ONEOK Announces Plan to Separate its Natural Gas Distribution Business into a New Publicly Traded Company to be Called ONE Gas

The board of directors of ONEOK OKE unanimously authorized management to pursue a plan to separate the company's natural gas distribution business into a standalone publicly traded company, resulting in two independent, highly focused energy companies. Under the plan, ONEOK shareholders would retain their current shares of ONEOK stock and receive a pro-rata dividend of shares of stock in the new company in a transaction that is expected to be tax-free to ONEOK and its shareholders. The actual number of ONE Gas shares that will be distributed to ONEOK shareholders will be determined prior to closing, which is expected during the first quarter 2014. Upon completion of the transaction, ONEOK will continue to hold its interests in ONEOK Partners, L.P. OKS, which include the sole general partner interest and limited partner interests that together currently represent 43.3 percent. ONEOK Partners is not affected by the proposed transaction. The new public company, to be called ONE Gas, Inc., will consist of Oklahoma Natural Gas Company, Kansas Gas Service and Texas Gas Service, and will be headquartered in Tulsa, Okla. ONE Gas will be one of the largest natural gas utilities in the United States, serving more than 2 million customers in three states, and will be the only publicly traded, 100 percent regulated, pure-play natural gas distribution utility in the United States. ONE Gas is expected to be well positioned for earnings growth and will be listed on the New York Stock Exchange OGS. The transaction is expected to result in more tailored growth strategies, more efficient capital allocation, improved investor understanding and better shareholder alignment of the separate businesses, and is expected to lead to higher combined valuations of both companies. "This transaction should unlock the value of the assets currently in the ONEOK structure and is consistent with the board of directors' commitment to create long-term, sustainable shareholder value," said John W. Gibson, ONEOK chairman and chief executive officer. "Creating two well-capitalized entities will help ensure that each has the financial strength and flexibility to pursue its own independent strategic priorities," he added. "We are confident that through this new structure ONE Gas will be well positioned for long-term success as a standalone company. It will have the ability to raise its own capital to grow its rate base, while paying a competitive dividend consistent with its natural gas utility peers. ONE Gas will continue to deliver safe, reliable and efficient service to its customers," Gibson said. "ONEOK – through its ownership of the general partner and limited partner interests in ONEOK Partners – will continue to pursue value-creating growth opportunities to benefit its shareholders. In addition, ONEOK shareholders are expected to benefit from a higher dividend and a higher potential valuation based on current and future shareholders applying a cash-flow multiple and dividend yield consistent with other pure-play general partners," Gibson said. ONEOK executive management will conduct a conference call on Friday, July 26, 2013, at 10 a.m. Eastern Daylight Time (9 a.m. Central Daylight Time). The call also will be carried live on ONEOK's website. Dial-in information is provided later in this news release. Additionally, the company will post an investor presentation on the transaction on its website on Thursday, July 25, 2013, at approximately 4 p.m. Eastern Daylight Time (3 p.m. Central Daylight Time). Benefits of the Transaction Upon completion of the transaction, ONEOK expects the benefits for both companies' stakeholders to include: ONEOK, Inc. (OKE): Efficient return of capital to shareholders – returns cash to shareholders in the form of an increased dividend; Shareholder alignment – appeals to investors looking for higher, pure-play general partner dividend payouts; Improved capital deployment – will no longer utilize excess cash flow to fund the natural gas distribution business' capital requirements, resulting in better capital allocation to create shareholder value and improve its competitive position; Valuation – expected to be valued as a multiple of cash flows and on a dividend yield basis, consistent with other pure-play general partners, unlocking value for shareholders; Transparency – ability to more effectively benchmark its performance against its general partner peers; and More tailored growth strategies – sharpened management focus on distinct strategic goals. ONE Gas, Inc. (OGS): Capital allocation – will continue to invest capital in projects that improve safety, reliability and efficiency; ONE Gas is expected to continue to invest in and grow its rate base; Shareholder alignment – appeals to investors looking for stable dividend payouts more in line with owning a pure-play natural gas utility; Returns – will continue to focus on earning its allowed rate of return; Valuation – expected to be valued on a multiple of price-to-earnings (P/E) basis consistent with peer natural gas utilities; Reliable operations – continued safe, reliable and efficient operations; and More tailored growth strategies – sharpened management focus on distinct strategic goals. Higher Dividend Anticipated Upon closing, ONEOK expects to establish a dividend target consistent with its general partner peers and based on available free cash flow from the company's ownership of the general partner and limited partner interests in ONEOK Partners. The new dividend target is expected to result in a higher dividend than ONEOK has paid historically, and the dividend is expected to grow at a higher rate between 2012 and 2015, compared with ONEOK's previous dividend growth forecast of 55 to 65 percent during that period. Upon closing, ONE Gas expects to establish a dividend payout ratio target that is competitive with its natural gas utility peers. Following completion of the separation of the natural gas distribution business, current ONEOK shareholders are expected to receive separate cash dividends from ONE Gas and ONEOK, which plans to increase its dividend. Together, those dividends are expected to be higher than the current, pre-transaction ONEOK dividend. Financing and Capital Structure At the time of separation, ONEOK will reduce its long-term debt with the proceeds from a one-time cash distribution from ONE Gas – estimated to be approximately $1.1 billion to $1.2 billion – as part of the transfer of natural gas distribution assets to ONE Gas from ONEOK. ONE Gas will fund this payment to ONEOK by issuing its own long-term debt. Upon completion of the separation, ONEOK expects to have $1.1 billion to $1.3 billion in total long-term debt outstanding. When the transaction is completed, ONE Gas is expected to have $1.1 billion to $1.2 billion in total long-term debt outstanding and be rated higher than ONEOK is currently rated by Standard & Poor's and Moody's Investor Service. ONE Gas anticipates having a capital structure, balance sheet and financial policies consistent with investment-grade credit metrics. From a credit perspective, ONEOK does not expect to change its current conservative financial policies. Its pro-forma credit ratings are expected to be in line with its general partner peers, and it anticipates receiving a slightly lower credit rating than it has currently. Experienced Executive Management Teams Effective upon the completion of the transaction: Terry K. Spencer, 54, currently president, ONEOK and ONEOK Partners, will become president and chief executive officer of ONEOK and ONEOK Partners, succeeding John W. Gibson, 61, who currently serves as chairman and chief executive officer of both entities. Spencer will join the board of ONEOK and remain on the board of ONEOK Partners; Pierce H. Norton II, 53, currently executive vice president, commercial, ONEOK and ONEOK Partners, will become president and chief executive officer of ONE Gas and join the board of ONE Gas; and Gibson will retire as an employee of ONEOK and become non-executive chairman of the board of each of the three entities – ONEOK, ONEOK Partners and ONE Gas. Until the transaction is completed, Gibson will remain chairman and chief executive officer of ONEOK and ONEOK Partners, and lead the separation efforts. "These new roles for Terry and Pierce are the result of the ONEOK board's long-term succession-planning efforts and demonstrate the confidence the board has in their leadership abilities," Gibson stated. "It has been my pleasure to work for the company during the last 13 years and serve as CEO during the last seven. While I look forward to my new role as non-executive chairman of all three publicly traded entities, I will miss my day-to-day interaction with our employees, management team and investors," Gibson concluded. ONEOK, Inc. (OKE): In addition to naming Spencer president and chief executive officer, the board named the following officers to the ONEOK executive management team, subject to the transaction being completed: Robert F. Martinovich, executive vice president, commercial, replacing Norton; and Wesley J. Christensen, senior vice president, operations, replacing Martinovich; Christensen will continue in his current role as senior vice president, operations, of ONEOK Partners. Other members of the ONEOK executive management team will remain in their current roles. ONE Gas, Inc. (OGS): In addition to naming Norton as president and chief executive officer of ONE Gas, the board named the following officers to the ONE Gas executive management team, subject to the transaction being completed: Curtis L. Dinan, senior vice president, chief financial officer and treasurer. Dinan currently is senior vice president, natural gas, of ONEOK Partners, and was senior vice president, chief financial officer and treasurer of ONEOK and ONEOK Partners from 2007-2011; and Joseph L. McCormick, senior vice president, general counsel and assistant secretary. McCormick currently is vice president and associate general counsel of ONEOK, responsible for legal matters in the natural gas distribution segment; Caron A. Lawhorn, senior vice president, commercial, natural gas distribution; and Gregory A. Phillips, senior vice president, operations, natural gas distribution, will remain in their current roles at the new company. Boards of Directors Upon completion of the transaction, each corporation will have its own independent board of directors. With the exception of Terry Spencer joining the ONEOK board, the composition of the ONEOK and ONEOK Partners boards will be unchanged. The ONE Gas board is expected to consist of approximately 10 directors, including Gibson and Norton. Additional ONE Gas board members will be announced before the transaction closes. Approvals Required The transaction is subject to customary conditions, including, among others, the company receiving a favorable private letter ruling on the tax-free nature of the transaction from the Internal Revenue Service; customary regulatory approvals, including approval by the Kansas Corporation Commission; and final ONEOK board approval. ONEOK shareholder approval of the transaction is not required. Employees ONEOK does not expect the transaction will result in any job reductions among its current workforce of approximately 5,000 employees. The company does not anticipate any significant changes to the benefits it offers employees and retirees. ONE Gas is expected to enter into a transition services agreement with ONEOK for a period of time to facilitate the transition of services until permanent services are in place at ONE Gas. Advisors Morgan Stanley & Co. LLC is acting as financial advisor; Spinnaker Strategic Advisory Services is serving as a strategic advisor; and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal counsel, to ONEOK on the transaction. CONFERENCE CALL AND WEBCAST ONEOK executive management will conduct a conference call on Friday, July 26, 2013, at 10 a.m. Eastern Daylight Time (9 a.m. Central Daylight Time). The call also will be carried live on ONEOK's website. To participate in the telephone conference call, dial 800-479-9001, pass code 7207152, or log on to www.oneok.com. If you are unable to participate in the conference call or the webcast, the replay will be available on ONEOK's website, www.oneok.com, for 30 days. A recording will be available by phone for seven days. The playback call may be accessed at 888-203-1112, pass code 7207152. Additionally, ONEOK will post an investor presentation on the transaction on its website on Thursday, July 25, 2013, at approximately 4 p.m. Eastern Daylight Time (3 p.m. Central Daylight Time).