ONEOK Announces Higher 2005 Earnings

Q4 2005 Financial Statements

February 22, 2006 -- Tulsa, Okla. -- ONEOK, Inc. (NYSE: OKE) announced today that its year-end and fourth-quarter 2005 net income increased significantly because of strong performances in each of its operating segments and the sale of assets.

Net income for the year was $554.7 million, or $5.14 per diluted share of common stock, compared with $242.2 million, or $2.30 per diluted share of common stock, a year earlier.

Year-end results include an after-tax gain on the sale of a discontinued component of $149.6 million, or $1.39 per diluted share of common stock, from the sale of the company’s oil and gas production business; and a pre-tax gain of $264.2 million on the sale of the Texas gathering and processing assets (after-tax gain of $161.8 million, or $1.50 per diluted share) recorded in income from continuing operations.  These gains were partially offset by a $32.4 million, or 30 cents per diluted share, impairment related to the pending sale of the company’s Spring Creek power plant in Oklahoma.

Income from continuing operations for the year was $411.3 million, or $3.81 per diluted share, which includes the $1.50 per share gain on the sale of the Texas assets, versus $224.7 million, or $2.13 per diluted share, for 2004.

“2005 was an exceptional year for the company,” said David Kyle, ONEOK chairman, president and chief executive officer. “Our acquisition of the Koch assets was a significant accomplishment that contributed to our outstanding performance. They are performing well, positively affecting results in our natural gas liquids and our pipelines and storage segments. Our results also reflect the approval and implementation of new distribution rates in Oklahoma.”

“Our recently announced transactions involving Northern Border Partners and TransCanada establish a firm foundation for growth in 2006 and beyond,” Kyle added. “We expect the transactions to provide both immediate and long-term value to shareholders and give ONEOK additional opportunities to grow.”

The company’s 2005 results also reflect increases in commodity prices and favorable gross processing margins in its gathering and processing segment. Increased basis differentials – the difference in natural gas prices between certain regions – and increased natural gas price volatility contributed to stronger performance in the energy services segment.

Operating costs for the year increased primarily because of costs related to the acquisition of the natural gas liquids assets and increased employee benefit costs.

In the fourth quarter of 2005, the company reported net income of $237.6 million, or $2.30 per diluted share, compared with net income of $98.4 million, or 90 cents per diluted share, in the fourth quarter 2004. Fourth-quarter 2005 net income included the gain on the sale of the Texas gathering and processing assets. Fourth-quarter 2005 income from continuing operations was $239.7 million, or $2.32 per diluted share, compared with $94.5 million, or 86 cents per diluted share, in the same period a year earlier.

The company also recorded a $5.9 million impairment in other income in the fourth quarter on a 50 percent investment in a gas processing plant in Oklahoma it does not operate, and a $2.6 million impairment, recorded in other income, related to its investment in a company-operated gas gathering system partnership that may terminate in early 2006. Other expense increased, primarily due to a $10.0 million donation to the ONEOK Foundation.

YEAR-END 2005 RESULTS INCLUDED:

• Operating income of $812.2 million, compared with $443.7 million in 2004;
• Increased operating income in the natural gas liquids, and pipelines and storage segments as a result of acquiring natural gas liquids assets in July;
• Implementation of a $57.5 million rate increase in Oklahoma, which contributed $28.2 million in net margin in the distribution segment;
• Increased operating income in the gathering and processing segment, driven by increases in commodity prices and gross processing margins;
• Increased operating income in the energy services segment due to increased natural gas basis differentials and higher margins in wholesale physical marketing;
• Sales of the company’s oil and natural gas production assets and Texas gathering and processing assets;
• First full-year equity income of $10.1 million, which is included in other income, from the company’s investment in Northern Border Partners, L.P.;
• A 12 percent increase in the quarterly dividend to 28 cents a share, announced in April;
• Dilution in earnings per share from continuing operations of 24 cents related to the equity unit accounting treatment;
• Year-end long-term debt – treating the equity units that converted Feb. 16, 2006, as equity – was 48 percent of total capitalization. The debt was reduced by the early redemption in late 2005 of the 7.75 percent $300 million notes;
• Interest expense of $147.6 million, compared with $87.3 million in 2004;
• Cash flow from continuing operations, before changes in working capital, of $533.4 million, which exceeded capital expenditures of $250.5 million and dividends of $110.2 million by $172.7 million.

2005 BUSINESS UNIT RESULTS

For comparison purposes, the 2004 segment financial and operating results have been reclassified to reflect the transfer of the natural gas liquids marketing business that was previously in the gathering and processing segment to the newly formed natural gas liquids segment.

Gathering and Processing
The gathering and processing segment’s operating income for 2005 was $395.4 million, compared with $116.2 million in 2004. The increase included a $264.2 million gain on the sale of the Texas gathering and processing assets in December 2005.

Net margin for 2005 was $287.3 million, compared with $267.0 million in 2004. The increase was attributable to keep-whole contracts, net of hedging, which added $18.8 million. Higher natural gas and natural gas liquids prices on percent-of-proceeds contracts contributed $8.0 million in net margin, net of hedging.  These increases were partially offset by the reduction in margin related to the sale of the Texas gathering and processing assets on Dec. 1, 2005.

Improved contract terms, related to the company’s continuing efforts to restructure contracts, continue to positively affect net margin.

The average mid-continent price for natural gas in 2005 was $7.30 per million British Thermal Units (MMBtu) versus $5.54 per MMBtu a year earlier. The Conway OPIS composite NGL price based on the company’s product mix was $0.89 per gallon versus $0.72 per gallon in 2004. The resulting gross processing spread for the full year was $2.77 per MMBtu versus $2.47 per MMBtu last year.

Operating costs for the year increased to $123.4 million, compared with $118.1 million in 2004. The increase was the result of higher compressor-related operating costs and employee-related costs.

The segment was also affected by the $5.9 million impairment charge recognized in the fourth quarter and an accrual of $500,000 for an insurance deductible associated with the company’s 10 percent interest in a Louisiana gas processing plant that was damaged by Hurricane Katrina. The facility is expected to be back in partial service by March 2006.

In the fourth quarter, operating income was $285.5 million, compared with $38.5 million in the period a year earlier. The increase was primarily the result of the gain on the sale of the Texas gathering and processing assets in December 2005. Net margin was $60.1 million, compared with $78.1 million in the fourth quarter 2004. The decrease is attributable to the sale of the Texas assets, lower volumes primarily because of freeze-offs in December, and lower realized prices, net of hedging, when compared with posted prices, from percent-of proceeds and keep-whole contracts.

The average mid-continent price for natural gas in the fourth quarter was $9.87 per MMBtu versus $6.03 per MMBtu in the same period a year earlier. The Conway fourth-quarter 2005 OPIS composite NGL price based on the company’s product mix was $1.04 per gallon versus $0.83 per gallon in the fourth quarter 2004. The gross processing spread for the fourth quarter was $1.94 per MMBtu versus $3.35 per MMBtu in the fourth quarter 2004.

The following table contains margin information for the time periods indicated. NGL shrink, plant fuel and condensate shrink refer to the Btus that are removed from natural gas through the gathering and processing operation.

The following tables contain hedging information for the gathering and processing segment in 2006:

Natural Gas Liquids
The natural gas liquids segment had operating income of $43.4 million, compared with $14.8 million in 2004. 

Net margin increased to $87.9 million in 2005, compared with $24.4 million in 2004. The acquisition of the natural gas liquids assets in July 2005 contributed $57.4 million in additional net margin. Increased storage margins from restructured contracts added another $4.8 million.

Operating costs in 2005 increased to $33.5 million in 2005 versus $9.5 million in 2004. $22.2 million of the increase was associated with the acquisition of the natural gas liquids assets in July 2005. Depreciation, depletion and amortization increased $11.0 million year over year, with $10.3 million associated with the acquisition.

Fourth-quarter operating income was $17.0 million versus $3.4 million in the same period of 2004. Net margin was $35.7 million versus $6.0 million in the 2004 fourth quarter. The increase is primarily attributable to the acquisition of the natural gas liquids assets.

Pipelines and Storage
The pipelines and storage segment reported operating income of $84.6 million in 2005, compared with $59.8 million in 2004. Net margin increased to $171.6 million, compared with $126.5 million in 2004.

The margin increase was primarily the result of the newly acquired natural gas liquids gathering and distribution pipelines, which contributed $26.4 million in additional net margin. Natural gas transportation services net margin increased $20.5 million due to higher natural gas transportation volumes related to more favorable weather conditions, higher commodity prices and improved fuel position. Increased storage activities also added $5.8 million in net margin, primarily due to renegotiated contracts and wider seasonal natural gas price spreads, which benefited the company’s short-term storage business.

These net margin gains were reduced by $5.8 million related to lower net margins on natural gas inventory sales, when compared with 2004.

Operating costs increased $13.9 million to $63.3 million in 2005, which included $11.5 million related to the acquisition of the natural gas liquids assets and the balance associated with higher regulatory compliance and employee-related costs. Depreciation, depletion and amortization expense increased $6.4 million in the year, primarily related to operating the newly acquired NGL pipelines.

Also affecting 2005 performance is the $2.6 million impairment, recorded in the fourth quarter, related to one of the company’s gas gathering system partnerships that may terminate in early 2006.

Fourth-quarter 2005 operating income was $31.7 million, compared with $23.4 million in the same period a year earlier. Net margin was $59.4 million versus $41.1 million in the same period in 2004. The increase is primarily related to the newly acquired natural gas liquids gathering and distribution pipelines and increases in natural gas transportation services net margin due to higher transportation volumes related to more favorable weather conditions, higher commodity prices and improved fuel position.

Energy Services
The energy services segment posted operating income of $178.9 million, compared with $139.2 million in 2004. Net margin increased to $219.5 million from $174.0 million in 2004.

Net margin increases included: $38.4 million in transportation margins, net of hedges, due to improved natural gas basis differentials, primarily in the fourth quarter; a $22.6 million increase in wholesale physical marketing margins related to favorable natural gas price volatility, primarily in the fourth quarter; and a $6.8 million increase in power margins due to improved Electric Reliability Council of Texas (ERCOT) market heat rates caused by an increase in cooling-degree days.  These margin increases were partially offset by an $18.4 million decrease in the natural gas fixed-price portfolio. Financial trading margins were $13.4 million in 2005.

Operating costs for the year increased to $38.6 million, compared with $33.3 million in 2004, primarily due to higher employee-related and litigation costs.

On Dec. 31, 2005, natural gas in storage was 62.1 Bcf, compared with 70.6 Bcf a year earlier. Natural gas storage capacity under lease was 86 Bcf on Dec. 31, 2005, compared with 84 Bcf a year earlier.

Fourth-quarter operating income was $68.0 million versus $59.0 million in the same quarter 2004. Net margin was $78.9 million, compared with $68.1 million in the 2004 fourth quarter. Increases were primarily related to improved transportation margins caused by higher natural gas basis differentials and improved wholesale physical marketing margins related to favorable natural gas price volatility. Financial trading margins were $2.0 million in the fourth quarter 2005, compared with $4.6 million in the fourth quarter 2004.

The net margin for the energy services segment was derived from the following sources:

Distribution
The distribution segment reported 2005 operating income of $113.9 million, compared with a $110.2 million last year. Net margin was $587.7 million versus $557.3 million in the same period a year earlier.

Net margin improvements were the result of implementation of new rates in Oklahoma on July 28, 2005, which contributed $28.2 million; $2.3 million from increased wholesale transactions in Kansas; and a $4.9 million increase in property tax recoveries in Kansas, which is offset in amortization expense. Margin increases were offset by a $5.2 million decrease in customer sales volumes due to warmer weather.

Operating costs increased $18.7 million, primarily as a result of $12.5 million in higher labor and employee benefit costs, and other operating costs.

Depreciation, depletion and amortization expense increased due to a $2.9 million charge to replace a field customer service system in Texas, $3.5 million in depreciation expense related to property additions and a $4.9 million increase in amortization related to property tax recovery in Kansas, which is offset by increased revenues. These operating expense increases were partially offset by a $3.2 million decrease in pension expense amortization in Oklahoma.

Fourth-quarter operating income was $53.1 million, compared with $44.8 million in 2004. Net margin was $174.9 million versus $161.7 million in the fourth quarter 2004. The increase is primarily attributable to the new rates in Oklahoma, partially offset by higher employee benefit costs.

EARNINGS CONFERENCE CALL
A conference call will be held on February 23, 2006, at 11 a.m. Eastern Standard Time (10 a.m. Central Standard Time). To participate in the call, dial 888-675-7686, pass code 837815, or log on to the ONEOK Web site at www.oneok.com.

If you are unable to participate in the conference call or the webcast, the replay will be archived and available on the company’s Web site for 30 days. A recording will be available by phone for seven days. The playback may be accessed at 866-219-1444, pass code 837815.

ONEOK, Inc. (NYSE: OKE) is a diversified energy company. We are among the largest natural gas distributors in the United States, serving more than 2 million customers in Oklahoma, Kansas and Texas. We are a leader in the gathering, processing, storage and transportation of natural gas in the mid-continent region of the U.S. and own one of the nation’s premier natural gas liquids (NGL) systems, connecting much of the NGL supply in the mid-continent with two key market centers. Our energy services operation focuses primarily on marketing natural gas and related services throughout the U.S. ONEOK is the majority general partner of Northern Border Partners, L.P. (NYSE:NBP), one of the largest publicly traded limited partnerships. ONEOK is a Fortune 500 company.

Some of the statements contained and incorporated in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Acts of 1995. The forward-looking statements relate to: anticipated financial performance, including anticipated operating income from the businesses we acquired on July 1, 2005, from Koch Industries, Inc. and affiliates; management’s plans and objectives for future operations; business prospects; outcome of regulatory and legal proceedings; market conditions and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements in certain circumstances.