ONEOK, Inc.

Good day and welcome to the second quarter 2020 One Oak earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Andrew Viola. Please go ahead, sir.

Thank you, Sarah, and good morning, everyone, and welcome to One Oak's second quarter 2020 earnings call. We issued our earnings release and presentation after the markets closed yesterday, and those materials are on our website. After our prepared remarks, we'll be available to take your questions. During the Q&A session, we would appreciate it if you limit yourself to one question and one clarifying follow-up so we could fit in as many of you as we can. A reminder that statements made during this call that might include one of the expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provision of the Securities Acts of 1933 and 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. Our first speaker this morning is Terry Spencer, President and Chief Executive Officer. Terry?

Thanks, Andrew. Good morning, and thank you all for joining us today. As always, we appreciate your continued trust and investment in One Oak. Joining me on today's call is Walt Hulse. Chief Financial Officer and Executive Vice President, Strategic Planning and Corporate Affairs, and Kevin Burdick, Executive Vice President and Chief Operating Officer. Also available to answer your questions are Sheridan Swords, Senior Vice President, Natural Gas Liquids, and Chuck Kelly, Senior Vice President, Natural Gas. I'd like to start by commending our employees for continuing to operate safely and responsibly and remaining focused on providing excellent customer service in a challenging environment. In recent weeks, we've seen cases of COVID-19 increase across the country, and in response, we've asked employees who are able to continue working virtually. For those critical employees who are reporting in person to operating sites, we continue to ensure that enhanced safety protocols are in place for their safety and for the safety of their families and communities. Second quarter results were interrupted by the pandemic's effect on worldwide crude oil demand, extensive production curtailments across our operations, and low commodity prices. After bottoming out in May and June, volume trends across our operating areas have sharply increased in recent weeks, as customers have started to bring production back online with the recent stability in commodity prices, providing positive momentum as we enter the second half of 2020. As a matter of fact, many of our facilities during July have returned to pre-COVID levels. For example, our July average total MGL raw feed volumes are exceeding first quarter average MGL volumes, benefiting from higher propane plus volumes in the Permian Basin, and increased ethane recovery in the mid-continent. Williston Basin volumes have also strengthened significantly off the lows experienced in May. The earnings impact we saw in the second quarter reflects significant production curtailments in the Williston Basin, where our earnings on a per unit of throughput are some of the highest due to the broad level of services we provide our customers. As curtailed volumes recover to more normalized levels, so too will our earnings. While volume trends are greatly improving, there remains continued global demand uncertainty due to COVID-19. We expect 2020 earnings to be at the low end of our previously provided outlook ranges, which Walt will discuss shortly. Despite these challenges, we continue to deliver value to our investors through the prudent management of our large strategic and integrated assets located in the most prolific NGO-rich basins in the U.S. These assets are supported by strong, stable customer base and growing demand for the products we deliver. There have been many reports written on the possible implications of a DAPL shutdown for one oak, so I'll get right to it. Many producers in the region are developing contingency plans to address their oil transportation needs. While DAPL does currently provide meaningful crude takeaway capacity from the region, there are alternatives through other pipelines and substantial rail capacity. It wasn't long ago that nearly 800,000 barrels per day of crude were leaving the basin on rail. Specific to One Oak, we estimate 30% to 40% of DAPL crude oil volume is from the producers whose gas volumes are dedicated to our gathering and processing business in the Williston Basin. And about half of those volumes have alternate methods of crude transportation currently available. This means that approximately 200 million cubic feet per day of the nearly 1.5 billion cubic feet per day currently connected to our system is associated with crude oil production that may not have an immediate alternative takeaway option. From the constant conversations we have with our producer customers in the basin, they remain committed to finding solutions to takeaway constraints. In our view, any impact from a DAPL shutdown would mostly impact 2021, providing some time for more solutions to develop. Even in an extended shutdown scenario, we estimate our 2021 Wilson Basin natural gas processing volumes could approach our first quarter 2020 average of more than 1.1 billion cubic feet per day due to curtailed volumes returning, the capture of flared gas, and the completion of drilled but uncompleted wells. Kevin will provide some additional data points during his remarks. At the beginning of 2020, We had all the assets in place to produce annual EBITDA of more than $3 billion. Our extensive infrastructure that now has substantial available capacity is still there, providing significant operating leverage to the upside, and no additional capital spending is needed to realize that earnings potential. As it relates to our dividend, with our business improving and volume strengthening, we don't see the need to take action on the dividends. we do recognize that it is a lever we could pull if our deleveraging expectations are not being met. Financially, we've taken the proactive steps to provide ample liquidity and protect our investment-grade credit ratings during the pandemic while continuing to return long-term value to our shareholders. Our employees and management team are doing an excellent job in unusual conditions, and I have tremendous confidence in them to see us through to the other side of this downturn. They've found ways to successfully navigate industry challenges before, and they will again.