. "These
transactions deliver both immediate and long-term value to ONEOK
and Northern Border Partners, and position both companies for
future growth," said David Kyle, ONEOK chairman, president and
chief executive officer. "ONEOK will have an expanded ownership
position in a larger, more diversified master limited partnership
with an increased capacity to grow." "The combination of Northern
Border Partners' acquisition of ONEOK's midstream assets and the
sale of 20 percent of Northern Border Pipeline are expected to be
immediately accretive to our distributable cash flow," said William
Cordes, chief executive officer of Northern Border Partners. "With
these additional assets and the associated increases in cash flow,
we hope to be able to increase our indicated annualized
distribution to unit holders by approximately $0.55 to $3.75 by the
end of the year." The Northern Border Partners' audit committee,
which is comprised of independent members, determined the fairness
of the transactions. The audit committee engaged independent legal
counsel and an independent financial adviser to assist in its
determination. Upon completion of these transactions, ONEOK will
own approximately 37.0 million limited partner units, which,
combined with the general partnership interest acquired from
TransCanada, will increase its total interest in Northern Border
Partners to 45.7 percent. Closing of the transactions is subject to
regulatory approvals and other conditions, including antitrust
clearance from the Federal Trade Commission under the
Hart-Scott-Rodino Act and is expected to be completed by April 1,
2006. Benefits to ONEOK "These transactions provide clear benefit
to ONEOK and its shareholders," Kyle added. "We are selling the
assets at current market valuations and expect to have more clarity
on the value of our remaining portfolio of businesses -- the three
local gas distribution companies, our energy services business and
our 45.7 percent investment in Northern Border Partners. As the
general partner and a significant unit holder in Northern Border
Partners, ONEOK's shareholders will also participate in the future
growth of Northern Border Partners," Kyle said. "At the indicated
potential annual distribution level, we could exceed the maximum
general partner incentive distribution target," he concluded. ONEOK
intends to use $40 million of the $1.35 billion cash proceeds from
the sale to Northern Border Partners to acquire the general
partnership interest from TransCanada. The remainder will be used
to reduce short-term debt, acquire other assets or repurchase ONEOK
common stock. Benefits to Northern Border Partners Northern Border
Partners will initially fund the cash portion of the acquisition
with the proceeds from the sale of the 20 percent interest in
Northern Border Pipeline and bridge financing. Northern Border
Partners expects its total debt-to-capitalization to improve to
approximately 45 percent after completion of the transaction,
compared with approximately 57 percent currently. "In addition to
improving our ability to increase distributions to unit holders,
the acquisitions also provide us with a stronger balance sheet,
with additional capacity to fund future growth," Cordes said.
"Adding these assets to our existing base will provide us with a
larger and more diversified portfolio that will provide more
opportunities for organic growth." Unit Transactions The limited
partner units issued to ONEOK initially will be a newly created
Class B unit with the same distribution rights as the outstanding
common units, but will have limited voting rights and will be
subordinated related to cash distributions to the common units.
Distributions on the Class B units will be prorated from the date
of issuance. Northern Border Partners will hold a special election
for holders of common units as soon as practical, but within 12
months of issuing the Class B units to approve the conversion of
the Class B units into common units and to approve certain
amendments to the partnership agreement. The proposed amendments
grant voting rights for common units held by the general partner if
a vote is held to remove the general partner and require fair
market value compensation for the general partner interest if the
general partner is removed. If the common unit holders do not
approve the conversion and amendments, the Class B unit
distribution rights would increase to 115 percent of the
distributions paid on the common units. Consolidation As previously
disclosed, under new accounting requirements, effective Jan. 1,
2006, ONEOK, as general partner for Northern Border Partners, will
report Northern Border Partners' results on a consolidated basis in
ONEOK's financial statements. A consolidating income statement and
balance sheet, based on the revised 2006 guidance, are attached to
this release as Attachments III and IV, respectively. As a result
of its sale of the 20 percent interest in Northern Border Pipeline,
Northern Border Partners will report the pipeline's results on the
equity method of accounting and therefore, will no longer report
the pipeline's results on a consolidated basis. The change would be
effective Jan. 1, 2006. Increased 2006 Guidance -- ONEOK
(Attachments I, III and IV) As reflected in Attachment I, ONEOK is
increasing its 2006 earnings guidance, which was originally
disclosed on Oct. 21, 2005, to reflect the transactions, as well as
higher expected results from its energy services segment and lower
employee benefit costs. For 2006, the company expects net income
per diluted share to be in the range of $2.23 to $2.29 per diluted
share. Previous guidance was $1.97 to $2.03 per diluted share.
Attachment III has been provided to compare ONEOK's original 2006
guidance with the revised ONEOK guidance before consolidation of
Northern Border Partners and provide reconciliations to
consolidated net income. As reflected in Attachment III, operating
income for the segments sold to Northern Border Partners has been
removed from the ONEOK guidance after April 1, 2006, when the
transactions are expected to close. Energy services operating
income estimates have been increased to $170 million from $135
million to reflect higher seasonal natural gas spreads and
increased basis differentials on transportation capacity. Other
income of $160.5 million is related to ONEOK's equity earnings from
Northern Border Partners. Included in this amount is $49.4 million
related to ONEOK's share of the gain on the sale of 20 percent of
Northern Border Pipeline. General and administrative expenses have
been reduced by approximately $16.0 million, due to projected
increases in employee benefit costs being lower than anticipated,
anticipated synergies and the reallocation of overhead to Northern
Border Partners due to the transactions. Based on the use of the
cash proceeds to reduce short-term debt, interest expense has been
lowered to $108 million from ONEOK's initial guidance of $147
million. ONEOK projects that its long-term debt will be 46 percent
of capitalization at Dec. 31, 2006, as reflected in Attachment IV.
Increased 2006 Guidance -- Northern Border Partners (Attachment II)
With the anticipated closing of these transactions, Northern Border
Partners is updating its 2006 financial guidance, which was
originally disclosed on Nov. 2, 2005. Changes in the partnership's
financial guidance are the result of the transactions announced
today and assume a closing date of April 1, 2006. Net income for
2006 is now expected to range from $426 million to $446 million, or
$4.43 to $4.69 per unit. Net income is expected to include a
one-time gain of $108 million, or $1.44 per unit, on the sale of
the 20 percent interest in Northern Border Pipeline. Distributable
cash flow is expected to be in the range of $324 million to $344
million, or $3.96 to $4.23 per unit. Financial Advisers ONEOK's
adviser on the transaction was UBS Investment Bank. The Northern
Border Partners' audit committee was advised by Lehman Brothers,
Inc. Conference Call ONEOK and Northern Border Partners management
will hold a conference call on Wednesday, Feb. 15, 2006, at 11 a.m.
Eastern Standard Time (10 a.m. Central Standard Time). To
participate in the call, dial 888-675-7686, pass code 853545 or log
on to ONEOK's Web site, http://www.oneok.com/ , or Northern Border
Partners' Web site, http://www.northernborderpartners.com/ . If you
are unable to participate in the conference call or the webcast, a
replay will be available on the companies' Web sites,
http://www.oneok.com/ or http://www.northernborderpartners.com/ ,
for 30 days. A recording will be available by phone for seven days.
The playback call may be accessed at 866-837-8032, pass code
853545. ONEOK, Inc. is a diversified energy company. We are among
the largest natural gas distributors in the United States, serving
more than 2 million customers in Oklahoma, Kansas and Texas. We are
a leader in the gathering, processing, storage and transportation
of natural gas in the mid-continent region of the U.S. and own one
of the nation's premier natural gas liquids (NGL) systems,
connecting much of the NGL supply in the mid-continent with two key
market centers. Our energy services operation focuses primarily on
marketing natural gas and related services throughout the U.S.
ONEOK is the majority general partner of Northern Border Partners,
L.P., one of the largest publicly traded limited partnerships.
ONEOK is a Fortune 500 company. For information about ONEOK, Inc.
visit the Web site: http://www.oneok.com/ . Northern Border
Partners, L.P. is a publicly traded partnership whose purpose is to
own, operate and acquire a diversified portfolio of energy assets.
The Partnership owns and manages natural gas pipelines and is
engaged in the gathering and processing of natural gas. More
information can be found at http://www.northernborderpartners.com/
. Some of the statements contained and incorporated in this press
release are forward-looking statements within the meaning of the
Private Securities Litigation Reform Acts of 1995. The
forward-looking statements relate to both ONEOK and Northern Border
Partners, L.P. and apply to: anticipated financial performance,
including anticipated operating income from the businesses ONEOK
acquired on July 1, 2005, from Koch Industries, Inc. and
affiliates, and the businesses to be acquired by Northern Border
Partners from ONEOK in the transactions; management's plans and
objectives for future operations; business prospects; outcome of
regulatory and legal proceedings; market conditions and other
matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements in certain
circumstances. The following discussion is intended to identify
important factors that could cause future outcomes to differ
materially from those set forth in the forward-looking statements.
Forward-looking statements include the items describing increased
2006 guidance in the preceding paragraphs, the information
concerning possible or assumed future results of operations and
distribution levels and other statements contained or incorporated
in this press release generally identified by words such as
"anticipate," "estimate," "expect," "forecast," "intend,"
"believe," "projection" or "goal." You should not place undue
reliance on forward-looking statements. Known and unknown risks,
uncertainties and other factors may cause actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
the forward- looking statements. Those factors may affect
operations, markets, products, services and prices. In addition to
any assumptions and other factors referred to specifically in
connection with the forward-looking statements, factors that could
cause actual results to differ materially from those contemplated
in any forward-looking statement include, among others, the
following: * actions by rating agencies concerning the credit
ratings of ONEOK and Northern Border Partners; * the effects of
weather and other natural phenomenon on our operations, including
energy sales and prices and demand for pipeline capacity; *
competition from other U.S. and Canadian energy suppliers and
transporters as well as alternative forms of energy; * the capital
intensive nature of our respective businesses; * the profitability
of assets or businesses acquired by us; * risks of marketing,
trading and hedging activities as a result of changes in energy
prices or the financial condition of our counterparties; * economic
climate and growth in the geographic areas in which we each do
business; * the uncertainty of estimates, including accruals and
cost of environmental remediation; * the timing and extent of
changes in commodity prices for natural gas, natural gas liquids,
electricity and crude oil; * the effects of changes in governmental
policies and regulatory actions, including changes with respect to
income taxes, environmental compliance, authorized rates or
recovery of gas costs; * the impact of recently issued and future
accounting pronouncements and other changes in accounting policies;
* the possibility of future terrorist attacks or the possibility or
occurrence of an outbreak of, or changes in, hostilities or changes
in the political conditions in the Middle East and elsewhere; * the
risk of increased costs for insurance premiums, security or other
items as a consequence of terrorist attacks; * the impact of
unforeseen changes in interest rates, equity markets, inflation
rates, economic recession and other external factors over which we
have no control, including the effect on pension expense and
funding resulting from changes in stock and bond market returns; *
risks associated with pending or possible acquisitions and
dispositions, including our respective ability to finance or
integrate any such acquisitions and any regulatory delay or
conditions imposed by regulatory bodies in connection with any such
acquisitions and dispositions; * the results of administrative
proceedings and litigation, regulatory actions and receipt of
expected regulatory clearances involving the Oklahoma Corporation
Commission, Kansas Corporation Commission, Texas regulatory
authorities or any other local, state or federal regulatory body,
including the Federal Energy Regulatory Commission; * our
respective ability to access capital at competitive rates or on
terms acceptable to us; * the risk of a significant slowdown in
growth or decline in the U.S. economy or the risk of delay in
growth recovery in the U.S. economy; * risks associated with
adequate supply to the gathering and processing, fractionation and
pipeline facilities of Northern Border Partners, including
production declines which outpace new drilling; * the risk that
material weaknesses or significant deficiencies in our respective
internal controls over financial reporting could emerge or that
minor problems could become significant; * the impact of the
outcome of pending and future litigation; * the possible loss of
franchises or other adverse effects caused by the actions of
municipalities; * the impact of unsold capacity on Northern Border
Pipeline being greater or less than expected; * the ability to
market pipeline capacity on favorable terms, which is affected by:
-- future demand for and prices of natural gas; -- competitive
conditions in the overall natural gas and electricity markets; --
availability of supplies of Canadian and United States natural gas;
-- availability of additional storage capacity; weather conditions;
and -- competitive developments by Canadian and U.S. natural gas
transmission peers; * orders by the FERC which are significantly
different than our assumptions related to Northern Border
Pipeline's November 2005 rate case; * performance of contractual
obligations by the customers and shippers; * the ability to recover
operating costs, costs of property, plant and equipment and
regulatory assets in our FERC regulated rates; * timely receipt of
approval by FERC for construction and operation of the Midwestern
Gas Transmission Eastern Extension Project and required regulatory
clearances; * our ability to acquire all necessary rights-of-way
and obtain agreements for interconnects in a timely manner; * our
ability to promptly obtain all necessary materials and supplies
required for construction; * the composition and quality of the
natural gas we gather and process in our plants; * the efficiency
of our plants in processing natural gas and extracting natural gas
liquids; * renewal of the coal slurry pipeline transportation
contract under reasonable terms and our success in completing the
necessary rebuilding of the coal slurry pipeline; * the impact of a
potential impairment charges; * developments in the December 2,
2001, filing by Enron of a voluntary petition for bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code
affecting our settled claims; * the ability to control operating
costs; * the risk inherent in the use of information systems in our
respective businesses, implementation of new software and hardware,
and the impact on the timeliness of information for financial
reporting; * acts of nature, sabotage, terrorism or other similar
acts causing damage to our facilities or our suppliers' or
shippers' facilities; * and the other factors listed in the reports
we each have filed and may file with the Securities and Exchange
Commission, which are incorporated by reference. Other factors and
assumptions not identified above were also involved in the making
of forward-looking statements. The failure of those assumptions to
be realized, as well as other factors, may also cause actual
results to differ materially from those projected. ONEOK and
Northern Border Partners have no obligation and make no undertaking
to update publicly or revise any forward- looking information.
ONEOK Northern Border Partners, L.P. Analyst Contact: Dan Harrison
Analyst Contact: Ellen Konsdorf 918-588-7950 877-208-7318 Media
Contact: Lori Webster Media Contact: Beth Jensen 918-588-7570
402-492-3400 ONEOK, Inc. and Subsidiaries Attachment I EARNINGS
GUIDANCE Year Ending December 31, 2006 Previous Updated Guidance*
Guidance** Change (In millions, except per share amounts) Operating
Income Gathering and Processing $88 $142 $54 Interstate Pipelines
--- 20 20 Pipelines and Storage 85 85 --- Natural Gas Liquids 93 93
--- Distribution 119 124 5 Energy Services 125 170 45 Gain on sale
of assets --- 108 108 Other 1 7 6 Operating Income 511 749 238
Other income (expense) 11 96 85 Minority interest --- (211) (211)
Interest expense (147) (203) (56) Income taxes (143) (168) (25) Net
Income $232 $263 $31 Diluted Earnings Per Share of Common Stock
$2.00 $2.26 $0.26 Average Shares of Common Stock - Diluted Average
shares of common stock outstanding 115.0 115.0 --- Dilutive
components 1.2 1.2 --- Total Average Shares of Common Stock -
Diluted 116.2 116.2 --- Capital Expenditures Gathering and
Processing $30 $97 $67 Interstate Pipelines --- 37 37 Pipelines and
Storage 19 14 (5) Natural Gas Liquids 9 20 11 Distribution 146 148
2 Energy Services --- --- --- Other 3 3 --- Total Capital
Expenditures $207 $319 $112 Cash Flow from Operations Cash flow
from operations before changes in working capital $520 $791 $271
Less: Dividends 125 125 --- Less: Distributions to minority
interests --- 163 (163) Less: Capital expenditures 207 319 (112)
Surplus $188 $184 $(4) * Before consolidating ONEOK and Northern
Border Partners, L.P. ** After consolidating ONEOK and Northern
Border Partners, L.P., as required by GAAP beginning January 1,
2006 Northern Border Partners, L.P. Attachment II EARNINGS
GUIDANCE* Year Ending December 31, 2006 Previous Updated Guidance
Guidance Change (In millions, except per share amounts) Operating
Income Gathering and Processing $54 $142 $88 Interstate Pipelines
201 20 (181) Pipelines and Storage --- 85 85 Natural Gas Liquids
--- 93 93 Coal Slurry (7) (7) --- Gain on sale of assets --- 108
108 Other (5) (3) 2 Operating Income 243 438 195 Other income
(expense) 21 96 75 Minority interest (42) --- 42 Interest expense
(92) (95) (3) Income taxes (2) (3) (1) Net Income $128 $436 $308
Net Income $128 $436 $308 Income allocated to ONEOK related to
partial year ownership --- (66) (66) Income allocated to general
partner (10) (34) (24) Limited Partners' Interest in Net Income
$118 $336 $218 Average Units Outstanding 46.4 73.7 27.3 Per Unit
Net Income $2.54 $4.56 $2.02 Distributable Cash Flow Operating
income $243 $438 $195 Gain on sale of assets --- (108) (108)
Depreciation and amortization expense 90 106 16 Interest expense
(92) (95) (3) Distributions from investments 21 119 98
Distributions to minority interests (54) --- 54 Maintenance capital
expenditures (26) (52) (26) Cash flow to ONEOK for partial year
ownership --- (77) (77) Other 3 3 --- Distributable Cash Flow $185
$334 $149 Distributable Cash Flow per Unit $3.75 $4.09 $0.34
Maintenance Capital Expenditures Gathering and Processing $5 $16
$11 Interstate Pipelines 18 8 (10) Pipelines and Storage --- 13 13
Natural Gas Liquids --- 12 12 Other 3 3 --- Total Capital
Expenditures $26 $52 $26 * Amounts shown are midpoints of ranges
provided ONEOK, Inc. and Subsidiaries Attachment III Pro Forma
Consolidating Income Statement Year Ending December 31, 2006
Updated Guidance Consoli- Previous Northern dating (In millions)
Guidance* ONEOK** Border** Entries Consolidated Operating Income
Gathering and Processing $88 $22 $142 $(22) $142 Interstate
Pipelines --- --- 20 --- 20 Pipelines and Storage 85 21 85 (21) 85
Natural Gas Liquids 93 21 93 (21) 93 Distribution 119 124 --- ---
124 Energy Services 125 170 --- --- 170 Gain on sale of assets ---
--- 108 --- 108 Other 1 17 (10) --- 7 Operating Income 511 375 438
(64) 749 Other income (expense) 11 161 96 (161) 96 Minority
interest --- --- --- (211) (211) Interest expense (147) (108) (95)
--- (203) Income Taxes (143) (165) (3) --- (168) Net Income $232
$263 $436 $(436) $263 * Before the consolidation of ONEOK's
investment in Northern Border Partners, L.P. ** Gathering and
Processing, Pipelines and Storage, and Natural Gas Liquids reflect
a partial year for ONEOK. Northern Border will record results from
these segments for the full year. ONEOK, Inc. and Subsidiaries
Attachment IV Pro Forma Consolidating Balance Sheet December 31,
2006 Consoli- Northern dating (In millions) ONEOK** Border**
Entries Consolidated Assets Cash and Cash Equivalents $387 $---
$--- $387 Gas and Natural Gas Liquids in Storage 596 216 --- 812
Other Current Assets 2,796 678 --- 3,474 Total Current Assets 3,779
894 --- 4,673 Property, Plant and Equipment, Net 2,029 2,525 ---
4,554 Goodwill and Intangibles 168 668 195 1,031 Investments and
Other 1,546 801 (1,546) 801 Other Assets 682 10 --- 692 Total
Assets $8,204 $4,898 $(1,351) $11,751 Liabilities and Shareholders'
Equity Current Liabilities 2,544 762 --- 3,306 Long-term Debt 2,024
1,885 --- 3,909 Other Liabilities 1,296 111 --- 1,407 Total
Liabilities 5,864 2,758 --- 8,622 Minority Interest in Equity of
Subsidiaries --- --- 789 789 Shareholders' Equity 2,340 2,140
(2,140) 2,340 Total Liabilities and Shareholders' Equity $8,204
$4,898 $(1,351) $11,751 Long-term Debt to Capitalization 46% 47%
56% DATASOURCE: ONEOK, Inc.; Northern Border Partners, L.P.
CONTACT: analysts, Dan Harrison, +1-918-588-7950, or media, Lori
Webster, +1-918-588-7570, both of ONEOK, Inc.; or analysts, Ellen
Konsdorf, +1-877-208-7318, or media, Beth Jensen, +1-402-492-3400,
both of Northern Border Partners, L.P. Web site:
http://www.oneok.com/ http://www.northernborderpartners.com/
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