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20-03-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2021.
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

OKE-20210331_G1.JPG
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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, par value of $0.01 OKE New York Stock Exchange
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   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer   Accelerated filer   Non-accelerated filer   Smaller reporting company    Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

On April 19, 2021, the Company had 445,536,572 shares of common stock outstanding.




























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2

ONEOK, Inc.
TABLE OF CONTENTS
Page No.
6
 
6
 
7
 
8
 
 
 
 

As used in this Quarterly Report, 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 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,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “intend,” “may,” “might,” “outlook,” “plan,” “potential,” “project,” “scheduled,” “should,” “will,” “would” 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 or 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 and under Part I, Item 1A, “Risk Factors,” in our Annual Report.

INFORMATION AVAILABLE ON OUR WEBSITE

We make available, free of charge, on our website (www.oneok.com) copies of our Annual Reports, Quarterly Reports, 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. Copies of our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Director Independence Guidelines, Corporate Sustainability Report, Response to COVID-19 and the written charter of our Audit Committee also are available on our website, and we will provide copies of these documents upon request.

In addition to our filings with the SEC and materials posted on our website, we also use social media platforms as additional channels of distribution to reach public investors. Information contained on our website, posted on our social media accounts, and any corresponding applications, are not incorporated by reference into this report.
3

GLOSSARY
The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:
$2.5 Billion Credit Agreement
ONEOK’s $2.5 billion revolving credit agreement, as amended
AFUDC Allowance for funds used during construction
Annual Report Annual Report on Form 10-K for the year ended December 31, 2020
ASU Accounting Standards Update
Bbl Barrels, 1 barrel is equivalent to 42 United States gallons
BBtu/d Billion British thermal units per day
Bcf Billion cubic feet
Bcf/d Billion cubic feet per day
CFTC U.S. Commodity Futures Trading Commission
Clean Air Act Federal Clean Air Act, as amended
COVID-19 Coronavirus disease 2019
DJ Denver-Julesburg
EBITDA Earnings before interest expense, income taxes, depreciation and amortization
EPA United States Environmental Protection Agency
EPS Earnings (loss) per share of common stock
Exchange Act Securities Exchange Act of 1934, as amended
FERC Federal Energy Regulatory Commission
Fitch Fitch Ratings, Inc.
GAAP Accounting principles generally accepted in the United States of America
ICE Intercontinental Exchange
Intermediate Partnership
ONEOK Partners Intermediate Limited Partnership, a wholly owned subsidiary of ONEOK Partners, L.P.
LIBOR London Interbank Offered Rate
MBbl/d Thousand barrels per day
MDth/d Thousand dekatherms per day
MMBbl Million barrels
MMBtu Million British thermal units
MMcf/d Million cubic feet per day
Moody’s Moody’s Investors Service, Inc.
Natural Gas Act Natural Gas Act of 1938, as amended
NGL(s) Natural gas liquid(s)
NGL products
Marketable natural gas liquid purity products, such as ethane, ethane/propane mix, propane, iso-butane, normal butane and natural gasoline
Northern Border Pipeline Northern Border Pipeline Company, a 50% owned joint venture
NYMEX New York Mercantile Exchange
ONEOK ONEOK, Inc.
ONEOK Partners ONEOK Partners, L.P., a wholly owned subsidiary of ONEOK, Inc.
OPIS Oil Price Information Service
Overland Pass Pipeline
Overland Pass Pipeline Company, LLC, a 50% owned joint venture
PHMSA
United States Department of Transportation Pipeline and Hazardous Materials Safety Administration
POP Percent of Proceeds
Quarterly Report(s) Quarterly Report(s) on Form 10-Q
Roadrunner Roadrunner Gas Transmission, LLC, a 50% owned joint venture
S&P S&P Global Ratings
SEC Securities and Exchange Commission
Series E Preferred Stock Series E Non-Voting, Perpetual Preferred Stock, par value $0.01 per share
WTI West Texas Intermediate
XBRL eXtensible Business Reporting Language

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5

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ONEOK, Inc. and Subsidiaries    
CONSOLIDATED STATEMENTS OF INCOME    
  Three Months Ended
  March 31,
(Unaudited)
2021 2020
 
(Thousands of dollars, except per share amounts)
Revenues
Commodity sales $ 2,836,109  $ 1,808,620 
Services 358,570  328,052 
Total revenues (Note K) 3,194,679  2,136,672 
Cost of sales and fuel (exclusive of items shown separately below) 2,121,510  1,276,928 
Operations and maintenance 207,158  175,096 
Depreciation and amortization 157,120  132,353 
Impairment charges   604,024 
General taxes 44,439  31,944 
Gain on sale of assets (269) (204)
Operating income (loss) 664,721  (83,469)
Equity in net earnings from investments (Note I) 33,320  44,627 
Impairment of equity investments   (37,730)
Allowance for equity funds used during construction 812  15,409 
Other income 215  16,475 
Other expense (5,237) (11,948)
Interest expense (net of capitalized interest of $5,095 and $30,875, respectively)
(185,523) (140,616)
Income (loss) before income taxes 508,308  (197,252)
Income tax (expense) benefit (122,132) 55,395 
Net income (loss) 386,176  (141,857)
Less: Preferred stock dividends 275  275 
Net income (loss) available to common shareholders $ 385,901  $ (142,132)
Basic EPS (Note G) $ 0.87  $ (0.34)
Diluted EPS (Note G) $ 0.86  $ (0.34)
Average shares (thousands)
Basic 445,894  414,282 
Diluted 446,885  414,282 
See accompanying Notes to Consolidated Financial Statements.
6

ONEOK, Inc. and Subsidiaries    
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  Three Months Ended
  March 31,
(Unaudited)
2021 2020
 
(Thousands of dollars)
Net income (loss) $ 386,176  $ (141,857)
Other comprehensive income (loss), net of tax  
Change in fair value of derivatives, net of tax of $(9,857) and $31,705, respectively
32,998  (106,141)
Derivative amounts reclassified to net income (loss), net of tax of $(12,361) and $4,518, respectively
41,387  (15,164)
Change in retirement and other postretirement benefit plan obligations, net of tax of $(1,087) and $(1,064), respectively
3,638  3,562 
Other comprehensive income (loss) of unconsolidated affiliates, net of tax of $(2,339) and $2,283, respectively
7,830  (7,643)
Total other comprehensive income (loss), net of tax 85,853  (125,386)
Comprehensive income (loss) $ 472,029  $ (267,243)
See accompanying Notes to Consolidated Financial Statements.
7

ONEOK, Inc. and Subsidiaries    
CONSOLIDATED BALANCE SHEETS    
March 31, December 31,
(Unaudited)
2021 2020
Assets
(Thousands of dollars)
Current assets    
Cash and cash equivalents $ 402,413  $ 524,496 
Accounts receivable, net 909,972  829,796 
Materials and supplies 143,583  143,178 
NGLs and natural gas in storage 369,604  227,810 
Commodity imbalances 16,798  11,959 
Other current assets 155,224  132,536 
Total current assets 1,997,594  1,869,775 
Property, plant and equipment
 
Property, plant and equipment 23,192,548  23,072,935 
Accumulated depreciation and amortization 4,067,297  3,918,007 
Net property, plant and equipment 19,125,251  19,154,928 
Investments and other assets
 
Investments in unconsolidated affiliates 807,721  805,032 
Goodwill and intangible assets 771,116  773,723 
Other assets 478,247  475,296 
Total investments and other assets 2,057,084  2,054,051 
Total assets $ 23,179,929  $ 23,078,754 

8

ONEOK, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Continued)
March 31, December 31,
(Unaudited)
2021 2020
Liabilities and equity
(Thousands of dollars)
Current liabilities    
Current maturities of long-term debt (Note D) $ 543,757  $ 7,650 
Accounts payable 929,771  719,302 
Commodity imbalances 209,626  186,372 
Accrued taxes 65,862  89,428 
Accrued interest 140,281  245,153 
Operating lease liability 13,408  13,610 
Other current liabilities 145,249  83,032 
Total current liabilities 2,047,954  1,344,547 
Long-term debt, excluding current maturities (Note D)
13,638,767  14,228,421 
Deferred credits and other liabilities
Deferred income taxes 814,528  669,697 
Operating lease liability 85,295  87,610 
Other deferred credits 496,420  706,081 
Total deferred credits and other liabilities 1,396,243  1,463,388 
Commitments and contingencies (Note J)
Equity (Note E)
 
ONEOK shareholders’ equity:
Preferred stock, $0.01 par value:
authorized and issued 20,000 shares at March 31, 2021, and December 31, 2020
  — 
Common stock, $0.01 par value:
authorized 1,200,000,000 shares; issued 474,916,234 shares and outstanding
445,534,180 shares at March 31, 2021; issued 474,916,234 shares and outstanding
444,872,383 shares at December 31, 2020
4,749  4,749 
Paid-in capital 7,305,274  7,353,396 
Accumulated other comprehensive loss (Note F) (465,596) (551,449)
Retained earnings   — 
Treasury stock, at cost: 29,382,054 shares at March 31, 2021, and
30,043,851 shares at December 31, 2020
(747,462) (764,298)
Total equity 6,096,965  6,042,398 
Total liabilities and equity $ 23,179,929  $ 23,078,754 
See accompanying Notes to Consolidated Financial Statements.

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10

ONEOK, Inc. and Subsidiaries    
CONSOLIDATED STATEMENTS OF CASH FLOWS    
  Three Months Ended
  March 31,
(Unaudited)
2021 2020
 
(Thousands of dollars)
Operating activities    
Net income (loss) $ 386,176  $ (141,857)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 157,120  132,353 
Impairment charges   641,754 
Equity in net earnings from investments (33,320) (44,627)
Distributions received from unconsolidated affiliates 30,862  41,577 
Deferred income tax expense (benefit) 119,194  (55,949)
Other, net 11,672  (30,380)
Changes in assets and liabilities:  
Accounts receivable (85,212) 334,370 
NGLs and natural gas in storage (141,794) 173,885 
Accounts payable 251,344  (350,701)
Commodity imbalances 18,415  (37,919)
Accrued interest (104,872) (68,918)
Risk-management assets and liabilities (19,302) (78,856)
Other assets and liabilities (56,966) (92,011)
Cash provided by operating activities 533,317  422,721 
Investing activities
 
Capital expenditures (less allowance for equity funds used during construction) (176,734) (949,679)
Distributions received from unconsolidated affiliates in excess of cumulative earnings 10,191  6,949 
Other, net (4,148) (22,062)
Cash used in investing activities (170,691) (964,792)
Financing activities
 
Dividends paid (416,229) (386,667)
Repayment of short-term borrowings, net   (220,000)
Issuance of long-term debt, net of discounts   1,748,221 
Debt financing costs   (15,444)
Repayment of long-term debt (56,492) (52,389)
Other, net (11,988) (20,978)
Cash provided by (used in) financing activities (484,709) 1,052,743 
Change in cash and cash equivalents (122,083) 510,672 
Cash and cash equivalents at beginning of period 524,496  20,958 
Cash and cash equivalents at end of period $ 402,413  $ 531,630 
See accompanying Notes to Consolidated Financial Statements.
11

ONEOK, Inc. and Subsidiaries    
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY  
(Unaudited)
Preferred
Stock Issued
Common
Stock Issued
Preferred
Stock
Common
Stock
Paid-in
Capital
 
(Shares)
(Thousands of dollars)
January 1, 2021 20,000  474,916,234  $ —  $ 4,749  $ 7,353,396 
Net income          
Other comprehensive income (Note F)          
Preferred stock dividends - $13.75 per share (Note E)
         
Common stock issued         (10,159)
Common stock dividends - $0.935 per share (Note E)
        (30,234)
Other, net         (7,729)
March 31, 2021 20,000  474,916,234  $   $ 4,749  $ 7,305,274 

(Unaudited)
Preferred
Stock Issued
Common
Stock Issued
Preferred
Stock
Common
Stock
Paid-in
Capital
 
(Shares)
(Thousands of dollars)
January 1, 2020 20,000  445,016,234  $ —  $ 4,450  $ 7,403,895 
Net loss —  —  —  —  — 
Other comprehensive loss —  —  —  —  — 
Preferred stock dividends - $13.75 per share
—  —  —  —  (275)
Common stock issued —  —  —  —  (9,286)
Common stock dividends - $0.935 per share
—  —  —  —  (386,931)
Other, net —  —  —  —  (17,950)
March 31, 2020 20,000  445,016,234  $ —  $ 4,450  $ 6,989,453 
12

ONEOK, Inc. and Subsidiaries    
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)  
(Unaudited)
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock
Total
Equity
 
(Thousands of dollars)
January 1, 2021 $ (551,449) $ —  $ (764,298) $ 6,042,398 
Net income   386,176    386,176 
Other comprehensive income (Note F) 85,853      85,853 
Preferred stock dividends - $13.75 per share (Note E)
  (275)   (275)
Common stock issued     16,836  6,677 
Common stock dividends - $0.935 per share (Note E)
  (385,901)   (416,135)
Other, net
      (7,729)
March 31, 2021 $ (465,596) $   $ (747,462) $ 6,096,965 

(Unaudited)
Accumulated
Other
Comprehensive
Loss
Retained Earnings
(Accumulated
Deficit)
Treasury
Stock
Total
Equity
 
(Thousands of dollars)
January 1, 2020 $ (374,000) $ —  $ (808,394) $ 6,225,951 
Net loss —  (141,857) —  (141,857)
Other comprehensive loss (125,386) —  —  (125,386)
Preferred stock dividends - $13.75 per share
—  —  —  (275)
Common stock issued —  —  16,375  7,089 
Common stock dividends - $0.935 per share
—  —  —  (386,931)
Other, net
—  —  —  (17,950)
March 31, 2020 $ (499,386) $ (141,857) $ (792,019) $ 5,560,641 
See accompanying Notes to Consolidated Financial Statements.
13

ONEOK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accompanying unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the SEC. These statements have been prepared in accordance with GAAP and reflect all adjustments that, in our opinion, are necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The 2020 year-end Consolidated Balance Sheet data was derived from our audited Consolidated Financial Statements but does not include all disclosures required by GAAP. Certain reclassifications have been made in the prior year Consolidated Financial Statements to conform to the current year presentation. These unaudited Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements in our Annual Report.

Recently Issued Accounting Standards Update - Changes to GAAP are established by the Financial Accounting Standards Board (FASB) in the form of ASUs to the FASB Accounting Standards Codification. We consider the applicability and impact of all ASUs. ASUs not discussed below or in our Annual Report were assessed and determined to be either not applicable or clarifications of ASUs previously issued. Except as discussed below or in our Annual Report, there have been no new accounting pronouncements that have become effective or have been issued that are of significance or potential significance to us.

In January 2021, we adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies certain concepts in Topic 740, Income Taxes. The impact of adopting this standard was not material.

B.    FAIR VALUE MEASUREMENTS

Determining Fair Value - For our fair value measurements, we utilize market prices, third-party pricing services, present value methods and standard option valuation models to determine the price we would receive from the sale of an asset or the transfer of a liability in an orderly transaction at the measurement date. We measure the fair value of a group of financial assets and liabilities consistent with how a market participant would price the net risk exposure at the measurement date.

Many of the contracts in our derivative portfolio are executed in liquid markets where price transparency exists. Our financial commodity derivatives are generally settled through a NYMEX or ICE clearing broker account with daily margin requirements. We validate our valuation inputs with third-party information and settlement prices from other sources, where available.

We compute the fair value of our derivative portfolio by discounting the projected future cash flows from our derivative assets and liabilities to present value using interest-rate yields to calculate present-value discount factors derived from the implied forward LIBOR yield curve. The fair value of our forward-starting interest-rate swaps is determined using financial models that incorporate the implied forward LIBOR yield curve for the same period as the future interest-rate swap settlements. We consider current market data in evaluating counterparties’, as well as our own, nonperformance risk, net of collateral, by using counterparty-specific bond yields. Although we use our best estimates to determine the fair value of the derivative contracts we have executed, the ultimate market prices realized could differ materially from our estimates.

Fair Value Hierarchy - At each balance sheet date, we utilize a fair value hierarchy to classify fair value amounts recognized or disclosed in our financial statements based on the observability of inputs used to estimate such fair value. The levels of the hierarchy are described below:
Level 1 - fair value measurements are based on unadjusted quoted prices for identical securities in active markets. These balances are composed predominantly of exchange-traded derivative contracts for natural gas and crude oil.
Level 2 - fair value measurements are based on significant observable pricing inputs, including quoted prices for similar assets and liabilities in active markets and inputs from third-party pricing services supported with corroborative evidence. These balances are composed of over-the-counter interest-rate derivatives.
Level 3 - fair value measurements are based on inputs that may include one or more unobservable inputs, including internally developed commodity price curves that incorporate market data from broker quotes and third-party pricing services. These balances are composed predominantly of exchange-cleared and over-the-counter derivatives to hedge NGL price risk and natural gas basis risk between various transaction locations and the NYMEX Henry Hub. Our commodity derivatives are generally valued using forward quotes provided by third-party pricing services that are validated with other market data. We believe any measurement uncertainty at March 31, 2021, is immaterial as our Level 3 fair value measurements are based on unadjusted pricing information from broker quotes and third-party
14

pricing services. We do not believe that our Level 3 fair value estimates have a material impact on our results of operations, as our derivatives are primarily accounted for as hedges.

Determining the appropriate classification of our fair value measurements within the fair value hierarchy requires management’s judgment regarding the degree to which market data is observable or corroborated by observable market data. We categorize derivatives for which fair value is determined using multiple inputs within a single level, based on the lowest level input that is significant to the fair value measurement in its entirety.

Recurring Fair Value Measurements - The following tables set forth our recurring fair value measurements for the periods indicated:
  March 31, 2021
  Level 1 Level 2 Level 3 Total - Gross Netting (a) Total - Net
 
(Thousands of dollars)
Derivative assets            
Commodity contracts
Financial contracts $ 6,380  $   $ 113,776  $ 120,156  $ (120,156) $  
Interest-rate contracts   241    241    241 
Total derivative assets $ 6,380  $ 241  $ 113,776  $ 120,397  $ (120,156) $ 241 
Derivative liabilities
         
Commodity contracts
Financial contracts $ (18,986) $   $ (155,570) $ (174,556) $ 174,556  $  
Interest-rate contracts   (97,363)   (97,363)   (97,363)
Total derivative liabilities $ (18,986) $ (97,363) $ (155,570) $ (271,919) $ 174,556  $ (97,363)
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At March 31, 2021, we held no cash and posted $108.0 million of cash with various counterparties, including $54.4 million of cash collateral that is offsetting derivative net liability positions under master-netting arrangements in the table above. The remaining $53.6 million of cash collateral in excess of derivative net liability positions is included in other current assets in our Consolidated Balance Sheet.

  December 31, 2020
  Level 1 Level 2 Level 3 Total - Gross Netting (a) Total - Net
 
(Thousands of dollars)
Derivative assets            
Commodity contracts
Financial contracts $ 6,697  $ —  $ 103,801  $ 110,498  $ (110,498) $ — 
Total derivative assets $ 6,697  $ —  $ 103,801  $ 110,498  $ (110,498) $ — 
Derivative liabilities
           
Commodity contracts
Financial contracts $ (10,489) $ —  $ (135,122) $ (145,611) $ 145,611  $ — 
Interest-rate contracts —  (203,407) —  (203,407) —  (203,407)
Total derivative liabilities $ (10,489) $ (203,407) $ (135,122) $ (349,018) $ 145,611  $ (203,407)
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At December 31, 2020, we held no cash and posted $63.1 million of cash with various counterparties, including $35.1 million of cash collateral that is offsetting derivative net liability positions under master-netting arrangements in the table above. The remaining $28.0 million of cash collateral in excess of derivative net liability positions is included in other current assets in our Consolidated Balance Sheet.

15

The following table sets forth a reconciliation of our Level 3 fair value measurements for the periods indicated:
Three Months Ended
March 31,
Derivative Assets (Liabilities) 2021 2020
 
(Thousands of dollars)
Net assets (liabilities) at beginning of period $ (31,321) $ 30,772 
Total changes in fair value:
Settlements included in net income (loss) (a) 24,738  (16,146)
New Level 3 derivatives included in other comprehensive income (loss) (b) (4,612) 20,993 
Unrealized change included in other comprehensive income (loss) (b) (30,599) 21,782 
Net assets (liabilities) at end of period $ (41,794) $ 57,401 
(a) - Included in commodity sales revenues/cost of sales and fuel in our Consolidated Statements of Income.
(b) - Included in change in fair value of derivatives in our Consolidated Statements of Comprehensive Income.

During the three months ended March 31, 2021 and 2020, there were no transfers in or out of Level 3 of the fair value hierarchy.

Other Financial Instruments - The approximate fair value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings is equal to book value due to the short-term nature of these items. Our cash and cash equivalents are composed of bank and money market accounts and are classified as Level 1. Our short-term borrowings are classified as Level 2 since the estimated fair value of the short-term borrowings can be determined using information available in the commercial paper market.

The estimated fair value of our consolidated long-term debt, including current maturities, was $15.8 billion and $16.3 billion at March 31, 2021, and December 31, 2020, respectively. The book value of our consolidated long-term debt, including current maturities, was $14.2 billion at March 31, 2021, and December 31, 2020. The estimated fair value of the aggregate long-term debt outstanding was determined using quoted market prices for similar issues with similar terms and maturities. The estimated fair value of our consolidated long-term debt is classified as Level 2.

C.    RISK-MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES

Risk-management Activities - We are sensitive to changes in natural gas, crude oil and NGL prices, principally as a result of contractual terms under which these commodities are processed, purchased and sold. We are also subject to the risk of interest-rate fluctuation in the normal course of business. We use physical-forward purchases and sales and financial derivatives to secure a certain price for a portion of our natural gas, condensate and NGL products; to reduce our exposure to commodity price and interest-rate fluctuations; and to achieve more predictable cash flows. We follow established policies and procedures to assess risk and approve, monitor and report our risk-management activities. We have not used these instruments for trading purposes.

Commodity price risk - Commodity price risk refers to the risk of loss in cash flows and future earnings arising from adverse changes in the price of natural gas, NGLs and condensate. We may use the following commodity derivative instruments to reduce the near-term commodity price risk associated with a portion of the forecasted sales of these commodities:
Futures contracts - Standardized contracts to purchase or sell natural gas and crude oil for future delivery or settlement under the provisions of exchange regulations;
Forward contracts - Nonstandardized commitments between two parties to purchase or sell natural gas, crude oil or NGLs for future physical delivery. These contracts are typically nontransferable and can only be canceled with the consent of both parties;
Swaps - Exchange of one or more payments based on the value of one or more commodities. These instruments transfer the financial risk associated with a future change in value between the counterparties of the transaction, without also conveying ownership interest in the asset or liability; and
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 and exchange-traded or customized and nonexchange-traded.

We may also use other instruments, including collars, to mitigate commodity price risk. A collar is a combination of a purchased put option and a sold call option, which places a floor and a ceiling price for commodity sales being hedged.

16

In our Natural Gas Gathering and Processing segment, we are exposed to commodity price risk as a result of retaining a portion of the commodity sales proceeds associated with our fee with POP contracts. Under certain fee with POP contracts, our fees and POP percentage may increase or decrease if production volumes, delivery pressures or commodity prices change relative to specified thresholds. In certain commodity price environments, our contractual fees on these fee with POP contracts may decrease, which impacts the average fee rate in our Natural Gas Gathering and Processing segment. We also are exposed to basis risk between the various production and market locations where we buy and sell commodities. As part of our hedging strategy, we use the previously described commodity derivative financial instruments and physical-forward contracts to reduce the impact of price fluctuations related to natural gas, NGLs and condensate.

In our Natural Gas Liquids segment, we are primarily exposed to commodity price risk resulting from the relative values of the various NGL products to each other, the value of NGLs in storage and the relative value of NGLs to natural gas. We are also exposed to location price differential risk as a result of the relative value of NGL purchases at one location and sales at another location, primarily related to our optimization and marketing activities. As part of our hedging strategy, we utilize physical-forward contracts and commodity derivative financial instruments to reduce the impact of price fluctuations related to NGLs.

In our Natural Gas Pipelines segment, we are primarily exposed to commodity price risk on our intrastate pipelines because they consume natural gas in operations and retain natural gas from our customers for operations or as part of our fee for services provided. When the amount consumed in operations differs from the amount provided by our customers, our pipelines must buy or sell natural gas, or store or use natural gas inventory, which can expose this segment to commodity price risk depending on the regulatory treatment for this activity. To the extent that commodity price risk in our Natural Gas Pipelines segment is not mitigated by fuel cost-recovery mechanisms, we may use physical-forward sales or purchases to reduce the impact of natural gas price fluctuations. At March 31, 2021, and December 31, 2020, there were no financial derivative instruments with respect to our natural gas pipeline operations.

Interest-rate risk - We manage interest-rate risk through the use of fixed-rate debt, floating-rate debt and interest-rate swaps. Interest-rate swaps are agreements to exchange interest payments at some future point based on specified notional amounts.

At March 31, 2021, and December 31, 2020, we had forward-starting interest-rate swaps with notional amounts totaling $1.1 billion to hedge the variability of interest payments on a portion of our forecasted debt issuances. All of our interest-rate swaps are designated as cash flow hedges.

Accounting Treatment - Our accounting treatment of derivative instruments is consistent with that disclosed in Note A of the Notes to Consolidated Financial Statements in our Annual Report.

Fair Values of Derivative Instruments - See Note B for a discussion of the inputs associated with our fair value measurements. The following table sets forth the fair values of our derivative instruments presented on a gross basis for the periods indicated:
  March 31, 2021 December 31, 2020
  Location in our
Consolidated Balance
Sheets
Assets (Liabilities) Assets (Liabilities)
Derivatives designated as hedging instruments
(Thousands of dollars)
Commodity contracts (a)
Financial contracts (b) $ 113,909  $ (168,369) $ 107,461  $ (142,573)
Interest-rate contracts Other current assets/ liabilities 241  (65,329) —  — 
Other deferred credits   (32,034) —  (203,407)
Total derivatives designated as hedging instruments 114,150  (265,732) 107,461  (345,980)
Derivatives not designated as hedging instruments
Commodity contracts (a)
Financial contracts (b) 6,247  (6,187) 3,037  (3,038)
Total derivatives not designated as hedging instruments 6,247  (6,187) 3,037  (3,038)
Total derivatives $ 120,397  $ (271,919) $ 110,498  $ (349,018)
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us.
(b) - At March 31, 2021, and December 31, 2020, our derivative net liability positions under master-netting arrangements for financial contracts were fully offset by cash collateral of $54.4 million and $35.1 million, respectively.
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Notional Quantities for Derivative Instruments - The following table sets forth the notional quantities for derivative instruments held for the periods indicated:
    March 31, 2021 December 31, 2020
Contract
Type
Net Purchased/Payor
(Sold/Receiver)
Derivatives designated as hedging instruments: (a)
Cash flow hedges      
Fixed price      
- Natural gas (Bcf)
Futures (80.9) (43.3)
- Crude oil and NGLs (MMBbl)
Futures (10.9) (4.6)
Basis  
- Natural gas (Bcf)
Futures (80.9) (43.3)
Interest-rate contracts (Billions of dollars)
Swaps $ 1.1  $ 1.1 
(a) - Notional amounts for derivatives not designated as hedging instruments are excluded from the table above due to fully offsetting notional quantities of 0.5 MMBbl and 0.8 MMBbl for NGLs fixed priced derivative instruments at March 31, 2021, and December 31, 2020, respectively.

Cash Flow Hedges - The following table sets forth the unrealized change in fair value of cash flow hedges in other comprehensive income (loss) for the periods indicated:
  Three Months Ended
March 31,
2021 2020
 
(Thousands of dollars)
Commodity contracts $ (63,430) $ 87,195 
Interest-rate contracts 106,285  (225,041)
Total unrealized change in fair value of cash flow hedges in other comprehensive income (loss) $ 42,855  $ (137,846)

The following table sets forth the effect of cash flow hedges on net income (loss) for the periods indicated:
Location of Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Loss into Net Income (Loss)
Three Months Ended
March 31,
2021 2020
   
(Thousands of dollars)
Commodity contracts Commodity sales revenues $ (130,518) $ 44,999 
Cost of sales and fuel 86,436  (15,039)
Interest-rate contracts Interest expense (9,666) (10,278)
Total change in fair value of cash flow hedges reclassified from accumulated other comprehensive loss into net income (loss) on derivatives $ (53,748) $ 19,682 

Credit Risk - We monitor the creditworthiness of our counterparties and compliance with policies and limits established by our Risk Oversight and Strategy Committee. We maintain credit policies with regard to our counterparties that we believe minimize overall credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit ratings, bond yields and credit default swap rates), collateral requirements under certain circumstances and the use of standardized master-netting agreements that allow us to net the positive and negative exposures associated with a single counterparty. We use internally developed credit ratings for counterparties that do not have a credit rating.

Our financial commodity derivatives are generally settled through a NYMEX or ICE clearing broker account with daily margin requirements. However, we may enter into financial derivative instruments that contain provisions that require us to maintain an investment-grade credit rating from S&P, Fitch and/or Moody’s. If our credit ratings on our senior unsecured long-term debt were to decline below investment grade, the counterparties to the derivative instruments could request collateralization on derivative instruments in net liability positions. There were no financial derivative instruments with contingent features related to credit risk at March 31, 2021.

The counterparties to our derivative contracts typically consist of major energy companies, financial institutions and commercial and industrial end users. This concentration of counterparties may affect our overall exposure to credit risk, either
18

positively or negatively, in that the counterparties may be affected similarly by changes in economic, regulatory or other conditions. Based on our policies, exposures, credit and other reserves, we do not anticipate a material adverse effect on our financial position or results of operations as a result of counterparty nonperformance.

At March 31, 2021, the credit exposure from our derivative assets is with investment-grade companies in the financial services sector.

D.    DEBT

The following table sets forth our consolidated debt for the periods indicated:
March 31,
2021
December 31,
2020
 
(Thousands of dollars)
Commercial paper outstanding $   $ — 
Senior unsecured obligations:
$700,000 at 4.25% due February 2022
536,107  541,877 
$900,000 at 3.375% due October 2022
895,814  895,814 
$425,000 at 5.0% due September 2023
425,000  425,000 
$500,000 at 7.5% due September 2023
500,000  500,000 
$500,000 at 2.75% due September 2024
500,000  500,000 
$500,000 at 4.9% due March 2025
500,000  500,000 
$400,000 at 2.2% due September 2025
387,000  387,000 
$600,000 at 5.85% due January 2026
600,000  600,000 
$500,000 at 4.0% due July 2027
500,000  500,000 
$800,000 at 4.55% due July 2028
800,000  800,000 
$100,000 at 6.875% due September 2028
100,000  100,000 
$700,000 at 4.35% due March 2029
700,000  700,000 
$750,000 at 3.4% due September 2029
714,251  714,251 
$850,000 at 3.1% due March 2030
780,093  780,093 
$600,000 at 6.35% due January 2031
600,000  600,000 
$400,000 at 6.0% due June 2035
400,000  400,000 
$600,000 at 6.65% due October 2036
600,000  600,000 
$600,000 at 6.85% due October 2037
600,000  600,000 
$650,000 at 6.125% due February 2041
650,000  650,000 
$400,000 at 6.2% due September 2043
400,000  400,000 
$700,000 at 4.95% due July 2047
689,006  689,006 
$1,000,000 at 5.2% due July 2048
1,000,000  1,000,000 
$750,000 at 4.45% due September 2049
672,530  713,676 
$500,000 at 4.5% due March 2050
443,015  451,270 
$300,000 at 7.15% due January 2051
300,000  300,000 
Guardian Pipeline
Weighted average 7.85% due December 2022
11,745  13,657 
Total debt 14,304,561  14,361,644 
Unamortized portion of terminated swaps 12,884  13,314 
Unamortized debt issuance costs and discounts (134,921) (138,887)
Current maturities of long-term debt (543,757) (7,650)
Long-term debt $ 13,638,767  $ 14,228,421 

$2.5 Billion Credit Agreement - Our $2.5 Billion Credit Agreement is a revolving credit facility and contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining a ratio of indebtedness to adjusted EBITDA (EBITDA, as defined in our $2.5 Billion Credit Agreement, adjusted for all noncash charges and increased for projected EBITDA from certain lender-approved capital expansion projects). In 2020, we acquired additional interest in one of our equity investments and a related asset for $27 million, which allowed us to elect an acquisition adjustment period under our $2.5 Billion Credit Agreement and, as a result, increased our leverage ratio covenant to 5.5 to 1 for the fourth quarter 2020 and the two following quarters. Thereafter, the covenant will decrease to 5.0 to 1. At March 31, 2021, we had no outstanding
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borrowings, our ratio of indebtedness to adjusted EBITDA was 4.6 to 1, and we were in compliance with all covenants under our $2.5 Billion Credit Agreement.

Debt Repurchases - During the three months ended March 31, 2021, we repurchased in the open market outstanding principal of certain of our senior notes in the amount of $55.2 million for an aggregate repurchase price of $54.6 million with cash on hand.

Debt Guarantees - We, ONEOK Partners and the Intermediate Partnership have cross guarantees in place for our and ONEOK Partners’ indebtedness.

E.    EQUITY

Dividends - Holders of our common stock share equally in any dividend declared by our Board of Directors, subject to the rights of the holders of outstanding Series E Preferred Stock. Dividends paid on our common stock in February 2021 were $0.935 per share. A dividend of $0.935 per share was declared for shareholders of record at the close of business on April 26, 2021, payable May 14, 2021.

Our Series E Preferred Stock pays quarterly dividends on each share of Series E Preferred Stock, when, as and if declared by our Board of Directors, at a rate of 5.5% per year. We paid dividends for the Series E Preferred Stock of $0.3 million in February 2021. Dividends totaling $0.3 million were declared for the Series E Preferred Stock and are payable May 14, 2021.

F.    ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the balance in accumulated other comprehensive loss for the period indicated:
Risk-
Management
Assets/Liabilities (a)
Retirement and
Other
Postretirement
Benefit Plan
Obligations (a) (b)
Risk-
Management
Assets/Liabilities of
Unconsolidated
Affiliates (a)
Accumulated
Other
Comprehensive
Loss (a)
(Thousands of dollars)
January 1, 2021 $ (377,446) $ (157,635) $ (16,368) $ (551,449)
Other comprehensive income (loss) before reclassifications 32,998  (167) 7,372  40,203 
Amounts reclassified to net income (c) 41,387  3,805  458  45,650 
Other comprehensive income 74,385  3,638  7,830  85,853 
March 31, 2021 $ (303,061) $ (153,997) $ (8,538) $ (465,596)
(a) - All amounts are presented net of tax.
(b) - Includes amounts related to supplemental executive retirement plan.
(c) - See Note C for details of amounts reclassified to net income for risk-management assets/liabilities and Note H for retirement and other postretirement benefit plan obligations.

The following table sets forth information about the balance of accumulated other comprehensive loss at March 31, 2021, representing unrealized gains (losses) related to risk-management assets and liabilities:
Risk-
Management
Assets/Liabilities (a)
(Thousands of dollars)
Commodity derivative instruments expected to be realized within the next 33 months (b) $ (42,201)
Settled interest-rate swaps to be recognized over the life of the long-term, fixed-rate debt (c)
(186,076)
Interest-rate swaps with future settlement dates expected to be amortized over the life of long-term debt
(74,784)
Accumulated other comprehensive loss at March 31, 2021 $ (303,061)
(a) - All amounts are presented net of tax.
(b) - Based on commodity prices on March 31, 2021, we expect $47.7 million in net losses, net of tax, over the next 12 months and $5.5 million in net gains, net of tax, thereafter.
(c) - We expect net losses of $30.5 million, net of tax, will be reclassified into earnings during the next 12 months.

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The remaining amounts in accumulated other comprehensive loss relate primarily to our retirement and other postretirement benefit plan obligations, which are expected to be amortized over the average remaining service period of employees participating in these plans.

G.    EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted EPS for the periods indicated:
  Three Months Ended March 31, 2021
 
Income
Shares Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS      
Net income available for common stock
$ 385,901  445,894  $ 0.87 
Diluted EPS
Effect of dilutive securities   991 
Net income available for common stock and
common stock equivalents
$ 385,901  446,885  $ 0.86 

  Three Months Ended March 31, 2020
  Loss Shares Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS      
Net loss available for common stock $ (142,132) 414,282  $ (0.34)
Diluted EPS
Effect of dilutive securities —  — 
Net loss available for common stock and
common stock equivalents (a)
$ (142,132) 414,282  $ (0.34)
(a) - For the three months ended March 31, 2020, 1,065,880 weighted-average shares have been excluded from the calculation of diluted loss per share as their inclusion would have been anti-dilutive due to our net loss available for common stock.

H.    EMPLOYEE BENEFIT PLANS

The following table sets forth the components of net periodic benefit cost for our retirement and other postretirement benefit plans for the periods indicated:
  Retirement Benefits Other Postretirement Benefits
Three Months Ended Three Months Ended
March 31, March 31,
  2021 2020 2021 2020
 
(Thousands of dollars)
Components of net periodic benefit cost (income)        
Service cost $ 2,076  $ 2,036  $ 115  $ 115 
Interest cost 4,220  4,574  442  442 
Expected return on plan assets (6,269) (6,232) (722) (722)
Amortization of prior service cost (a) 28  28    — 
Amortization of net loss (a) 4,913  4,571  1 
Net periodic benefit cost (income) $ 4,968  $ 4,977  $ (164) $ (164)
(a) - These components of net periodic benefit cost (income) are recognized in accumulated other comprehensive loss and are reclassified to other expense in our Consolidated Statements of Income, with related income tax benefits of $1.1 million reclassified to income tax (expense) benefit for both the three months ended March 31, 2021 and 2020.

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I.    UNCONSOLIDATED AFFILIATES

Equity in Net Earnings from Investments and Impairments - The following table sets forth our equity in net earnings from investments for the periods indicated:
Three Months Ended
March 31,
  2021 2020
 
(Thousands of dollars)
Northern Border Pipeline $ 20,239  $ 22,120 
Overland Pass Pipeline 2,972  14,111 
Roadrunner 7,749  6,433 
Other 2,360  1,963 
Equity in net earnings from investments $ 33,320  $ 44,627 
Impairment of equity investments $   $ (37,730)

Equity in net earnings from Overland Pass Pipeline decreased for the three months ended March 31, 2021, compared with the same period in 2020, due primarily to lower volumes.

For the three months ended March 31, 2020, we incurred a noncash impairment charge of $30.5 million related to our 10.2% investment in Venice Energy Services Company in our Natural Gas Gathering and Processing segment, which includes $22.3 million related to equity-method goodwill, and a $7.2 million noncash impairment charge related to our 50% investment in Chisholm Pipeline Company in our Natural Gas Liquids segment.

We incurred expenses in transactions with unconsolidated affiliates of $15.6 million and $45.3 million for the three months ended March 31, 2021 and 2020, respectively, primarily related to Northern Border Pipeline and Overland Pass Pipeline. Accounts payable to our equity-method investees at March 31, 2021, and December 31, 2020, were $5.2 million and $8.4 million, respectively.

We have an operating agreement with Roadrunner that provides for reimbursement or payment to us for management services and certain operating costs, which are included in operating income (loss) in our Consolidated Statements of Income.

J.    COMMITMENTS AND CONTINGENCIES

Environmental Matters and Pipeline Safety - The operation of pipelines, plants and other facilities for the gathering, processing, fractionation, transportation and storage of natural gas, NGLs, condensate and other products is subject to numerous and complex laws and regulations pertaining to health, safety and the environment. As an owner and/or operator of these facilities, we must comply with laws and regulations that relate to air and water quality, hazardous and solid waste management and disposal, cultural resource protection and other environmental and safety matters. The cost of planning, designing, constructing and operating pipelines, plants and other facilities must incorporate compliance with these laws, regulations and safety standards. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures, including citizen suits, which can include the assessment of monetary penalties, the imposition of remedial requirements and the issuance of injunctions or restrictions on operation or construction. Management does not believe that, based on currently known information, a material risk of noncompliance with these laws and regulations exists that will affect adversely our consolidated results of operations, financial condition or cash flows.

Legal Proceedings - We are a party to various litigation matters and claims that have arisen in the normal course of our operations. While the results of these litigation matters and claims cannot be predicted with certainty, we believe the reasonably possible losses from such matters, individually and in the aggregate, are not material. Additionally, we believe the probable final outcome of such matters will not have a material adverse effect on our consolidated results of operations, financial position or cash flows.

K.    REVENUES

Accounting Policies - Many of the contract types described within Note A of the Notes to Consolidated Financial Statement in our Annual Report contain additional fees or charges payable by customers for nonperformance (e.g., minimum volume commitments or product specifications), which are considered to be variable consideration. These fees and charges are not recorded until it is probable that a significant reversal of the associated revenue will not occur.
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Contract Assets and Contract Liabilities - Our contract asset balances at the beginning and end of the period primarily relate to our firm service transportation contracts with tiered rates, which are not material. The following table sets forth the balances in contract liabilities for the periods indicated:
Contract Liabilities
(Millions of dollars)
Balance at December 31, 2020 (a) $ 41.4 
Revenue recognized included in beginning balance (20.4)
Net additions 12.3 
Balance at March 31, 2021 (b) $ 33.3 
(a) - Contract liabilities of $23.7 million and $17.7 million are included in other current liabilities and other deferred credits, respectively, in our Consolidated Balance Sheet.
(b) - Contract liabilities of $15.9 million and $17.4 million are included in other current liabilities and other deferred credits, respectively, in our Consolidated Balance Sheet.

Receivables from Customers and Revenue Disaggregation - Substantially all of the balances in accounts receivable on our Consolidated Balance Sheets at March 31, 2021, and December 31, 2020, relate to customer receivables. Revenues sources are disaggregated in Note L.

Transaction Price Allocated to Unsatisfied Performance Obligations - We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) variable consideration on contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The following table presents aggregate value allocated to unsatisfied performance obligations as of March 31, 2021, and the amounts we expect to recognize in revenue in future periods, related primarily to firm transportation and storage contracts with remaining contract terms ranging from one month to 23 years:
Expected Period of Recognition in Revenue
(Millions of dollars)
Remainder of 2021 $ 247.6 
2022 273.4 
2023 244.3 
2024 204.1 
2025 and beyond 796.1 
Total estimated transaction price allocated to unsatisfied performance obligations $ 1,765.5 

The table above excludes variable consideration allocated entirely to wholly unsatisfied performance obligations, wholly unsatisfied promises to transfer distinct goods or services that are part of a single performance obligation and consideration we determine to be fully constrained. The amounts we determined to be fully constrained relate to future sales obligations under long-term sales contracts where the transaction price is not known and minimum volume agreements, which we consider to be fully constrained until invoiced.

L.    SEGMENTS

Segment Descriptions - Our operations are divided into three reportable business segments as follows:
•    our Natural Gas Gathering and Processing segment gathers, treats and processes natural gas;
•    our Natural Gas Liquids segment gathers, treats, fractionates and transports NGLs and stores, markets and distributes NGL products; and
•    our Natural Gas Pipelines segment transports and stores natural gas via regulated intrastate and interstate natural gas transmission pipelines and natural gas storage facilities.

Other and eliminations consist of corporate costs, the operating and leasing activities of our headquarters building and related parking facility and eliminations necessary to reconcile our reportable segments to our Consolidated Financial Statements.

Accounting Policies - The accounting policies of the segments are described in Note A of the Notes to Consolidated Financial Statements in our Annual Report.

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Operating Segment Information - The following tables set forth certain selected financial information for our operating segments for the periods indicated:
Three Months Ended
March 31, 2021
Natural Gas
Gathering and
Processing
Natural Gas
Liquids (a)
Natural Gas
Pipelines (b)
Total
Segments
 
(Thousands of dollars)
NGL and condensate sales $ 491,807  $ 2,414,830  $   $ 2,906,637 
Residue natural gas sales 312,247    115,455  427,702 
Gathering, processing and exchange services revenue 31,687  113,231    144,918 
Transportation and storage revenue   48,728  132,947  181,675 
Other 4,000  33,276  412  37,688 
Total revenues (c) 839,741  2,610,065  248,814  3,698,620 
Cost of sales and fuel (exclusive of depreciation and operating costs) (555,306) (2,060,319) (10,013) (2,625,638)
Operating costs (84,598) (124,369) (42,317) (251,284)
Equity in net earnings from investments 1,728  3,604  27,988  33,320 
Noncash compensation expense and other 3,151  6,647  1,703  11,501 
Segment adjusted EBITDA $ 204,716  $ 435,628  $ 226,175  $ 866,519 
Depreciation and amortization $ (67,032) $ (74,542) $ (14,476) $ (156,050)
Investments in unconsolidated affiliates $ 24,584  $ 420,614  $ 362,523  $ 807,721 
Total assets $ 6,535,260  $ 13,944,887  $ 2,096,459  $ 22,576,606 
Capital expenditures $ 39,651  $ 112,021  $ 21,157  $ 172,829 
(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $570.6 million, of which $516.1 million related to revenues within the segment, and cost of sales and fuel of $135.8 million.
(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $181.4 million and cost of sales and fuel of $12.8 million.
(c) - Intersegment revenues are primarily commodity sales which are based on the contracted selling price that is generally index-based and settled monthly, and for the Natural Gas Gathering and Processing segment totaled $481.6 million. Intersegment revenues for the Natural Gas Liquids and Natural Gas Pipelines segments were not material.

Three Months Ended
March 31, 2021
Total
Segments
Other and
Eliminations
Total
(Thousands of dollars)
Reconciliations of total segments to consolidated
NGL and condensate sales $ 2,906,637  $ (500,064) $ 2,406,573 
Residue natural gas sales 427,702    427,702 
Gathering, processing and exchange services revenue 144,918    144,918 
Transportation and storage revenue 181,675  (3,535) 178,140 
Other 37,688  (342) 37,346 
Total revenues (a) $ 3,698,620  $ (503,941) $ 3,194,679 
Cost of sales and fuel (exclusive of depreciation and operating costs) $ (2,625,638) $ 504,128  $ (2,121,510)
Operating costs $ (251,284) $ (313) $ (251,597)
Depreciation and amortization $ (156,050) $ (1,070) $ (157,120)
Equity in net earnings from investments $ 33,320  $   $ 33,320 
Investments in unconsolidated affiliates $ 807,721  $   $ 807,721 
Total assets $ 22,576,606  $ 603,323  $ 23,179,929 
Capital expenditures $ 172,829  $ 3,905  $ 176,734 
(a) - Noncustomer revenue for the three months ended March 31, 2021, totaled $(132.2) million related primarily to losses from derivatives on commodity contracts.

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Three Months Ended
March 31, 2020
Natural Gas
Gathering and
Processing
Natural Gas
Liquids (a)
Natural Gas
Pipelines (b)
Total
Segments
 
(Thousands of dollars)
NGL and condensate sales $ 219,917  $ 1,596,711  $ —  $ 1,816,628 
Residue natural gas sales 189,051  —  2,035  191,086 
Gathering, processing and exchange services revenue 37,937  120,536  —  158,473 
Transportation and storage revenue —  50,755  118,364  169,119 
Other 3,075  2,590  384  6,049 
Total revenues (c) 449,980  1,770,592  120,783  2,341,355 
Cost of sales and fuel (exclusive of depreciation and operating costs)
(202,170) (1,278,754) (1,539) (1,482,463)
Operating costs (84,470) (89,571) (33,307) (207,348)
Equity in net earnings from investments 806  15,268  28,553  44,627 
Noncash compensation expense and other (4,498) (6,619) (1,966) (13,083)
Segment adjusted EBITDA $ 159,648  $ 410,916  $ 112,524  $ 683,088 
Depreciation and amortization $ (58,756) $ (57,841) $ (14,769) $ (131,366)
Impairment charges (d) $ (564,353) $ (77,401) $ —  $ (641,754)
Investments in unconsolidated affiliates $ 4,276  $ 435,024  $ 371,179  $ 810,479 
Total assets $ 6,374,552  $ 12,682,807  $ 2,089,362  $ 21,146,721 
Capital expenditures $ 181,610  $ 746,183  $ 16,590  $ 944,383 
(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $435.1 million, of which $378.2 million related to revenues within the segment, and cost of sales and fuel of $120.4 million.
(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $73.9 million and cost of sales and fuel of $6.1 million.
(c) - Intersegment revenues are primarily commodity sales, which are based on the contracted selling price that is generally index-based and settled monthly, and for the Natural Gas Gathering and Processing segment totaled $213.3 million. Intersegment revenues for the Natural Gas Liquids and Natural Gas Pipelines segments were not material.
(d) - Includes noncash impairment charges of $380.5 million related primarily to long-lived assets, $153.4 million related to goodwill and $30.5 million related to an investment in an unconsolidated affiliate in our Natural Gas Gathering and Processing segment; and $70.2 million related to long-lived assets and $7.2 million related to an investment in an unconsolidated affiliate in our Natural Gas Liquids segment.

Three Months Ended
March 31, 2020
Total
Segments
Other and
Eliminations
Total
 
(Thousands of dollars)
Reconciliations of total segments to consolidated
NGL and condensate sales $ 1,816,628  $ (199,472) $ 1,617,156 
Residue natural gas sales 191,086  (1,032) 190,054 
Gathering, processing and exchange services revenue 158,473  —  158,473 
Transportation and storage revenue 169,119  (3,809) 165,310 
Other 6,049  (370) 5,679 
Total revenues (a) $ 2,341,355  $ (204,683) $ 2,136,672 
Cost of sales and fuel (exclusive of depreciation and operating costs) $ (1,482,463) $ 205,535  $ (1,276,928)
Operating costs $ (207,348) $ 308  $ (207,040)
Depreciation and amortization $ (131,366) $ (987) $ (132,353)
Impairment charges $ (641,754) $ —  $ (641,754)
Equity in net earnings from investments $ 44,627  $ —  $ 44,627 
Investments in unconsolidated affiliates $ 810,479  $ —  $ 810,479 
Total assets $ 21,146,721  $ 822,719  $ 21,969,440 
Capital expenditures $ 944,383  $ 5,296  $ 949,679 
(a) - Noncustomer revenue for the three months ended March 31, 2020, totaled $80.2 million related primarily to gains from derivatives on commodity contracts.

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Three Months Ended
March 31,
2021 2020
(Thousands of dollars)
Reconciliation of net income (loss) to total segment adjusted EBITDA
Net income (loss) $ 386,176  $ (141,857)
Add:
Interest expense, net of capitalized interest 185,523  140,616 
Depreciation and amortization 157,120  132,353 
Income tax expense (benefit) 122,132  (55,395)
Impairment charges
  641,754 
Noncash compensation expense 16,283  (1,302)
Other corporate costs and equity AFUDC (a)
(715) (33,081)
Total segment adjusted EBITDA $ 866,519  $ 683,088 
(a) - The three months ended March 31, 2020, includes corporate gains of $15.8 million on extinguishment of debt related to open market repurchases.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements in this Quarterly Report, as well as our Annual Report.

RECENT DEVELOPMENTS

Please refer to the “Financial Results and Operating Information” and “Liquidity and Capital Resources” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report for additional information.

Market Conditions, COVID-19 and Business Update - Despite the COVID-19 pandemic, we expect earnings growth in 2021 due primarily to increasing volumes, available capacity and efficiency gains from recently completed capital-growth projects, continued flared natural gas capture and rising gas-to-oil ratios in the Williston Basin. Although the energy industry has experienced many up and down cycles, we have positioned ourselves to reduce exposure to direct commodity price volatility. Each of our three reportable segments are primarily fee-based, and we expect our consolidated earnings to be approximately 90% fee-based in 2021. While our Natural Gas Gathering and Processing segment’s earnings are primarily fee-based, we have direct commodity price exposure related primarily to fee with POP contracts. In addition, our Natural Gas Gathering and Processing and Natural Gas Liquids segments are exposed to volumetric risk as a result of reduced drilling and completion activity, declining well productivity, severe weather disruption, operational outages and crude oil, NGL and natural gas demand. Our Natural Gas Pipelines segment is not exposed to significant volumetric risk due to nearly all of our capacity being subscribed under long-term firm fee-based contracts.

In continued response to COVID-19, we remain committed to managing the impact of the pandemic on our employees. We continue to protect our workforce and, as always, we remain focused on operating our assets safely, reliably and in an environmentally responsible manner. We continue to monitor the COVID-19 outbreak and have previously implemented our business continuity plans. ONEOK is a critical infrastructure business as defined by the United States Department of Homeland Security and, therefore, our workforce has remained fully engaged within federal, state and local government issued guidelines and safety-related ordinances. We continue to practice remote work procedures when possible to protect the safety of our employees and their families and continue to take precautions for our employees who work in the field or need to report to a ONEOK facility, such as facility access restrictions, workspace modifications, social distancing, face covering protocols and sanitation procedures. As COVID-19 vaccinations are becoming more readily available, we anticipate implementing a return to office plan later this year. We continue to apply risk-management and cybersecurity measures designed so that our systems remain functional in order to both serve our operational needs and to provide service to our customers.

In February 2021, Winter Storm Uri brought significant challenges to the energy industry and our operating areas. Our employees were proactive in preparing for the severe winter weather, made the necessary operational adjustments to keep our assets running and provided exceptional service to meet the needs of our customers during the difficult weather conditions as demand for natural gas, propane and electricity soared. This increased demand, coupled with supply reductions from wellhead freeze-offs and power outages to processing plants in the Mid-Continent and Rocky Mountain regions and the Permian Basin
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and fractionators in the Mid-Continent region, resulted in record high commodity prices at certain market hubs, particularly in the Mid-Continent region and in Texas. Commodity prices quickly returned to previous levels as the weather improved and natural gas supply returned.

Winter Storm Uri impacted all three of our operating segments, resulting in a net positive impact to our financial results, as our ability to meet increased demand for natural gas and NGLs during the period more than offset the unfavorable volume impacts. Our well-positioned natural gas storage assets and market connected pipelines in our Natural Gas Pipelines segment were able to meet critical needs during this period of severe winter weather. The reliability of our interstate and intrastate assets enabled us to continue to provide our customers access to transportation services, park-and-loan services and additional natural gas supply if available, which improved our financial results. However, wellhead freeze-offs reduced February volumes in our Natural Gas Gathering and Processing and Natural Gas Liquids segments, which negatively impacted our financial results.

We expect to maintain sufficient liquidity and financial stability in 2021 due to cash flows from operations, our undrawn $2.5 Billion Credit Agreement, $402.4 million in cash and cash equivalents and no debt maturities until 2022.

See Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk, in this Quarterly Report for more information on our exposure to market risk.

Sustainability - We continue to look for ways to reduce our environmental impact and utilize more efficient technologies. In 2021, we qualified for inclusion in the S&P Global Sustainability Yearbook and received Industry Mover status, which is awarded to a company that recorded the strongest year-over-year improvement in its industry. In addition, we received a perfect score of 100 in the Human Rights Campaign 2021 Corporate Equality Index. We have a stand-alone environmental sustainability team, formed in 2017, that accelerated our ongoing environmental stewardship efforts and is exploring ways to lower our greenhouse gas emissions. We are actively researching opportunities that will complement our extensive midstream assets and help enhance the vital role we expect to play in a future transition to a low-carbon economy.

Natural Gas - In our Natural Gas Gathering and Processing segment, gathered and processed volumes in the Rocky Mountain region increased in the three months ended March 31, 2021, compared with the same period in 2020, due primarily to the completion of capital-growth projects and the capture of natural gas previously flared. In February 2021, we experienced severe winter weather as a result of Winter Storm Uri that reduced volumes across our operating system. However, volume levels quickly returned and exceeded 1.2 Bcf/d in the Rocky Mountain region in March 2021. We expect these Rocky Mountain region volumes to be sustainable for the remainder of 2021, even with no increase in producer activity, due to the completion of previously drilled but uncompleted wells, the capture of natural gas previously flared and rising gas-to-oil ratios in the Williston Basin. In addition, as prices and volumes continue to strengthen, we currently have the processing capacity to benefit from production growth. Our Bear Creek plant expansion, which was previously paused, is expected to be completed later this year, which will increase our total processing capacity to approximately 1.7 Bcf/d in the Williston Basin.

In our Natural Gas Pipelines segment, our assets are connected to key supply areas and demand centers, including export markets in Mexico via our Roadrunner joint venture and supply areas in Canada and the United States via our interstate and intrastate natural gas pipelines and our Northern Border Pipeline joint venture, which enable us to provide essential natural gas transportation and storage services. Continued demand from local distribution companies, electric-generation facilities and large industrial companies resulted in low-cost expansions in 2019 and 2020 that position us well to provide additional expansions for our customers when needed. In February 2021, severe winter weather impacted our operations. Due to the reliability of our pipeline and storage assets, we were able to continue to provide services to customers serving critical needs during the winter storm. Our natural gas transportation capacity contracted is not significantly impacted by market conditions, as our end users rely on natural gas to support their business regardless of commodity price fluctuations. We continue to experience stable fee-based earnings with transportation capacity more than 95% contracted with firm commitments, and we expect these stable fee-based earnings to continue throughout 2021 at similarly contracted levels. In addition, during the first quarter 2021, we sold natural gas that we owned and held in storage, which benefited our segment’s financial results. During the extreme winter weather periods, we maximized natural gas storage withdrawals for firm service customers serving critical needs.

NGLs - In our Natural Gas Liquids segment, NGL volumes decreased for the three months ended March 31, 2021, compared with the same period in 2020, due primarily to the unfavorable impact of Winter Storm Uri in February 2021 across our operations, offset partially by increased volumes in the Rocky Mountain region. Volumes quickly returned, and our average daily raw feed throughput volumes in March 2021 increased, compared with both the first and fourth quarters 2020, and we expect these improved NGL volumes to continue. We expect to benefit from increasing volumes, without significant capital investment, on our integrated assets, which were strengthened through our recently completed capital-growth projects.

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Growth Projects - We operate an integrated, reliable and diversified network of NGL and natural gas gathering, processing, fractionation, storage and transportation assets connecting supply in the Rocky Mountain, Mid-Continent and Permian regions with key market centers. We have completed significant capital-growth projects that include NGL pipelines, NGL fractionators, natural gas processing plants and related natural gas and NGL infrastructure. These projects provide us the capacity to benefit from future supply growth without significant capital investment. In the first quarter 2020, due to the decline in commodity prices and economic demand disruption caused by COVID-19, we paused various projects, which can be restarted quickly when producer activity warrants additional infrastructure. Our announced capital-growth projects are outlined in the table below:
Project Scope Approximate
Costs (a)
Expected Completion
Natural Gas Gathering and Processing
(In millions)
Bear Creek plant expansion and related infrastructure 200 MMcf/d processing plant expansion and related gathering infrastructure in the Williston Basin $405 Q4 2021
Supported by acreage dedications with long-term primarily fee-based contracts
Natural Gas Liquids
Arbuckle II pipeline expansion Increasing mainline capacity with additional pump facilities $60 Q2 2021
Increases capacity to 500 MBbl/d
MB-5 fractionator and related infrastructure 125 MBbl/d NGL fractionator in Mont Belvieu, Texas, and related infrastructure, which includes additional NGL storage in Mont Belvieu $750 Paused (c)
Fully contracted with long-term contracts
West Texas LPG pipeline expansion Increasing mainline capacity by 40 MBbl/d $145 Paused (b)
Supported by long-term dedicated production from third-party processing plants expected to produce up to 45 MBbl/d
Mid-Continent fractionation facility expansions 65 MBbl/d of expansions at our Mid-Continent NGL facilities $150 Paused (c)
(a) - Excludes capitalized interest/AFUDC.
(b) - We do not expect to complete construction by the original target completion date.
(c) - While many of the construction activities on these projects were paused in 2020, some activity continued in order to complete the infrastructure necessary to support volumes until market conditions warrant full project completion.

Ethane Production - Price differentials between ethane and natural gas can cause natural gas processors to process ethane as an NGL or leave some of the ethane component in the natural gas stream. As a result of these ethane economics, ethane volumes on our system can also fluctuate period to period. Ethane volumes under long-term contracts delivered to our NGL system averaged 355 MBbl/d in the first quarter 2021, compared with 370 MBbl/d in the first quarter 2020, due primarily to decreased volumes related to Winter Storm Uri in February 2021 across our operations. We expect ethane production to increase from the first quarter 2021 volumes and continue to fluctuate throughout 2021. We estimate that there are ethane volumes of approximately 100 MBbl/d in both the Rocky Mountain and Mid-Continent regions that represent potential ethane opportunity for our Natural Gas Liquids segment.

Debt Repurchases - During the three months ended March 31, 2021, we repurchased in the open market outstanding principal of certain of our senior notes in the amount of $55.2 million for an aggregate repurchase price of $54.6 million with cash on hand.

Dividends - In February 2021, we maintained and paid a quarterly dividend of $0.935 per share ($3.74 per share on an annualized basis), which is consistent with the same quarter in the prior year. We declared a quarterly dividend of $0.935 per share ($3.74 per share on an annualized basis) in April 2021. The quarterly dividend will be paid May 14, 2021, to shareholders of record at the close of business on April 26, 2021.

FINANCIAL RESULTS AND OPERATING INFORMATION

How We Evaluate Our Operations

Management uses a variety of financial and operating metrics to analyze our performance. Our consolidated financial metrics include: (1) operating income (loss); (2) net income (loss); (3) diluted EPS; and (4) the following non-GAAP financial measures: adjusted EBITDA and distributable cash flow. We evaluate segment operating results using adjusted EBITDA and our operating metrics, which include various volume and rate statistics that are relevant for the respective segment. These operating metrics allow investors to analyze the various components of segment financial results in terms of volumes and rate/
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price. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. For additional information on our operating metrics, see the respective segment subsections of this “Financial Results and Operating Information” section.

Non-GAAP Financial Measures - Adjusted EBITDA, distributable cash flow and dividend coverage ratio are non-GAAP measures of our financial performance. Adjusted EBITDA is defined as net income adjusted for interest expense, depreciation and amortization, noncash impairment charges, income taxes, allowance for equity funds used during construction, noncash compensation expense and certain other noncash items. Distributable cash flow is defined as adjusted EBITDA, computed as described above, less interest expense, maintenance capital expenditures and equity earnings from investments, excluding noncash impairment charges, adjusted for net cash distributions received from unconsolidated affiliates and certain other items. Dividend coverage ratio is defined as distributable cash flow to common shareholders divided by the dividends paid in the period. We believe these non-GAAP financial measures are useful to investors because they and similar measures are used by many companies in our industry as a measurement of financial performance and are commonly employed by financial analysts and others to evaluate our financial performance and to compare financial performance among companies in our industry. Adjusted EBITDA, distributable cash flow and dividend coverage ratio should not be considered alternatives to net income, EPS or any other measure of financial performance presented in accordance with GAAP. Additionally, these calculations may not be comparable with similarly titled measures of other companies.

Consolidated Operations

Selected Financial Results - The following table sets forth certain selected financial results for the periods indicated:
Three Months Ended Three Months
March 31, 2021 vs. 2020
Financial Results 2021 2020 $ Increase (Decrease)
 
(Millions of dollars, except per share amounts)
Revenues
Commodity sales $ 2,836.1  $ 1,808.6  1,027.5 
Services 358.6  328.1  30.5 
Total revenues 3,194.7  2,136.7  1,058.0 
Cost of sales and fuel (exclusive of items shown separately below)
2,121.5  1,276.9  844.6 
Operating costs 251.7  207.1  44.6 
Depreciation and amortization
157.1